OBLIGATIONS REVIEWER

TITLE I. – OBLIGATIONS Natural Obligation Moral Obligation

Voluntary fulfillment of Voluntary fulfillment of
CHAPTER 1: natural obligations by the moral obligations, on the
GENERAL PROVISIONS obligor produces legal other hand, does not
effects which the courts will produce any legal effect
Art. 1156. An obligation is a juridical necessity recognize and protect which courts will recognize
to give, to do or not to do. and protect

Manresa: A legal relation established between one person D.U: There is NO juridical tie for natural obligations
and another, whereby the latter is bound to the fulfillment - Natural: There is a civil obligation NOT to do
of a prestation which the former may demand of him. - Natural: Arts. 1424-30
- Moral: Remains a moral obligation in case of
KINDS
Civil Obligation Natural Obligation
voluntary fulfillment
Definition
- Civil obligations give a - Natural obligations, not Requisites of a Voluntary Fulfillment (Tolentino):
right of action to being based on positive 1. Payment or fulfilment of the obligation is based on
compel their perfor- law but on equity and the debtor’s own volition and that he was not forced
natural law, do not grant
mance (Art. 1423). or intimidated.
a right of action to
enforce their perfor-
- One which has a mance by the obligor, 2. Debtor must have knowledge that he has performed
binding force in law, they authorize the an obligation not enforceable in Courts of Law.
and which gives to the retention of what has
obligee or creditor the been delivered or
rendered by reason Requisites of an Obligation:
right of enforcing it
thereof (Art. 1423)
against the obligor or 1. A juridical or legal tie, which binds the parties to
debtor in a court of - One which cannot be the obligation, and which may arise from either
justice. enforced by action, but bilateral or unilateral acts of persons (efficient
which is binding on the
party who makes it in
cause).
conscience and accor- 2. An active subject known as the obligee or creditor,
ding to the natural law. who can demand the fulfillment of the obligation;
Effect of Prescription 3. A passive subject known as the obligor or debtor,
A civil obligation is A natural obligation still against whom the obligation is juridically
extinguished subsists
demandable; and
Basis
4. The fact, prestation or service which constitutes the
Positive Law Equity and natural law
object of the obligation (subject matter of the
Enforceability in Courts obligation).
Enforceable in courts of Not
justice General rule: The form in which the obligation is
manifested cannot be considered as essential.
The definition of an obligation in Art. 1156 does not cover
the two kinds of obligations. An obligation according to
Art. 1156 is a juridical necessity, only Civil Obligations Art. 1157. Obligations arise from:
has juridical necessity. (1) Law;
Natural Moral (2) Contracts;
Civil Obligation (3) Quasi-contracts;
Obligation Obligation
Based on Natural Law (4) Acts or omissions punished by law; and
Presence of a
(5) Quasi-delicts
Positive Law Absence of a Positive Law

**Please exercise caution when using this reviewer. References: Dean Ulan’s lectures, Jurado, Ulan Notes
1Q | Obligations & Contracts | AY 2019-2020 | 1
 Art. 1106. By prescription, one acquires ownership CONTRACTS
and other real rights through the lapse of time in the manner and
conditions laid down by law. Art. 1159. Obligations arising from contracts have
In the same way, rights and actions are lost by the force of law between the contracting parties and should be
prescription. complied with in good faith.

Art. 1305. A contract is a meeting of minds between

two persons whereby one binds himself, with the respect to the
PRESCRIPTION other, to give something or to render some service.
Law 10 years
Art. 1306: Contracting parties may establish such
Contracts: stipulations, clauses, terms and conditions as they may
1. Written 10 years deem convenient, provided they are not contrary to:
2. Oral 6 years
6 years 1. Law
Acts or omissions 4 years 2. Morals
Quasi-Delicts 4 years 3. Good customs
4. Public order, or
5. Public policy.
 There can be an obligation without a contract, but
LAW there can be no contract without a resultant obligation.
Art. 1158. Obligations derived from law are not
Essential Requisites:
presumed. Only those expressly determined in this Code or in
special laws are demandable, and shall be regulated by the Art. 1318. There is no contract unless the following
precepts of the law which establishes them; and as to what has requisites concur:
not been foreseen, by the provisions of this Book. (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
Unlike other obligations, those derived from law can contract;
never be presumed. It must be noted that in the birth or (3) Cause of the obligation which is established.
generation of an obligation, there is always a concurrence
between the law which establishes or recognizes it and an 1. Consent
act or condition upon which the obligation is based or - As a rule, contracts are perfected by mere consent
predicated. - From that moment the parties are bound to the
fulfillment of what has been expressly stipulated
Manresa (Source of Obligation): and to all of the consequences which according to
When the law establishes the obligation and the their nature may be in keeping with good faith,
act or condition upon which it is based is usage and law.
Law
nothing more than a factor for determining the Consent is manifested by the meeting of the offer and the
moment when it becomes demandable acceptance upon the thing and the cause which are to
When the law merely recognizes or constitute the contract. The offer must be certain and the
acknowledges the existence of an obligation acceptance absolute. A qualified acceptance constitutes a
generated by an act which may constitute a counter-offer. (Art. 1319).
Act
contract, quasi-contract, criminal offense or
quasi-delict and its only purpose is to regulate  Consent cannot be given by:
such obligation. 1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who
do not know how to write. (Art. 1327)

An agreement is an informal arrangement between two

or more parties that is not enforceable by law.

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 2. Object of Contracts 3 GENERAL CONCEPTS:
1. Art. 2144: Negotiorum Gestio (Officious
Art. 1347. All things which are not outside the
Management)
commerce of men, including future things, may be the object of
contracts. The juridical relation which arises whenever a person
No contract may be entered into upon future voluntarily takes charge of the agency or management of
inheritance except in cases expressly authorized by law. the business or property of another, without any power or
authority from the latter, as a consequence of which, he is
All services, which are not contrary to law, morals,
obliged to continue the same until the termination of the
good customs, public order, or public policy may likewise be
affair and its incidents, or to require the person concerned
the object of a contract.
to substitute him, if the owner is in a position to do so.
3. Cause of contracts (Art. 2144).
Art. 1350. In onerous contract the cause is understood Requisites (Jurado):
to be, for each contracting party, the prestation or promise of a
thing or service by the other; in remuneratory ones, the service (1) The gestor must voluntarily assume the agency or
or benefit which is remunerated; and in contracts of pure management of the business or property of another.
beneficence, the mere liberality if the benefactor. (2) The business or property must be either neglected
or abandoned
(3) The agency or management must not be authorized
QUASI-CONTRACT by the owner either expressly or impliedly
(4) The assumption of the agency or management must
Art. 1160. Obligations derived from quasi-contracts
shall be subject to the provisions of Chapter 1, Title XVII, of be made in good faith.
this Book.

To avoid situations where a person is unjustly enriched at This juridical relation does not arise in either of these
the expense of another. instances:

- This is not an exclusive enumeration. (1) When the property or business is not neglected or
abandoned;
Art. 2142. Certain lawful, voluntary and unilateral (2) If in fact the manager has been tacitly authorized by
acts give rise to the juridical relation of quasi-contract to the end
the owner.
that no one shall be unjustly enriched or benefited at the expense
of another. Requisites of Negotiorum Gestio (Dean Ulan):
1. There is a property or business
Quasi-contract: Juridical relations arising from lawful,
2. It is abandoned or neglected (damaged, in the brink
voluntary and unilateral acts, by virtue of which the
of loss)
parties become bound to each other, based on the principle
3. There is taking over of the management and/or
that no one shall be unjustly enriched or benefited at the
administration of this property or business which is
expense of another
abandoned or neglected
4. There is no authority, whether tacit or expressly,
extended to the person who took over the
Quasi-Contract Contract
management and/or administration
Lawful acts
Voluntary acts 5. The taking over must have been voluntary
Created by law to avoid Created by the meeting of
unjust enrichment minds of two or more Two aspects of voluntariness:
persons a. The person did it on his own, without being
Unilateral Acts Bilateral Acts forced, intimidated; no violence was applied
No meeting of minds Meeting of minds is required

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 b. There has to be knowledge that the person taking Example: There is a fish pond with bangus. The residents
over the management/business that he is (including owner) left Marawi. X took care of the fish,
principally doing it for the benefit of the owner sold them. Owner returned.
- This is negotiorum gestio
Example: House is abandoned, someone takes care of it
for the owner.
 Can the owner demand income and accounting of
Look for the requisites of the obligation: expenses incurred? Yes!
 Can the gestor (X) demand reimbursement and
1. Juridical tie (negotiorum gestio, quasi-contract) compensation? Yes!
2. Identify the active & passive party; the prestation
Art. 2153. Management is extinguished:
(1) When the owner repudiates it or puts an end
Buyer and Seller: Who are the active and passive thereto;
subjects? (2) When the officious manager withdraws from the
- Identify first the prestations management, subject to the provisions of Articles 2144;
 Two separate prestations: To give and To give (3) By the death, civil interdiction, insanity or
insolvency of the owner of the officious manager
- Determine the object of each of these prestations
 If the object of the prestation considers the Example
purchase price, the buyer is debtor, the seller is Two contiguous agricultural properties, located in the
creditor province, belong to X and Y. Both had no interest in
 If the object of the prestation is to give the thing farming and did not come back to the property for 50
sold, the other way around years. In the year of their retirement, X went back first
Negotiorum gestio is a reciprocal obligation commenced work on the abandoned property. He could
- 2 prestations: To do and To give not determine the boundary line of the property, so he also
worked on the property of Y. Y returned, he was happy to
1) To Do: The gestor is expected to care with the see his property. X realized that he also worked on Y’s
diligence of the good father or a family until the property. X asked for reimbursement/compensation. Y
management is completed or terminated refuses. Is there a cause of action?
 Creditor: Owner/Beneficiary - There is a property; which is abandoned; there was
 Debtor: Officious Manager/Gestor taking-over; there is no authority which is
- As long as the relationship or juridical tie tacit/express; voluntary
exists, the gestor cannot withdraw or get out of
the responsibility of managing. Voluntary?
- If he withdraws before completion of  No intimidation, coercion, force
incidents/termination, he will be liable for  But, X had no knowledge that it was for the benefit
damages of Y
- Liable for fortuitous events: This is an
The example above is NOT negotiorum gestio. This is
exception to the rule in Art. 1174.
solutio indebiti
 Something was delivered (service, fertilizer, etc.);
2) To Give: Reimbursement of necessary expenses,
Delivered to Y
reasonable compensation for the work
 The recipient-debtor (Y) did not have a right to
 Creditor: Gestor/Officious Manager
receive them
 Debtor: Owner-Beneficiary
 Mistake having been committed that made the
delivery to the debtor recipient

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2. Art. 2154: Solutio Indebiti (Payment not due) - Civil aspect: to repair the damages suffered by the
aggrieved party
Art. 2154. If something is received when there is no
right to demand it, and it was unduly delivered through Prestations for Criminal liability: Not to do; To do; To
mistake, the obligation to return it arises. give
- Not to do: You are prohibited from engaging your
Requisites (Jurado): freedon
(1) There must be payment or delivery made by one - To do: You are not protected by the Constitutional
person to another; provision of involuntary servitude
(2) The recipient-debtor did not have a right to - To give: A fine
receive them;
(3) The payment or delivery was made by reason of Prestations for Civil Liability:
mistake
- To give: indemnification, reiteration, restitution
- The person to whom the delivery is unduly made shall
have the obligation to return the property delivered or Enforcement of Civil Liability
the money paid. Civil action which has been reserved cannot be instituted
Prestation in Solutio Indebiti: To Give (To return what until final judgement has been rendered in the criminal
was unjustly delivered by mistake) action (Sec. 2, Rule 111 of the Revised Rules of Criminal
- Debtor-recipient: To deliver Procedure 2000)

Case: Mellon Bank New York vs. Javier GR: When a criminal action is instituted, the civil
action for the civil liability is also impliedly instituted
3. Other Quasi-Contracts (Support given by strangers; together with the criminal action
Arts. 2164-2175) Exceptions:
- Support from a Third Person (Art. 2165) a. The offended party waives the civil action,
 Expenses incurred for necessities b. Reserves his right to institute it separately, or
 For the burial c. Institutes the civil action prior to the criminal
- Acts of a good Samaritan (Art. 2166) action
- Payment of Taxes by a Third Person
- Acts for the General Welfare - Independent Civil Action: The independent civil
action may be brought by the offended party. It
shall proceed independently of the criminal action
and shall require only a preponderance of evidence.
CRIMINAL OFFENSES 1
(Sec. 3, Rule 111)
Art. 1161. Civil obligations arising from criminal 1. Art. 32
offenses shall be governed by the penal laws, subject to the 2. Art. 33
provisions of Article 2177, and of the pertinent provisions of 3. Art. 34
Chapter 2, Preliminary Title, on Human Relations, and of Title 4. Art. 2176
XVIII of this Book, regulating damages.

Every person criminally liable for a felony is also - A final judgement rendered in a civil action
civilly liable (Art. 100, RPC). absolving the defendant from civil liability is NO
bar to a criminal action
GR: A crime has a dual aspect – the criminal aspect and - A petition for suspension of the criminal action
the civil aspect. based upon the pendency of a prejudicial question
- Criminal aspect: to punish or correct the offender in a civil action may be filed in the office of the

1
Little was actually discussed here

5
 prosecutor or the court conducting the preliminary Civil Obligations – To restitute the thing or property/to
investigation. repair damaged thing or property/ to indemnify damages
to the victim and to his family.
Effect of Acquittal
 If the acquittal is based on the ground that his guilt Restitution – of the thing itself must be made whenever
has not been proved beyond reasonable doubt, a possible even when found in the possession of a third
civil action to recover damages based on the same act person except when acquired by such person in any
manner and under the requirements which by law, bar an
or omission may still be instituted (Art. 29, NCC).
action for its recovery. (Art. 105, RPC)
 If the acquittal proceeds from a declaration in a final Reparation – the Court shall determine the amount of
judgement that the fact from which the civil liability damage, taking into consideration the price of the thing,
might arise did not exist, the subsequent institution of and its special sentimental value to the injured party. (Art.
106, RPC)
a civil action to recover damages is, as a general rule,
no longer possible. Indemnification – includes not only those caused to the
injured party but also those suffered by his family or by a
third person by reason of the crime. (Art. 107, RPC)
Effect of Independent Civil Actions
GR: The civil action to recover damages from the person
criminally liable is not independent from the criminal
action.
QUASI-DELICTS
Exceptions:
Art. 1162. Obligations derived from quasi-delicts
1. The civil action is based on an obligation not arising
shall be governed by the provisions of Chapter 2, Title XVII of
from the act or omission complained of as a criminal
the Book, and by special laws.
offense or felony
- The basis of the civil action may be an obligation Art. 2176. Whoever by act or omission causes damage
arising from the law, contract, quasi-contract, or to another, there being fault or negligence, is obliged to pay for
quasi-delict. the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a
2. The law grants to the injured party the right to
quasi-delict and is governed by the provisions of this Chapter.
institute a civil action which is entirely separate and
distinct from the criminal action. Quasi-delicts: Refers to all of those obligations which do
not arise from law, contracts, quasi-contracts, or criminal
Exceptions in addition to Art. 31 of the NCC:
offenses.
(1) Interferences by public officers or by private
- The fault or negligence of a person, who, by his act
individuals with civil rights and liberties
or omission, connected or unconnected with, but
(2) Defamation
independent from, any contractual relation, causes
(3) Fraud
damage to another person.
(4) Physical injuries
(5) Refusal or neglect of a city or municipal police The injured party can always institute a civil action to
officer to render aid or protection in case of danger recover damages independently of the criminal action and
to life or property regardless of the result of the latter.
Dual Character of Crimes: Persons Liable
a. Offense against the State
1. The father and, in case of his death or incapacity, the
b. Offense against the private person
mother with respect to damages caused by the minor
Criminal Obligation – To pay fine or serve children who live in their company
imprisonment or other sanctions

6
 2. Guardians, with respect to damages caused by the Fault or negligence is proved Guilt must be proved beyond
minors or incapacitated persons who are under their by preponderance of reasonable doubt.
evidence.
authority and who live in their company
3. The owners and managers of an establishment or
enterprise, with respect to damages caused by their
employees in the service of the branches in which the
latter are employed or on the occasion of their
functions
4. Employers with respect to damages caused by their
employees and household helpers acting within the
scope of their assigned tasks, even though the former
are not engaged in any business or industry
5. The State, when it acts through a special agent; but
not when the damage has been caused by the official
to whom the task done properly pertains
6. Teachers or heads of establishments of arts and
trades, with respect to damages caused by their
pupils and students or apprentices, so long as they
remain in their custody

Scope:
Quasi-delicts include acts, whether punishable by law or
not punishable by law, whether criminal in character,
whether intentional or voluntary or negligent, which
result in damage to another.

Elements to make a person liable for a Quasi-Delict

a. There is an act or omission;

b. Such act or omission causes damage or injury;
c. There is no contributory negligence on the party
of the injured party;
d. The act or omission is the proximate cause of the
damage or injury to the injured party;
e. There is no pre-existing contract between the
parties.

Quasi-Delict Delict
There is only negligence. There is criminal or
malicious intent or
negligence
The purpose is The purpose is punishment.
indemnification.
Affects private interest. Affects public interest.
Civil Liability Criminal and Civil Liability
Liability can be compromise Criminal liability cannot be
compromised or settled by
the parties themselves

7
 CHAPTER 2: As to the duties of the debtor
NATURE AND EFFECT OF OBLIGATIONS 1. To deliver the thing 1. To deliver a thing which
which he has obligated must be neither of
Types of Obligations Based on Prestations: himself to give superior nor inferior
quality (Art. 1246)
Prestations: To give, To do, Not to do 2. To take care of the thing
with the proper 2. To be liable for damages
REAL Obligations: To give diligence of a good in case of breach of the
 Based on the nature of the thing on how it is father of a family. (Art. obligation by reason of
constituted on the prestation to give 1163) delay, fraud, negligence
 Object of the prestation: Subject of what is to be or contravention of the
3. To deliver all accessions tenor thereof (Art. 1170)
delivered and accessories (Art.
1166)
PERSONAL Obligation: To do and Not to do
 Personal Positive: Obligation with a prestation “to 4. To pay damages in case
do” of breach of the
 Personal Negative: Obligation with a prestation obligation (Art. 1170)
“not to do”
As to the effect of acceptance of the substitution
Such acceptance shall give to the delivery or substitution the
same effect as a fulfilment or performance of the obligation.
Art. 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence of a good
As to the obligation demanded
father of a family, unless the law or the stipulation of the parties
The creditor cannot demand
requires another standard of care. a thing of the best quality,
neither can the debtor deliver
Obligation to Give – An obligation to give a thing may
The debtor cannot fulfil his a thing of the worst quality
be determinate or generic. It is determined by how it is obligation by delivering a
constituted. thing which is different from If there is disagreement
that which is due between the parties, the law
CLASSIFICATION OF THINGS steps in and declares whether
Determinate Indeterminate the obligation has been
or Specific or Generic complied with
As to the definition
The object is “particularly When the object is As to the effect of fortuitous events
designated or physically designated merely by its The obligor or debtor cannot The debtor can still be held
segregated from all others of class or genus without any be held liable for damages liable for damages (Art.
the same class” (Art. 1460). particular designation or (Art. 1174). 1263)
physical segregation from all Only a determinate thing or
The object is a concrete, others of the same class. The object can be destroyed by General: An indeterminate
particularized thing, object is one whose fortuitous events. thing can never perish
indicated by its own determination is confined to
individuality that of its nature
1. Determinate
As to the rights of the creditor
Art. 1244. The debtor of a thing cannot compel the
1. To ask for performance creditor to receive a different one, although the latter may be of
1. To compel specific of the obligation (Art. the same values as, or more valuable than that which is due.
performance (Art. 1165, 1246) In obligations to do or not to do, an act or forbearance
par. 1; Art.1244, par. 1) 2. To ask that the cannot be substituted by another act or forbearance against the
obligation be complied
obligee’s will.
2. To recover damages in with at the expense of
case of breach of the debtor (Art. 1165,  Obligation to give a specific thing: The debtor cannot
obligation (Art. 1170) par. 2)
3. To recover damages for
fulfill his obligation by delivering a thing which is
breach of the obligation different from that which is due

8
 Obligation to do or not to do, and the object is an act 2. Indeterminate or Generic
or forbearance which is specific: The obligor cannot The object is one whose determination is confined to
fulfill his obligation by substituting another act or that of its nature
forbearance.  General: It does not perish
 Exception: When the object is lost
 In both cases, if the creditor accepts the delivery of (1) It perishes
the thing of a different value or the substitution of the (2) The whereabouts of the thing cannot be
act or forbearance, it will extinguish the obligation determined, or it cannot be recovered
(3) It goes out of commerce of men
Art. 1458. By the contract of sale, one of the Rule in Art. 1246:
contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay Art. 1246. When the obligation consists in the delivery
therefor a price certain in money or its equivalent. of an indeterminate or generic thing, whose quality and
A contract of sale may be absolute or conditional circumstances have not been stated, the creditor cannot demand
Art. 1459. The thing must be licit and the vendor must a thing of superior quality. Neither can the debtor deliver a thing
have a right to transfer the ownership thereof at the time it is of inferior quality. The purpose of the obligation and other
delivered. circumstances shall be taken into consideration.
Art. 1460. A thing is determinate when it is
particularly designated or physically segregated from all others
- If there is no precise declaration with regard to the
of the same class. quality and circumstances of the indeterminate thing,
The requisite that a thing be determinate is satisfied if the creditor cannot demand a thing of the best quality,
at the time the contract is entered into, the things is capable of neither can the debtor deliver a thing of the worst
being made determinate without the necessity of a new or quality.
further agreement between the parties. - If the creditor accepts something of less amount or
Art. 1461. Things having a potential existence may be quality, the creditor must not bind himself to Art.
the object of the contract of sale. 1235. He must reserve his right to run after the
The efficacy of the sale of a mere hope or expectancy balance
is deemed subject to the condition that the thing will come into
- If there is disagreement between the parties, the law
existence.
The sale of a vain hope or expectancy is void.
steps in and declares whether the obligation has been
complied with.
 The transmission of the ownership of a thing to the
creditor as an accepted equivalent of performance. 3. Limited Generic (Tolentino)
When the generic objects are confined in a particular
 If the creditor and the debtor enter into an agreement class
by virtue of which a certain property is alienated by Example:
the debtor to the creditor as the equivalent of the
performance of the obligation, the law on sales shall - 5 horses. The first died, the 2nd (lover of the first), saw
govern the first dead, kicked the stable, all horses died.
- This is not generic. This is LIMITED GENERIC
Art. 1235. When the obligee accepts the performance,
SPECIFIC GENERIC LIMITED
knowing its incompleteness or irregularity, and without
GENERIC
expressing any protest or objection, the obligation is deemed
Principal Art. 1246
fully complied with. Obligation Art. 1244 -2 Ways
Art. 1244
-To give -To give
- If the creditor accepts payment of less amount, the
creditor must raise an objection and reserve the right Supplemental Art. 1163
to the payment of balance Obligation To do (caring
N/A Art. 1163
- Justification of Art. 1235 for the thing)
 Art. 1431: Doctrine of Estoppel

9
 Fruits, Arts. 1164, N/A N/A Art. 1475. The contract of sale is perfected at the
Accessories 1166 moment there is a meeting of the minds upon the thing which is
To give the object of the contract and upon the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law
governing the form of contracts.
Types of Diligence/ Standards of Care
1. Diligence of a Good Father of a Family
(DOAGFOAF) – Standard of care of a prudent person Art. 1166. The obligation to give a determinate thing
over a thing he owns includes that of delivering all its accessions and accessories,
GR: DOAGFOAF, unless another standard of even though they may not have been mentioned.
care is required, either by law or by stipulation of Art. 1537. The vendor is bound to deliver the thing
the parties sold and its accessions and accessories in the condition in which
they were upon the perfection of the contract.
2. Simple Diligence All the fruits of shall pertain to the vendee from the
3. Utmost/Extraordinary Diligence day on which the contract was perfected.
- Ex: Common Carriers
Accessions – signifies all the things which are produced
 Art. 1173. Negligent if you did not exercise the
by the thing which is the object if the obligation as well
diligence required by law
as all of those which are naturally or artificially attached
 Art. 1170. There will be damages
thereto.
 Art. 1163. You cannot waive application of this article Kinds of Accession (Art. 441-475):
Art. 1164. The creditor has a right to the fruits of the Natural: The spontaneous products of the soil, and the
thing from the time the obligation to deliver it arises. However, young and other products of animals
he shall acquire no real right over it until the same has been
delivered to him. 2
Industrial: Those produced by lands of any kind
 Before the delivery of the thing and the fruits, the through cultivation or labor
creditor has merely a personal right against the debtor
to ask for the delivery of the thing and the fruits. Civil fruits: The rents of the buildings, the price of
leases of lands and other property and the amount of
 Once the things and the fruits are delivered, then he perpetual or life annuities of other similar income
acquires a real right over them. Obligations arising from Contracts:
Source of Obligation Obligation to Deliver General: Due & demandable upon meeting of the
The obligation to deliver arises from minds
Law, Quasi-Contracts, the time designated by the
Criminal Offenses, provisions of the NCC or of special Exceptions:
and Quasi-Delicts laws creating or regulating them. - Suspensive Term
- Suspensive Condition
The obligation to deliver arises from
the moment of the perfection of the Obligations of the vendor:
Contracts contract
Unless there is a stipulation to the Art. 1495. The vendor is bound to transfer the
contrary ownership of and deliver, as well as warrant the thing which
is the object of the sale.
Art. 1496. The ownership of the thing sold is
acquired by the vendee from the moment it is delivered to
him in any of the ways specified in Articles 1497 to 1501, or
in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.

2
1475, 1537,1495-97, 1501

10
Delivery of the Thing Sold CULPA CONTRACTUAL
Art. 1170. Those who in the performance of their
Art. 1497. The thing sold shall be understood as obligations are guilty of fraud, negligence, or delay, and those
delivered when it is placed in the control and possession of the who in any manner contravene the tenor thereof, are liable for
vendee. damages. 4
Art. 1501. With respect to incorporeal property, the Art. 1171. Responsibility arising from fraud is
provisions of the first paragraph of Art. 1498 shall govern. In demandable in all obligations. Any waiver of an action for
any other case wherein said provisions are not applicable, the future fraud is void.
placing of the titles of ownership in the possession of the vendee
or the use by the vendee of his rights, with the vendor’s consent, Art. 1172. Responsibility arising from negligence in
shall be understood as delivery. the performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according to
Art. 1165. When what is to be delivered is a the circumstances.
determinate thing, the creditor, in addition, to the right granted
him by Article 1170, may compel the debtor to make the Art. 1173. The fault or negligence of the obligor
delivery. consists in the omission of that diligence which is required by
If the thing is indeterminate or generic, he may ask that the nature of the obligation and corresponds with the
the obligation be complied with at the expense of the debtor. circumstances of the persons, of the time and of the place. When
If the obligor delays, or has promised to deliver the negligence shows bad faith, the provisions of Articles 1171 and
same thing to two or more persons who do not have the same 2201, paragraph 2, shall apply.
interest he shall be responsible for any fortuitous event until he
has effected the delivery. 3 If the law or contract does not state the diligence which
is to be observed in the performance, that which is expected of
Art. 1167. If a person obliged to do something fails to a good father of a family shall be required
do it, the same shall be executed at his cost.
The same rule shall be observed if he does it in Acts or omissions of the obligor which will result in
contravention of the tenor of the obligation. Furthermore, it may breach of obligation:
be decreed that what has been poorly done be undone.
1. Default or mora
Art. 1168. When the obligation consists in not doing, - Signifies the idea of delay in the fulfilment of an
and the obligor does what has been forbidden him, it shall also obligation. It is the non-fulfilment of an
be undone at his expense obligation with respect to time
Art. 1169. Those obliged to deliver or to do something Three Kinds of Mora or Default:
incur in delay from the time the obligee judicially or
(1) Mora solvendi or the delay of the obligor or
extrajudicially demands from them the fulfillment of their
debtor to perform his obligation
obligation.
However, the demand by the creditor shall not be a. Mora solvendi ex re – obligation to give
necessary in order that delay may exist: b. Mora solvendi ex persona – obligation to do
(1) When the obligation or the law expressly so
declares; or (2) Mora accipiendi or the delay of the obligee or
(2) When from the nature and the circumstances creditor to accept the delivery of the thing which
of the obligation it appears that the designation of the time is the object of the obligation
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of (3) Compensatio morae or the delay of the parties or
the contract; or
obligors in reciprocal obligations.
(3) When demand would be useless, as when the
- GR: Demand is not necessary
obligor has rendered it beyond his power to perform.
- Exception: When the dates for performance
In reciprocal obligations, neither party incurs in delay are fixed, par.1 of Art. 1169 governs (See
if the other does not comply or is not ready to comply in a proper Solar Harvest Inc. vs Davao Corrugated
manner with what is incumbent upon him. From the moment Carton Corp.)
one of the parties fulfills his obligation, delay by the other
begins.

3
1167, 1168 4
1171, 1172, 1173, 2176

11
 When is demand not necessary in order that delay incident in the performance
may exist? of an obligation
a. When the law so provides; As to Source of Liability
The defendant’s negligent
b. When there is express stipulation to that The breach of contract
act or omission itself
effect; As to Proof
c. When time is of the essence of the contract Proof of the contract and of
The negligence of the
(or when the fixing of the time was the its breach is sufficient prima
defendant must be proved
controlling motive); facie to warrant recovery
- Case: Barzaga vs CA As to Liability of the Employer
The liability of employers is It is based on the principle
d. When demand would be useless, as when the
based on the principle that that the negligence of the
obligor has rendered it beyond his power to the negligence of the employee is prima facie
perform (Art. 1169, par. 2) employee is conclusively presumed to be the
presumed to be the negligence of the employer.
2. Fraud or Dolo negligence of the employer
- The conscious and intentional proposition to As to Proof of Diligence
Proof of diligence in the
evade the normal fulfilment of an obligation
selection and supervision of
It is available as a defence
the employees is not
3. Negligence or Culpa (Art. 1173) available as a defense
- Consists in the omission of that diligence which
is required by the nature of the obligation and
Art. 1174. Except in cases expressly specified by the
corresponds with the circumstances of the law, or when it is otherwise declared by stipulation, or when the
persons, of the time, and the place. nature of the obligation requires the assumption of risk, no
- Negligence shows bad faith: Did the defendant person shall be responsible for those events which, could not be
use reasonable care and caution which an foreseen, or which, though foreseen, were inevitable. 5
ordinarily prudent person would have used?
FORTUITOUS EVENT – An event which cannot be
Art. 1171: Responsibility arising from fraud is foreseen, or which though foreseen, is inevitable.
demandable in all obligations. Any waiver of an action for
future fraud is void Two Types: 1) Unforeseen
Art. 2201, par. 2: … the obligor shall be responsible 2) Though foreseen, were inevitable
for all damages which may be reasonably attributed to the
non-performance of the obligation  Force majeure – applicable to fortuitous events
which are dependent upon human intervention

- If the law does not specify the diligence which is Elements:

to be observed in the performance, that which is 1) That the event must be independent of the will of the
expected of a good father of a family shall be obligor;
required (Art. 1173) 2) That the event must be either unforeseeable or
inevitable;
3) That the event must be of such a character as to render
4. Contravention of the tenor of the obligation it impossible for the obligor to fulfil his obligation in
a normal manner.
Culpa contractual Culpa aquiliana 4) That the obligor must be free from any participation
(Arts. 1170-73) (Art. 2176)
in the aggravation of the injury resulting to the
As to Contractual Relation
Pre-existing contractual obligee or creditor.
None
relation
As to Negligence of the Defendant
The negligence of the It is substantive and Specific Object – If the obligor is unable to comply with
defendant is merely an independent his obligation by reason of a fortuitous event,

5
1165 par3, 552, par2, 1268, 1942, 2147, 2148, 2159

12
- General rule: He is exempted from any liability If a loan is executed orally, with an interest, the
whatsoever. His obligation is extinguished principal obligation may be enforced, BUT NOT the
interest.
- Exceptions:
(1) Where such liability is expressly specified by the Article 1176 Article 1235
Disputable presumption Conclusive presumption
law
Basis: Estoppel (Art. 1431)
-Art. 552
In the absence of proof The creditor cannot run
-Art. 1165, par. 3
that installments are still after the balance if he
-Art. 1268 outstanding, the accepted it when it was
-Art. 1942 presumption is in favor of still incomplete
-Art. 1979 the debtor
-Art. 2147, 2148
-Art. 2159 Art. 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their claims, may
(2) Where such liability is declared by stipulation of exercise all the rights and bring all the actions of the latter for
the parties the same purpose, save those which are inherent in his person;
(3) Where the nature of the agreement requires the they may also impugn the acts which the debtor may have done
assumption of risk. to defraud them

Generic – Where the obligation consists of the delivery Remedies available to the creditor to protect his rights
of generic or indeterminate things, the fact that the obligor against the debtor:
was unable to comply with his obligation by reason of a 1. To exhaust the property in possession of the debtor.
fortuitous event will not constitute a valid defense. - Relate to Art 2236. See also Art. 1255

2. To be subrogated to all of the rights and actions of the

Art. 1175. Usurious transactions shall be governed by debtor save those which are inherent in his person
special laws. (Accion subrogatoria).
- The creditor can proceed against third persons
Usury
- Contracting for or receiving something in excess of
3. To impugn all of the acts which the debtor may have
the amount allowed by law for the loan or forbearance
done to defraud him (Accion pauliana).
of money, goods or chattels. It is the taking of more
- Refers to the right available to the creditor by
interest for the use of money, goods or chattels or
virtue of which he can secure the rescission of any
credit than the law allows
act of the debtor which is in fraud and to the
prejudice of his rights as a creditor
Art. 1176. The receipt of the principal by the creditor, - The debtor may alienate property to third persons
without reservation with respect to the interest, shall give rise
to the presumption that said interest has been paid.
Art. 1178. Subject to the laws, all rights acquired in
The receipt of a later installment of a debt without virtue of an obligation are transmissible, if there has been no
reservation as to prior installments, shall likewise raise the stipulation to the contrary.
presumption that such installments have been paid. 6
General Rule: Rights may be alienated or assigned to a
Presupposes compliance with Art. 1956: No interest shall third person
be due unless it has been expressly stipulated in writing.
Exceptions:
- There is a form: Must be expressed and in writing 1. Where they are not transmissible by their very
- It must be complied with, otherwise, Art. 1176, par. nature
1 cannot be enforced

6
1235 (p. 248), 1956

13
2. Where there is a stipulation of the parties that
they are not transmissible
3. Where they are not transmissible by operation of
law

14
 CHAPTER 3: - A distinction must be made between the immediate
DIFFERENT KINDS OF OBLIGATIONS demandability of the obligation and its performance
or fulfillment by the obligor or debtor.
OBLIGATION BASED ON  Although the obligee or creditor can demand the
As to Event
performance of the obligation immediately, the
Pure Subject to a future event
quality of immediate demandability is not
Conditional that the obligation is
attached to infringed or violated when a reasonable period is
Term (With a Period)
granted for performance
As to Prestation
Alternative Number of prestations;
Ordinarily there is only  The more complicated/difficult the prestation to
Facultative one but here, there is be fulfilled, the longer the time that should be
Facultative two or more. given to the debtor to fulfil the same
As to the Relationship of the Parties
Joint Number of parties Ex: Two pure obligations: (a) I promise to deliver a
involved in the car; (b) I promise to deliver 10 units of this car.
Solidary obligation  Debtor is expected to fulfil the 1st obligation in a
shorter period than the debtor in the 2nd
As to Divisibility obligation. The 2nd obligation is harder to fulfil.
Divisible Susceptible of partial
Indivisible fulfilment or not
Obligations that are immediately demandable:
Particular penalty for the
1) Art. 1179 (1) – Pure Obligations
breach of obligation; if
With a Penal Clause 2) Art. 1179 (2) – Obligation w/ a resolutory condition
not done, then the penalty
is laid down 3) Art. 1183 (2) – Obligation with a condition not to do
an impossible thing

SECTION 1. – PURE AND CONDITIONAL Ex: I will give you P50,000 if you jump over the
OBLIGATIONS (ARTS. 1179-1198) moon.

PURE OBLIGATION 4) Art. 1193 (2) – Obligation with a Resolutory Period

Art. 1179. Every obligation whose performance does

not depend upon a future or uncertain event, or upon a past What is being referred to in “past event” is still a future
event unknown to the parties, is demandable at once. event
Ex 1: Dean Ulan will give P10,000 if Dr. Jose Rizal
Every obligation which contains a resolutory condition
went back to the Catholic Church before he was
shall also be demandable, without prejudice to the effects of the
happening of the event.
executed
 The obligation to give P10k is dependent upon the
- One whose effectivity or extinguishment does not happening of a past event. But, it is also referring
depend upon the fulfilment or non-fulfillment of a to a future event
condition or upon the expiration of a term or period  The event that gives rise to the obligation to give
- Most important characteristic: It is immediately P10k is not the actual moment of Rizal going
demandable back. Rather, it is the event of me finding out if
 The moment the obligation is constituted, the Rizal went back to the Church before execution.
creditor may immediately compel the debtor to Investigate if the event really occurred.
fulfil the obligation  This is still a FUTURE EVENT that is uncertain.
 Not taken literally as something to be It is a CONDITION
immediately fulfilled  If from my findings, Rizal did not go back to the
 The debtor should be given a reasonable period Church, the event is not fulfilled.
to fulfil the obligation  The obligation of giving P10k will not be created

15
 Can an uncertain but past event be considered a
Ex 2: I will give you P10k if on Sept. 21, 1972, condition?
Marcos declared martial law.  Proof or ascertainment of the fact or event may
 The obligation is dependent on the event of constitute either a condition or a term.
finding out whether Martial Law was declared on
Sept. 21, 1972 Term / Period Condition
 It is a matter of time to get the documents/ Both refer to future events. It cannot refer to past events
evidence of the events in Sept. 21, 1972. It is the interval of time It is an event which is
 This is a CERTAIN future event. It is a PERIOD which future and certain to future and uncertain to
happen happen
Necessarily comes, although The condition may or may
Art. 1180. When the debtor binds himself to pay when it may not be known when. not happen
his means permit him to do so, the obligation shall be deemed The obligation does not exist
to be one with a period, subject to the provisions of Article Obligation exists already at upon its constitution, but
1197. the moment of its rather is conceived on the
The courts shall determine the period as may under the constitution fulfillment of the future
circumstances probably contemplated by the parties. event or condition
Once fixed by the courts, the period cannot be changed The future event is used to
Influences the time of the
determine the constitution of
demandability or
Example: the obligation, or when the
extinguishment of an
A poor man promises to give P10 Million when his means juridical tie is established.
obligation. Enforcement is at
permit him to do so. Influences the very existence
the arrival of the period
of the obligation itself
- Is the obligation subject to a suspensive future event? Does not have a retroactive
 YES! The future event is when he acquires the effect unless otherwise Has retroactive effects
means to give P10 M provided
When it is left exclusively When it is left to the
- Is the future event a condition or a term? upon the will of the debtor, exclusive will of the debtor,
 Future event with a suspensive TERM/PERIOD the existence of the the very existence of the
obligation is not affected
obligation is affected
- The creditor can ask the courts to have a period fixed Ex. Ex.
(see judicial period in Art. 1197) 1. Death of man. 1. Winning a case
 Only instance when, although the future event is 2. Arrival of a particular day 2. Adjudication of a Property
uncertain, it is referred to as a period

Suspensive Term/Period Suspensive Condition

CONDITIONAL OBLIGATION Obligation with a future Obligation with a future
event that is certain. We event that is uncertain.
Art. 1181. In conditional obligations, the acquisition refer to it as the date of the
of rights, as well as the extinguishment or loss of those already enforcement/fulfillment
acquired, shall depend upon the happening of the event which The obligation is established The obligation is conceived
constitutes the condition. at the moment upon legally at the moment of the
agreement of parties. The fulfilment of the obligation
When its effectivity is subordinated to the fulfilment or obligation itself creates the
non-fulfillment of a future and uncertain fact or event. juridical tie
- There is a future event that determines its Juridical tie is created on the Juridical tie does not exist
enforceability or when it comes into existence constitution of the yet on the constitution of the
obligation; creditor can obligation. It exists when the
Condition: enforce it only at the arrival condition is fulfilled
 A future and uncertain event upon which an of the period
The creditor, at the moment
obligation is subordinated or made to depend The creditor already has a
it is constituted, does not
personal right pending the
have a personal right that he
fulfillment of the obligation
could assert against the

16
 debtor pending the a. A condition whose fulfillment dependent upon
fulfillment of the condition the will of the creditor
(See Art. 1188)
Ex. Dean will give me P50k Ex. Dean Ulan will give me
on December 25, 2020 P50k, if I will pass his course b. Condition whose fulfillment is dependent upon
Ex: Dean will deliver a the will of the debtor
Ex. Dean will give me a specific car when I pass his General Rule: The condition is void. It prevents
specific car on May 15, course. If dean gives away
2020. I already have a the establishment of the obligation itself
the car prior to fulfillment of
personal right. If Dean gives the obligation, I do not have
the car to another party, who a right to run after the car. Reason: The obligation has a condition which is
is in bad faith, I have a right illusory (kalokohan). A condition the fulfillment
to run after Dean (lol)
of which is dependent solely upon the will of the
Resolutory Term and Resolutory Condition debtor, and to which will give rise to the
The fulfillment of the condition and arrival of the term obligation, no debtor would want to fulfill it
extinguishes the obligation.
Ex. I will give you P50,000 if I decide to sing a
Resolutory Term/Period Resolutory Condition
song
Obligation is immediately A future and uncertain event
demandable, although it is upon the fulfillment of Exceptions:
terminated upon the arrival which rights are already
of a day certain (Art. 1193, acquired by virtue of the (1) Art. 1182 does not apply to RESOLUTORY
par. 2) obligation are extinguished
or lost. (Art. 1179, par. 2) CONDITIONS, although it is solely
Arrival of the period will The fulfillment of the dependent on the will of the debtor
extinguish the obligation condition will extinguish the
obligation Art. 1182 refers to suspensive conditions that
Ex. A grants B the use and Ex. A grants B the use of his
enjoyment of his house for house until he finishes
is solely dependent upon the will of the debtor.
10 years. studying law. But, if the condition is resolutory, the debtor
Ex. Dean will allow the use Ex. Dean will allow the use would be interested in the fulfillment of the
of his condo unit until Dec. of his condo unit until I pass condition for its extinguishment
25, 2020. I immediately have his course. As creditor, I may
the right to use the condo already insist on using the
until Dec. 25, 2020. condo unit. I may continue Ex. I will give you P50,000 a day until I sing a
using it until fulfillment of song
condition upon passing of
the course
(2) There is a PRE-EXISTING OBLIGATION.
When the condition is merely to determine the
TYPES OF CONDITIONS moment of enforceability of the obligation
A. BASED ON THE CAUSE OR HOW THEY ARE
Ex. I borrowed P50,000 from Dean Ulan, and
TO HAPPEN
he allows me to pay him back when I decide
Art. 1182. When the fulfilment of the condition to sing a song.
depends upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or upon the
Another instance of the fixing of a judicial
will of a third person, the obligation shall take effect in
conformity with the provisions of this Code.
period. The creditor can ask the court to have
a period fixed (Art. 1197)

1. Potestative Condition
Fulfillment solely depends upon the will of one of the
parties

17
 Art. 1186. The condition shall be deemed fulfilled
Pure Potestative The condition is fulfilled by mere when the obligor voluntarily prevents its fulfillment.
Condition (Art. manifestation of the will by the debtor
1182 applies) Constructive Fulfillment of a Condition
- VOID Ex. I will give you P50k if I decide to
Requisites of Art. 1186:
sing a song
1. That a debtor intentionally prevents the condition
Simple Potestative
If the condition is not dependent
2. That his reason was to avoid the obligation
Condition (This is
solely upon the will of the debtor
3. That he actually does prevent the condition from
a mixed condition.
because there needs to be another being fulfilled
It is a valid
conditional happening to complete the fulfillment Why is the pure potestative obligation void?
obligation) of a condition - It is illusory. No debtor would be willing to fulfill a
condition that will give rise to their obligation.
Ex. I will give you P50k if I sell my
house Why does the Civil Code not consider a mixed condition
as void?
This could be pure or simple Ex. Dean Ulan will give you P500,00 if Dean Delson
agrees to sing with Ulan.
Pure - the condition is fulfilled I am
- If Dean Delson sings a song, but Dean Ulan
now willing to sell my house. Not
intentionally prevents his own singing of a song,
needed to actually sell the house
then, Art. 1186 applies. The decision of Dean
Simple – if the condition depends on Delson alone without Dean Ulan is sufficient
the willingness to sell the house and already to make the obligation enforceable.
actual sale of it. The third person is the - The condition is deemed fulfilled. The portion
one who will buy the house dependent upon Dean Ulan’s will is considered to
be fulfilled constructively because of his
Ex ample: I will give you P100,000 if I will sell my house. intentional preventing of the condition to be
I did sell the house. fulfilled.
- Can you enforce the obligation? - BUT, if Dean Ulan did not sing because he was
unable to do so because there were circumstances
Case 1: Catungal vs Rodriguez
that prevented him from singing, Art. 1186 does
There is a road beside the property owned by X. Behind
not apply
the property of X is the property of S. The property of S
was sold to B. B had no right of way to the street. In order
2. Casual Condition
to go to the street, he has to go through the property of X
Its fulfilment depends:
(easement of right of way). B said that he will partially
a. Upon chance; or
pay S first, then fully pay when X agrees to and B makes Ex: Dean will give P50,000 if he wins in the
a right of way. Philippine Charity Sweepstake Lotto
- There is a condition that B made in regard to payment
of the balance to S. The condition is that B is able to b. Upon the will of a third person; or
agree with X in putting up the right of way. Ex: Dean Ulan will give P10,000 if Dean Delson
- Is the condition pure potestative or simple decides to sing a song
potestative? It is a mixed or simple potestative
condition c. Partly upon the will of a third party and partly
- The conditional obligation is valid. upon chance
Ex: Dean Ulan will give P100,000 if Dean Delson
decides to sing a song, and if Dean Ulan wins in
the lotto

18
3. Mixed Condition Example. Dean Ulan will give you this house and lot if
Mixing the potestative and casual conditions. you get married to Mr. Y before the end of 2020.
Fulfillment of the condition: - The obligation to give the house and lot will only be
(1) Partially depends upon the will of one of the enforceable at the moment of the fulfilment of the
parties and partially upon a third person/chance, or obligation before the end of 2020.
Ex: Dean Ulan will give P50,000 if Dean Delson
and Dean Ulan will sing a song - If you want to secure your inchoate right when the
 The condition is fulfilled by the will of Dean condition is fulfilled, have the agreement annotated in
Delson wanting to sing a song together with the title of the house and lot. This can be done by
Dean Ulan. Dean Ulan will also have to virtue of Art. 1188
willingly sing a song
When will Dean be obligated to deliver the house and lot?
 As soon as the obligation is fulfilled within 2020
(2) Partially upon the will of one of the parties, will of
a third person, and of chance. When can Dean ask for the removal of the annotation on
Ex: Dean Ulan will give P100,000 if he and Dean the title of the house and lot?
Delson sing a song and if Dean Ulan wins in a lotto  If at the end of 2020, I did not get married to Y.
 Condition is fulfilled by the will of Dean By Jan. 2021, Dean can ask for removal of the
Ulan (debtor), the will of Dean Delson (third annotation
person), and the happening of winning in the  If it is indubitable to fulfill the condition of
lotto (chance) getting married to Y. If Y dies before the end of
2020, Dean can ask for the removal of the
B. BASED ON THE MANNER OF THE annotation
HAPPENING/ HOW ARE THEY TO BE
FULFILLED 2. Negative Condition (Art. 1185)
It involves the non-performance of an act or non-
Art. 1184. The condition that some event happen at a fulfillment of an event.
determinate time shall extinguish the obligation as soon as
- Ex. I will give P50k if you will not get married
the time expires or if it has become indubitable that the
event will not take place. Example. Dean will give the house and lot if you do not
Art. 1185. The condition that some event will not
get married to Y within 2020.
happen at a determinate time shall render the obligation
effective from the moment the time indicated has elapsed,
- The condition is fulfilled by abstaining from getting
or if it has become evident that the event cannot occur. married within the period
If no time has been fixed, the conditions shall be
deemed fulfilled at such time as may have probably been
Two instances that the creditor can enforce the obligation
contemplated, bearing in mind the nature of the obligation. on the debtor:

(1) If by the end of 2020, you did not get married to Y

(2) If Y dies within 2020, the obligation can be
1. Positive Condition (Art. 1184) enforced before the end of 2020.
Involves the performance of an act or the fulfillment
of an event. There is the doing of an act which fulfills Does the debtor incur in delay with a negative condition?
the condition  YES.
- As soon as the condition is fulfilled (not getting
- Ex. I will give you P50,000 if you get married married), the obligation becomes due and
demandable.
- If the debtor does not fulfill, there is delay

19
C. BASED ON WHETHER THEY ARE VALID OR (3) Remunerative Donations/ Donations in effect
INVALID - If the donation is subject to a condition, and the
condition is impossible, the donation is still valid
1. Legal/ Licit - It is not subject to impossible condition
- It is the event or condition that is possible to fulfill
and the fulfillment of which is not contrary to law,
2nd par. of Art. 1183: The condition not to do an
morals, public policy, public order, good morals
impossible thing
2. Illegal/ Illicit
- Impossible physically to fulfill, or - The obligation is immediately demandable
- The fulfillment may be possible but doing so is
contrary to law, public morals, public policy, D. BASED ON EFFECT ON THE OBLIGATION
public order 1. Suspensive Condition
2. Resolutory Condition
Ex: I will give you P50,000 if you kill X
Suspensive Condition Resolutory Condition
Art. 1183. Impossible conditions, those contrary to As to fulfillment
good customs or public policy and those prohibited by law shall If fulfilled, the obligation If fulfilled, the obligation
annul the obligation which depends upon them. If the obligation arises or becomes is extinguished.
is divisible, that part of thereof which is not affected by the effective
impossible or unlawful condition shall be valid. As to non-fulfillment
No juridical relation is The juridical relation is
The condition not to do an impossible thing shall be created consolidated
considered as not having been agreed upon.
As to rights
General Rule: Impossible conditions shall be void Rights are not yet Rights are already
acquired, but there is hope acquired, but subject to
Exception: or expectancy that they extinction
(1) Divisible obligation will be acquired
- If the impossible condition is attached to a part of
a divisible obligation, the part which is not
Case 2: Central Philippine University vs Court of Appeals
affected will remain in force
A property was donated to the university subject to the
Ex. Dean will give P50,000 if I kill this man, and
condition it shall be used for educational purposes.
give his house and lot if I get married to X
- What is the nature of the condition? Was it
 The killing of the person is attached only to
suspensive or resolutory?
the obligation to give P50k
- Determine when the transfer of the ownership took
place. Did it take place the moment the donation
(2) Pre-existing Obligation
was constituted or should it take place when the
- If the obligation is pre-existing, the impossible
condition is fulfilled?
condition would not affect the validity and
- Ruling: The ownership of the property was
enforceability
transferred at the moment of the constitution of the
donation and did not need to wait for fulfillment of
Ex. I borrowed P50,000 and would pay back the
the condition
P50,000 to Dean Ulan when a crow becomes
- It is not suspensive, but a resolutory condition,
white.
because the university cannot improve the property
 The white crow will not affect the existence
unless the ownership is transferred. The University
of the pre-existing obligation
need to own it first before it can improve on the
property.

20
- If the university fails to put up educational facilities, EFFECT IF THE CONDITION IS NOT FULFILLED
the donor has the right to rescind the donation.
- If the condition is not fulfilled, there is no obligation
that legally came into existence
- There is no cause of action that may arise between the
CLASSIFICATION OF CONDITIONS parties
As to fulfilment
Suspensive The fulfilment of the condition General Rule: In obligations subject to a suspensive
results in the acquisition of rights condition, the obligation does not legally exist
arising out of the obligation pending fulfillment of condition.
Resolutory The fulfilment of the condition
results in the extinguishment of Exception: The condition was not fulfilled but the
rights arising out of the obligation creditor has the option either:
 To disregard totally the obligation, or
As to the Will of the Parties
 To still have it enforced, waving the condition
Potestative Fulfilment solely depends upon the
(Art. 1182) will of one of the parties to the
obligation Art. 1545 (Law on Sales)
Casual Fulfilment depends upon chance - In a contract of sale subject to a condition, even if the
(Art. 1182) and/or upon the will of a third person condition is not yet fulfilled, there is a legal tie that
exists between the buyer and seller.
Mixed Fulfillment depends partly upon
- It allows either to proceed with the sale (waving the
(Hermosa vs. chance and/or the will of a third
condition) or not to proceed with the sale
Longara) person
- “…such party (1) may refuse to proceed with the
As to Realization contract, or (2) he may waive performance of the
Possible Capable of realization according to condition”
nature, law, public policy, or good
customs Example. Dean sold a house and lot to be paid on 2 equal
Impossible NOT capable of realization monthly installments. One of the conditions imposed was
that you constitute a mortgage to secure payment for the
(Art. 1183) according to nature, law, public
house and lot
policy, or good customs
- If the condition of constituting a mortgage was not
As to Performance of the Act fulfilled, Art. 1545 applies
Positive Involves the performance of an act - Dean can discontinue on the sale or proceed with the
(Art. 1184) sale but wave his right to insist on the fulfillment of
Negative Involves the non-performance of an the condition of putting up a mortgage.
(Art. 1185) act
Condition Imposed on the Condition Imposed on the
As to Partial Realization Perfection of the Contract Performance of an
Divisible The condition is susceptible to Obligation
partial realization If the condition is not The contract already exists.
fulfilled no contract was Fulfillment of the condition
Indivisible The condition is not susceptible to
established, no juridical tie, is only to determine when
partial realization no obligation whatsoever the obligation is to be
As to the Amount of Conditions enforced
Conjunctive There are several conditions (all There is failure for the Failure to fulfill the
parties to be bound by a condition would not deny or
must be realized) juridical tie prevent the existence of a
Alternative There are several conditions (one contract
must be realized)
As to Expression Case: Gonzales vs Lim
Express Condition is stated expressly Illustration for condition imposed on the performance of
an obligation arising from the contract
Implied Condition is tacit

21
Retroactive Effect and Unilateral Obligation Unilateral obligation is involved
Art. 1187. The effects of a conditional obligation to Ex.: What if Dean Ulan rented out the house and received
give, once the condition has been fulfilled shall retroact to the income before you or Y fulfilled the condition. Who has
day of the constitution of the obligation. Nevertheless, when the the right to the income received after the constitution of
obligation imposes reciprocal prestations upon the parties, the the obligation but before the fulfillment of the obligation?
fruits and interests during the pendency of the condition shall
be deemed to have been mutually compensated. If the - Dean Ulan still has a right to the fruits.
obligation is unilateral, the debtor shall appropriate the fruits - The fruits will be appropriated by the creditor only
and interests received, unless from the nature and circumstances when the obligation to deliver arises.
of the obligation it should be inferred that the intention of the
person constituting the same was different.

In obligations to do and not to do, the courts shall Art. 1188. The creditor may, before the fulfillment of
determine, in each case, the retroactive effect of the condition the condition, bring the appropriate actions for the preservation
that has been complied with. of his right.

The law recognizes the creditor’s right as soon as the The debtor may recover what during the same time he
condition is fulfilled, at the moment when the obligation has paid by mistake in case of a suspensive condition.
is constituted.
First Paragraph
- We consider the date of constitution of the obligations
- The creditor has an inchoate right – a right that is not
as basis for the better right.
yet ripe for enforcement.
Retroactive effect for purposes of determining who - The personal right of the creditor is established at the
has the better right moment of the fulfillment of the condition

Example. Ex. Dean promises to give a house and lot if you get
Dean Ulan entered into an agreement with you on March married in 2020
4, 2020 to give a house and lot if you get married. On
March 7, Dean Ulan entered into the same agreement with - You may secure your right by annotating the
Y and the same house and lot was promised when Y gets agreement in the title of the house and lot. If Dean
married. Both of you and Y are in good faith (Y is gives away the house and lot to another, the third
unaware of Dean’s previous agreement). Mr. Y got party would not be considered in good faith as he is
married on March 15 and you got married on March 20. made aware of the prior arrangement.
Who has a better right between the two of you? Who
actually acquired the personal right over the house and Second Paragraph
lot?
- Basis: Solutio indebiti
- This is where Art. 1187 makes a difference.
 It would be YOU who had a better right over Art. 1189. When the conditions have been imposed
Y. The right as established by the fulfillment with the intention of suspending the efficacy of the
obligation to give, the following rules shall be observed in
of the condition retroacts to the date of the
case of the improvement, loss or deterioration of the thing
constitution of the obligation. during the pendency of the condition:
 You acquired the right. Your March 20 If the thing is lost without the fault of the debtor, the
condition retroacts to March 4. While, the obligation shall be extinguished;
fulfillment of the condition of Y retroacts
only to March 7. (1) If the thing is lost without the fault of the
debtor, the obligation shall be extinguished;
- Assuming you did not secure your inchoate right (2) If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it is
under Art. 1188, you have no right
understood that the thing is lost when it perishes, or goes

22
 out of commerce, or disappears in such a way that its As for obligations to do and not to do, the
existence is unknown or it cannot be recovered; provisions of the second paragraph of article 1187 shall be
(3) When the thing deteriorates without the observed as regards the effect of the extinguishment of the
obligation
fault of the debtor, the impairment is to be borne by the
creditor;
(4) If it deteriorates through the fault of the First Paragraph
debtor, the creditor may choose between the rescission of
the obligation and its fulfilment, with indemnity for - A description on the effect of resolutory conditions
damages in either case;  The debtor is the person obliged to return the
(5) If the thing is improved by its nature, or by object of the obligation in case of fulfilment of the
time, the improvement shall inure to the benefit of the obligation
creditor;  The creditor is the person to whom the thing or
(6) If it is improved at the expense of the object must be returned
debtor, he shall have no other right than that granted to
the usufructuary. Second Paragraph
- Reiterates the rules in Art. 1189
Requisites of Art. 1189
- Provisions applicable to the debtor in Art. 1189 shall
1. This applies only to obligations to deliver, to give
be applicable to the creditor
2. The thing to be delivered must be specific
- Because the thing that was delivered already, subject
3. The obligation to give this specific thing is subject
to a resolutory condition, is presumed to be in the
to a suspensive condition or suspensive term (in
possession of the creditor.
rel. to Art. 1194)
4. That during the pendency of the condition or
arrival of the term but after the constitution of the Art. 1191. The power to rescind obligations is implied
obligation, the thing is either lost, or deteriorates, in reciprocal obligations, in case one of the obligors should not
or improves comply with what is incumbent upon him
The injured party may choose between the fulfilment
When is a thing LOST (Art. 1189 (2)) and the rescission of the obligation, with the payment of
1. When it perishes damages in either case. He may also seek rescission, even after
2. When it goes out of commerce he has chosen fulfilment, if the latter should become
3. When it disappears in such a way that its existence impossible.
is unknown or cannot be recovered The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
Deterioration of third persons who have acquired the thing, in accordance
- If with the fault of the debtor, the creditor may choose with Articles 1385 and 1388 and the Mortgage Law.
between (in both cases with indemnity for damages) TACIT RESOLUTORY CONDITION
 Bringing an action for rescission of the There is a tacit resolutory condition is when the party to a
obligation reciprocal obligation is given the power to cancel/rescind
 Bringing an action for specific performance if the other is unable to fulfill the condition incumbent
upon him.

RESOLUTORY CONDITIONS First paragraph

- Applies initially to reciprocal obligations
Art. 1190. When the conditions have for their
purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall return Ex. Contract of sale: S sold a car to B for P500,000
to each other what they have received.
In case of the loss, deterioration or improvement of  Obligation of S: To deliver the car
the thing, the provisions which, with respect to the debtor,  Obligation of B: To give the payment
are laid down in the preceding article shall be applied to the
party who is bound to return.

23
  If B is unable to pay, it has a resolutory effect on Ex. Dean sells a house and lot and you are to
the obligation of S. S will no longer have the pay it in installments. Both of you expressly
obligation to deliver the car agree that if you fail to pay for the installments,
Dean has a right to automatically cancel the
- If the buyer does not pay, the seller should not give contract of sale.
the car. The tacit resolutory condition releases the
seller from fulfilling his obligation because of the (2) In cases when neither of the parties has
failure of the buyer to pay fulfilled, partially or totally, their respective
obligations
Why is it tacit resolutory condition?
Ex. In the sale of a car, the car is still with the
 Tacit – it is implied in all reciprocal obligations
seller and the buyer has not yet paid any
 Resolutory – The fulfillment of the condition
amount. The buyer is unable or unwilling to
extinguishes the obligation of the other party.
pay.
What is the condition here?
 The condition that one is unable to fulfill the But, if the buyer paid some installments and
obligation incumbent upon him in the reciprocal could not continue at some point, the seller
obligation cannot have extra-judicial rescission of the
contract.

The injured party may choose between the fulfillment and Is the court obliged to grant the rescission?
the rescission of the obligation, with the payment of  It is the discretion of the court
damages in either case. He may also seek rescission, even  The court cannot be compelled to order
after he has chosen fulfillment, if the latter should become rescission if from its own assessment there are
impossible. other valid grounds to declare other reliefs aside
from resolving the contract
 The court can compel the parties to proceed with
Rules in the application of Art. 1191 the obligations. It can fix a period for the party
1. Can the creditor extrajudicially rescind or cancel who failed to fulfill his obligation
the obligation without court order?  There must be substantial breach for rescission
 The use of the term rescission is inappropriate.
At the moment it means resolution, to cancel, to Art. 1191 does not apply to the ff:
end. 1. Contracts of Lease and Contracts of Partnership
General Rule (par. 3, Art. 1191): The party entitled In contracts of lease: Art. 1659 applies. Courts do not
to rescind must invoke judicial aid by filling the have discretionary powers.
proper action for rescission - Read: Sy vs Andok’s Litson Corporation

Exceptions: In contracts of partnership: Art. 1191 does not apply

Extra-judicial rescissions may be effected: where a partner has failed to pay the full amount
where he has bound to contribute to the common fund
(1) If the right is expressly provided for in the
(Law on Partnership, Arts. 1786, 1788)
obligation.
2. Sales of Real or Personal Property by installments
- Where the contract itself contains a resolutory
The first is governed by the Recto Law (Arts. 1484-
provision by virtue of which the obligation may be
1486)
cancelled or extinguished in case of breach, judicial
The second is governed by the Maceda Law (RA
permission to rescind the contract is no longer
6552)
necessary.
- The right to rescind is “implied” only if not expressly
3. Action for rescission is not required upon breach of
granted.
compromise agreement (Art. 2041)

24
 It confers upon the party concerned the authority to SECTION 2. – OBLIGATIONS WITH A PERIOD
regard it as rescinded and insist upon the original (ARTS. 1193 - 1198)
demand
Period
- Event that is certain to happen; those whose
Art. 1192. In case both parties have committed a demandability or extinguishment are subject to the
breach of the obligation, the liability of the first infractor shall expiration of a term or period
be equitably tempered by the courts. If it cannot be determined - An interval of time, which either suspends the
which of the parties first violated the contract, the same shall be obligation’s demandability or produces its
deemed extinguished, and each shall bear his own damages.
extinguishment

Art. 1193. Obligations for whose fulfillment a day

certain has been fixed, shall be demandable only when that day
comes.
Obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come
or not, the obligation is conditional, and it shall be regulated by
the rules of the preceding Section.
Art. 1194. In case of loss, deterioration or
improvement of the thing before the arrival of the day certain,
the rules in Article 1189 shall be observed.
Art. 1195. Anything paid or delivered before the
arrival of the period, the obligor being unaware of the period or
believing that the obligation has become due and demandable,
may be recovered, with fruits and interest.

- The debtor can recover what he paid to the creditor

when it is not due and demandable, as well as the
fruits and interests
- Before arrival of the period or fulfillment of the
condition, if the thing produces fruits, it is for the right
of the debtor
- The creditor is entitled only to the fruits when the
obligation to deliver arises, and not necessarily when
the obligation was constituted

Art. 1196. Whenever in an obligation a period is

designated, it is presumed to have been established for the
benefit of both the creditor and the debtor, unless from the tenor
of the same or other circumstances it should appear that the
period has been established in favor of one or of the other.

Presumption to whose benefit a period is fixed:

GR: A period is for the benefit of both the CREDITOR
and the DEBTOR
- The creditor cannot demand payment or fulfillment
before arrival of the period

25
- The debtor cannot compel acceptance of payment or - Before the creditor can file an action for performance,
fulfillment before arrival of the period he needs to ask the court to fix a period
- Once determined, it becomes final and the creditor
Ex: Dean owes you P500,000 payable on June 30,
must wait until expiration of the period
2020
- As creditor, you cannot compel Dean Ulan to pay General Rule: The courts cannot intervene and determine
the P500,000 before June 30. Dean Ulan cannot the period for the parties
obligate you to accept the payment before June
Exceptions: When courts can fix the duration of a term:
30, 2020.
(Art. 1197)
Exceptions:
1. If the obligation does not fix a period but from the
1. When it is provided that it is only for the benefit of
nature and circumstances it can be inferred that a
the debtor, or
period was intended by the parties
- The debtor cannot be compelled by the
2. If the duration of the period depends upon the will
creditor to pay before arrival of the period
of the debtor
- The debtor can compel the creditor to accept
even before arrival of the period (Art. 1180)
3. If the debtor binds himself to pay when his means
2. For the benefit of the creditor (implied or expressed) permit him to do so
Example: Application of 1197:
1. The creditor needs to file a petition to have the
Obligation 1: The debtor will pay the creditor the
period fixed
amount of P1 Million on June 30, 2020.
2. Once fixed, the creditor will wait for expiration of
- The period is fixed both for the creditor and
the period
debtor. Neither can compel each other
Can the creditor petition the court both to have the period
Obligation 2: The debtor will pay the creditor on or
fixed and thereafter also enforce it upon expiration?
before June 30, 2020.
- It is implied that the period is fixed solely for the General Rule: The petition for the fixing of a period is
benefit of the debtor separate from the petition for specific performance.
- The creditor cannot obligate payment before June
30, but the debtor may already compel the Exception: If the separate action for fulfillment would
creditor to accept payment before June 30, 2020. merely be a formality as no additional proofs or evidence
other than those already admitted facts presented during
the petition for the fixing of the period will be presented
Art. 1197. If the obligation does not fix a period, but - No other proofs or facts necessary to enforce the
from its nature and the circumstances it can be inferred that a obligation upon expiration.
period was intended, the courts may fix the duration thereof. - All was already presented for the petition of the
The courts shall also fix the duration of the period fixing of the judicial period
when it depends upon the will of the debtor. - The action for the petition for the fixing the period
may include the action for specific performance
In every case, the courts shall determine such period upon arrival of the period or term
as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
 An action to ask the court to fix a period is a right,
period cannot be changed by them.
it subject to a prescriptive period
JUDICIAL PERIOD Case: Gonzales vs. Jose
Once fixed by the courts, the period cannot be changed by - Within 10 years from execution or perfection of
the creditor and debtor the contract that did not expressly or clearly state
the period,
- The creditor cannot demand fulfillment because the - Although:
obligation is not yet due.  the parties intended a period, or

26
  the duration of the period depends upon the (3) When by his own acts he has impaired said
will of the debtor, or guaranties or securities after their establishment,
 the debtor binds himself when his means and when through a fortuitous event they
permit him to do so disappear, unless he immediately gives new ones
equally satisfactory
 Prescription of an action to enforce performance of
Jurado: The debtor loses his right to the benefit of
the obligation is different
the period:
- It is reckoned from the date when the obligation
 If the guaranty or security is impaired through the
becomes demandable, not from the date of the
fault of the debtor
constitution/execution of the contract
 If the guaranty or security disappeared through
Ex: The parties entered into a contract on May 15, 2019 any cause
and intended to fix a date but failed to expressly provide  However, the debtor shall not lose his right to the
for the same. benefit of the period if he gives a new guaranty or
- The action to have a court fix a period reckoned from security
May 15, 2019. Assuming the court fixed the period
Dean Ulan: Two circumstances
for one year, the obligation becomes due on May 16,
First, there is a collateral that is impaired or
2020. The action for performance reckoned from
deteriorated
May 16, 2020.
 Because of the debtor’s negligence (due to
Art. 1198. The debtor shall lose every right to make his fault), the collateral is impaired or
use of the period: deteriorates
Second, the collateral that is totally lost
(1) When after the obligation has been contracted, he
 The creditor can disregard the period
becomes insolvent, unless he gives a guaranty or security for
 Regardless of whether due to the debtor’s
the debt;
(2) When he does not furnish to the creditor the fault or fortuitous event
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said - The debtor may insist on the period if he offers
guaranties or securities after their establishment, and when another collateral that is acceptable to the creditor
through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the
consideration of which the creditor agreed to the period; period
(5) When the debtor attempts to abscond.
- There is an agreement or stipulation without which
The creditor may disregard the period and may enforce the creditor would not have agreed to a period
the obligation against the debtor even before the period - It is a violation of the stipulation important for the
arrives. creditor to agree

(1) Insolvency Ex: The creditor extends a loan of P1,000,000 to the

- Debtor’s liabilities > Assets debtor. The debtor wants a two-year period to pay. But,
- The debtor can prevent enforcement by presenting a the creditor agreed only if the debtor does not leave the
collateral (guaranty or surety) for the debt country within the two-year period.
- There should be an agreement as to the collateral. If - If the debtor violates it, the creditor can disregard the
the creditor agrees, the creditor cannot proceed with period
the enforcement pending arrival of the period
(5) Debtor attempts to abscond
(2) The debtor does not furnish the guaranties or - If the debtor tries to leave or tries to avoid the
sureties creditor.
- The debtor did not fulfill his promise to put up the
collateral Ex: You executed a contract of loan with a bank. You
- The creditor can disregard the period changed residence without informing the bank

27
 - The bank cannot reach you. It may consider you to SECTION 3. – ALTERNATIVE OBLIGATIONS
have absconded (ARTS. 1199 - 1206)
- It can now enforce the loan against you
Based on the Number of Prestations that the Debtor
Cases: Needs to Fulfill (Dean Ulan)
In rel to 1545: 1. Simple Obligations – There is one prestation that the
Gonzales vs Lim, 528 SCRA 507 debtor needs to fulfill
- Ex: Dean Ulan will give you money
1182 (Potestative):
Osmeña vs Rama, 43 Phil 873 (Compare with)
2. Complex or Cumulative Obligations - Several
Trillana vs Quezon College, 93 Phil 383
prestations that the debtor needs to fulfill
Mixed Conditions - Relate to divisible and indivisible obligations
Hermosa vs Longara 93 Phil 971 - Ex: Dean Ulan will give you a house and lot; he
Naga Telephone Company vs Court of Appeals and will work for you; he will give you a car
CASURECO, 230 SCRA 351 - Dean Ulan has to fulfill all to release him from
the juridical tie
1186 (Doctrine of Constructive Fulfillment):
International Hotel Corporation vs Joaquin, Jr., 695 3. Alternative Obligations – There are several
SCRA 382 (Constructive fulfillment of a conditional prestations which are due, but the payment or
obligation distinguished from the constructive performance of one would be sufficient
fulfillment of a mixed conditional obligation) - The debtor can fulfill, one, or two, or three, but
In rel to 1183 NOT all.
GSIS vs Court of Appeals 542 SCRA 367 - Ex: If there are five prestations, the debtor needs
to fulfill only two
1187 IN REL TO 1544 (EXAM!!)
4. Facultative Obligations – There is one prestation,
1191
but it can be substituted
Calilap – Asmeron vs DBP 661 SCRA 54
- The debtor has a right to substitute the prestation
1197 - Ex: Dean will give you a house and lot. But Dean
Macasaet vs Macasaet 439 SCRA 625 may opt to give you a car instead

Alternative Facultative
Obligations Obligations
As to Object Due

Several objects are due Only one object is due

As to Compliance
May be complied with the May be complied with the
delivery of one of the delivery of another object
objects or by the or the performance of
performance of one of the another prestation in
prestations alternatively substitution of that which
due is due
As to Right of Choice

May pertain to the debtor;

Pertains only to the
even to the creditor or to a
debtor
third person

28
 As to Effect of Fortuitous Event 3. It could not have been the object of the obligation
The loss or impossibility The loss or impossibility - 3 ways for a thing not to be considered the object
of all the objects or of the object or prestation of the obligation.
prestations which are due which is due without any
without any fault of the fault of the debtor is (1) Undertakings that are not included, among
debtor is necessary to sufficient to extinguish others, from those which the obligor may select
extinguish the obligation the obligation
As to Effect of Culpable Loss
(2) Those which are not yet due and demandable at
The culpable loss of any Culpable loss of the object
the time the selection is made
of the objects which are which the debtor may
 The several prestations are subject to
alternatively due before deliver in substitution
the choice is made may before the substitution is conditions or periods
give rise to a liability on effected does not give rise
the part of the debtor to any liability on the part Example: X is obligated to give a dog
of such debtor (March 30), a cat (April 15), a mouse (May
15), a horse (April 30)

ALTERNATIVE OBLIGATIONS  On April 30, the choice of the debtor is

Art. 1199. A person alternatively bound by different limited only to those that are due and
prestations shall completely perform one of them. demandable: the dog, the horse, and the cat,
The creditor cannot be compelled to receive part of one BUT not the mouse
and part of the other undertaking.
(3) Those which, by reason of accident or some
If there are several prestations and the debtor is not
other cause, have acquired a new character
required to fulfill all.
distinct or different from that contemplated by
Art. 1200. The right of choice belongs to the debtor, the parties when the obligation was constituted.
unless it has been expressly granted to the creditor.  The nature of the thing itself changed
The debtor shall have no right to choose those
prestations which are impossible, unlawful or which could not 4. He cannot choose part of one obligation and part of
have been the object of the obligation. another
- 2nd par of Art. 1199:
Right to Choose the Prestation to Fulfill
General Rule: The debtor has the right to choose Example: X is obligated to deliver to Y a dog,
a cat, a mouse, and a horse
- In the absence of any stipulation who has the right to
choose, it will always belong to the debtor Prestations: To give (x4)
Exceptions:  The debtor only has the choice to give
 Can the debtor deliver only part of the
- If expressly granted to the creditor (Art. 1200); or
house and part of the mouse? NO!
- Expressly granted to a third person
Limitations to the debtor’s right to make a choice: - See: Art 1248 (Presumption of indivisibility)
- The debtor has to observe the integrity of the
1. The prestation must not be impossible prestation

2. The prestation must not be unlawful 5. Those which are due and demandable but whose
Example: X is obligated to deliver to Y a dog, a cat, enforcement is dependent on the creditor, as when
a mouse, a horse, and shabu period fixed is solely for the benefit of the creditor
- Remember Art. 1196
- The debtor cannot choose the shabu - The debtor cannot choose a prestation which is
not yet due and demandable, but it may be
enforced by the creditor

29
 Ex: X is obligated to deliver to Y a dog, a cat, a - Once communicated, the alternative obligation turns
mouse, a horse into a simple obligation

- Giving the horse is subject to a suspensive term, - Unless a choice is made and communicated, the
solely constituted for the benefit of the creditor alternative obligation remains unenforceable, it
- The debtor cannot insist on the delivery of the cannot be demanded by the creditor from the debtor
horse before May 15 but the creditor may already  Once a creditor communicates the choice, the
ask if for fulfillment of the obligation by delivery alternative obligation ceases to exist because it is
of the horse before May 15. transformed into a simple obligation
- Before May 15, the debtor can choose only to  Once it becomes simple, the obligation becomes
deliver the dog, cat, or mouse. due and demandable
What is contemplated in the 2nd paragraph of Art. 1200 is Does the debtor incur in delay in alternative obligations?
a case in which the right to choose is not lost or  NO. In an alternative obligation, the debtor does
extinguished all together, because there are still other not incur in delay unless it is transformed into a
objects or prestations from which the debtor can choose simple obligation
or select
Does the choice need to be agreed upon by the debtor and
creditor? Does the debtor need the consent of the
Art. 1201. The choice shall have no effect except from the creditor?
time it has been communicated.  NO. As long as the debtor does not disregard the
limitations
LEGAL EFFECT OF THE CHOICE
The parties are bound by the choice or selection from the What if the debtor does not make a choice or he does not
moment that it has been communicated by the party who communicate it?
has the right to make it to the other party  The creditor cannot insist on fulfillment because
it is not yet due and demandable
What is the legal effect?
 The effect of extinguishing the alternative Does the debtor have a right NOT to choose?
obligation and transforming it into a simple  NO, the debtor does not have the right not to
obligation, and thereafter making it due and make any choice
demandable - The right to choose is really an obligation with
prestation to do.
- The alternative obligation will turn into a simple - If the debtor refuses without justification to fulfill
obligation when a CHOICE is: his right to do, refer to Art. 1167 for the remedy
 MADE and COMMUNICATED. Otherwise, the of the creditor.
obligation will not be due and demandable. - The creditor can ask a third person to make a
choice, or appropriate to himself the right himself
- The party who made the choice communicates it. If
the debtor made the choice, he should communicate it
to the debtor, and vice versa. Art. 1202. The debtor shall lose the right of choice
 If it was delegated to a third person, he has to when among the prestations whereby he is alternatively bound,
delegate it both to the debtor and the creditor. only one is practicable.

Rules in Cases Where There is a Loss of Prestations

- The creditor cannot impugn the choice made by the
- When only one prestation among several can be
debtor. Consent of the creditor or oblige to the choice
performed because all others are impracticable, the
or selection made by the debtor is not necessary
debtor loses his right of choice
before such choice or selection can produce effect.
- It becomes only a simple obligation

30
 Art. 1203. If through the creditor’s acts the debtor If the Right of Choice Belongs to the Debtor
cannot make a choice according to the terms of the obligation, A. The loss is due to a fortuitous event
the latter may rescind the contract with damages. 2 or more remain Obligation still subsists (alternative)
If through the creditor’s fault the debtor loses his right of
choice, the debtor can bring an action to rescind the One remains Simple obligation
contract with damages None remains Obligation is extinguished
- The creditor changed the nature or extent of the
choice of the debtor
B. Loss is due to the fault of the Debtor
Ex: Before the debtor can make the choice, the 2 or more remain Obligation still subsists (alternative)
creditor stepped on the mouse. The debtor cannot One remains Simple obligation to deliver the
remaining object
include the mouse as among the choices. Can the None remains The obligation is converted into an
creditor insist on fulfillment? obligation to indemnify for damages

 The debtor may opt no longer to fulfill and If The Right Of Choice Belongs To The Creditor
rescind the contract (special action for rescission) A. The loss is due to a fortuitous event
 Due to the fault of the creditor, the debtor’s 2 or more remain Obligation still subsists (alternative)
One remains Simple obligation or to indemnify for
choice has been altered. His choice is now limited
damages depending upon the
to three choices from the original four. discretion of the creditor
None remains The obligation is converted into an
obligation to indemnify for damages
Effects of Loss of Objects of Alternative Obligations B. Loss is due to the fault of the Debtor
2 or more remain The creditor can choose from
Art 1204. The creditor shall have a right to
indemnity for damages when, through the fault of the debtor, among those that are still possible
all the things which are alternatively the object of the (the creditor can insist on
obligation have been lost, or the compliance of the obligation damages), or
has become impossible. Choose the prestation that has been
The indemnity shall be fixed taking as a basis the lost, but expect only indemnity
value of the last thing which disappeared, or that of the (value of the thing lost + damages)
service which last became impossible. One remains
Damages other than the value of the last thing or None remains The creditor may claim the value of
service may also be awarded. any of them (the creditor has the right
Art. 1205. When the choice has been expressly to choose), with indemnity for
given to the creditor, the obligation shall cease to be damages
alternative from the day when the selection has been
communicated to the debtor.
Until then the responsibility of the debtor shall be Example: X is obligated to deliver to Y a dog, a cat, a
governed by the following rules:
mouse, and a horse
(1) If one of the things is lost through a
fortuitous event, he shall perform the obligation by 2 scenarios:
delivering that which the creditor should choose from among
the remainder, or that which remains if only one subsists; 2. One, two, or all of the prestations becomes
(2) If the loss of one of the things occurs
impossible to fulfill
through the fault of the debtor, the creditor may claim any of
those subsisting, or the price of that which, through the fault 3. After choice and communications, one, two, three,
of the former, has disappeared, with a right to damages; or all prestations become impossible
(3) If all the things are lost through the fault
of the debtor, the choice by the creditor shall fall upon the What would be the amount of damages that the creditor
price of any one of them, also with indemnity for damages. could claim from the debtor?
The same rules shall be applied to obligations to do  The creditor shall have a right to indemnity for
or not to do in case one, some or all of the prestations should damages based on the value of the last thing
become impossible.
which disappeared or last service which became
impossible

31
What if some prestations were lost either due to fortuitous  The debtor is liable for damages
event or to the fault of the debtor? - Loss or destruction took place before substitution
 The debtor cannot be held liable
 Consider how the last prestation was rendered
impossible
Distinction between an Alternative Obligation and a
- If the last prestation was lost due to fortuitous
Real Obligation to Deliver a Limited Generic
event, the debtor is not liable for damages even if
the other prestations were lost due to his Ex. I will deliver one of my 5 horses (in limited generic).
negligence.
Alternative Obligations Real Obligation to Deliver
The damage sustained is in regard to the change of the a Limited Generic
tenor or the extent of the choice that the creditor could Only one prestation (to
give). But, the thing, which
have enjoyed Involves several distinct
is the object of the prestation
prestations
will be the subject of the
FACULTATIVE OBLIGATIONS
choice
Art 1206. When only one prestation has been agreed The debtor does not incur in The debtor can incur in delay
upon, but the obligor may render another in substitution, the delay
obligation is called facultative. The choice is what prestation The choice involves only the
to fulfill thing of a prestation
The loss or deterioration of the thing intended as a As soon as the choice is The loss of the thing
substitute, through the negligence of the obligor, does not made and communicated, intended to be delivered does
render him liable. But once the substitution has been made, the the loss of the thing not extinguish the obligation
obligor is liable for the loss of the substitute on account of his extinguishes the obligation as it may still be substituted
delay, negligence or fraud. by one of the limited genus.
The choice belongs to the Only the debtor can choose
The debtor is obligated to fulfill a prestation, but he has debtor, but can be delegated what to deliver.
the option to substitute it with another to the creditor and a third
person
- The right of choice belongs exclusively to the
debtor, it cannot be delegated
Rules on Loss or Impossibility of Prestation Before the
Choice has been Communicated
Ex. I will deliver a Porsche, or substitute it with my yacht.
- My obligation is to give the Porsche
 If the Porsche is lost, there is NO facultative
obligation. The obligation is extinguished
 The yacht is not a prestation constituted in the
obligation. It is just a substitute

- If there is a choice made by the debtor to fulfill the

substitute in lieu of the original prestation
 The loss of the substitute will also extinguish
the obligation even if the original prestation
still exists
 It was not the original prestation which became
the object of the obligation
If the substitute is lost or destroyed through the fault of
the debtor
- Loss or destruction took place after substitution

32
 SECTION 4. – JOINT AND SOLIDARY debtors can be compelled to pay only his
OBLIGATIONS (ARTS. 1207 - 1222) proportionate share of the debt.
When there is a concurrence of two or more creditors or
- Applies also where the court does not express the
of two or more debtors in one and the same obligation, the
solidary obligations. When it is not provided in the
obligation may be either joint (obligación mancomunada)
judgement that the defendants are liable solidarily,
or solidary (obligación solidaria).
none of them may be compelled to satisfy in full the
judgment even if the contract executed by the parties
from which the action is based expressly provides for
JOINT OBLIGATION solidary relationship
- An obligation where there is a concurrence of several Case: Oriental Commercial Company vs Abeto and
creditors, or of several debtors, or of several creditors Mabanag
and debtors.
- Two types: a) Joint Divisible Obligation Example.
b) Joint Indivisible Obligation
A and B entered into a contract with C for
Is the prestation susceptible of being divided among the P5,000,000. In the contract, it was expressly required
debtors and creditors? Could there be partial fulfillment and agreed to that A and B would be solidarily liable
of a prestation? to pay C.

- Each of the creditors is entitled to demand the A and B did not pay C, as a consequence of which C
payment of only a proportionate part of the credit, filed a suit against A and B. C got a favorable
while each of the debtors is liable for the payment of judgment.
only a proportionate payment of the debt.
However, in the dispositive portion the court failed
to provide that A and B are solidarily bound.
- A conglomeration of obligations, separate and
distinct from each other. “Each to his own” A and B are found liable to pay C the amount of P5
M plus P 1M in damages and attorney’s fees
Ex: A and B owes C
- The liability of A and B would still be JOINT
- There are two distinct obligations
- The obligation of A to C, and the obligation of B
to C JOINT DIVISIBLE OBLIGATIONS
- A can be held liable by C only for his share in the
obligation Art. 1208. If from the law, or the nature or the wording
of the obligations to which the preceding article refers the
contrary does not appear, the credit or debt shall be presumed
Art. 1207. The concurrence of two or more creditors to be divided into as many shares as there are creditors or
or of two or more debtors in one and the same obligation does debtors, the credits or debts being considered distinct from one
not imply that each one of the former has a right to demand, or another, subject to the Rules of Court governing the multiplicity
that each one of the latter is bound to render, entire compliance of suits.
with the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of Each creditor can demand only for the payment of his
the obligation requires solidarity. proportionate share of the credit, while each debtor can be
held liable only for the payment of his proportionate share
Presumption: The obligation is JOINT of the debt
- Where the obligation is silent with respect to the - If the prestation can be divided or there could be
nature or character of the right of the creditors, or of partial fulfillment
the liability of the debtors, each of the creditors is
entitled to demand only for the payment of his Presumption as to shares: The credit or debt is presumed
proportionate share of the credit, while each of the to be divided into as many shares as there are creditors
and debtors, the debts being distinct from one another

33
 - They are EQUAL
- Damages due to breach of contract is borne by one - First School of Thought
debtor alone  Pair A with Z, B with Y, and C with X
- Defense of one debtor can be availed by him alone
- Second School of Thought (More correct)
 Determine the ratio and proportion
Example 1: D is indebted to C1, C2, C3 in the amount of
 Ratio 1:2:3 = 6
P900,000
 Basis: Each of the debtors would be liable to each
- There are three divisible obligations
of the creditors (proportionate share).
- Each creditor has a proportionate share to collect
from D How much would A, B, and C be liable to X, Y, and Z
- C1 can only collect P300,000 each?
 A may be held liable to pay P33, 333.33 to X, as
Example 2. D1, D2, and D3 owe P900,000 to C. well as to Y, and to Z
- D1 to C, D2 to C, D3 to C  B would be liable in the amount of P66,666.66
- C can collect P300,000 from D1  C would be liable for P10,000
- He cannot collect the shares of D2 and D3 from
Example 2. A and B owe X and Y the amount of
D1
P900,000. The share of A in the obligation is 1/3 or
P300,000 while the share of B is 2/3 or P600,000. The
Example 3. D1, D2, D3, owe C1, C2, C3 the amount of share of X is ¾ or P675,000. The share of Y is ¼ or
P900,000 P225,000.
- There are 9 obligations
- Each of the debtor has an obligation to each of the
How much can X or Y demand from A or B?
creditors. Each of the creditors has a right against
each of the debtors X may demand:
From A : ¾ of the share of A in the obligation
How much could each of the debtors be held liable by 3
𝑁𝑁 = 300,000 ( ) = P225,000
each of the debtors? 4

D1, D2, D3 – total debt of P300k each From B : 3/4 of the share of B
C1, C2, C3 – total right to collect is P300k each 3
𝑁𝑁 = 600,000 � � = P450,000
4

Y may demand:
However, C1 cannot collect from D1 the entire P300,000. From A : ¼ of the share of A
He can only collect P100k from D1.
1
𝑁𝑁 = 𝑃𝑃300,000 ( ) = P75,000
D1 – P100k 4

From B = ¼ of the share of B

C1 D2 – P100k
1
D3 – P100k 𝑁𝑁 = 𝑃𝑃600,000 � � = P150,000
4

Correlativity of Debts and Credits If one of the debtors incur in delay, would his liability for
damages be enforced against other joint debtors?
Example 1. Debtors A, B, & C owe the amount of
P600,000 to creditors X, Y, & Z. The corresponding  NO
shares of each of the debtors are different. The share of A
is P100,000. The share of B is P200k, and C is P300k. The
amount that each of the creditors would be entitled to is
not equal. X is entitled to P300k, Y is P200k, and Z is
P100k.

34
JOINT INDIVISIBLE OBLIGATION What if A, B, and C agree to deliver, but X refuses to
accept the horse. Can Y and Z receive on their own receive
Art 1209. If the division is impossible, the right of the
the horse?
creditors may be prejudiced only by their collective acts, and
the debt can be enforced only by proceeding against all the - NO. A, B, and C may not proceed with delivering the
debtors. If one of the latter should be insolvent, the others shall horse if it is only Y and Z who is willing to receive
not be liable for his share. the horse
No creditor can act in representation of the others. No - It is transformed into a joint divisible obligation.
debtor can be compelled to answer for the liability of the - A, B, and C will pay for their proportionate share
others. on the basis of the value of the horse
- If the X had no justifiable reason to reject the
- It is joint with respect to the parties and indivisible horse, only he can be held liable for mora
with respect to the fulfillment of the obligation accipiendi
- Even if the prestation is not susceptible of being
divided among debtors and creditors it would still be If the act of one debtor is beneficial, other debtors would
presumed as joint also receive benefits.
- Relate to Art. 1224 - Collective acts are only required if it is prejudicial

If one of the joint debtors should be insolvent, the others Example:

shall not be liable for his share.
Debtors D1, D2, D3 owe C1, C2, C3. C1 fell in love with
D3. C1 forgave D3 of the whole obligation of the debtors.
Fulfillment of the Obligation What is the effect?
Two or more debtors: The fulfillment of or compliance
- There is no prejudicial effect to C2 and C3. It was
with the obligation requires the concurrence of all of the
effected by C1 on his own.
debtors, although each for his own share
- It will only affect other creditors if it was done
Two or more creditors: The concurrence or collective act collectively
of all the creditors, although each for his own share, is also
Interruption of the Period of Prescription
necessary for the enforcement of the obligation
Example.
Example: A, B, and C are obliged to deliver a horse (worth
P900,000) to X, Y, and Z. A, B, and C entered into a contract of loan with X, Y, and
Z in the amount of P900,000. The contract was entered
- A, B, and C must agree to the deliver the horse. If C
into on January 15, 2019 and became due and demandable
did not want to deliver the horse, A and B cannot
on January 2020. The creditors may assert their right
effect delivery without participation of C
within a period of 10 years (until January 2030).
- The obligation will turn into one in the payment of an
indemnity. It will turn into a joint divisible - Remember prescription
obligation - The running of the prescriptive period is interrupted
- A and B will now be liable to pay only their if a demand is made.
corresponding share based on the value of the horse.
A and B will pay P300,000 each What if only one of the creditors (X) made a demand
- C, who had no justification for his refusal, would be against one of the debtors (A)? [2 Schools of Thought]
liable for his own share in the value of the horse First School of Thought [Manresa]
(P300,000), but also for indemnity in damages
- The act of the joint creditor beneficial to others as for
instance the interruption of the prescriptive period is
Effect of Breach sufficient because the right of the creditors may be
If one of the joint debtors fails to comply with his prejudiced only by their collective acts
undertaking, the obligation can no longer be fulfilled or - The act to interrupt the prescriptive period is
performed. beneficial. It does not need the collective act.

35
Second School of Thought [De Buen]
Example:
- The act of a joint creditor which would ordinarily
In negotiable instruments (promissory
interrupt the period of prescription would not be
notes), a promissory note which states “I
valid. The indivisible obligation requires collective
promise to pay”, and is signed by two parties,
action of the creditors
it solidary.
- It would not affect Y and Z if only X made the
If it states “We promise to pay P100,00
demand
to X” and is signed by two promisors, there is
- The prescriptive period would be interrupted only
no solidarity, but it is JOINT.
insofar as the obligation of A to X, but not in regard
to other obligations.
2. When the law provides for the solidarity of the
- We follow this school of thought
obligation
- Case: Agoncillo vs Javier
- Arts. 927, 1824, 1911, 1915, 2146, 2157, and
Whether the act of one joint creditor would affect the 2194 (NCC); Art. 110 (RPC)
others, whether beneficial or prejudicial, it would always
have to be collective. 3. When the nature of the obligation requires
solidarity
- Obligations arising from criminal offenses and
SOLIDARY OBLIGATIONS torts
- Some torts are not quasi-delicts
An obligation where there is a concurrence of several - Ex. A taxi driver is driving the unit of Mr. X.
creditors, or of several debtors, or of several creditors and due to his negligent driving, he causes an
debtors accident resulting to the damage of the cars of
other persons. Mr. X and the taxi driver are
- Each of the creditors is entitled to demand the
solidarily liable
payment of the entire credit, while each of the debtors
- Remember: Salugada vs FEU
is liable for the payment of the entire debt
- A solidary obligation is more burdensome. The law
does not allow the presumption of its existence Art 1210. The indivisibility of an obligation does not
- A solidary debtor may be compelled to fulfill the necessarily give rise to solidarity. Nor does solidarity of itself
entire obligation which will consist of his share and imply indivisibility.
of the shares of other debtors
Indivisibility Solidarity
Example: As to Nature
Refers to the prestation Refers to the legal tie or
Debtors D1, D2, D3 owe C1, C2, C3 P900,000. which constitutes the vinculum, to the subjects
object of the obligation or parties of the obligation
- C1 can collect the entire amount of P900,000
As to Requisites
from D1
Plurality of subjects not Plurality of subjects
When would we consider the existence of a solidary required required
obligation? As to Effect of Breach
When the obligation is When there is liability on
1. When the obligation expressly so states that there converted into one of the part of the debtors
is solidarity. indemnity for damages because of breach, the
- It is not required to employ the word because of breach, solidarity among the
“solidary” indivisibility of the debtors remains
- It is enough that the agreement says that each obligation is terminated
one of them can be obligated for the aggregate
value of the obligation Art. 1211. Solidarity may exist although the creditors
- “jointly and severally” or “individually and and the debtors may not be bound in the same manner and by
collectively” the same periods and conditions.

36
Types of Solidary Obligations Example:
1. Active Solidary Obligations (among creditors) Debtors D1, D2, D3 owe C1, C2, C3 P900,000.
- A tie existing among several creditors of one and
- It does not mean that if the debtors are solidarily
the same obligation by virtue of which each of
bound, the creditors are also solidary. The debtors
them, in relation to his co-creditors, possesses the
may be solidarily bound, but the creditors are
character of creditor only with respect to his share
joint.
in the obligation, but in relation to the common
debtor or debtors, represents all of the other
- C1 can demand P300,000 only from D1. The
creditors
latter’s share in the obligation to C1 is P100,000.
- Most fundamental effect of active solidarity: The
D1 is also bound to pay C2 and C3 P100k each.
creation of a relationship of mutual agency
among the solidary creditors
- D1 is solidarily bound with D2 and D3. As such,
 Each creditor is empowered to exercise
D1 may be held liable to pay the share of D2 and
against the debtor/s not only the rights which
D3 to C1
correspond to him, but also all the rights
which correspond to the other creditors, with
the consequent obligation to render an Why can C1 not demand from D1 the shares of C2 and
accounting of his acts to such creditors. C3?
- Because C1 is joint with C2 and C3 (kanya-
2. Passive (among debtors) kanyang collection)
- A tie existing among several debtors of one and
the same obligation by virtue of which each of  The creditors may be solidarily bound, but the debtors
them, in relation to his co-debtors, possess the may only be jointly bound.
character of debtor only with respect to his share
in the obligation, but in relation to the common
creditor or creditors, represents all the other Illustration:
debtors.
D1, D2, and D3 are solidarily bound to pay C1, C2, and
- Each solidary debtor, insofar as the creditor/s are C3. The share of D1 becomes due and demandable only
concerned, is the debtor of the entire amount when Maria gets married. The share of D2 will be due and
- However, with respect to his co-debtors, he is a demandable on June 15, 2020. The share of D3 will be
debtor only to the extent of his share in the due only when JPE dies. The creditors are also solidarily
obligation bound
- The different terms and conditions will not affect the
- The most fundamental effect of solidarity among
solidarity if that is the intention of the parties
debtors is the liability of each debtor for the
payment of the entire obligation, with the Issue: How much can each of the debtors be liable to pay
consequent right to demand reimbursement when any of the term arrives or condition is fulfilled?
from the others for their corresponding shares
once payment has been made - If Maria gets married before June 15 and at that time
JPE is still alive, only the share of D1 became due and
3. Mixed (among creditors and debtors) demandable
- The obligation where they are two or more Can C1 collect an amount from D3?
debtors solidariliy bound to fulfill an obligation - C1 may compel D3 to pay the share corresponding to
to two or more creditors who are solidarily bound the obligation of D1 because it is the only obligation
that is due and demandable
- C1 cannot compel D3 to pay his (D3’s) share in the
obligation because it is not yet due and demandable
(JPE is still alive)

37
June 15 arrives but JPE is still alive. How much can C3 Example.
collect from D1?
A and B are solidary debtors who owe P1,000,00 to C.
- C3 can collect P600,000 because there are now two
obligations due and demandable (D1 and D2’s - If the whole P 1M was paid by B, he has the right to
obligation) be reimbursed of the P500,000 share of A.
If it is A who owes C the amount of P1M and B is merely
Distinction of Passive Solidarity from Suretyship constituted as a surety. Can C run after B as a surety?
Art. 2047: A solidary guarantor or surety (fiador in - Yes, for the amount of P1 M. B has a right to collect
solidum) is a person who binds himself solidarily with the the whole amount of P1,000,000 from A
principal debtor
- Both a solidary debtor and a surety are solidarily Beneficial and Prejudicial Acts
liable to the creditor for the payment of the entire
obligation. Art .1212. Each one of the solidary creditors may
do whatever may be useful to the others, but not anything
Solidary Debtor Surety which may be prejudicial to the latter.
Liable for the payment of A guarantor who binds
the debt of another, but himself in solidum with
also for the payment of a the principal debtor under
debt which is his own the provisions of the Relate to Art. 1215 (Conflict between the two)
second paragraph does not
In a solidary relationship among creditors, a mutual
become a solidary co-
agency is established
debtor to all intents and
purposes - As a consequence of the relationship of mutual
A solidary debtor who Right to demand agency, each one of them may do whatever may be
pays the entire amount of reimbursement from the useful or beneficial to the others, but not anything
the obligation has a tight principal debtor the entire which may be prejudicial to the latter
to demand reimbursement amount that he paid - Each creditor is deemed to be representing himself
from his co-debtors their and other solidary creditors
proportionate share
Rights are more limited. Such an extension granted Beneficial Acts
An extension of time to the principal debtor - If the act is beneficial, it is valid
granted by the creditor to would release the surety
one of the solidary debtors from the obligation
for the payment of the
obligation without the Illustration:
knowledge or consent of D1, D2, and D3 owe C1, C2, and C3 the mount of
the other solidary debtors P900,000. All are solidarily bound. C1 exerts an effort to
would not have the effect collect the entire amount from D1. Can C1 legally do
of releasing the latter from that?
their obligation
 YES. It is beneficial act that will now be binding
upon the parties
- A surety is not a debtor, but one who ensures payment
- If the act of the solidary creditor is beneficial,
by the principal debtor to the effect that he holds
it will not have any legal effect
himself also principally liable
- A solidary debtor has the right to be reimbursed of his
proportionate share. A surety, who may also be held Prejudicial Acts
liable by a creditor to pay the whole obligation, has a As to the Debtors: A prejudicial act performed by a
right to collect the proportionate share of the debtor, solidary creditor shall be valid and binding because of the
but also the whole amount. principle of mutual representation which exists among the
creditors.

38
As to the Creditors: The creditor who performed the act Art. 1213. A solidary creditor cannot assign his rights
shall incur the obligation of indemnifying the others for without the consent of the others.
damages.
Assignment of Rights
Example (Prejudicial Acts). Art. 1213 is a limitation: The creditor can assign his right
only with the consent of other solidary creditors
C1 fell in love with D1. D1 asks for condonation of
their obligation. C1 forgave the debtors without - Under Art. 1178 rights are transmissible A creditor
consent of C2 and C3. has a right he could transfer.
 This is not a valid act - But if he is solidarily bound with other creditors, that
 Refer now to Art. 1215 (it is a valid act) portion of the right he has over an obligation cannot
easily be assigned as contemplated in Art. 1178
Why does Art. 1215 declare extinguishment of the debt by
remission when such act is prejudicial to other creditors - C1 would have the right to enforce payment of his
and invalid under Art. 1212? proportionate share over the obligations payable by
- Consider the tie that would be affected by the act of the debtors.
remission  This right is not transmissible to a third party
 If C1 would want to assign his right to collect the
- Legal Tie 1: The legal ties that binds D1, D2, & D3 P300,000 to A (third party), he needs to get the
solidarily to pay C1, C2, & C3 consent of C2 and C3
Art. 1213 does not apply if the assignment is made to
- Legal Tie 2: In regard to the distribution of the anyone of the other solidary creditors
corresponding shares by the creditor who may have - In such case there can be no invasion of the personal
collected the total amount of indebtedness or confidential relationship existing among the
solidary creditors
- Once solidary a creditor collects the total amount of  C1 can assign his right to C2
the indebtedness, he has the obligation to distribute
the shares of the other solidary creditors If one of the solidary creditors assigned is his to a third
party, A, without consent of C2 and C3.
- What has no legal effect would be with regard to the
- The assignment is not valid. There is no personality
tie that is creating the obligation of C1 to distribute
granted to A that would make him a creditor also
the shares of C2 and C3
 When C1 condoned the total amount of What if D1, thinking that A is a valid assignee of C1, pays
obligation, in law, it was as if he received the A. Can D1 get back from A the payment?
P900,000. C1 would still have to give C2 and C3
their respective shares (P300,000 each)  YES
- The source of obligation is in rem verso (Art. 22),
NOT solutio indebiti.
In Art. 1215, the Code sanctions the efficacy of prejudicial - There is a mistake, but it is a mistake of law
acts such as novation, compensation, confusion or - What is contemplated in solutio indebiti is a
remission as far as the debtor or debtors are concerned, but
mistake of fact, not mistake of law
not as far as the other solidary creditors are concerned.
- The solidary creditor responsible for the act shall be
liable to the others for the share in the obligation Art. 1214. The debtor may pay any one of the solidary
corresponding to them creditors; but if any demand, judicial or extrajudicial, has been
made by one of them, payment should be made to him.

To whom should the debtor pay?

- The debtor has a right to choose to whom he can make
payment
- Relate to Arts. 1216 and 1217

39
Any solidary creditor may demand the payment or The creditor who may have executed any of these
performance of the obligation from one, some or all of the acts, as well as he who collects the debt, shall be liable to the
debtors others for the share in the obligation corresponding to them.

- If there is no judicial or extra judicial demand, the

debtor can fulfill payment to anyone of the solidary Novation
creditors
It is the change or substitution of an obligation by another,
Example: resulting in its extinguishment or modification, either by
D1, D2, and D3 owe C1, C2, and C3 the mount of (Refer to Art. 1291):
P900,000. D1 now wants to pay. To whom should he (1) Changing its object or principal condition, or
pay?
 In Art. 1214, D1 may choose any of the creditors - If prejudicial, the solidary creditor who effected
to whom he can pay the novation shall reimburse the others for
damages incurred by them;
The right of the debtors to whom to make payment must - If beneficial and the creditor who effected the
give in to the right of the creditor to choose against whom novation is able to secure performance of the new
to enforce the obligation (Refer to Art. 1216) obligation, such creditor shall be liable to the
- The right of the creditor to choose is superior others for the share which corresponds to them,
- If the debtor chooses to whom to make payment but a not only in the obligation, but also in the benefits
different creditor made a demand from him, the (2) By substituting another in place of the debtor, or
debtor loses his right to choose and must fulfill the
demand of the creditor - The solidary creditor who effected the novation is
liable for the acts of the new debtor in case there
Illustration: is a deficiency in performance or in case damages
D1 wants to make payment of the full obligation. D1 are incurred by the other solidary creditors as a
wanted to pay C3. However, C1 made a demand to D1 result of the substitution
first. Can D1 disregard the demand of C1 and pay C3
instead? (3) By subrogating a third person in the rights of the
 NO. The right of C1 to choose against whom he creditor
can enforce obligation is superior to the right of - One solidary creditor: The obligation of the
D1 to choose whom he would like to make debtor or creditors is not in reality extinguished,
payment. because in this type of novation the relation
between the other creditors not substituted and
- If D1 still made payment to C3, it would be a payment the debtor or debtors is still maintained.
to an improper party - All solidary creditors: The creditor responsible
 The obligation is NOT extinguished. The tie of for the novation is liable to the other creditors for
the debtors to the creditors still remains the share which corresponds to them in the
 If C3 did not reimburse the shares of C2 and C1 obligation
(which is required of her in par. 2 of Art. 1215) - It extinguishes the old obligation, and creates a
 C1 and C2 can still run after the debtors for their new one in lieu of the old.
shares
Compensation and Confusion
Compensation - is a figurative operation of weighing two
Art. 1215. Novation, compensation, confusion or
obligations simultaneously in order to extinguish them to
remission of the debt, made by any of the solidary creditors
or with any of the solidary debtors, shall extinguish the the extent that the amount of one is covered by the amount
obligation, without prejudice to the provisions of Article of the other
1219.

40
Confusion – refers to the merger of the qualities of the - If C2 subsequently demanded payment to D1, D1
creditor and debtor in one and the same person with would still have to pay C1
respect to one and the same obligation  The debtors should make payment to the creditor
who first made the demand
Remission (Condonation)
An act of pure liberality. The creditor renounces his right Can C1 still ask D3 of his proportionate share?
to enforce the obligation, thereby extinguishing the same
 NO
wither in its entirety or in the part or aspect thereof to
- C1 and C3 will now go after C2 for their
which the remission refers
reimbursement. C2 became a debtor.
- Refers to the effect on the juridical tie that binds the - The relationship is JOINT
debtors to pay the creditors - C1 can demand only for his proportionate share.
- The debtors are released from their obligation. C3 will have a separate action to demand his
However, the tie established among the creditors still proportionate share.
remain (refer to Art. 1212)
Art. 1217. Payment made by one of the solidary
(1) The remission covers the entire obligation debtors extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which offer to
- The obligation is totally extinguished and the accept.
juridical relation among debtors is extinguished He who made the payment may claim from his co-
- The debtor is not entitled to reimbursement from debtors only the share which corresponds to each, with the
co-debtors interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening
(2) The remission is for the benefit of one of the debtors period may be demanded.
and it covers the whole obligation When one of the solidary debtors cannot, because
of his insolvency, reimburse his share to the debtor paying
- The debtor is completely released from the the obligation, such share shall be borne by all his co-debtors,
creditor or creditors, but he is still bound to his in proportion to the debt of each.
co-debtors
(3) The remission is for the benefit of one of the debtors Effect of Payment by a Debtor
and it covers only a part of his share in the obligation Where payment is made by one of the solidary debtors,
the effect is either the total or partial extinguishment of
- His character as a solidary debtor is not affected; the obligation depending upon whether the entire amount
it continues both with respect to the creditor or of the debt is paid or only a part thereof.
creditors and with respect to the other debtors
Par. 2, Art 1217
- There is a new obligation created among debtors
Art. 1216. The creditor may proceed against any one - Once payment is made by one of the solidary debtors
of the solidary debtors or some or all of them simultaneously. of the entire obligation, there arises immediately a
The demand made against one of them shall not be an obstacle consequent right of such debtor to claim from his co-
to those which may subsequently be directed against the others,
debtors the share which corresponds to them, with
so long as the debt has not been fully collected.
interest for the payment already made
Demand upon a Debtor
Example.
The right of the creditor is superior over the right of the D2 payed the whole obligation to C2, extinguishing the
debtor in Art. 1214 relationship. Simultaneous to the extinguishment of the
tie that bound the creditors to the debtor is the
- C1 can demand from D1, D1 has no right to choose to establishment of the tie that binds D1 and D3 to reimburse
whom he can make payment. C3 demanded from D2. D2.
D2 loses his right to choose the creditor to whom he - D2 can demand only the proportionate share of
can make payment. C2 can still make a demand to D3. D1 in the obligation. D1 cannot be compelled to
pay for the share of D3 in the obligation

41
Par. 3, Art. 1217 Art. 1219 and 1220 In relation to Art. 1215
D2 paid the whole obligation in the amount of P900,000
Loss or Impossibility of Performance
to C2.
The rules stated in the above articles merely reiterate the
- Par. 2, Art. 1215: C2 has to distribute the shares of
rules stated in Arts. 1174, 1262, and 1266 of the Code.
C1 and C3.
- Par. 2, Art. 1217: D2 has the right to be reimbursed 1. If the loss of the thing or impossibility of complying
by D1 and D3 of their proportionate share with the prestation which constitutes the object of the
obligation is not due to the fault of the solidary
D2 collects P300,000 from D1. D2 goes after D3,
debtors, the obligation is extinguished
however D3 is now insolvent
- Par 3, Art. 1217: The share of D3 will be divided
2. If it was due to the fault of the debtors, the obligation
between D1 and D2 in accordance with their
is converted into an obligation of indemnity for
proportionate share
damages, but the solidary character of the obligation
- D2 can demand from D1 his proportionate share in
remains
the principal obligation (P300k) and in the
proportionate share of D3 to make up for his inability
3. If due to a fortuitous event after one of the debtors
to pay (P150,000)
incurred in delay, the obligation is converted into an
- D1 is now liable to pay the total of P450,000 due to
obligation of indemnity for damages, but the solidary
the insolvency of D3 to make the reimbursement
character remains.
 If the failure of D2 to collect from D3 is not due to
insolvency, Art. 1217 does not apply Par, 2 Art. 1221
Art. 1218. Payment by a solidary debtor shall not
C1 made a demand against D1. Notwithstanding the
entitle him to reimbursement from his co-debtors if such demand, D1 did not make payment. D1 now incurred in
payment is made after the obligation has prescribed or delay. Can C3 sue D3 to collect the amount of P900k, and
become illegal. also to collect damages due to the delay committed by D1
against C1?
 Yes
The solidary debtor cannot claim from his co-
- If C3 collects the amount of P900k from D3 and the
debtors the share corresponding to them if the payment
amount of damages, D3 has a right to be reimbursed
was made after the obligation has prescribed or has
by D1.
become illegal.
- The reimbursement consists not only of D1’s
proportionate share in the P900k, but also the amount
Art. 1219. The remission made by the creditor of
the share which affects one of the solidary debtors does not of damages that he was required to pay because of his
release the latter from his responsibility towards the co- delay
debtors, in case the debt had been totally paid by anyone of
them before the remission was effected. Par. 3, Art. 1221
Art. 1220. The remission of the whole obligation, - In relation to the principle in par. 3, Art. 1165
obtained by one of the solidary debtors, does not entitle him
- 2nd paragraph of Art. 1221 applies
to reimbursement from his co-debtors.
Art. 1221. If the thing has been lost or if the
prestation has become impossible without the fault of the
solidary debtors, the obligation shall be extinguished. Art. 1222. A solidary debtor may, in actions filed by
If there was fault on the part of any one of them, all the creditor, avail himself of all defenses which are derived
shall be responsible to the creditor, for the price and the from the nature of the obligation and of those which are
payment of damages and interest, without prejudice to their personal to him, or pertain to his own share. With respect to
action against the guilty or negligent debtor. those which personally belong to the others, he may avail
If through a fortuitous event, the thing is lost or the
himself thereof only as regards that part of the debt for which
performance has become impossible after one of the solidary
debtors has incurred in delay through the judicial or the latter are responsible.
extrajudicial demand upon him by the creditor, the
provisions of the preceding paragraph shall apply.

42
Defense of Any of the Solidary Debtors to Prevent SECTION 5. – DIVISIBLE AND INDIVISIBLE
Enforcement of the Obligation OBLIGATIONS
The creditor or creditors may proceed against any of the
DIVISIBLE OBLIGATIONS
solidary debtors or all of them simultaneously for the
payment of the obligation. Whether only one or all of the - Those which have as their object a prestation which
solidary debtors are sued jointly, any solidary debtor may is susceptible of partial performance without the
interpose any of the following defenses: essence of the obligation being changed.
 It can be fulfilled partially or divided into several
Personal Defense – Applicable to only one of the debtors
performances
Example: D1 was a minor when the obligation was  Ex. Payment of money in installments
contracted. D2 and D3 were already of age. - The divisibility of an obligation must not be confused
with the divisibility of the thing or prestation which
- With regard to D1, this obligation is voidable. D1 may
constitutes the object of the obligation
allege a personal defense to prevent enforcement of
 Divisibility of an obligation – the performance of
the amount pertaining to him
the prestation which constitutes the object of the
If C3 demands from D3 the amount of P900,000, can D3 obligation
put up the defense of minority of D1 to prevent  Divisibility of the thing or prestation – refers to
enforcement of the obligation against him? the prestation itself

- YES and NO. When is a thing divisible or indivisible?

- Yes, only insofar as the amount pertaining to D1’s
Divisible
share. He cannot be compelled to pay the P300k share
of D1 because the latter was a minor. – When, if separated into parts, its essence is not
- No, insofar as the share of D2 and D3. The defense of changed or its values is not decreased
minority is not applicable disproportionately, because each of the parts into
which it is divided are homogenous and
General Defense – Applicable to all debtors
analogous to each other as well as to the thing
Example. There was fraud when the contract was entered itself
into. It was applied to all debtors. When C1 enforces the – It must be possible to reconstruct the thing itself
obligation against D2, can D2 put up the defense of fraud into its condition prior to the division by uniting
to prevent C1 from claiming the total amount? the different parts into which it had been divided
– It has to be expressly stipulated by the parties or
 YES the law will consider the fulfillment through
Cases partial payment

1. Agoncillo vs Javier
2. Cerna vs Court of Appeals Three Types of Division
3. Sunga-Chan vs Court of Appeals, June 25, 2008 1. Quantitative
4. Inchausti & Company vs Yulo (in rel to 1211) - The thing can be materially divided into parts
5. Inciong, Jr. vs CA, June 26, 1995 (distinction between and such parts area homogenous to each other
solidarity and suretyship). NOTE!! - When the homogenous whole is divided either
6. Escaño vs Ortigas, 526 SCRA 26 by separating into parts (movables) or by fixing
7. Dimayuga vs PCI Bank, GR No 42542, 2200 SCRA 143
their limits (immovables)
8. De Castro vs Court of Appeals, GR No. 115838, July 18,
2002
9. Bicol Savings Loan Assoc. vs Ginhawa, Aug 20, 1990
2. Qualitative
- When the thing can be materially divided, but
the parts are not exactly homogenous
- The things separated do not form a homogenous
whole
- Example: Inheritance of several heirs

43
 - Once divided, not all may have the same shares. debtors does not comply with his undertaking. The debtors
who may have been ready to fulfill their promises shall not
contribute to the indemnity beyond the corresponding
portion of the price of the thing or of the value of the service
3. Ideal or Intellectual in which the obligation consists.
- When the thing can only be separated into ideal
or undivided parts, not material parts, as in the
case of co-ownership Presumption: INDIVISIBILITY
- The thing is not materially divided, but the ideal
- Refer to Art. 1248
or fractional portion is given to each person (co-
ownership) General Rule:
- Ex. A co-owned house and lot The creditor cannot be compelled partially to receive the
prestation in which the obligation consists; neither may
the debtor be required to make partial payments
INDIVISIBLE OBLIGATIONS
Exceptions:
Those which have as their object a prestation which is not
susceptible of partial performance, because, otherwise, 1. When the obligation expressly stipulates the contrary
the essence of the obligation will be changed
2. When the different prestations constituting the objects
- It may also refer to those physically divisible, but the
of the obligation are subject to different terms and
division is not allowed by law, or stipulation of the
conditions
parties, or the nature of the obligation will not allow
- The debtor is to fulfill several prestations but the
the same.
enforceability of such obligations are subject to
 Example. You cannot chop-chop a horse;
different conditions and terms
Obligation to pay a sum certain in money
 The nature of the prestation is susceptible of
Example. D promised to deliver to C a house and lot
partial fulfillment, but it would still be indivisible
and a car.
if:
- In the absence of a stipulation that the debtor can
(1) The nature of the obligation as entered into
fulfill partially (deliver first the car, then the
itself is not susceptible of partial fulfillment; or
house and lot or vice versa), the debtor will need
(2) The law itself or
to fulfill the obligation by delivering the house
(3) Stipulation of the parties does not allow
and lot and car
- It is indivisible
Two Classifications:
If the prestations are subject to different conditions
1. Absolute or terms:
- When the nature of the object of the obligation
Example. The delivery of the car is on June 15. The
(prestation) itself does not admit any division
delivery of the house and lot is on June 30.
- Even if there is no stipulation regarding the debtor
2. Relative
being allowed to deliver first the car, the
- The object of the obligation/prestation may
existence of different terms allow divisibility
naturally be susceptible of partial fulfillment.
- However, the agreement of parties, the law, or
3. When the obligation is in part liquidated and in part
the nature requires indivisibility, it is an
unliquidated
indivisible thing.
Liquidated – The amount itself is determined as to
Art. 1223. The divisibility or indivisibility of the how much the obligation of the debtor would be
things that are the object of obligations in which there is only
one debtor and only one creditor does not alter or modify the Unliquidated – It has not been determined yet
provisions of Chapter 2 of this Title.
Art 1224. A joint indivisible obligation gives rise
to indemnity for damages from the time anyone of the

44
 Example: In an accident, there was negligence on the Art 1225. For the purposes of the preceding articles,
part of D that caused damage to the car of C and obligations to give definite things and those which are not
injuries to C that required hospitalization susceptible of partial performance shall be deemed to be
- The total obligation of C is damages consisting indivisible.
of the actual damages to the car and the When the obligation has for its object the execution of
indemnity for the injuries of C. Consider also the a certain number of days of work, the accomplishment of work
loss of income of C by metrical units, or analogous things which by their nature are
- The amount can be divisible if the amount of susceptible of partial performance, it shall be divisible.
actual damages to the car could be determined. However, even though the object or service may be
This is liquidated physically divisible, an obligation is indivisible if so provided
- However, the amount of indemnity because of by law or intended by the parties.
the hospitalization is not yet determined (still in
the hospital and needs months of rehabilitation) In obligations not to do, divisibility or indivisibility
shall be determined by the character of the prestation in each
 Unliquidated
particular case

When there are many debtors and creditors: In Obligations “To Give”
- If the obligation is to give something which is definite
 If the obligation is solidary, refer to Art. 1211 to or which by its very nature is indivisible, it is evident
Art 1222 that it is not susceptible of partial compliance
 If the obligation is joint and divisible, refer to Art - If the obligation is to give something which by its
1208 nature is divisible, the general rule is that the
 If joint and indivisible, refer to Art. 1209 and obligation is also divisible. Thus, it has been held that
1224 an obligation to give or to do several things at several
times is divisible.
Breach of a Joint Indivisible Obligation  The intention of the parties that the obligation is
indivisible in character may be either express or
- The obligation can be enforced only by proceeding implied
against all of the debtors
- If anyone refuses, it converts into an indemnity for In Obligations “To Do”
damages - If the obligation is to perform some prestation or
- The debtors who were ready to comply shall not service which by its very nature is not susceptible of
contribute to the indemnity beyond their partial performance, it shall be deemed indivisible
corresponding share of the value of the obligation
- The debtor who refused will pay for all the damages. In Obligations “Not to Do”
Other debtors who suffered damages may also - The determination of the character of the obligation
recover damages from the one at fault will depend upon the sound discretion of the court

45
 SECTION 6. – OBLIGATIONS WITH A PENAL Kinds of Penalty
CLAUSE As to Origin
Legal It is constituted by law
Obligation with a Penal Clause Conventional It is constituted by agreement of
One to which an accessory undertaking is attached for the the parties
purpose of insuring its performance by virtue of which the As to Purpose
obligor is bound to pay a stipulated indemnity or perform Compensatory it is established for the purpose of
indemnifying the damages suffered
a stipulated prestation in case of breach.
by the obligee or creditor in case of
- The penal clause is an accessory obligation attached breach of the obligation
to the principal obligation by virtue of which the Punitive it is established for the purpose of
punishing the obligor or debtor in
obligor is bound to pay a stipulated indemnity or to
case of breach of the obligation
perform a stipulated prestation in case of breach of As to Effect
obligation Subsidiary Only the penalty may be demanded
- It is fixed in case of a breach of the obligation in case of breach of the obligation
- If the principal is extinguished, the penal clause is Joint The injured party may demand the
extinguished enforcement of both the penalty and
the principal obligation
Purpose of the Penalty
Effect of the Penalty
Jurado:
Art 1226. In obligations with a penal clause, the
(1) Función coercitiva o de garantia — to insure the penalty shall substitute the indemnity for damages and the
performance of the obligation payment of interests in case of non-compliance, if there is no
(2) Función liquidatoria — to liquidate the amount of stipulation to the contrary. Nevertheless, damages shall be paid
damages to be awarded to the injured party in case of if the obligor refuses to pay the penalty or is guilty of fraud in
breach of the principal obligation (Compensatory); the fulfillment of the obligation.
(3) Función estrictamente penal — in certain exceptional
The penalty may be enforced only when it is
cases, to punish the obligor in case of breach of the
demandable in accordance with the provisions of this Code.
principal obligation (Punitive).
General Rule:
Dean Ulan:
The penal clause may be considered either as reparation
1. To provide for liquidated damages (pre-determined or substitute for damages or as a punishment in case of
amount) that will relieve the creditor from proving as breach of the obligation.
to the actual amount that he will be entitled to as
indemnity in the form of damages
- There no distinction between a penal clause from Exceptions (check the ppt):
an obligation from liquidated damages as
1. When there is a stipulation to the contrary
described in the Civil Code
2. When the obligor refuses to pay the penalty
-
entitled to interest (Art. 2209?)
2. To strengthen the coercive force of the obligation by
3. When the obligor is guilty of fraud (Art. 1170)
the threat of greater responsibility in the event of
- The creditor must prove the fraud and amount of
breach
damages
- He will not be entitled only to the penalty, but
also to the difference between the proven
damages and the penalty
Example. There is a penalty clause amounting to
P100,000 for breach. There was breach

46
 committed by the debtor through fraud. The - He may fulfill the principal prestation or have it
damage to the creditor amounted to P300k. substituted with another (the penalty of a certain
amount which is referred to as the penal clause)
- He forfeits the P100k penalty attached from the
Limitation upon Right of the Creditor
obligation. Can he still demand the P200k?
YES, because the breach was committed with General Rule:
fraud
- If not committed with fraud, the liability of the - The creditor cannot demand the fulfillment of the
debtor would only be limited to the P100,000 principal obligation and the satisfaction of the
stipulated penalty at the same time
- The creditor cannot also demand fulfillment of the
prestation and at the same time demand satisfaction
of the penalty

Enforceability of the Penalty Exceptions: unless this right has been clearly granted to
him (instances when the creditor would have a cause of
- The penalty may be enforced only when it is
action for the performance and enforcement of penalty)
demandable
- Upon the breach or non-fulfillment of the principal
obligation by the debtor, the penalty stipulated 1. If the creditor has chosen fulfillment of the
becomes demandable, provided that it is not contrary principal obligation and the performance thereof
to law, morals, good customs, public order or public became impossible without his fault or it may be
policy the fault of the debtor
- If both parties are unable to comply with their - But if fulfillment of the principal was due to
respective obligations, the penal clause cannot be a fortuitous event, it is extinguished
invoked by anyone of them
2. If there was fault on the part of the debtor, the
creditor may demand satisfaction of the penalty
Art 1227. The debtor cannot exempt himself from the and payment of damages
performance of the obligation by paying the penalty, save in the
case where this right has been expressly reserved for him. Proof of Actual Damages
Neither can the creditor demand the fulfillment of the obligation Art 1228. Proof of actual damages suffered by the
and the satisfaction of the penalty at the same time, unless this creditor is not necessary in order that the penalty may be
right has been clearly granted him. However, if after the creditor
demanded.
has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his The penalty is similar to liquidated damages (Art. 2226)
fault, the penalty may be enforced.
Applicable only to the general rule in Art. 1226, and not
Limitation upon the Right of the Debtor to the exceptions
General Rule: Debtor cannot exempt himself from the - If the penalty is fixed by the contracting parties for
performance of the principal obligation by paying the the purpose of compensating or substituting the
stipulated penalty indemnity for damages and the payment of interests,
Exception: When this right has been clearly and expressly proof of actual damages suffered by the obligee or
granted to him creditor is not necessary in order that the penalty may
- It is not an obligation with a penal clause, but an be demanded
alternative or facultative obligation. Reduction of the Penalty
- The debtor will have a choice between fulfilling
the prestation or another which may appear to be Art 1229. The judge shall equitably reduce the penalty
the penalty clause, or when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no

47
performance, the penalty may also be reduced by the courts if it
is iniquitous or unconscionable.

- If there is no substantial damage, the court may

reduce the penalty

The court may equitably reduce the stipulated penalty in

case it is no longer justified or beyond the extent of the
damage to the creditor
1. The principal obligation has been partly complied
with
2. If the principal obligation has been irregularly
complied with
3. If the penalty in iniquitous or unconscionable even if
there has been no performance

Nullity of Obligation or Penalty

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

The nullity of the principal obligation carries with it

that of the penal clause.

See: SSS vs Moonwalk

If the principal obligation is void, it necessarily follows
that the penal clause shall also be void
However, if the penal clause is void, the validity of the
principal obligation is not affected, since the efficacy of
such obligation is not dependent upon the efficacy of the
penal clause.
Cases:
1. General Insurance Surety Corporation vs Republic,
G.R. No. L-13873, January 31, 1963
- Even if the bond is more than the damage, still
pay the bond
- At the same time, if the damage is more than the
bond, the creditor will only receive the amount of
the bond
2. Filinvest Land Inc. vs Court of Appeals, G.R. No.
138980, Sept. 20, 2005
- Art. 1229

48
 CHAPTER 4 2) Agreement simultaneous to the constitution of
EXTINGUISHMENT OF OBLIGATIONS the obligation
a) Resolutory Condition
Art. 1231. Obligations are extinguished:
b) Extinctive period
(1) By payment or performance;
(2) By the loss of the thing due; 2. Involuntary Causes
(3) By the condonation or remission of the debt; a) By reason of the subject
(4) By the confusion or merger of the rights of 1) Confusion;
creditor and debtor; 2) Death of the contracting parties in cases where
(5) By compensation;
the obligations are personal
(6) By novation.

Other causes of extinguishment of obligations, such as b) By reason of the object

annulment, rescission, fulfillment of a resolutory condition, and 1) Loss of the thing due or impossibility of
prescription, are governed elsewhere in this Code. performance

Those that are expressly defined and governed are not the c) By failure to exercise (right of action)
only types. This is not an exclusive list. 1) Extinctive prescription

- In Art. 1231, there are 10 modes of extinguishing

obligation. But only 6 are defined and governed by Even jurisprudence may provide for a new method of
provisions by Chapter 4 extinguishing an obligation
Others include: Case: Overseas Bank of Manila vs Court of Appeals
1. Renunciation or waiver by the oblige or creditor Due to fault of mismanagement, the bank was
2. Compromise ordered by the Central Bank of the Philippines to be under
3. Expiration of the resolutory term or period receivership. It was closed temporarily and depositors
4. Death of one of the contracting parties in purely were not able to get their deposit pending liquidation and
personal obligations settlement of obligations of the bank. The bank was
5. The will of one of the contracting parties in certain prohibited from fulfilling because it was under
contracts receivership.
6. The agreement of both contracting parties or what
is sometimes known as mutual assent or dissent. After many years, depositors were able to get
their money. However, the mount did not carry interest
Extinguishment of Obligations (Castan): pertaining to the period when the bank was ordered closed
1. Voluntary Causes until it paid off the depositors their money.
a) Performance Issue: Does the bank still have the obligation to pay the
1) Payment, and interest?
2) Consignation
NO. Because the bank was ordered to cease and
b) Substitution desist from operation, it excused the bank from
1) Dacion en pago (conveyance for payment) paying the obligation of the interest incurred. The
2) Novation legitimate order of the Central Bank for the Overseas
Bank to cease and desist from operation is a mode of
c) By release agreement extinguishing the obligation of the bank to pay
1) Agreement subsequent to the constitution of interest its depositors.
the obligation
- This ruling is applicable only to banks and in regard
a) Mutual waiver
to their obligation to pay the interest that should have
b) Unilateral waiver
been paid for from the time they were asked to cease
c) Remission
and desist until they paid money to depositors.

49
 SECTION 1. – PAYMENT OR PERFORMANCE CONCEPT OF PAYMENT OR PERFORMANCE
a. What is the concept of payment or performance? Art. 1232. Payment means not only the delivery of
money but also the performance, in any other manner, of an
- It is the only ordinary means by which the parties obligation.
expect the obligation to be extinguished.
- Both the creditor and debtor expect that the - Payment is broad enough to cover all normal ways to
relationship to be extinguished only by payment fulfill any prestation of an obligation.
or performance  Not just delivery of a sum certain in money, but
- Other modes are brought about by supervening all delivery of a thing
events

b. How do you make payment or performance? - Performance

 Not just doing a positive or active act. It also
- See Chapter 2: in rel to 1244 and 1246 refers to an obligation not to do.
- The manner is the only way by which the debtor
may compel the creditor to accept and release Three Acceptations:
him from the juridical tie
1. Broadest sense:
c. Who is to make payment? It consists in the fulfillment of the obligation either
voluntarily or involuntarily, including its
- The law identifies the persons who are to make extinguishment by any means or mode whatsoever;
payment
- If it is made by a party not identified by the law, 2. Limited sense:
even if such payment was made in accordance It consists in the normal and voluntary fulfillment of
with the how, the creditor may opt not to accept the obligation by the realization of the purposes for
which it was constituted;
d. To whom payment should be made? - The Civil Code adopts this
- Identified by law
3. More limited sense:
e. Where should payment be made? It consists in the fulfillment of the obligation by the
delivery of a sum of money

Requisites of a Valid Payment or Performance

HOW IS THE OBLIGATION TO PAY
1. Must be complete (integrity) FULFILLED?
2. Tendered by the proper party
Remember the table in Ch. 2 as to the manner of
3. Party must have the capacity to pay
fulfillment
4. Paid to the proper person
5. Capacity of the recipient - To create the obligation of the creditor to accept such
6. Identity of the prestation preserved (1244, 1246) payment and release the debtor from the juridical tie
7. Made in the proper place
- Prestation to give (2 types):
 To give a specific object (Refer to Par 1, Art.
1244)
 To give a generic thing (Art 1246)

- Obligation to do and not to do

 Art. 1244, par. 2

50
Three “I”s for a Valid Payment or Performance Integrity
1. There is integrity - What is referred to in Art. 1233. Refer also to 1244
- Art 1233 and 1246
- Integrity requires completeness
2. There is identity - Unless the debtor is able to comply with integrity, the
- Art. 1244, par. 1 for obligation to deliver a creditor can refuse
specific,
Obligation is completely fulfilled:
- Art. Par. 2 for obligation to do and not to do
- Art. 1246 - To do
 When the obligor completely rendered the
Exception to Identity:
service which he had obligated himself to do
Art. 1206 (Facultative Obligation) – The debtor is - Not to do
given the option to substitute  When the obligor completely refrained from
doing that which he had obligated himself not to
Note: Some authors insist that dacion en pago (Art. 1245)
do
is another exception. Dean Ulan disagrees
- To give
- Dacion en Pago is one of the four special modes of
 When the debtor or obligor has completely
payment and performance
delivered the thing which he had obligated
himself to deliver
3. There is indivisibility
- Art. 1248: The debtor cannot be obliged to deliver Exceptions to Integrity:
a part only, neither can the creditor be compelled
1. Substantial Performance (Art 1234)
to accept partial fulfillment
Art. 1234. If the obligation has been substantially
Integrity Indivisibility (Disregard performed in good faith, the obligor may recover as though
of Indivisibility) there had been a strict and complete fulfillment, less
Partial fulfillment There is complete damages suffered by the obligee.
fulfillment, but it was
through partial payment - The obligor may recover as though there has been
or performance a strict and complete fulfillment, less damages
suffered by the oblige
 The delivery, performance, or fulfillment is
Example: I will pay you P100,000. I paid first
incomplete
P50,000. After another period, I paid another P50k.
 But, the incompleteness is trivial
- Is there integrity? YES
- Is there indivisibility? NO Requisites of Art 1234:
1) The deficiency should be insignificant.
Exceptions to indivisibility
1) When the debtor by agreement with the creditor 2) The debtor must have been in good faith.
is allowed to make partial payment or - The debtor must show that he exerted all
performance efforts to complete payment. But, due to
2) The law allows the existence of a divisible some circumstances beyond his control,
obligation he is not able to completely fulfill
3) The nature itself of the obligation Example: Deliver 1,000 dressed chickens. You
endeavored to deliver 1,00 chickens. However,
Art 1233. A debt shall not be understood to have been due to the coronavirus, you were able to deliver
paid unless the thing or service in which the obligation consists only 950 dressed chickens. Can you (the debtor)
has been completely delivered or rendered, as the case may be. compel the creditor to accept?
 YES! Apply substantial compliance

51
 WHO MAY PAY THE OBLIGATION
- In case of substantial performance, the obligee is
Art. 1236. The creditor is not bound to accept payment
benefited.
or performance by a third person who has no interest in the
- “Less damages suffered by the obligee”: Refers fulfillment of the obligation, unless there is a stipulation to the
to a reciprocal obligation contrary.

Example: The 1,000 dressed chickens were Whoever pays for another may demand from the
bought for P100,000. The debtor bought only an debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only
amount of P95,000 worth of chicken. Can the
insofar as the payment has been beneficial to the debtor.
debtor require the creditor to pay P100,000.
 The creditor can be compelled to accept the From whom is the creditor bound to accept payment?
950 chickens. But he cannot be compelled to
pay P100,000. 1. The principal debtor or legal representative
 The buyer (creditor) is the obligee
2. Any third person who has an interest in the fulfillment
2. Application of Doctrine of Estoppel (Art. 1235, Art. of the obligation
1431) 7 - They have an interest in extinguishing the
obligation
Art. 1235. When the obligee accepts the performance, - It is not a personal interest, but a material interest
knowing its incompleteness or irregularity, and without  The continued existence of the obligation of
expressing any protest or objection, the obligation is
the debtor may result to the third person’s
deemed fully complied with.
own prejudice
- Art. 1431 is the justification for Art 1235
- Art. 1235 is a conclusive presumption whereas Art.
Example 1: You are a surety. The debtor incurred a
1176 is disputable
loan, with agreement to pay an interest.
- Notwithstanding such deficiency, if the creditor
accepts it without reservation the principle of  If the debtor does not pay the obligation and
estoppel comes in it continues to exist, the interest will continue
- The debtor can rely on the absence of the creditor’s to pile-up.
objection or reservation, and manifesting  The creditor can go to the surety, and the
satisfaction or willingness to release the debtor latter will have more to pay due to the
from his obligation interest.
- The creditor cannot thereafter object to such  The surety would want to extinguish the
deficiency/irregularity performance due to obligation in order to avoid the interest
estoppel
Example 2: A guarantor is one who is not principally,
Cases for the Exceptions
but may be subsidiarily liable. If the principal debtor
- Substantial Performance: Diesel Construction Co., is unable to pay, the creditor can go after the
Inc vs UPSI Property Holdings, Inc; G.R. No. guarantor.
154885; 549 SCRA 12  He would also have an interest
- Estoppel: Manila International Airport Authority vs
Example 3: A third party who may have allowed a
Ding Velayo; G.R. No. 161718
debtor to use the former’s property as security for the
latter’s obligation.
 If the debtor does not pay, the creditor has a
right to foreclose the property

7
Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon

52
 Example 4: An heir can have an interest in the  The creditor cannot be compelled to accept if the
obligations of his/her ascendants. third party does not fall under any of the above.
 If the parents are unable to pay their debts
Can the creditor accept payment from a third party
during their lifetime, it affects the amount
who does not have an interest in the obligation?
that heirs will receive for their inheritance
 You are interested for your legitimes to not  YES
be affected - This payment does not need the knowledge or
consent of the debtor. What is important is that the
Issue: The SC issued a declaration that a joint debtor
creditor opted to accept the payment
is a party who has an interest in the obligation of
another co-joint debtor. (Monte de Piedad vs. - Exceptions:
Rodrigo) 1) Jurado: joint debtors pero di agree si dean
2) When there is a stipulation to the contrary
A and B are joint debtors who owe C. Is A considered
to be a third party who has an interest in the
proportionate share in the obligation or vice versa? Art. 1237. Whoever pays on behalf of the debtor without
the knowledge or against the will of the latter, cannot compel
- Dean Ulan: NO. A joint debtor is not a third party the creditor to subrogate him in his rights, such as those arising
in interest to the obligation of other joint debtors. from a mortgage, guaranty, or penalty.
- Solidary debtors are not a third party. They are
principal debtors. If the party has an interest in the fulfillment of the
obligation
Difference between a Third Party with an Interest in - The third party has a right to subrogation
the Fulfillment of an Obligation and a Third Party - Irrespective of the knowledge/consent of the debtor
with an Interest in the Property of the Debtor (Land
Bank of the Philippines vs Ong)
- An accommodation mortgagor: A party who has Rights of a Third Person (does not have an interest in
an interest in the fulfillment of an obligation. The the fulfillment of obligation):
creditor can run after the mortgaged property if 1) Right of Reimbursement: He can recover from
the debtor does not fulfill an obligation the debtor the entire amount which he has paid;
 An accommodation mortgagor is a third party  If he paid without knowledge of the debtor or
who has an interest in the fulfillment of the against the latter’s consent, he can recover
obligation of the principal debtor to which the only insofar as it was beneficial to the debtor.
mortgaged property was constituted
- A third person who bought from a debtor- 2) Right of Subrogation: He is subrogated to all of
mortgagor property under mortgage is not a third the rights of the creditor.
party who has an interest in the fulfillment of the  If with the knowledge and consent of the
obligation. debtor, the third person who made the
payment shall be subrogated to all of the rights
which the creditor could have exercised, not
3. A third person who does not have an interest in the only against the debtor, but even against third
obligation, but was constituted as a third party from persons
whom the creditor can accept payment (A designated
third party) Right of Right of
- This agreement should have been made prior to Reimbursement Subrogation (See 1301)
fulfillment Merely a simple personal The third party is entitled,
action available to the not only to demand
third person or payor reimbursement, but also
Rights of the Creditor against the debtor to to exercise the rights
recover from the latter which the creditor could
- General Rule: The creditor is not bound to accept what he has paid insofar have exercised against the
payment or performance by a third person

53
 as the payment has been debtor and third persons Art. 1238. Payment made by a third person who
beneficial to the said (mortgage, guaranty, does not intend to be reimbursed by the debtor is deemed to
debtor penalty) be a donation, which requires the debtor’s consent. But the
payment is in any case valid as to the creditor who has
accepted it.
Illustration:
Debtor SD loaned P1,000,000 from a creditor (C). C If payment was made by a third party without intention to
required SD to put up a security. SD constituted her be reimbursed
luxury car as a chattel mortgage for the P 1M. HYM is a - Presumed to be a donation
suitor of SD. When the obligation was due, SD paid only - The debtor’s consent is required
P250,000. C accepted the payment but reserved the right If the debtor does not give consent
to run after the balance or the chattel mortgage if the
balance of P750k was not paid. When SD could no longer - It will not be considered as a donation
pay and C was about to run after the chattel mortgage, - But the obligation will still be extinguished
HYM paid C P1,000,000, not knowing that SD already
What if the third party changes his mind and asked for
paid P250k. HYM wanted to be reimbursed for his
reimbursement?
payment.
- He can still get the reimbursement
- It does not affect the validity of the extinguishment
Issue: What is the right of HYM against SD? Is HYM a of the principal obligation
third person who has an interest in the fulfillment of the
Read Case: Moreño-Lentfer vs. Wolff [G.R. 152317; 441
obligation of SD?
SCRA 584]
 NO, HYM does not have a (material) interest in
Art. 1239. In obligations to give, payment made by
the obligation one who does not have the free disposal of the thing due and
- HYM has either the right of reimbursement capacity to alienate it shall not be valid, without prejudice to the
or the right of subrogation provisions of article 1427 under the Title on “Natural
Obligations.”

- Subrogation: If HYM paid with the knowledge and It is essential that the person who pays the obligation
consent of SD should have the legal capacity to effect such payment.
 HYM can run after SD not only for the amount - The payor should have:
to which the latter was benefitted (P750,000),  Free disposal of the thing due, and/or
but he also has the right to claim the amount  Capacity to alienate it
paid (P 1M).
 SD can run after C for excess payment (solutio Ex. A minor or an insane person does not have
indebiti) legal capacity
 If SD cannot pay HYM for what he paid to C,
HYM can use the chattel mortgage - The payment made by a person without capacity may
be taken back from the creditor
- Reimbursement: If the payment of HYM was  The creditor cannot insist on keeping this
without the knowledge or consent of SD payment.
 SD will be liable only to the extent of the
payment that benefitted her (P750,000 because What if the incapacitated person who made payment
she already paid P250,00) did not take it back from the creditor?
 HYM can run after C for the excess payment  The obligation is extinguished
 HYM does not have the right to execute the  It would be valid. It is a voidable act (valid until
chattel mortgage annulled)
 Even if the creditor accepted it, it may still be
annulled in court

54
- Only the incapacitated party could effect the (2) If the creditor ratifies the payment to the third
annulment which would result to the returning of the person;
payment (3) If by the creditor’s conduct, the debtor has been
led to believe that the third person had authority to receive
the payment.
TO WHOM PAYMENT SHOULD BE MADE Art 1242. Payment made in good faith to any
person in possession of the credit shall release the debtor
If payment was made by the who in accordance with the
how, but to a party not recognized by the law to whom
payment should be made to extinguish, it is not valid. Payment to third persons may extinguish the obligation
Art. 1240. Payment shall be made to the person in when:
whose favor the obligation has been constituted, or his
1. Arts 1241, par.2: Payment made to a third person,
successor in interest, or any person authorized to receive it.
provided that it has redounded to the benefit of the
General rule: Payment made to a third party not referred creditor
to in this enumeration will not be valid. It will not
extinguish the obligation. Illustration:
D owes C P1,000,000. At the same time, C owes
Payment shall be made to: P1,000,000 to X (a third person insofar as the
1. The person in whose favor the obligation has been obligation of D to C). D paid P1,000,000 to X.
constituted (the creditor), or
- Includes the creditor at the time of the - The payment of D to X will be construed as a
constitution of the obligation, and the creditor at payment made by a third person (D).
the time of the payment (Manresa)  D is a third person insofar as the obligation
of C to X
2. His successor in interest, or  D is a third party who has no interest in the
- The person who may be the assignee (the creditor obligation of C to X
assigns his right to a third party), or
 Only if the assignment was made - Can X be compelled to accept the payment of D?
 Valid contract of assignment  The obligation of D to X extinguished the
obligation of C to X.
- Heirs of the creditor  The payment benefited C
 When successional rights took place  The obligation of D to C is extinguished
 The original creditor has died also
The debtor must prove that the creditor was benefited
3. Any person authorized to receive it. when the former made payment to a third person
- Authorized representatives
- Authorized by the creditor, and authorized by law - This burden of proof is not required when:
- Ex: Payment to a guardian, to an administrator a) After the payment, the third person acquires the
creditor’s rights;
Exceptions (Arts 1241, par.2; 1242): - Subrogation
Art. 1241. Payment to a person who is - X takes the position of C
incapacitated to administer his property shall be valid if he
has kept the thing delivered, or insofar as the payment has b) If the creditor ratifies the payment to the third
been beneficial to him. person;
Payment made to a third person shall also be valid
insofar as it has redounded to the benefit of the creditor. Such - Ratification
benefit to the creditor need not be proved in the following - C ratifies the payment of D to X
cases:
(1) If after the payment, the third person acquires
the creditor’s rights;

55
 c) If by the creditor’s conduct, the debtor has been - But, A is not in possession of the credit. He has
led to believe that the third person had authority no right to enforce fulfillment of the obligation
to receive the payment - Payment made to A will not extinguish the
- If D believed in good faith that X is obligation of D to C.
authorized to receive payment
If the check was issued to make it payable to the order
of bearer: It fell into the hands of A, and upon
2. Art. 1242: Payment made to the possessor of the
presentment the funds were released to A
credit, provided that it was made in good faith
- The possession referred to in the above article is  This is a valid payment. The payment to A was to
the possession of the credit, not the possession of a person in possession of the credit
the document evidencing it - The payment was also in good faith
2 Requisites:
3. Art 1626 8: The debtor pays the creditor prior to
a. It was made to a person who appears to be in
acquiring knowledge of the assignment of credit
possession of the credit
made by the latter
b. It was made in good faith
- The creditor assigned his right to a third person

Distinguish [ Person in Possession of the Credit ] Examples: D owes the amount of P1,000,000 to C.
from [ Person in Possession of a Document The latter assigned his rights as creditor to A.
Evidencing the Credit ] - In effect, A is now the creditor while C is a third
party.
- The third person must appear to be the creditor,
- Payment should now be made to A instead to C
which usually entails possession of the document
evidencing the credit
- If payment was made by D to C because he was
- But, possession of the document does not mean
not informed of the assignment made by C to A,
that the person is in possession of the credit
the obligation is extinguished
 It is not enough that the person is in
 A should run after C
possession of the document evidencing the
credit
- If D was informed of the assignment made by C
Example: to A, and D still made payment to C, that is not a
valid payment
D acquired a loan from C. To ensure payment, C  A can run after D. The latter cannot invoke as
required D to issue a postdated check to be encashed defense the payment made to C.
upon the obligation falling due and demandable. C  D can run after C. In the meantime, he must
has possession of the check. It fell into the hands of pay A
A, a third person.
Payment to Incapacitated Persons (See Par. 1 of Art.
If the check was issued to the order of a specified 1241)
person (the person entitled to the amount reflected in
the check): Is A a third person in possession of the General Rule: Payment made to an incapacitated person
credit? is invalid. It is defective. It is voidable (it would not result
to extinguishing the obligation).
 No. A is a person in possession of the document
evidencing the existence of the credit of D in
favor of C.

8 The debtor who, before having knowledge of the assignment, pays *Read Chapter 2 for Arts. 1244 and 1246
his creditor shall be released from the obligation *Read Special Modes of Payment for 1245
*Presumption of Indivisibility of Obligations (Read Art 1248 in rel.
to 1200, 1223, 1224)

56
Exceptions: Art. 1249. The payment of debts in money shall be
made in the currency stipulated, and if it is not possible to
Payment to a person incapacitated to administer his deliver such currency, then in the currency which is legal tender
property is valid: in the Philippines.

(1) If he kept the amount or thing paid or delivered, or The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall produce
(2) Insofar as the payment has been beneficial to him the effect of payment only when they have been cashed, or
 The payment is beneficial to him when that when through the fault of the creditor they have been impaired.
which has been paid or delivered is applied or In the meantime, the action derived from the original
spent for some rational, necessary or useful obligation shall be held in abeyance.
purpose for his benefit.
 Only to obligations to give (?) Art. 1249 talks about the identity of the currency

Example. The successor-in-interest of the creditor is a In Monetary Obligations:

minor. The parents died before they could make a demand - Payment must be made in the currency stipulated
to the debtor. Their right is transferred to their minor  In the absence of a stipulation of the currency,
child. The debtor paid the child. then payment shall be made in the legal tender
- If the child keeps the payment, or that it was used for of the Philippines
his benefit, the obligation will be extinguished
- If not possible to deliver such currency, the currency
When does payment benefit the creditor-minor? which is legal tender in the Philippines may be used
- If the payment was utilized for expenses incurred for
his necessities
- If it was not used for his benefit, the payment is not Example. We have a stipulation that I pay in US Dollars.
valid. Can I insist in paying the obligation is Philippine Peso?

Art. 1243. Payment made to the creditor by the debtor  No.

after the latter has been judicially ordered to retain the debt shall
not be valid. - This provision was rendered ineffective under Pres.
Marcos
If the debtor pays the creditor after he (the debtor) has  All agreements where the legal tender is in
been judicially ordered to retain the debt, such payment another currency other than the Peso was
shall not be valid. considered as void
- The payment should be made to the proper officer of
the court issuing the writ of attachment or - Now, agreements which stipulates another currency
garnishment other than the legal tender is valid
Legal Tender

Expenses of Payment - Refers to such currency which may be used for the
payment of all debts
Art. 1247. Unless it is otherwise stipulated, the - It is the amount of money which the debtor can
extrajudicial expenses required by the payment shall be for the compel the creditor to accept payment
account of the debtor. With regard to judicial costs, the Rules
- Coins have a limited character of legal tender
of Court shall govern.
 P1, P5, and P10 would only be legal tender for
In rel.to Art 1251 indebtedness not exceeding P1000
 P0.25 or less for indebtedness not exceeding
- If the debtor changed his domicile in bad faith or he P100
incurred in delay, additional expenses shall be borne
by him

57
Negotiable Instrument Rules in Payment of Checks
Payment made through negotiable paper (promissory 1. Checks are not legal tender
notes or bills of exchange) are not legal tender. - Payment may be rejected by the creditor. The
creditor has an option whether to accept or not
- A check is not a legal tender
- The creditor has a right to refuse payment of an
2. It shall only produce payment when:
obligation by a check
a) It has already been encashed, or
- Even if the creditor accepts it, the obligation is
not extinguished. It will be extinguished only
b) Impaired through the fault of the creditor
when it is encashed
- This is only when the instrument is executed
Exceptions: by a third person and issued to the debtor. The
debtor uses it to pay his creditor
1. When the document has been cashed
2. When it had been impaired through the fault of the Example: X is the debtor of A, while A is the
creditor debtor of C. X pays a check to A. It is payable to
Determine the payment of an obligation through a check cash and dated April 1, 2020. A used the check to
with the tender of a cash in the exercise of a right of pay his creditor, C. The check that X issued for A
redemption. is now in the possession of C. The check was not
encashed by C for 6 months. The check became
- Right of redemption stale
 If there is a loan and a security constituted (a real - The obligation of A to C was extinguished.
estate mortgage) and the debtor is not able to pay, - The fault of C impaired the possibility of
the creditor will run after the mortgage property. encashing the check
 The property will be sold at public auction
 The creditor would bid up to the extent of the Case: Papa vs AU Valencia Company Inc, Jan. 23
outstanding property 1998
 If a 3rd person gets the highest bid, he gets the - A check was given to the creditor by the
property. The proceeds would be applied to the debtor. The creditor held onto the check for a
obligation of the debtor to the creditor period of 10 years (it is good only for 6
 The right of whoever wins in the bidding for months). The check is already stale.
ownership would not be finalized until one year - It can no longer be used through the fault of
 In the one-year period, the owner (debtor- the creditor
mortgagor) has a right of redemption - If it was only after a year, the obligation is not
yet extinguished. The creditor can ask to
change the check or for the debtor to pay in
Case: Fortunado vs Court of Appeals
check
Issue: WON the tendering by the debtor of a
Art. 1250. In case an extraordinary inflation or
check to exercise his right of redemption would deflation of the currency stipulated should supervene, the value
suffice of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to
 YES, it is sufficient to halt the running of the
the contrary.
one-year period.
In case of extraordinary inflation, the juridical relations of
- It is not payment of an obligation, but an
creditor and debtor should be equitably adjusted.
assertion of the right of redemption
- Unusual or beyond the common fluctuation in the
value of the currency, which parties could not have
reasonably foreseen or which was manifestly beyond
their contemplation at the time when the obligation
was constituted

58
Requisites: Hypothetical:
1. There must be a decrease or increase in the Dean Ulan promises to deliver a specific horse. It was in
purchasing power of the currency which is unusual or a Boeing 747 Jetliner because it was being transferred
beyond the common fluctuation in the value of said from Australia to Manila when the agreement took place.
currency; and Where should the delivery of the horse be made?
2. Such decrease or increase could not have been
reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the
establishment of the obligation.
Case list:
- Moreño-Lentfer vs. Wolff [G.R. 152317; 441 SCRA
WHERE PAYMENT SHALL BE MADE 584]
Art 1251. Payment shall be made in the place - Philippine Airlines, Inc. vs Court of Appeals
designated in the obligation. - Roman Catholic Bishops of Malolos Inc vs IAC
- Fibahiya vs CA
There being no express stipulation and if the - Cebu Int’l Finance Corporation vs Court of Appeals
undertaking is to deliver a determinate thing, the payment shall - Fortunado vs Court of Appeals [G.R. No. 78556.
be made wherever the thing might be at the moment the
April 25, 1991]
obligation was constituted.
- Papa vs AU Valencia and Company Inc, [G.R. No.
In any other case the place of payment shall be the 105188; Jan. 23 1998]
domicile of the debtor.

If the debtor changes his domicile in bad faith or after

he has incurred in delay, the additional expenses shall be borne
by him.

These provisions are without prejudice to venue under

the Rules of Court.

Rules for Place of Payment

If there is no express stipulation where payment shall be
made:
1. Obligation to deliver a determinate thing, the payment
shall be made where the thing might be at the time the
obligation was constituted

Example: I am to deliver a particular horse. At the

time the agreement was made, the horse was in the
Manila Polo Club.
- The debtor and creditor will go to the Manila Polo
Club to deliver the horse

2. Any other case (generic), payment shall be made at

the domicile of the debtor.
- The creditor will go to the debtor for the
fulfillment of the obligation

- If the debtor changed his domicile in bad faith,

the additional expenses incurred by the creditor
can be charged to the debtor

59
SPECIAL MODES OF PAYMENT Dacion en Pago Payment by Cession
Involves one creditor Involves many creditors
1. Application of Payment Does not presuppose Presupposes relative or
2. Payment of Cession insolvency partial insolvency
3. Consignation There is alienation of property
4. Dation in Payment (Dacion en Pago) 9 In the alienation, there is The alienation of the thing
transfer of ownership and is not direct to the
DATION IN PAYMENT (DACION EN PAGO)
possession to the creditor creditor/s. Transfer and
Dacion en pago is the delivery and transmission of ownership of the thing
ownership of a thing by the debtor to the creditor as an may not be to the creditor
accepted equivalent of the performance of an existing Obligation is extinguished Obligation may not yet be
obligation extinguished. The
proceeds from the auction
- Similar to Payment by Cession in process: in the sale may not be enough to
of the assets or properties of the debtor and in the use cover the debt
of proceeds from the sale as payment for existing
obligation
Subsection 1. – Application of Payment
- It is considered to be a sale so the rules on contracts
of sale also apply Art. 1252. He who has various debts of the same kind
in favor of one and the same creditor, may declare at the time
- It is a special mode of payment where the debtor of making the payment, to which of them the same must be
offers another thing to the creditor who accepts it as applied. Unless the parties so stipulate, or when the application
of payment is made by the party for whose benefit the term has
equivalent to the payment of an outstanding debt.
been constituted, application shall not be made as to debts
 In lieu of the payment in cash, the debtor will now which are not yet due.
deliver a thing
 If the creditor agrees to the thing, a sale If the debtor accepts from the creditor a receipt in
transpires. which an application of the payment is made, the former cannot
 The creditor is the buyer, the debtor is the seller complain of the same, unless there is a cause for invalidating
the contract.

What is sold?  The thing Application of Payment

- The designation of the debt which the payment must
What is the amount of the purchase price?  the be applied when the debtor has several obligations of
outstanding indebtedness of the creditor the same kind in favor of the same creditor.
Requisites of dacion en pago Requisites:
1. Existence of a money obligation 1. There must be only one debtor and one creditor
- For some authors such as Tolentino, it could also - Not literally one person only
be an obligation to give and to do - It may also apply to solidary debtors or creditors

2. The alienation to the creditor of a property by the 2. There must be two or more debts of the same kind
debtor with the consent of the former - There are several obligations of the same nature
- Transfer of physical possession and of ownership - Ex: 4 loans
from the debtor to the creditor - It would not apply if there is one monetary
obligation and one obligation to do
3. Satisfaction of the money obligation - The rules on application of payment cannot
- Payment for an existing debt apply to a guarantor or surety whose liability is

9 Art. 1245. Dation in payment, whereby property is alienated to the

creditor in satisfaction of a debt in money, shall be governed by the

law of sales.

60
 extended or confined only to a particular Limitations:
obligation.
(1) Art. 1253
Art. 1253. If the debt produces interest, payment of the
3. All of the debts must be due principal shall not be deemed to have been made until the
Exceptions: interests have been covered.
(1) When there is a stipulation to the contrary
The debtor must pay first the interest before his right
(2) The application of payment is made by the party
to choose becomes binding on the creditor
for whose benefit the term or period has been
constituted - The debtor’s payment of P3,000,000 is used first
- In relation to Art 1196 on the payment of interest (P800,000) before he
- If the term could be fixed solely for the could apply the same to the 2nd loan
benefit of the creditor
- Before the arrival of the term, can the (2) The debtor cannot choose to apply where it would
creditor compel the debtor to make disregard indivisibility (Art. 1248)
payment? - He cannot apply the remaining P2,200,000 to the
 Yes 3rd obligation (P3,000,000). It would cause
- Insofar as the debtor is concerned, it is not division of the payment
yet demandable. He cannot force the - He can apply it to the 1st, 2nd, and 4th obligations
creditor to accept
(3) In case when the obligation is made to a debt where
4. The amount paid by the debtor must not be sufficient there is a term solely for the benefit of the creditor
to cover the total amount of the debts - The debtor cannot force payment before arrival
of the term
Illustration
- 1st, 2nd, and 3rd loans are due on April 4. The 4th
D initially owes P1,000,000 to C. He borrowed again
loan is due on April 8.
P2,000,000, then another P3,000,000. Lastly, he
 The April 8 term was fixed in favor of the
borrowed P2,000,000. The total of the 4 loans is now
creditor
P8,000,000. The contracts of loan carries an interest of
 As far as the debtor is concerned it is
10% per annum. The total debt is now P8,800,000. The
already due and demandable. But he cannot
debtor only P3,000,000. Where will the P 3M be applied?
apply the payment to it unless the creditor
- All are due and demandable as far as the debtor is allows.
concerned
What if the debtor does not make application of payment?
- Apply in accordance with the prior agreement as to
- The debtor must pay the P800,000 automatically
where the payment should be applied
- The creditor has opportunity to propose, not a right
 It must be an agreement prior to the obligation
to choose
becoming demandable
- The creditor can tell where to apply the payment.
Right of the Debtor to Make Application But, it is not binding upon the debtor unless there
If there is no prior agreement where payment would be is an agreement
applied, who would have the right to choose?
- The debtor has the right to choose
What if the debtor did not exercise his right to make
 The choice binding upon the creditor as long as it
application for payment and creditor has no proposal?
does not disregard limitations. The creditor does
not need to agree with the debtor’s choice. Art. 1254. When the payment cannot be applied in
accordance with the preceding rules, or if application cannot
be inferred from other circumstances, the debt which is most
onerous to the debtor, among those due, shall be deemed to
have been satisfied.

61
 If the debts due are of the same nature and burden, Subsection 2. – Payment by Cession
the payment shall be applied to all of them proportionately.
Art. 1255. The debtor may cede or assign his property
to his creditors in payment of his debts. This cession, unless
The rules stated in Art. 1254 are applicable only when there is stipulation to the contrary, shall only release the debtor
payment cannot be applied in accordance with the rules from responsibility for the net proceeds of the thing assigned.
previously stated, or if the application cannot be inferred The agreements which, on the effect of the cession, are made
from other circumstances between the debtor and his creditors shall be governed by
special laws.
a) In case the due and demandable debts are of different
natures Requisites:
- Apply it to the most onerous – which of the 1. Presupposes several debts
obligations is heaviest 2. There is partial or relative insolvency of the debtor
 Heaviest does not mean the largest sum of - Presupposes that the debtor does not have
money. The amount of the principal sufficient liquid assets
obligation is not taken into consideration 3. Acceptance of the cession by the creditors
- The creditors must agree to the payment by
Guide: cession
1. The age of the obligation (the older the debt, the
more onerous) Relate to Art. 1177: Remedies Available to the Creditor
 Satisfy the judgment debt
2. The existence of accessory obligations 1) Look for the assets
- Surety > Guaranty > Interest 2) Payment by cession
- Look for existing assets such as personal and
What if all are of the same age and carry the same real property
accessory? (2nd par applies) 3) Assets would be attached and sold at public
auction
b) If the debts are of the same nature and burden
- It would be sold to the highest bidder
- The payment will be applied proportionately (use
- The highest bidder may not be the creditor
ratio and proportion)
- The proceeds would be applied to the
remaining balance
- Of the P3,000,000 payment, the remaining
- The proceeds may not be enough to cover the
P2,200,000 will be applied proportionately.
judgment debt
Divide P2.2M by 8 shares
1
 1st debt = P2.2M * = P275,000 4) Accion subrogatoria (Arts. 1301 and 1302)
8
2
 2nd debt = P2.2M * = P550,000 5) Accion pauliana
8
3
 3rd debt = P2.2M * P825,000
8
2
 4th debt = P2.2M * = P550,000 Subsection 3. – Tender of Payment and Consignation
8

In relation to mora accipiendi

- Delay on the part of the creditor in accepting without
just cause
- This is the provision that the debtor can rely on in case
he is confronted by a creditor who refuses to accept
payment or performance
- He will go through the process of TOPAC

Tender of Payment
Consists in the manifestation made by the debtor to the
creditor of his decision to comply immediately with his
obligation.

62
- It is a preparatory act and extrajudicial in character - If after manifesting your capability to comply with the
- A tender of payment alone does not extinguish obligation the creditor still refuses to accept, you can
obligation. You have to go through consignation also go to court and file a petition for consignation
- Once approved by the court, the obligation is
Tender of payment relieves the debtor from liability
extinguished
arising from delay or liability to pay interest
- If there is tender of payment, the debtor cannot be Art. 1256. If the creditor to whom tender of
held liable for compensatory interest payment (See payment has been made refuses without just cause to accept
Art. 2209) it, the debtor shall be released from responsibility by the
- But, the debtor is not relieved from paying the consignation of the thing or sum due.
monetary interest Consignation alone shall produce the same effect in
the following cases:
2 Types of Interests in Law (1) When the creditor is absent or unknown, or does
not appear at the place of payment;
1. Monetary interest – The interest set by the parties (2) When he is incapacitated to receive the payment
as compensation for the use or forbearance of the at the time it is due;
(3) When, without just cause, he refuses to give a
creditor’s money
receipt;
2. Compensatory interest (Art 2209) – The payment (4) When two or more persons claim the same right
or penalty in cases of damages caused to the to collect;
creditor because of delay, fraud, negligence, or (5) When the title of the obligation has been lost.
contravention of the tenor of the obligation
Example: General Rule: There is no consignation without tender of
payment.
You acquire a loan of P1,000,000 with 10% interest.
There is no delay, fraud, negligence, or COTOTO, but Exceptions (Enumeration in Art. 1256): tender of
you have to pay the 10% monetary interest. The obligation payment not necessary:
fell due. The debtor went to the creditor and showed
intent and capability to pay, but was rejected by the 1. When the creditor is absent or unknown, or does
creditor. The obligation remains due and demandable. not appear at the place of payment
However, you are not in fault nor liable for compensatory 2. When he is incapacitated to receive the payment
interest. at the time it is due
3. When, without just cause, he refuses to give a
Is there still justification for the monetary interest? receipt
 YES. The debtor must make effort for the creditor to 4. When two or more persons claim the same right
take money to collect
5. When the title of the obligation has been lost
- If there is tender of payment and at the same time the
6. When the creditor expresses no intention to
debtor puts the funds in a situation where it may be
accept payment (from jurisprudence)
withdrawn anytime by the creditor.
- The tender of payment with the subsequent act of Art. 1257. In order that the consignation of the
placing the funds at the disposal of the debtor will thing due may release the obligor, it must first be announced
exempt the debtor from the compensatory and to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not
monetary interest made strictly in consonance with the provisions which
regulate payment.
Consignation Art. 1258. Consignation shall be made by
Refers to the deposit of the object of the obligation in a depositing the things due at the disposal of judicial authority,
competent court in accordance with the rules prescribed before whom the tender of payment shall be proved, in a
by law after refusal or inability of the creditor to accept proper case, and the announcement of the consignation in
other cases.
the tender of payment The consignation having been made, the interested
- It is a principal act and judicial in character parties shall also be notified thereof.

63
 Art. 1259. The expenses of consignation, when SECTION 2. – LOSS OF THE THING DUE
properly made, shall be charged against the creditor.
Art. 1260. Once the consignation has been duly Two Applications:
made, the debtor may ask the judge to order the cancellation 1) Loss of Thing Due – Obligations to give
of the obligation. 2) Impossibility of Performance – Obligation to do
Before the creditor has accepted the consignation,
or before a judicial declaration that the consignation has been LOSS OF THING DUE 10
properly made, the debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in force. Art. 1262. An obligation which consists in the
Art. 1261. If, the consignation having been made, delivery of a determinate thing shall be extinguished if it should
the creditor should authorize the debtor to withdraw the be lost or destroyed without the fault of the debtor, and before
same, he shall lose every preference which he may have over he has incurred in delay.
the thing. The co-debtors, guarantors and sureties shall be When by law or stipulation, the obligor is liable even
released. for fortuitous events, the loss of the thing does not extinguish
the obligation, and he shall be responsible for damages. The
same rule applies when the nature of the obligation requires the
Requisites of Valid Consignation:
assumption of risk
1. Existence of a valid debt which is due
Art. 1263. In an obligation to deliver a generic thing,
2. Tender of payment, except in the 6 exceptional cases the loss or destruction of anything of the same kind does not
extinguish the obligation.
3. Previous notice of consignation to the person
Effect of Loss in Determinate Obligations to Give
interested in the fulfillment of the obligation
- In order to give the creditor the opportunity to General Rule: Loss of thing due applies to specific or
reconsider his unjustified refusal and accept determinate object
payment to avoid consignation and subsequent
litigation Requisites:
- With respect to the creditor, the notice can be 1. The thing which is lost must be determinate
made simultaneously with the tender of payment 2. The thing is lost without any fault of the debtor
- Lack of previous notice does not invalidate the - If through the fault of the debtor, the obligation to
consignation but makes the debtor liable for the give will be converted into an obligation to
expenses occasioned thereby indemnify for damages
3. The thing is lost before the debtor has incurred in
4. Consignation – amount or thing due placed at the delay
disposal of the court - If the debtor already incurred in delay, the
obligation to give will be converted into an
5. Subsequent notice of consignation obligation to indemnify for damages
Effect of Fortuitous Event

Cases: General Rule: Loss of a thing due to a fortuitous event

shall extinguish the obligation.
- Rockville Excel International Exim Corporation v.
Culla [602 SCRA 128] Exceptions:
- PNB vs Relativo; 92 Phil 203 1. When the law so provides
- State Investment House Inc vs Court of Appeals; G.R. 2. When the stipulation so provides
No. 90676; June 19, 1991 3. When the nature of the obligation requires an
- Bonratiro vs Luna ?? assumption of risk
- Bisterbos vs court of appeals ?? 4. Loss of the thing is partly due to the fault of the
debtor

10 Art. 1189: A thing is lost (1) when it perishes; (2) it goes out of

commerce of men; (3) disappears in such a way that its existence is

unknown or it cannot be recovered

64
 5. Loss of the thing occurs after the debtor incurred General Rule: The Civil Code applies res perit creditori
in delay
Except (res perit domino is applied):
6. When the debtor promised to deliver the same
thing to two persons who do not have the same a) Art 1504: Sale of goods
interest b) Art. 1655: Lease contracts
7. When the obligation to deliver arises from a c) Art. 1717: Contract for a piece of work
criminal offense
8. When the obligation is generic
 Exception: Loss of genus because it Art. 1265. Whenever the thing is lost in the possession
of the debtor, it shall be presumed that the loss was due to his
transformed into a thing outside commerce of
fault, unless there is proof to the contrary, and without prejudice
man
to the provisions of article 1165. This presumption does not
Art. 1264. The courts shall determine whether, under apply in case of earthquake, flood, storm or other natural
the circumstances, the partial loss of the object of the obligation calamity.
is so important as to extinguish the obligation.
This is merely a presumption that the loss was due to the
Effect of Partial Loss fault of the debtor.
General Rule: Partial loss does not extinguish the - The debtor has burden of proof that there was absence
obligation of fault
- The presumption is disputable
Except: Partial loss is of such importance that would be
tantamount to a complete loss or destruction Exception: When the thing was lost due to earthquake,
- Let the court decide if there is disagreement flood, storm or other natural calamity
Loss in Reciprocal Obligations: - The (disputable) presumption is that the loss was due
A promised to deliver a house to B. In exchange, B will to fortuitous event
deliver a condo unit to A (these are specific obligations).
If the house is lost due to a fortuitous event prior to IMPOSSIBILITY OF PERFORMANCE
delivery of either the house or the condo: Extinguishment of an obligation to do by impossibility of
- The obligation of A to B is extinguished performance of the prestation

Is B’s obligation to A also extinguished? Art. 1266. The debtor in obligations to do shall also be
released when the prestation becomes legally or physically
2 Schools of Thought impossible without the fault of the obligor.
(1) Res Perit Domino – the risk is with the debtor
 The impossibility of the fulfillment of A’s Either:
obligation automatically releases his creditor, a. Physical impossibility, or
B, to fulfill his obligation. A is at a loss b. Fulfillment of which is contrary to law, public
 In rel. to Art. 1191 (tacit resolutory condition) morals, public policy, good customs, public order
Effect of Impossibility of Performance
(2) Res Perit Creditori – the risk is with the creditor When the obligation becomes legally or physically
 When A’s obligation was extinguished, it impossible without the fault of the debtor, obligor is
does not relieve B of the obligation to deliver released from the obligation.
the condo unit
 The better rule When should the impossibility occur?
 Art. 1191 should not be applicable. The loss  After the constitution of the obligation
was due to fortuitous event and not due to the  If before, no obligation is really constituted
debtor’s fault
Temporary Impossibility
Presupposes that the duration of impossibility is
determined

65
- If the duration of the impossibility is unknown, the units of Pantranco to use stations in Cities X and Z for 20
obligation may be judicially impossible to perform; years. Due to volcanic eruption from Pinatubo, the bus
hence, extinguished. station of Pantranco was ruined. Would BLTB still be
- The court must declare with finality required to allow Pantranco to use their bus stations?
General Rule: Temporal impossibility merely delays
performance of the obligation, but does not extinguish the
See Case: NATELCO vs CA and CASURECO
same
Art. 1268. When the debt of a thing certain and
Except:
determinate proceeds from a criminal offense, the debtor shall
1) When there is an agreement not be exempted from the payment of its price, whatever may
2) Where the performance of an obligations should be the cause for the loss, unless the thing having been offered
by him to the person who should receive it, the latter refused
be fulfilled in a definite time
without justification to accept it.

Art. 1267. When the service has become so difficult

Art. 1268 is applicable:
as to be manifestly beyond the contemplation of the parties, the - Where there is an obligation of restitution of a
obligor may also be released therefrom, in whole or in part. determinate thing on the part of the person criminally
liable as provided for in the Penal Code, but also
Effect of Relative Impossibility - Where such obligation arises by virtue of reparation
or indemnification
- Aka: Doctrine of Unforeseen Events, Theory of
Imprevisibility, Theory of Lack of Basis
- When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, Art. 1268 applies to those principally liable and
the court should be authorized to release the obligor subsidiarily liable.
in whole or in part General rule: In this case, if the thing is lost the debtor
Requisites: shall not be exempted from the payment of the price of
the thing, whatever may be the cause for the loss.
1. The event or change of circumstances could not
have been foreseen at the time of the execution of
contract Exception: When the debtor offered the thing to the
2. Makes performance extremely difficult. NOT obligee and the latter had refused to accept it without
impossible justification
3. The event must NOT be due to the act of any of
the parties Art. 1269. The obligation having been extinguished
4. Contract is for a long period of time or for by the loss of the thing, the creditor shall have all the rights of
successive performances. action which the debtor may have against third persons by
reason of the loss
- Difficulty of the performance of the obligation does If the obligation is extinguished by the loss of the thing,
not only refer to physical difficulty. all of the rights of action which the debtor may have
 It may also refer to instances where such against third persons by reason of the loss are transmitted
performance would place one party at a by operation of law to the creditor
disadvantaged party due to an unforeseen event
- There is subrogation
Illustration - The transmission of rights is made from the moment
Two bus companies, BLTB and Pantranco, ply the same of the extinguishment of the obligation
route to the north. BLTB has a station in City X and in
City Z. Pantanco does not have a station in City X and Z, Example:
but it has in City Y and City A. They entered into an D is to deliver a specific car to C. It was lost due to a third
agreement where BLTB buses will be allowed to use bus person, A. The right of D against A is transferred to C.
stations of Pantranco in City Y and A in exchange for bus

66
Cases: SECTION 3. — CONDONATION OR REMISSION
OF THE DEBT
 Res perit creditori:
- Reyes vs Caltex Remission is an act of liberality by virtue of which the
- Villaruel vs Manila Motors creditor, without receiving any price or equivalent,
 Res perit domino: renounces the enforcement of the obligation
- Chrysler Philippines vs Court of Appeals
 De Leon vs Soraiano Kinds of Condonation or Remission
 Impossibility of Performance: As to the Form
- McConn vs Jaragan Express When it is made in
- Tabora vs Lazatin accordance with the
 Difficulty of Performance formalities prescribe by
- PNCC vs CA; G.R. No. 116896, May 5, 1997 law for donations
- Comglasco Corporation/Aguila Glass, vs Santos Car Implied Although not made in
Check Center Corporation; [G.R. No. 202989]
accordance with
formalities, it can be
deduced from the acts of
the obligee or creditor
As to its Effectivity
Inter Vivos Takes effect during the
lifetime of the creditor
Mortis Causa After the death of the
creditor
As to the Extent
Total When the entire
obligation is extinguished
Partial Refers only to the
principal or to the
accessory obligation or to
an aspect thereof which
affects the debtor

EXPRESS CONDONATION
Art. 1270. Condonation or remission is essentially
gratuitous and requires the acceptance by the obligor. It may be
made expressly or impliedly.

One and the other kinds shall be subject to the rules

which govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation.

Considered a donation.
- To be valid, it must comply with the requisites to be
a donation
- It must be accepted by the debtor
Requisites of Remission:
1) It must be gratuitous;
2) It must be accepted by the obligor;
3) The obligation must be demandable;
4) Parties must have the capacity to enter into the
donation or remission of debt

67
 5) It must not be inofficious; and While the obligation is not fulfilled, C will keep the
6) It must comply with the forms of donation should check or promissory note.
it be expressed (Arts 748 and 749)
- If the check or promissory note was voluntarily
Extent of remission retuned to the debtor, his debt is impliedly condoned
- Governed by rules regarding inofficious donations: or renounced.
Arts. 748, 749, 750, 751, 752, and 771.
Requisites for the presumption:
Forms of Express Remission
1) The document evidencing the credit must have
- Art. 748: Movable property and obligations to do or
been delivered by the creditor to the debtor
not to do
2) The document must be a private document
 Oral donation: Simultaneous delivery of the thing
3) The delivery must be voluntary
or of the document representing the thing
 In writing (donation and acceptance): If the value The law only refers to a private document
of the property exceeds P5,000 - A public document may consist of several true copies,
which other individuals could have a copy of
- Art. 749: Immovable property - The presumption that there is remission of debt is
 Made in a public document prima facie
The presumption may be refuted if found to be inofficious
IMPLIED REMISSION (not valid)
Art. 1271. The delivery of a private document Example of inofficious remission of a debt: Violation of
evidencing a credit, made voluntarily by the creditor to the Art 752 11
debtor, implies the renunciation of the action which the former
had against the latter. - This does not pertain to the form. This is a substantive
If in order to nullify this waiver it should be claimed requirement
to be inofficious, the debtor and his heirs may uphold it by - If the creditor allows condonation or remission, but
proving that the delivery of the document was made in virtue of
the amount that he condones goes beyond what he
payment of the debt.
would have a right to give out, it would be inofficious
Art. 1272. Whenever the private document in which - You cannot give more than your assets
the debt appears is found in the possession of the debtor, it shall
be presumed that the creditor delivered it voluntarily, unless the
Art. 1273. The renunciation of the principal debt shall
contrary is proved.
extinguish the accessory obligations; but the waiver of the latter
- Not required to be in writing shall leave the former in force.

Forms of Implied Remission Art. 1274. It is presumed that the accessory obligation
- It is deduced from any act or acts of the creditor which of the pledge has been remitted when the thing pledged, after
its delivery to the creditor, is found in the possession of the
clearly show the intent to condone the obligation
debtor, or of a third person who owns the thing.
When is there implied condonation?
Effect of Remission in General
- When the private document evidencing a credit is The remission can extinguish the obligation in its entirety
voluntarily delivered by the creditor to the debtor, it or in the part or aspect thereof which the remission refers.
implies renunciation of the debt
Effect of Remission to Joint Obligations
Example: D acquired a loan from C. The latter The remission only affects the share of the creditor who
required D to execute a promissory note or check. made the remission and the corresponding share of the
debtor in whose favor the remission is made.

11
… no person may give or receive, by way of donation, more
than he may give or receive by will.

68
Effect of Condonation or Remission to Solidary SECTION 4. – CONFUSION OR MERGER OF
Obligations RIGHTS
Art. 1219: The person of the debtor is confused or merged with the
A and B are solidary debtors to pay P1,000,000 to solidary person of the creditor.
creditors X and Y. Creditor Y demanded A to pay the
Art. 1275. The obligation is extinguished from the
P1M. The payment of A extinguishes the obligation. After
time the characters of creditor and debtor are merged in the
payment of A to Y, creditor X condoned B. Would the
same person.
condonation or remission be valid?
Confusion
 NO. There is no longer any obligation to be The merger of the characters of creditor and debtor in one
extinguished. Thus, no condonation actually took and the same person by virtue of which the obligation is
effect. extinguished.
- A can still tun after B for his share in the - Merger or Confusion may be total or partial
obligation.
Art. 1220: Requisites of a Merger:
X condones B for the entire obligation. Can B require A 1) The merger of the characters of the creditor and
to reimburse him of his proportionate share? debtor must be in the same person;
NO. B has no right to be reimbursed as his condonation 2) Must take place in the person of either the
was also in favor of the other solidary debtors principal creditor or the principal debtor; and

3) Whether the merger refers to the entire obligation

Effect upon Accessory Obligations or only part thereof, there must be complete and
If the remission refers to: definite meeting of all qualities of creditor and
a. The principal obligation Accessory obligations debtor in the obligation or in the part thereof
are extinguished affected by the merger
b. Accessory obligations  Principal obligation
continues to subsist - Common in cases of testate or intestate succession
Example:
A father (creditor) extends a loan to his son (debtor).
Before the son could pay his obligation, the father
died. As the only heir, the son acquired the rights of
the father. This includes the right of the father to
enforce the obligation against his own son.
- The obligation is extinguished

Art. 1276. Merger which takes place in the person of

the principal debtor or creditor benefits the guarantors.
Confusion which takes place in the person of any of the latter
does not extinguish the obligation.

Effect upon Accessory Obligations

Guarantors are benefited by the confusion of rights of
principal creditors or principal debtors. Where there is
confusion in the person of subsidiary creditors or
subsidiary debtors, there is no extinguishment of principal
obligations

69
Example: SECTION 5. – COMPENSATION
D has a debt from C. A was constituted as a guarantor by Art. 1278. Compensation shall take place when two
D. Assuming there is a confusion of the person of the persons, in their own right, are creditors and debtors of each
creditor with that of the debtor, A is released as guarantor. other.

What if merger takes place in regard to the person of C Compensation

with A? Mode of extinguishing in the concurrent amount of the
obligation of those persons who are reciprocally debtors
 A became the creditor and creditors of each other
- D is not released from his obligation
Most fundamental effect: It extinguishes both debts to
the extent that the amount covered by the amount of the
Art. 1277. Confusion does not extinguish a joint other
obligation except as regards the share corresponding to the
creditor or debtor in whom the two characters concur. Types of Compensation
Legal Takes effect by operation of law
Voluntary/ When the parties agree to compensate
Effect of Merger in Joint Obligations Conventional their respective obligations, even
Confusion does not extinguish a joint obligation except though all of the requisites for
with regard to the share corresponding to the creditor or compensation may not then be present
debtor in whom the merger occurred Judicial Take effect by judicial decree
Facultative Effected by a party who is entitled to
Example oppose the compensation because he
would be prejudiced thereby
A and B are joint debtors to pay P1,000,000 to joint
creditors X and Y. The character of creditor Y merged
Illustration:
with debtor A.
A is indebted to B for P 1M payable on April 5. Today is
– Only the share of A in the obligation is
April 6. B is also indebted to A for the same amount, but
extinguished
is due on April 15.
– B still has an obligation to X and Y
- There can be no compensation yet that could be
Effect of Merger in Solidary Obligations
effected if it is objected to by B. His obligation is not
Art 1215: yet due and demandable
There is a merger of the character of X and Y with that of - If it was B who wanted to make payment
debtor A. even before April 15, what took place is facultative
compensation.
- The obligation is extinguished. A and B is
released from the juridical tie Art. 1279. In order that compensation may be
- However, B would still be liable to A for his proper, it is necessary:
(1) That each one of the obligors be bound
reimbursement in the share. B is only released
principally, and that he be at the same time a principal
from X and Y. creditor of the other;
(2) That both debts consist in a sum of money, or if
Revocation of Confusion the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
- If constituted by agreement, the confusion or merger
(3) That the two debts be due;
may be revoked by the presence of any of the causes (4) That they be liquidated and demandable;
for rescission, annulment, nullity or inexistence of (5) That over neither of them there be any retention
contracts or by some special cause such as redemption or controversy, commenced by third persons and
communicated in due time to the debtor.
Art 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up compensation as
regards what the creditor may owe the principal debtor.

70
  There can be no compensation because there
is now an issue as to the right of B against A
Requisites of Compensation
6) The compensation must not be prohibited by law
1) There must be two parties, who, in their own right, are  Arts. 1286, 1287
principal creditors and principal debtors of each other
except in case of a guarantor 7) Compensation is not waived

Example: The obligation of A to B is secured by a Art. 1281. Compensation may be total or partial.
guarantor G (subsidiarily liable). When the two debts are of the same amount, there is a total
- There can be compensation between A and B compensation.
- G can effect a compensation in Art. 1280 Art. 1282. The parties may agree upon the
2) Both debts must consist in sum of money, or if the compensation of debts which are not yet due.
things due are fungibles (consumables), they must be
of the same kind and quality Voluntary Compensation
- General Rule: Compensation is not possible in - The two parties may agree upon the compensation of
obligations to do because of the difference in the the two obligations
respective capacities of the obligors
Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other, the former
3) Both debts must be due
may set it off by proving his right to said damages and the
- Except: In voluntary compensation where there is amount thereof.
a facultative compensation
Judicial Compensation
- B cannot effect a compensation before April 15, What is set off against the other party is a counterclaim.
because it is only A’s obligation which is due and A counterclaim must be pleaded to be effectual.
demandable on April 6
- There is no debt yet that is demandable and liquidated
- If A asks for compensation for B’s obligation, and
- It would be the existence of the obligation and
B allowed it, the obligation will be extinguished
damages rewarded to either of the parties
 The compensation is either initiated or
- May be an exception to the fourth requisite
agreed to by B, who could actually oppose the
compensation because it is not yet due When the defendant who has an unliquidated claim for
 If the compensation takes place, B will be damages against the plaintiff sets it off by proving his
prejudiced in regard to losing his right to make right to said damages and the amount thereof, it is
use of a period converted into a liquidated claim by court decree
- Compensation takes effect from the moment the
judgement liquidating the claim has become final

4) Both debts must be liquidated and demandable

Art. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other before
5) There must be no retention or controversy they are judicially rescinded or avoided.
commenced by third persons over either of the debts
and communicated in due time to the debtor Rescissible and voidable obligations are valid until they
- The parties must have no issue insofar as their are rescinded or annulled
respective rights as against the other
- If the party who has the right to assail the validity or
- No third party is claiming the right of either
rescissibility of an obligation does not do so, and
parties against the other
agreed to a compensation, the obligation is
extinguished
- B has a right against A. X is a third party who
asserts that the right of B against A should be his.

71
 Art. 1285. The debtor who has consented to the - Par. 3: If he had no knowledge, the debtor may
assignment of rights made by a creditor in favor of a third set up the defense of compensation of all credits
person, cannot set up against the assignee the compensation which he may have against the assignor and
which would pertain to him against the assignor, unless the which may have become demandable before he
assignor was notified by the debtor at the time he gave his
was notified of the assignment
consent, that he reserved his right to the compensation.

If the creditor communicated the cession to him but the

Art. 1286. Compensation takes place by operation of
debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of law, even though the debts may be payable at different places,
subsequent ones. but there shall be an indemnity for expenses of exchange or
transportation to the place of payment.
If the assignment is made without the knowledge of
the debtor, he may set up the compensation of all credits prior Art. 1287. Compensation shall not be proper when one
to the same and also later ones until he had knowledge of the of the debts arises from a depositum or from the obligations of
assignment. a depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor

Effect of Assignment of Rights
who has a claim for support due by gratuitous title, without
1) When compensation has taken place: prejudice to the provisions of paragraph 2 of Article 301.
Subsequent assignment of rights by a creditor to a third Art. 1288. Neither shall there be compensation if one
person does not affect the debtor with respect to the of the debts consists in civil liability arising from a penal
compensation offense.

- The assignee can demand indemnity for damages Art 1289. If a person should have against him several
from the assignor on the ground of fraud debts which are susceptible of compensation, the rules on the
- If the debtor consented to the assignment, the assignee application of payments shall apply to the order of the
can still demand for payment of credit compensation.

2) When compensation has not taken place: Art. 1290. When all the requisites mentioned in
Article 1279 are present, compensation takes effect by
The effects of such assignment shall depend upon whether
operation of law, and extinguishes both debts to the concurrent
it was made with the consent, or with the knowledge but amount, even though the creditors and debtors are not aware of
without the consent, or without the knowledge of the the compensation.
debtor
Legal Compensation
Example:
- Takes effect by operation of law, when all requisites
A assigned his right to C. A (assignor) is no longer the are present
proper party to whom payment is made. C, as the - An agreement is not needed with regard to
assignee, now has the right to demand the P1M from B. extinguishment of the obligation through
 With Consent of the debtor (Par. 1): compensation
If B consented to the assigning, he cannot set up - Arts 1286 and 1290
against the assignee the compensation which would
pertain to him.
- But if B reserved his right for possible Debts which cannot be compensated:
compensation, he may still effect a compensation
1) Debts arising from contracts of depositum
against C
2) Debts arising from contracts of commodatum
3) Claims for support due by gratuitous title
 Without Consent:
4) Obligations arising from criminal offense
If B did not consent to A’s assignment of his right to
5) Obligations in favor of government
C, he may also set up compensation.
- Par. 2: If he had knowledge, the debtor may set
up the defense of compensation of debts prior to
the assignment, but not of subsequent ones

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 SECTION 6. – NOVATION The old obligation, is in all
aspects, irreconcilable to the new.
Art. 1291. Obligations may be modified by:
The act of the parties must clearly
(1) Changing their object or principal conditions; Implied demonstrate their intent to
dissolve the old obligation as the
(2) Substituting the person of the debtor; moving consideration for the
emergence of the new one
(3) Subrogating a third person in the rights of the
creditor. As to its Extent or Effect
Total Completely extinguished
Novation could either: Partial Merely modified
- Extinguish an obligation by replacing it with a new,
or Requisites:
- Merely modify the existing obligation. “Extinguishment of the old contract” is the effect of
novation, NOT a requisite
Novation
1. The substitution or change of an obligation by 1. A previous valid and existing obligation
another, resulting in its extinguishment or - A new contract, recognizing and assuming a
modification, either by: prescribed debt, would be valid and enforceable.
a. changing its object or The prescription, being available to the debtor,
b. principal conditions, or can be waived by him. The novation of a
prescribed debt is thus valid
2. By substituting another in place of the debtor, or
Exceptions: (Art. 1298)
3. By subrogating a third person in the rights of the
creditor. (1) When annulment may be claimed only by the
debtor, or
Types of Novation
- Refers to obligations that could no longer be
As to its Essence/ Objective or Purpose
Refers to: enforced
(1) the change of the object of the - The debtor may set up a defense that would
object of the obligation/ change refute the creditor from enforcing the
Real or Objective of the prestation, or obligation (e.g. obligation that has
prescribed)
(2) to the change in the principal - If the debtor does not set up the defense of
obligation prescription, and allows the creditor to
Refers to: consider the obligation for purposes of
(1) substituting the person of the novation, there would be a new obligation
debtor, or
Personal or Example:
Subjective
(2) subrogating a third person in D owes P1,000,000 to C. A contract of loan is
the rights of the creditor executed in writing. Within a 10-year period,
reckoned from the time the obligation became
If both occurs, there is a change due and demandable, the creditor did not act on
Mixed in the principal condition and a his right to enforce it.
change in the parties  The obligation became natural and
As to its Form or Constitution prescribed. It no longer exists in regard to it
Results from the terms of the being enforceable
agreement or is shown by a full
discharge of the original debt The creditor now proposed a change in the object
Express The contracting parties disclose of the obligation. He required the debtor to deliver
that the object in making the new his Porsche.
contract is to extinguish the old  The old obligation is prescribed. However, the
one debtor agreed to the new obligation

73
  There is a novation. The principal prestation or Novation Effected by the Change in the Object of the
object of the obligation was changed Obligation or Principal Obligation
- A change in the rate of interest does not affect the
(2) When ratification validates acts which are
surety. It is merely collateral agreement between the
voidable.
creditor and principal debtor (Garcia, Jr vs CA, G.R.
- Waiving the right to ask for the annulment or
No. L-80201, Nov. 20, 1990)
rescission of the obligation
- If the surety does not consent to the new higher
Example 2:
interest, he is liable to the old rate of interest.
D, a minor, incurred a loan from C.
 This obligation is voidable
- The obligation to pay a sum of money is not novated
 D reached the age of majority. C proposed a
by an instrument that expressly recognizes the old,
novation, to which D agreed to
changes only the terms of payment, adds other
 The defect in the old obligation would not
obligations not incompatible with the old ones or the
affect the new obligation
new contract merely supplements the old one
(Foundation Specialist, Inc. vs Betonval Ready
2. Capacity of the contracting parties to the new contract
Concrete, Inc., G.R. No. 170674)
- The new contract should be free from defect
- The acceptance of a new check in replacement of an
3. Animus novandi or intent to novate (especially for
old check does not result in novation in the absence
implied novation and substitution of debtors);
of express agreement that the debtor is already
- the animus novandi or the intent to substitute a
discharged from his liability. Neither is there
new obligation for the old one must be clearly
incompatibility (Salazar vs J.Y. Brothers Marketing
established
Corporation)
4. Substantial difference between the old obligation and
the new obligation (especially for implied novation), Art. 1293. Novation which consists in substituting a
consequently, extinguishment of the obligation new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not
5. Validity of the new obligation without the consent of the creditor. Payment by the new debtor
gives him the rights mentioned in Articles 1236 and 1237.

Art. 1292. In order that an obligation may be Kinds of Novation by Substitution of Debtors
extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that 1) Expromission – when a third person of his own
the old and the new obligations be on every point incompatible initiative and without the knowledge or against the
with each other. will of the original debtor
- Consent of the debtor is not important
Establishes either the express novation or implied - Important: (1) At the initiative of a third party
novation and (2) with the (express) consent of the creditor,
and (3) it is clear that the third person wants to
Change in the Term
substitute the debtor as a party to the obligation
- Mere extension of the term does not constitute a
novation (Inchausti vs Yulo) Requisites
- Extension of time coupled with payment of interest (1) Initiative for the substitution must emanate from
on the amount due is extinctive novation because a the new debtor;
new consideration has been stipulated (Soncuya vs (2) Consent of the creditor to the substitution; and
Azarraga) (3) Old debtor must be released from obligation.
- If the term is shortened, there is novation
(Kabankalan Sugar vs Pacheco)

74
 Two Kinds of Expromission - The conviction must be upheld. The novation theory
may apply prior to the filing of the criminal
a. Substitution with the knowledge and consent of
information in court
the old debtor
- People vs. Nery, L-19567, Feb. 5, 1964
b. Substitution without the knowledge or it may
- People vs. Benitez, L-15923, June 30, 1960
have been with his knowledge, but against the
will or without consent of the old debtor Case: Degaños vs People, G.R. No. 162826
Case: Villanueva vs Girged; No. L-15154
- In order that an obligation may be extinguished by
another that substitutes, it is imperative that the
2) Delegacion – with the consent of the creditor at the
extinguishment be declared in unequivocal terms, or
instance of the old debtor (delegante), with the
that the old and new obligations be on every point
concurrence of the new debtor (delegado)
incompatible with each other
- Novation is not a ground to extinguish criminal
Requisites
liability
(1) Initiative for substitution must emanate from the
old debtor
(2) Consent of the new debtor Art. 1294. If the substitution is without the
(3) Acceptance by the creditor knowledge or against the will of the debtor, the new debtor’s
(4) Old debtor must be released from obligation insolvency or non-fulfillment of the obligation shall not give
rise to any liability on the part of the original debtor
Cases: Art. 1295. The insolvency of the new debtor, who
Hodges vs Rey has been proposed by the original debtor and accepted by the
creditor, shall not revive the action of the latter against the
Mercantile Insurance Co. Inc. vs Court of Appeals
original obligor, except when said insolvency was already
Consent of the Creditor existing and of public knowledge, or known to the debtor,
when he delegated his debt.
Case: Testate Estate of Mota, et al. vs. Serra, No. 22825
- In order that there may be a novation of a contract by Effect of Insolvency or Non-fulfillment by the New
the substitution of the debtor, the express consent of Debtor
the creditor is necessary 1) Expromission (Art. 1294)
- Since novation extinguishes the personality of the - If without the knowledge or against the will of the
first debtor, it implies on the part of the creditor a old debtor, he cannot be held liable
waiver of the right that he had before the novation,
which waiver must be express under the principle of - If with knowledge and consent of the old debtor:
renuntiatio non praesumitur a) Tolentino: It shall not revive the original
debtor’s liability whether the substitution is
Case: Asia Banking Corporation vs. Elser; No. 30266 effected with or without the knowledge or against
- Art. 1293 does not say that the creditor’s consent to the will of the original debtor.
the substitution of the new debtor for the old must be - Dean Ulan thinks this is more in accord with
express or given at the time of the substitution equity and fair play
- It is sufficient that the creditor’s consent be given at b) Jurado: It shall revive the original debtor’s
any time and in any form whatever, while the liability to the creditor.
agreement of the debtor subsists
2) Delegacion (Art. 1295)
Problem: - Applies only to insolvency
X sued Y for estafa. While the case was pending, Y - The right of the creditor against the old debtor can
entered into a contract with X where Y promised to pay X no longer be revived EXCEPT in the following
in installment the amount misappropriated by Y. Despite cases:
this stipulation, the court convicted Y for estafa. Y
questioned the legality of the conviction on the ground of
novation.

75
 a. The insolvency was already existing and of - The new obligation is subject to the condition
public knowledge at the time of delegation, attached to the old obligation
or - The existence of the new condition is dependent
b. When such insolvency was already existing on the fulfillment of the condition of the old
and known to the debtor at the time of obligation
delegation
2. The old obligation is without a condition, but the new
- ACTUAL knowledge of the creditor that new obligation has a condition
debtor was insolvent at the time of delegation, - There is no novation unless the condition is
will bar him from recovering from the old debtor fulfilled

3. Both the old obligation and new obligation has a

Art. 1296. When the principal obligation is
condition
extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit third It depends:
persons who did not give their consent. - If the conditions of the old and new obligations
are compatible, they would have to be fulfilled in
General Rule: An accessory obligation is dependent order for novation to take place
upon the principal obligation to which it is subordinated - If the conditions are not compatible, in order for
novation to take place the condition attached to
Exception: When an accessory obligation creates a right
the new obligation must be fulfilled
or benefit to third persons who did not give their consent
(See Art. 1311, par. 2)
Art. 1300. Subrogation of a third person in the rights
- Art. 1296 does not apply to novation by subrogation of the creditor is either legal or conventional. The former is not
of the creditor presumed, except in cases expressly mentioned in this Code; the
latter must be clearly established in order that it may take effect.
Art. 1297. If the new obligation is void, the original Novation by Subrogation
one shall subsist, unless the parties intended that the former
A personal novation effected by subrogating a third
relation should be extinguished in any event.
person in the rights of the creditor.
Art 1298. The novation is void if the original - A third party replaces the creditor in regard to the
obligation was void, except when annulment may be claimed rights that the creditor had against the debtor
only by the debtor, or when ratification validates acts which are - Subrogation is not the same as assignment of right
voidable.
Conventional Assignment of Rights
In rel. to the requisites Subrogation
- Art. 1298 is the exception to the first requirement The debtor’s consent is Debtor’s consent is not
necessary necessary
Art. 1299. If the original obligation was subject to a Extinguishes the original The old obligation is not
suspensive or resolutory condition, the new obligation shall be obligation. The new extinguished
under the same condition, unless it is otherwise stipulated. obligation involves the
Effect if Old Obligation is Conditional debtor and the third party
General Rule: The new obligation shall be subjected to the The nullity or defect in the The defect of the old
old obligation may be obligation is carried over
same condition
cured by a subsequent to the obligation to the
Exception: If there is a contrary stipulation conventional subrogation. third debtor. There is
The defect would not be really no new obligation
Application of Art. 1299: carried over established
1. The old obligation is with a condition while the new
obligation is without a condition

76
Case: Licaros vs Gatmaitan, G.R. No. 142838 Total Subrogation
Subrogation transfers to the third person who is
- To determine whether what took effect was
subrogated the credit with all of the rights which the
subrogation or assignment of rights, what is
original creditor had against the debtor or against third
important is the intention of the parties
persons.
- There must be conformity of the debtor in transfer of
rights (conventional subrogation) - Accessory obligations are not extinguished
because the person subrogated also acquires all
the rights which the original creditor had against
Art. 1301. Conventional subrogation of a third person third persons
requires the consent of the original parties and of the third - With respect to conventional subrogation,
person. accessory obligations may be increased or
reduced
Art. 1302. It is presumed that there is legal
subrogation: Partial Subrogation
(1) When a creditor pays another creditor who is - There would be two or more creditors
preferred, even without the debtor’s knowledge;
- The old creditor must assert his claim or
(2) When a third person, not interested in the
obligation, pays with the express or tacit approval of the debtor;
preference over the assets only while they are still
(3) When, even without the knowledge of the debtor, in the hands of the sheriff who has levied on the
a person interested in the fulfillment of the obligation pays, properties. If done later, the preference given by
without prejudice to the effects of confusion as to the latter’s this article CEASES.
share.
Illustration (Art. 1304):
Conventional Subrogation – takes place by agreement
D owes C P2,000,000. S is a third party with interest who
of all parties
paid C P1,000,000 only.
Legal Subrogation – takes place without agreement, but
- S only becomes partially subrogated to the right
by operation of law
of C against D
General Rule: Legal subrogation is not presumed. - D now has 2 creditors: C and S.
- If D only has P1,000,000 left, C will have
Except:
preference over the amount
1. When a creditor pays another creditor who is
preferred, without debtor’s knowledge;
2. When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor;
or
3. When, even without knowledge of the debtor, a
person interested in the fulfillment of the obligation
pays, without prejudice to the effects of confusion as
to the latter’s share.
Art. 1303. Subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining,
either against the debtor or against third persons, be they
guarantors or possessors of mortgages, subject to stipulation in
a conventional subrogation.

Art 1304. A creditor, to whom partial payment has

been made, may exercise his right for the remainder, and he
shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit

77
 CONTRACTS REVIEWER

CHAPTER 1 CLASSIFICATION OF CONTRACTS

GENERAL PROVISIONS As to the degree of dependence on a previous contract
Preparatory Those which is not an end
Art. 1305. A contract is a meeting of minds between
by itself, but only a means
two persons whereby one binds himself, with respect to the
for execution for other
other, to give something or to render some service. contracts (ex. Contract of
Criticism on the definition of contracts in Art. 1305 agency)
(Caguioa) Principal Those which can subsist
independently from other
1. The definition is INCOMPLETE
contracts and whose
a) It appears to refer only to a unilateral contract.
purpose can be fulfilled
- The more common type of contract is the by themselves.
bilateral contract Accessory Those which can exist
only as a consequence of,
b) It only refers to contracts creating an obligation. or in relation with, another
- It does not cover contracts that extinguishes prior contract.
obligations According to their Perfection
Consensual Perfected by mere
c) It only covers consensual contracts. agreement
- Perfected by mere consent of parties Real Require not only the
- No need to follow a particular form consent of the parties, but
also the delivery of the
Formal Contracts object of the contract
- Need a form for their validity According to their Form or Solemnity
- Mere consent is not sufficient to create a legal tie Common Contracts that, generally,
do not need a form for
validity
2. The definition in Art. 1305 is also DEFECTIVE
Special or Solemn Require a particular form
a) By the use of “two persons” – It will always for its validity
require two persons According to their Purpose
- In reality, there could be one person but Transfer of Ownership Ex. Sale, donation
representing two or more parties Conveyance of Use Ex. Contract of lease
- Rather, it should be at least two parties To give security Ex. Surety, guaranty,
chattel mortgage
Auto contracts – entered into by two parties, but Rendition of Services Ex. Employment
represented by one person (see Art. 1890) contracts
According to their Subject Matter
Art. 1890. If the agent has been empowered to borrow Things Ex. Sale
money, he may himself be the lender at the current rate of Services Ex. Employment
interest. If he has been authorized to lend money at interest, he Rights Ex. Assignment of rights
cannot borrow it without the consent of the principal According to the Nature of the Vinculum which they
Produce
- Principal-Agent relationship (contract of agency) Unilateral Only one party has an
- The principal asks the agent to enter into a loan on his obligation
behalf Bilateral Both parties are required
- The agent can enter into the loan with the principal to render reciprocal
(contract of loan) obligations
According to their Cause
Onerous The cause is understood to
be the prestation or
promise of thing or
service rendered

1Q | 2019-2020 | Dean Ulan | 1

 Gratuitous This cause is the mere Four kinds of innominate contracts:
liberality of the benefactor 1. Do ut des – I give that you give
Remunerative The cause is the service or 2. Do ut facias – I give that you do
benefit for which the 3. Facio ut des – I do that you give
remuneration is given. No 4. Facio ut facias – I do that you do
obligation or duty on the
part of one giving or STAGES IN THE LIFE OF A CONTRACT
fulfilling the prestation in 1) Conceptualization (Preparation)
favor of the other - Offer is made and acceptance is not yet expressed
According to Risk Involved - Juridical tie does not yet exist. If they are only in
Commutative That in which each of the the negotiation stage, the parties can still
parties gives and receives withdraw from the proposed agreement
an equivalent or there is
mutual exchange of 2) Perfection/Executory
relative values (ex. Sale)
- The meeting of minds is achieved and the
Aleatory Parties reciprocally bind
juridical tie is established
themselves to give or do
something in - There is a cause of action
consideration of what the - Once there is a meeting of minds, there can be no
other shall give or do upon unilateral withdrawal of the agreement
happening of an event
uncertain or which is to 3) Consummation/Executed
occur at an indeterminate - The obligation/rights of parties are deemed to be
time (ex. contract of fulfilled or enforced
insurance) - The juridical tie no longer exists; No cause of
Adhesion One in which one of the action anymore
parties imposes a ready- - Once executed, no one has a right to insist on the
made form of contract application of a provision
which the other may
accept or reject, but Case: Estate of Llenado, et al. vs. Llenado
cannot modify
According to their Names or Norms Regulating Them In the absence of a stipulation in the lease requiring notice
Nominate (contrato Contracts that have of the exercise of an option to be given within a certain
nominado) individuality of its own. time before the expiration of the lease,
Usually named by the
NCC (contract of sale, - General Rule: The lessee must exercise an option to
lease, barter, etc) renew and NOTIFY the lessor BEFORE or at least at
Innominate (Art 1307) No individuality of its the time of the expiration of the original term
own. Based on quasi- (Executory). The silence of lessee after termination of
contracts (du ut des) original period CANNOT mean to be that they opted
As to the Defect to renew (Executed).
Rescissible Art. 1380
Voidable Art. 1390
Unenforceable Art. 1403 ELEMENTS OF A CONTRACT
Void/Inexistent 1. Essential – Those without which there can be no
contract. Necessary in all types of contracts.
a. Consent
Art. 1307. Innominate contracts shall be regulated by b. Object
the stipulations of the parties, by the provisions of Titles I and c. Cause
II of this Book, by the rules governing the most analogous
nominate contracts, and by the customs of the place.
2. Natural – derived from the nature of the contract and
ordinarily accompany the same. They are presumed
by law.

2
3. Accidental – Those which exist only when parties b. Those which are prohibitive in character
expressly provide for them for the purpose of limiting c. Those which are expressive of fundamental
or modifying the normal effects of the contract principles of justice and cannot be overlooked by
the contracting parties
d. Those which impose essential requisites without
Question: All contracts are agreements. But, are all
which the contract cannot exist
agreements contracts?
 NO, not all agreements result to a contract
(2) Morals and Good Customs – refers to standards of
When is an agreement a contract? justice and decency acknowledged by society
 Identify the characteristics of a contract
- Does it create an obligatory effect on the parties? (3) Public policy
- Was it entered into mutually? - If it is injurious to the interest of the public,
- Is there autonomy in it, that no third party could - Violates public statutes. It is against morals, tends
intervene? to interfere with public welfare or safety
- Was is the extent of the binding effect on the - Case: Cui vs Arellano
parties?
(4) Public Order – Considers the public weal (a
prosperous state), peace, safety, and health of the
CHARACTERISTICS OF CONTRACTS community
1) Obligatory Force of Contracts
2) Mutuality of Contracts MUTUALITY OF CONTRACTS
3) Autonomy of Contracts Art. 1308. The contract must bind both contracting
4) Relativity of contracts parties; its validity or compliance cannot be left to the will of
one of them.

OBLIGATORY FORCE OF CONTRACTS Art. 1309. The determination of the performance may
- See Arts. 1156, 1306, 1315, and 1356 be left to a third person, whose decision shall not be binding
until it has been made known to both contracting parties.
Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem Art. 1310. The determination shall not be obligatory if
convenient, provided they are not contrary to law, morals, good it is evidently inequitable. In such case, the courts shall decide
customs, public order, or public policy. what is equitable under the circumstances.

Essence of obligatoriness – It has the force of law GR: The validity or fulfillment of a contract cannot be left
between the contracting parties. Once the contract is to the will of one of the contracting parties (Art. 1307).
perfected, it shall be of obligatory force upon both of the - It has to be decided by both parties
contracting parties
Exceptions (Instances when the parties do not have a say
Requisites of Obligatoriness: in the validity or fulfillment of a contract)
a. It is perfected (executory)
b. It has to be valid a) The validity or fulfillment may be left to the will
c. It is enforceable of a third person (Art. 1309)
 Neither the debtor nor the creditor decides on
General Rule: The stipulations, clauses, terms and the validity of the contract, but by agreement
conditions are binding upon parties they delegated the matter to a third person
Limitations: When they are contrary to (1) law, (2)  Before the will becomes binding, it has to be
morals, (3) good customs, (4) public order, or (5) public communicated by the third party
policy  If the decision is unjust, it may be brought to
courts of law (Art. 1310)
(1) Law
a. When the law expressly declares the obligatory
character

3
 b) Chance Limitations to Autonomy
 The validity and fulfillment of the contract a. Stipulations should not be contrary to law, morals,
can be left to chance good customs, public order, or public policy.
Case: Sangalang vs IAC, 168 SCRA 634
Cases violation of mutuality:
- Autonomy cannot be asserted against the State’s
- Philippine Savings Bank vs Sps Castillo;
exercise of police power
- PNB vs CA (196 SCRA 536);
- PNB vs CA (238 SCRA 20);
b. Exercise of Parens Patriae
MIAA vs Ding Velayo Sports Center - Autonomy may not be asserted against the
The right to extend the lease is not solely dependent on government in the latter’s exercise of parens
the will of the lessee. It depends also on his fulfilment of patriae
other conditions - weakening the consensual nature of contracts
giving undue advantage to one of the contracting
Encarnacion vs Baldomar parties
Where a lessee is given the right to continue to rent as - Usually in contracts of adhesion
long as they pay rentals, the lessor will never be able to
discontinue. Conversely, should owner desire to continue,
lessee could end by NOT paying. This is VOID for being RELATIVITY OF CONTRACTS
violative of MUTUALITY. Art. 1311. Contracts take effect only between the
Validity of Adhesion Contracts parties, their assigns and heirs, except in case where the rights
and obligations arising from the contract are not transmissible
Only one of the contracting parties has the right to form
by their nature, or by stipulation or by provision of law. The
stipulations, conditions, and the other is not allowed to heir is not liable beyond the value of the property he received
make recommendations. He is limited to accepting or from the decedent.
rejecting
- It appears to be a disregard of mutuality. However, If a contract should contain some stipulation in favor
adhesion contracts are binding and valid (PCIB vs of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
CA)
revocation. A mere incidental benefit or interest of a person is
- A contract of adhesion is void if:
not sufficient. The contracting parties must have clearly and
a. It is contrary to public policy deliberately conferred a favor upon a third person.
b. If the weaker party is bound to deal with the
dominant party and is reduced to the alternative What is the extent of the obligatory effect of the agreement
of taking or leaving it, completely deprived of the of the parties?
opportunity to bargain on equal footing.
GR: Contracts take effect only between the parties, their
c. The validity must be determined in the light of
assigns and heirs
circumstances under which the stipulation is
intended to apply (Ermitaño vs CA)
Res inter alios acta aliis neque nocet prodest
- A contract can only obligate the parties who had
AUTONOMY OF CONTRACTS entered into it, or their successors who assumed their
personalities or juridical positions, and that a contract
- Art. 1306 can neither favor nor prejudice third persons.
- The contracting parties may establish such
stipulations, clauses, terms and conditions as they Limitations (Reduces the Scope of Obligatoriness)
deem convenient. 1. With respect to assignees or heirs, the general rule is
- It may not be changed by any third party not applicable if the rights and obligations arising
- No law impairing the obligation of contracts shall be from the contract are not transmissible:
passed (Sec. 10, Art. III, 1987 Constitution). a) By their nature
b) By stipulation of the parties
c) By law

4
2. With respect to heirs, they have a limited scope of promise of and/or part of the performance
liability inherited from the decedents thereof is to make a gift to the beneficiary or
Ex. A father incurred an obligation of P2,000,000. to confer upon him a right against the
He was not able to pay off before he died. The promisee to secure performance neither due
obligation goes down to the son. Will he be liable nor supposed or asserted to be due from the
to pay the P2,000,000? promisee to the beneficiary
- Depends on the amount of successional  Those where the stipulation is intended for the
rights. sole benefit of the third person. It appears to
- The assets that the son acquires should be be a donation
equal to or more than the P2,000,000
indebtedness  Does a stipulation pour autrui need to comply with
- If he inherits only P1,000,000, he will be the requisites of a valid donation?
liable only to the extent of the amount of  No. It merely requires that it is expressly stated
successional right in the contract of the intention to provide for
the benefit of a third party, and that the third
Exceptions to the Rule of Relativity: party communicated his acceptance of the
1. Beneficial Stipulation/ Stipulation pour autrui (par. 2, benefit to the parties of the contract
Art. 1311)
- A stipulation in favor of a third person Case: Mandarin Villa, Inc. vs CA
- A contract pour autrui is not necessarily
extinguished by extinguishment of the principal (2) A creditor beneficiary
obligation  Where an obligation is due from the
promisee to the third person, which the
 Requisites of pour autrui former seeks to discharge by means of
(1) The contracting parties must have clearly and such stipulation
deliberately conferred a favor upon a third
person.  Ex. I will pay you an amount of interest.
(2) The favorable stipulations should not be However, the amount of interest will be
conditioned or compensated by any kind of paid to a third person (the creditor)
obligation whatsoever
(3) The stipulation must be a part, not the whole  Ex. You have a loan from San Beda for
of the contract your tuition, and I have a debt to you. We
 It is an accessory contract; it cannot be the can agree that I instead of paying interest
principal contract to you, it will be to San Beda (the creditor
(4) The third person must have communicated his beneficiary)
acceptance to the obligor before its revocation
(5) Neither of the contracting parties bears the (3) An incidental beneficiary (NOT included
legal representative or authorization of the under stipulation pour autrui)
third party  Absence of intent to benefit a third party
 Such party is one who benefits from the
 Three parties in a stipulation pour autrui: contract of another but whose benefit was
a) The promissor not the intent of the contracting parties
b) Promisee  There is no right or obligation
c) Beneficiary
2. When a third person comes into possession of the
 Three Types of Beneficiaries/Agreement object of a contract creating real rights (Art. 1312)
(Limitless Potentials, Inc. vs Quilala)
Real rights – Rights that are enforceable against the
(1) A donee beneficiary
whole world
 If it appears from the terms of the promise that
the purpose of the promisee in obtaining the

5
 Ex. S sells a car to B. Before delivery of the car to Question (Bar Exam and exam ni Dean): When do you
B, he only has a personal right insofar as the car is know that there is malice? When do you know that it is
concerned (Art. 1164). driven by purely impious reasons to injure the plaintiff?
- The real right is acquired when there is delivery
Cases:
(Art. 1164)
- So Ping Bun vs CA, G.R. No. 120554
- If S now delivers the car to B, he now has a real
- Gilchrist vs Cuddy
right
- B has a right that he can assert over S and any Is economic gain a justifiable reason to avoid being
other persons considered as a tortious interferer?
- A third person has an obligation NOT TO get  Where there was no malice in the interference of
the car from B a contract, and the impulse behind one’s conduct
lies in a proper business interest rather than in
3. Where the contract is entered into in order to defraud wrongful motives, a party cannot be a malicious
a creditor (Art. 1313, in rel to Art. 1385) interferer.
- In relation to defective contracts, specifically  Lack of malice precludes damages. But it does
rescissible contracts not relieve petitioner of the legal liability for
- If the third party is a creditor of one of the entering into contracts and causing breach of
contracting parties, and it can be established that existing ones (So Ping Bun vs. CA)
the contract was entered into with the intention of
defrauding him, he may ask for its rescission 5. Accion directa
- Remember the steps that a creditor can take to - Where the law authorizes the creditor to sue on
enforce a judgement debt (Art. 1177) his debtor’s contract
 At the time of attachment, the asset should be - See Arts. 1651-52, 1729, 1893
owned by the debtor
 If the debtor sells it to another person to Ex (Art. 1729). Contractor A entered into a contract
AVOID the action of the creditor, it is a with B for the construction of the latter’s house. A
contract to defraud the creditor will enter into contracts with suppliers and laborers.
- B is a third party insofar as the contracts of A with
4. Where the 3rd person induces a contracting party to the suppliers and laborers
violate his contract (Art. 1314) - If A breached his contract with the supplier by not
- Such 3rd person can be held liable for damages paying and using the material, the supplier may
- Effect is an obligation to pay damages directly sue B where the materials were used.

Principle of Tortious Interference 6. Contracts creating “status” (marriage contract)

Scenario: There is a contract of sale between A and B
(executory contract). A is committed to sell a house 7. In suspension of payments and compositions under
and lot. C induces A to cancel the contract. B now has the Insolvency Law
a cause of action against A and C.
- C is the tortious interferer 8. Collective Bargaining Agreements (CBA)

Requisites of Tortious Interference 9. Negotiorum gestio (Art. 2150-2151)

(1) Existence of a valid contract
(2) Knowledge on the part of the third person of the 10. Violence and intimidation employed by third parties
existence of a contract (Art. 1336)
(3) Interference by the third person without legal - The third party may be held liable by the
justification or excuse contracting party who was forced to enter into the
 The 3rd person wanted to injure the third contract or prevented from fulfilling
party; there was malice

6
 Art. 1315. Contracts are perfected by mere consent, CHAPTER 2
and from that moment the parties are bound not only to the ESSENTIAL REQUISITES OF CONTRACTS
fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in General Provisions
keeping with good faith, usage and law.
Art. 1318. There is no contract unless the following
GR: Contracts are perfected by mere consent and from requisites concur:
that moment the parties are bound. (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
Exceptions: contract;
(3) Cause of the obligation which is established.
1. Donations of real estate (Art. 749)
2. Sale of land through an agent (Art. 1874) – authority Types of Requisites in a Contract
Essential Special Extraordinary
must be in writing
a) Consent a) Delivery a) Price
3. Partnership to which immovables are contributed –
- real contracts - contract of sale
needs an inventory attached to the public instrument b) Object
(Art. 1773) b) Form
4. Stipulations limiting carrier’s ability to less than c) Cause - solemn
extraordinary diligence (must be in writing) – Art. contracts
1744
5. Contracts of an antichresis wherein principal &
interest must be specified in writing (Art. 2134) SECTION 1. – CONSENT
6. Stipulation to pay interest on loans in writing (Art. The concurrence of the wills of the contracting parties
1956) with respect to the object and the cause which shall
7. Transfer of large cattle which requires transfer of constitute the contract
certificate of registration - Conformity of the parties to the terms of the contract;
the acceptance by the offeree of the offer made by the
Art. 1316. Real contracts, such as deposit, pledge and other
commodatum, are not perfected until the delivery of the object
Art. 1319. Consent is manifested by the meeting of the
of the obligation.
offer and the acceptance upon the thing and the cause which are
Art. 1317. No one may contract in the name of another to constitute the contract. The offer must be certain and the
without being authorized by the latter, or unless he has by law acceptance absolute. A qualified acceptance constitutes a
a right to represent him. counter-offer.
A contract entered into in the name of another by one Acceptance made by letter or telegram does not bind
who has no authority or legal representation, or who has acted the offerer except from the time it came to his knowledge. The
beyond his powers, shall be unenforceable, unless it is ratified, contract, in such a case, is presumed to have been entered into
expressly or impliedly, by the person on whose behalf it has in the place where the offer was made.
been executed, before it is revoked by the other contracting
Art. 1320. An acceptance may be express or implied.
party.
Requisites of Consent
Exceptions (to consent): Deposit, pledge, commodatum,
1. The consent is manifested by the concurrence of the
which cannot be perfected until delivery
offer and the acceptance (Arts. 1319-1326);
The principle enunciated in Art. 1317 of the Code is a 2. The contracting parties must possess the necessary
logical corollary to the principles of the obligatory force legal capacity (Arts. 1327-1329); and
and the relativity of contracts. It is also the basis of the 3. The consent must be intelligent, free, spontaneous,
contract of agency (Arts. 1868-1932). and real (Arts. 1330-1346)
Elements of Consent: (1) Offer and (2) Acceptance
 There is consent when there is a meeting of minds
between the parties as when the offeror makes an
offer and such offer is accepted by the offeree

7
OFFER  It is a right that should not be exercised in a
Unilateral proposition which one party (offeror) makes to manner that is not abusive that would result
the other for the celebration of a contract to damages
Requisites of an Offer Example: Dean offers to sell his house in
1. It must be defined (definite) Anaheim. You went to the U.S. (round trip) to
- The terms of the offer must be sufficient to check the house when Dean called and withdrew
identify as to the type of contract to be entered his offer
into  This resulted to damage
2. Option Contract (Art. 1324)
2. It must be intentional
- Object Theory of Contracts: The intention of
Counter-Offer
the parties is to be judged by their outward or
If it involves any new proposal or if it the acceptance is
objective manifestation of intent
qualified, it constitutes a counter-offer
Case: Leonard vs Pepsico, Inc. (88 F. Supp. 2d  When something is desired which is not exactly
116) what is proposed in the offer, such acceptance is
- Jocandi causa (intention of the offeror to be not sufficient to generate consent because any
bound) modification or variation from the terms of the
offer annuls the offer
3. It must be complete  Before there can be a perfected contract, there
- All aspects of the proposal must have been must be a definite and absolute acceptance by the
expressed and made known to the offeree original offeror of such counter-offer.

4. It must be directed to person or persons with whom

ACCEPTANCE
the offeror intends to enter into a contract
The acceptance must also be certain or definite and
- Except definite offers which are not directed to a
absolute in character.
particular person but to the public in general
- Once there is a proposal and the acceptance, it is now
- See also Arts. 1325-26
in the executory stage (perfection of the contract)
Complex Offers Requisites of a Valid Acceptance
When a single offer involves two or more contracts, the 1. It must be absolute (no vitiation)
perfection, where there is only partial acceptance, will - Mirror image rule: The acceptance must be
depend upon the relation of the contracts between identical in all respects with the offer
themselves, whether due to their nature or due to the intent - If there is a condition, there is a counter-offer
of the offeror.
Ex. Dean sells a car, COD. Buyer accepts the
Withdrawal of Offer sale of the car to be paid in two monthly equal
GR: The offeror may still withdraw his offer or proposal installments
so long as he still has no knowledge of the acceptance by  No juridical tie because there was a
the offeree. deviation of the acceptance
- Before notice of acceptance, the offer may be
revoked, and the revocation will have the effect of Exceptions to the mirror image rule:
preventing the perfection of the contract, although it a. Facultative
may not be known by the acceptant (Laudico and
Harden vs Arias Rodriguez, 43 Phil. 270) b. Clarificatory acceptance – there is an acceptance,
Exceptions: but with discrepancies.
1. Art. 19. Abuse of Rights - The discrepancy is brought about merely by
 The offeror can withdraw as long as he has no the need of the offeree for some clarifications
knowledge of the acceptance by the offeree as to how, what, and extent of the offer

8
 - Jardine Davies, Inc. vs Court of Appeals, 333 What if the offeror did not expressly provide for the form,
SCRA 684 time, place, and manner of acceptance?
 Acceptance may be express or implied
c. Amplified Acceptance – Under certain  In special contracts where the law requires a form
circumstances, a mere amplification on the offer for validity, the form must be adhered to
must be understood as an acceptance of the
original offer, plus a new offer which is contained Three Ways of Acceptance
in the amplification. 1. Face-to-face/Telephone/CP – presumed entered into
where the offeror is at
Ex. The seller is proposing to sell his agricultural 2. Electronic Communication
property. There is livestock on the property, but 3. Correspondence (letters)
the offer was limited only to the land. The buyer
accepts the offer, but also offers to acquire the Forms of Acceptance (Art. 1320):
livestock a. Express
- There is a valid acceptance insofar as the b. Implied – from conduct, or acceptance of
offer of sale of the land is concerned unsolicited services
- As to the livestock, the offeror can reject or c. Presumed (by law) – there is failure to repudiate
accept the sale of the livestock (amplification hereditary rights, or when there is silence in
of the offer) certain cases
Acceptance by Letter or Telegram (Correspondence)
d. Complex Offers – NOT interrelated
Four theories to determine the moment of perfection when
acceptance is made by letter or telegram
Rule on Complex Offers
 Offers are interrelated – Contract is perfected 1) Manifestation Theory – The contract is perfected
if all the offers are accepted from the moment the acceptance is declared or
 Offers are not interrelated – single made (Code of Commerce)
acceptance of each offer results in a perfected 2) Expedition Theory – The contract is perfected
contract unless the offeror has made it clear from the moment the offeree transmits the
that one is dependent upon the other and notification of acceptance to the offeror, as when
acceptance of both is necessary the letter is placed in the mail box
3) Reception Theory – The contract is perfected from
the moment that the notification of acceptance is
2. Directed to the offeror
in the hand of the offeror in such a manner that he
3. Made with the intention to be bound
can, under ordinary conditions, procure the
4. Made within the prior or reasonable time
knowledge of its contents, even if he is not able
5. Communicated to the offeror and learned by him
actually to acquire such knowledge by reason of
unless the offeror knows of the acceptance
absence, sickness or some other cause
4) Cognition Theory – The contract is perfected from
Art. 1321. The person making the offer may fix the the moment the acceptance comes to the
time, place, and manner of acceptance, all of which must be knowledge of the offeror. (Spanish Civil Code,
complied with. Art. 1319 of NCC)
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him. Withdrawal of Acceptance
Two views:
GR: Acceptance must be in accordance with how it is a. Manresa - Although the offeror is not bound until
prescribed by the offeror, or required to by law (for he learns of the acceptance, the same thing cannot
special contracts) be said of the offeree who from the moment he
accepts, loses the power to retract such acceptance

9
 b. Tolentino – The acceptance may be revoked before Requisites of an Option Contract:
it comes to the knowledge of the offeror because a. It is supported by an independent consideration
in such case there is still no meeting of minds  In order to bind the offeror to respect the
(Cognition Theory) time, you must pay (Option Money)
 The consideration may also be other
Can the parties agree on when the perfection will be
undertakings. (not only money)
effected or established?
 When consideration is not monetary, it must
 YES. They can agree to apply the other theories
be clearly specified in the clauses
other than cognition theory
Acceptance by Silence (Tolentino) Cases
- Bible Baptist Church vs CA, 444 SCRA 396
Requisites: - Teodoro vs. CA, 155 SCRA 547
1. There is a duty or possibility to express
acceptance, but the offeree chose to remain silent b. It is exclusive
2. Manifestation of the will cannot be interpreted in
any other way Example: I propose to you my house and lot. You are
- Silence cannot be accepted as a refusal given 2 months. In order for me to be bound to the 2-
month period, you must pay P2,000 for the option
3. There is a clear identity in the effect of the silence contract.
and the undisclosed will
 The offeror cannot withdraw the offer until expiration
 See Arts. 1870-73 (Contracts of Agency) of the option contract. Otherwise, he will be liable for
 The agent is deemed to have accepted the damages for breach of the option contract (no action
proposal of the principal to create a contract of to proceed with the contract)
agency. It is presumed by the silence
 Exception: Contract of sale (Art. 1479) –
 Art. 1670 – Silence on the part of the lessor to contemplates an option contract in preparation to
terminate lease within 15 days prior to the expiration. a principal contract of sale. Breach by the
 There is deemed to be a renewal of the term promissor will give the offeree the right to sue for
breach of contract and insist on contract of sale
When the Offer becomes Ineffective
Option Contract Contract of Sale
1. Qualified/Conditional acceptance (See Art. 1321)
It is only the seller who is Both parties are required to
2. Through death, civil interdiction, insanity, or required to sell. sell and buy.
insolvency (Art. 1323) No Juridical Tie. There is a juridical tie.
3. Rejection of the offer
4. Lapse of Period of offer Option Money Earnest Money (Art.
5. Revocation of the offer before the knowledge of 1482)
acceptance Not yet payment of the A partial payment of the
principal contract principal contract of sale
Art. 1324. When the offerer has allowed the offeree a A distinct consideration Part of the consideration
certain period to accept, the offer may be withdrawn at any time (different from that of the of the principal contract
before acceptance by communicating such withdrawal, except principal contract)
when the option is founded upon a consideration, as something No sale yet is perfected A contract of sale is
paid or promised. already perfected
Option Contract Upon payment of the Once paid, the buyer must
A preparatory contract in which one party grants to the option money, there is no pay for the balance
requirement for the buyer
other for a fixed period under specified conditions, to
to proceed with the sale
decide whether or not to enter into a principal contract

10
If the option is not supported by a consideration which is fraud which can be made the basis of an
distinct from the purchase price, the offer may still be action of deceit.
withdrawn even if the offeree has already accepted it 3. Contracts involving the sale and delivery of
necessities to minors (Art. 1489)
4. Contracts of savings deposit
Art. 1325. Unless it appears otherwise, business Note: If both parties are incapacitated, the contract is
advertisements of things for sale are not definite offers, but unenforceable
mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to B. Insane or Demented
accept the highest or lowest bidder, unless the contrary appears They must be proven to be insane or demented at the time
 Advertisements are invitations to make an offer. they entered into the contract
- The advertiser is an offeree waiting for an offeror. - If the contract was entered into during a lucid interval,
he cannot ask for annulment of the contract
 In Auctions - Sanity is presumed (No judicial guardian)
- GR: The auctioner is inviting for proposals in - However, if the person is under guardianship, there is
private auctions (not yet an offer) a presumption of insanity
- Exception: Public biddings are offers. The
auctioner is bound to accept the highest bidder C. Deaf-mute who do not know how to read and write
The person is deaf-mute AND illiterate
Art. 1327. The following cannot give consent to a - If he knows how to read and write, he is not
contract: incapacitated
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who - If the person is illiterate but is not a deaf-mute, he is
do not know how to write. NOT incapacitated
Art. 1328. Contracts entered into during a lucid  Presumption that there was vitiation of consent
interval are valid. Contracts agreed to in a state of drunkenness  The party enforcing the contract must prove that
or during a hypnotic spell are voidable. the illiterate person was appraised fully of the
effect and contents of the contract
PERSONS INCAPACITATED TO GIVE CONSENT
Contracts entered into by the following is valid, but
defective (voidable contracts) Art. 1332. When one of the parties is unable to read,
or if the contract is in a language not understood by him, and
A. Minor mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to
The defect may be assailed only by the minor, guardian,
the former.
or parent, not by the party who is capacitated
INCOMPETENTS (Rule 93, Sec. 2)
Exceptions: Contracts entered into by a minor is valid 1. Persons under civil interdiction
1. When a minor is represented by his legal or natural 2. Hospitalized lepers, prodigals, deaf & dumb
guardian 3. Unsound mind
4. Person who cannot take care of themselves
2. When a minor misrepresents his age because of age, disease or weak minds
Requisites:
Note: All those who are incapacitated are incompetent.
a) The minor physically appears to be an adult
But, not all incompetents are incapacitated
b) The minor must have made active representation
(not merely constructive or passive GR: Incompetents may enter into a contract which would
misrepresentation) not result to a defect
Case: Braganza vs Villa Abrille
 The failure of a minor to disclose his minority
when making a contract does not constitute a

11
Defective: If a judicial guardian has been appointed and Art. 1330. A contract where consent is given through
the incompetent enters into a contract without knowledge mistake, violence, intimidation, undue influence, or fraud is
of the guardian voidable.

Cases: Yason vs Arciaga (GR No 145017); Landicho vs Requisites of consent

Sia (GR No. 169472) (1) Intelligent (no mistake)
- A person is not incapacitated to contract merely (2) Free and voluntary (no violence, intimidation,
because of advanced years or by reason of physical undue influence)
infirmities (3) Spontaneous (no fraud)
- It is only when such age or infirmities impair the (4) Real (the intention is not simulated)
mental faculties as to prevent one from properly,
intelligently, and fairly protecting her property rights,
VICES OF CONSENT
is she considered incapacitated
1. Vices of Declaration
- Simulation of Contracts
Art. 1329. The incapacity declared in article 1327 is
subject to the modifications determined by law, and is 2. Vices of the Will (vicios de la formacion de la
understood to be without prejudice to special disqualifications voluntad)
established in the laws. a. Mistake
b. Violence
DISQUALIFIED - It refers to those who are prohibited
c. Intimidation
from entering into a contract with certain persons with
d. Fraud
regard to certain property under certain circumstances and
e. Undue Influence
not to those who are incapacitated to give their consent to
a contract Intelligent consent is vitiated by mistake or error; free
consent by violence, intimidation and undue influence;
Types of Disqualification spontaneous consent by fraud.
1) Relative Disqualification
Art. 1331. In order that mistake may invalidate
- Only to particular contracts
consent, it should refer to the substance of the thing which is the
- Ex. Husband and wife are not allowed to object of the contract, or to those conditions which have
donate to each other principally moved one or both parties to enter into the contract.
2) Absolute Disqualification Mistake as to the identity or qualifications of one of
- Disqualification for any and all types of the parties will vitiate consent only when such identity or
contracts qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its
Incapacity Disqualification correction.
Restrains the existence of Restrains the very right
the right to contract itself MISTAKE
Can still enter into a Prohibited from entering a - Refers to the substance of the thing which is the object
contract through parent or particular contract of the contract, or to those conditions which have
guardian principally moved one or both parties to enter into the
Based upon subjecting Based upon public policy contract
circumstances of certain and morality - Art. 1331 includes mistake and ignorance
persons
Voidable Void
Mistake Ignorance
False notion about a Complete absence of any
matter notion about a particular
matter

12
1. Mistake in Manifestation (Error in obstativo) Art. 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is frustrated,
may vitiate consent.
2. Mistake in the Formation/Contents
a. Mistake as to the identity of the thing (error in Requisites of Art. 1334:
corpore) - the thing which constitutes the object 1. It must be of past and present fact
of the contract is confused with another thing 2. It must not be imputable to the party mistaken
 VOID. Not referred to in Art. 1331 3. Mistake must be with respect to the legal effect of
an agreement
b. Mistake as to the substance of the thing (error in 4. It must be mutual
substantia) – affects the materials which compose 5. Parties’ real purpose must have been frustrated
the thing, the error is in the thing itself
 VOIDABLE
Mistake as to the Identity or Qualification of Parties
c. Error over determining attributes or Art. 1331, par. 2: Mistake as to the identity or
characteristics of the thing which is foreign to its qualifications of one of the parties will vitiate consent
matter – the mistake is in appreciating the only when such identity or qualifications have been the
extrinsic characteristic of the thing principal cause of the contract
 VOIDABLE
Requisites:
Ex. You bought a painting you thought was made
1. Mistake is with regard either to the identity or
by Rembrandt. It turns out, it was made by
qualification of one of the contracting parties
another
2. Identity and qualification must have been the
principal consideration for the celebration of the
d. Mistake as to the quantity of the thing (error in
contract
quantitate) – refers to the extension or dimension
of the object (not a mistake of account) Case: The Roman Catholic Church vs Pante (669
 VOIDABLE SCRA 234)
Requisites of Mistake (b-c) to Vitiate Consent:
1) It must be of a past or present fact
Art. 1335. There is violence when in order to wrest
2) It must have induced the parties
consent, serious or irresistible force is employed.
3) It must be imputable to the party mistaken There is intimidation when one of the contracting
4) It must be of fact parties is compelled by a reasonable and well-grounded fear of
an imminent and grave evil upon his person or property, or upon
the person or property of his spouse, descendants or ascendants,
Mistake of Fact Mistake of Law to give his consent.
One or both contracting One or both parties arrive To determine the degree of intimidation, the age, sex
parties believe that a fact at an erroneous and condition of the person shall be borne in mind.
exists when in reality it conclusion regarding the A threat to enforce one’s claim through competent
does not or vice versa interpretation of a authority, if the claim is just or legal, does not vitiate consent.
question of law or legal
effects of a certain act or Art. 1336. Violence or intimidation shall annul the
transaction obligation, although it may have been employed by a third
Vitiates consent GR: Does not vitiate person who did not take part in the contract.
consent
Except: When it involves
mutual error as to the
VIOLENCE AND INTIMIDATION
effect of an agreement
when the real purpose is Violence Intimidation
frustrated (Art. 1334) Physical compulsion Moral compulsion
External or prevents the Internal or influences the
expression of the will operation of the will,

13
 substituting it with a inhibiting it in such a way Test of Undue Influence:
material act dictated by that the expression thereof Whether or not the influence exerted has so overpowered
another is apparently that of a or subrogated the mid of a contracting party as to destroy
person who has freely his free agency, making him express the will of another
given his consent rather than his own.
Requisites: Requisites: De Leon vs
1) Must be serious or CA, 186 SCRA 345 - The influence of another must have so overpowered
irresistible 1) One party is or subjugated the mind of a contracting party as to
2) Must be the compelled to give his destroy his free agency, making him express the will
determining cause for consent by a of another
the party upon whom reasonable and well-
it is employed in grounded fear of an Circumstances considered to determine whether the
entering the contract evil influence exerted is unreasonable:
3) It is not justified 2) The evil must be 1) Confidential or fiduciary relations – one has
4) It is sufficient imminent and grave power over the other
3) The evil must be upon 2) Family relations
his person or 3) Spiritual relations
property, spouse, 4) Other relations between the parties
descendants or
ascendants; and Requisites of Undue Influence: (Loyola vs CA, GR No
4) It is the reason why he 115734)
enters the contract 1. A person can be influenced
5) The evil must be - In the absence of a confidential or fiduciary
unjust relationship between the parties, the law does
not presume that one person exercised undue
Consent given through intimidation must not be confused
influence upon the other
with consent given reluctantly and even against good
sense and judgment. 2. The fact that improper influence was exerted
- It is clear that one acts as voluntarily and
3. Submission to the overwhelming effect of such
independently in the eyes of the law when he acts
unlawful conduct
reluctantly and with hesitation as when he acts
spontaneously and joyously. Cases:
- Bañez vs CA (59 SCRA 15): Solicitation,
Cases: Vales vs. Villa, 35 Phil. 769;
importunity, argument, and persuasion are not undue
Lee vs CA; influence and a contract is not to be set aside merely
BPI vs Fernandez
because one party used these means to obtain the
consent of the other.
Art. 1337. There is undue influence when a person
- Martinez vs. Hong Kong and Shanghai Bank (15
takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The Phil. 252): Influence obtained by persuasion or
following circumstances shall be considered: the confidential, argument or by the appeals to the affections is not
family, spiritual and other relations between the parties, or the prohibited
fact that the person alleged to have been unduly influenced was - Common in these cases is the absence of a
suffering from mental weakness, or was ignorant or in financial confidential or fiduciary relationship
distress.

UNDUE INFLUENCE Reverential Fear

- Fear of displeasing persons to whom obedience and
- When a person takes improper advantage of his power
respect are due
over the will of another, depriving the latter of a
- Reverential fear does not vitiate consent
reasonable freedom of choice.
- If the deprivation of his agency is not proved, there is
NO undue influence which will vitiate the contract

14
 Art 1338. There is fraud when, through insidious 4) It must have been employed by one contracting
words or machinations of one of the contracting parties, the party upon the other and not employed by both
other is induced to enter into a contract which, without them, he contracting parties or by a third person
would not have agreed to. 5) Damage or injury resulted to the other party
Art. 1343. Misrepresentation made in good faith is not 6) It must be made in bad faith
fraudulent but may constitute error.
Art. 1344. In order that fraud may make a contract What is the evidence required to establish the existence of
voidable, it should be serious and should not have been fraud or bad faith in the perfection of the contract?
employed by both contracting parties. - Clear and convincing proof
Incidental fraud only obliges the person employing it
- It requires more than preponderance of evidence but
to pay damages.
less than reasonable doubt

FRAUD Art. 1339. Failure to disclose facts, when there is a

When, through insidious words or machinations of one duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
party, the other is induced to enter into a contract which
without them, he would not have agreed to. Failure to Disclose Facts
- Presupposes a duty to disclose the truth. The
Kinds of Fraud: disclosure was not made when the opportunity to
1) Fraud in the Perfection of the Contracts (Art. 1338) speak was presented
- No pre-existing obligation - Guinhawa vs People, 468 SCRA 278
- Cause of action: damages - Rural Bank of Sta. Maria, Pampanga vs Court of
- Classified into two Appeals, GR No. 110672
a. Dolo causante – can ask for annulment and
damages
b. Dolo incidente – can sue for damages Art. 1341. A mere expression of an opinion does not
(Read Woodhouse vs Halili, 93 Phil 526) signify fraud, unless made by an expert and the other party has
relied on the former’s special knowledge.
2) Fraud in the performance/fulfillment of an GR: Mere expression of an opinion is not a ground for
Obligation (Art. 1171) annulment
- Action for performance and damages - Except, when the contracting party relied on the
Dolo Causante (1338) Dolo Incidente (1344) expert’s opinion and the opinion turned out to be
Those deceptions or Those deceptions or false, which the expert already knew
misrepresentations of a misrepresentations which - Case: Songco vs Sellner, 37 Phil 254
serious character are not serious in
employed by one party character and without
and without which the which the other party Art. 1342. Misrepresentation by a third person does
other party would not would have still entered not vitiate consent, unless such misrepresentation has created
have entered into the the contract. substantial mistake and the same is mutual.
contract
Fraud by a Third Person
It is the cause which Not the cause
induces the party to enter General Rule:
into a contract Misrepresentation by a third person does not vitiate
Renders the contract Liability for damages consent
voidable
- The party to the contract cannot ask for annulment
Requisites of Fraud (Art. 1338):
1) One party must have employed fraud or insidious
words or machinations
2) It must have been serious
3) It induced the other party to enter into a contract

15
Exceptions: - The hidden contract will be binding to the parties as
a. It has created a substantial mistake and the same long as it does not prejudice third parties or it is not
is mutual entered into in violation of law, morals, public policy,
- Both or all parties to the contract were duped. pubic order
They can ask for annulment - If a third party is prejudiced, he can assert the validity
of the agreement. If contrary to law, it is void
b. Third person causes the deceit in connivance - The third party may insist on the validity of the
with, or at least with the knowledge, without ostensible contract.
protest, of the favored party (Hill vs Veloso)

Art. 1345. Simulation of a contract may be absolute or

relative. The former takes place when the parties do not intend
to be bound at all; the latter, when the parties conceal their true
agreement.

Art. 1346. An absolutely simulated or fictitious

contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.

SIMULATION OF CONTRACTS
A deliberate declaration contrary to the will of the parties
1) Agreement of the parties to the apparently valid
act
2) The purpose is to deceive or to hide from third
persons although it is not necessary that the
purpose be illicit or for purposes of fraud
Kinds of Simulated Contract
1. Absolute (simulados)
– Parties do not intend to be bound by the contract
at all. This is VOID

2. Relative (disimulados)
- Parties conceal their true agreement. It binds the
parties to their real agreement, when it does not
prejudice a third person and is not intended for
any purpose contrary to law, morals, good
customs, public order or public policy

- Two judicial acts:

a. Ostensible act – entering into a contract to
make it appear as such
b. Hidden act – the real intention of the parties

Ex. Entering into a contract of sale (ostensible act), to hide

the intention of entering into a contract of donation
(hidden act)

16
 SECTION 2. – OBJECT OF CONTRACTS consortium, or from the relationship of
paternity and filiation, like patria potestas)
Art. 1347. All things which are not outside the
- Political rights (such as the right to hold a
commerce of men, including future things, may be the object of
a contract. All rights which are not intransmissible may also be public office and the right of suffrage)
the object of contracts. - Case: Saura vs Sindico
No contract may be entered into upon future
inheritance except in cases expressly authorized by law. 3. Future inheritance except in cases expressly
All services which are not contrary to law, morals, authorized by law
good customs, public order or public policy may likewise be the
object of a contract. Requisites of Art. 1347, par. 2:
a) The succession has not been opened
OBJECT OF THE CONTRACT: The thing, right or b) The object of the contract forms part of the
service which is the subject matter of the obligation inheritance
arising from the contract. c) The promissor has an expectancy of a right
which is purely hereditary in nature
Ex. Contract to sell a car
- Object of the obligation arising from the contract: Exceptions:
to give (1) Partition inter vivos (Art. 1080)
- Object of the contract: the car (2) Donation in consideration of marriage (Art.
REQUISITES: 84, FC)
1. The object should be within the commerce of men
Requisites: 4. Services contrary to law, morals, good customs,
a. The thing, right, or service should be public order and public policy
susceptible of appropriation or private
ownership 5. Impossible things or services
b. It is transmissible 2 types
a. Absolute impossibility – Nobody can do it;
2. The object should be real or possible VOID
3. The object should be licit b. Relative impossibility – May not be
- Not contrary to law, morals, good customs, public performed because of a special condition or
order and public policy may be the object of a qualification of the obligor
contract - If the relative impossibility is permanent,
VOID
4. The object should be determinate, or at least - If the impossibility is temporary, VALID
possible of determination as to its kind
- “Determinate” here is not the same as the 6. Objects not possible of determination as to their
obligation to deliver a “determinate” (or kind
specific) object
A future thing may be the object of a contract
“Future thing” – Anything which is not yet owned or
Things which CANNOT be the Object of Contracts possessed by the obligor at the time of the celebration of
1. Things outside the commerce of men the contract. It may be manufactured, raised, or acquired
- Those things which are such by their very after the perfection of the contract
nature, such as common things like the air or
the sea, sacred things, res nullius, and property
belonging to the public domain;  The contract may be interpreted in two ways:
1) Conditional Contracts
2. Intransmissible rights  If its efficacy should depend upon the future
- Personal rights (such as those arising from the existence of the thing
relationship of husband and wife, like jus

17
  If the thing fails to come into existence after SECTION 3. – CAUSE OF CONTRACTS
perfection of the contract, then it was never
Art. 1350. In onerous contracts the cause is
perfected (no juridical tie)
understood to be, for each contracting party, the prestation or
promise of a thing or service by the other; in remuneratory ones,
2) Aleatory Contracts the service or benefit which is remunerated; and in contracts of
 If one of the contracting parties should bear pure beneficence, the mere liberality of the benefactor.
the risk that the thing will never come into
existence Art 1351. The particular motives of the parties in
entering into a contract are different from the cause thereof.
 The contract does not depend on the future
existence of the thing It is the immediate, direct or most proximate reason which
Note: See Art. 751 explains and justifies the creation of an obligation through
- The thing to be donated must be existing at that time the will of the contracting parties.
of perfection. If not, the donation is VOID - The cause is the essential reason which moves the
- Deemed perfected at the time the acceptance in contracting parties to enter into the contract
writing is conveyed and made known to the donor - The cause is the prestation of the obligation

3 Types of Contracts with Regard to Cause

1. Onerous – The cause for each contracting party is
understood to be the prestation or promise of a thing
or service by the other
- In reciprocal contracts
- Ex. Contract of Sale (selling a car)
Cause of S: for the buyer to pay
Cause of B: to acquire the car
Object: the car

2. Remuneratory – The cause is the service or benefit

for which remuneration is given
- There is no obligation to pay or give
compensation for the service or benefit.
Payment was done out of volition
- Onerous donation
- Ex. There is no agreement between the old man
and care giver. If the latter still extends his
service, and the old man paid for it (although it
is not obligatory for him), it is remuneratory

3. Gratuitous/Pure beneficence – The cause is the

liberality of the benefactor
- A donation is given not for any past service
- Ex. Giving food and money to those who lost
their jobs during the pandemic

Essential Requisites of Cause:

1) The cause should be existing at the time of the
celebration of the contract;
2) The cause should be licit or lawful; and
3) The cause should be true.

18
 Cause Object - In a relative simulated contract, the parties make it
In remuneratory contracts appear that they entered into a type of agreement,
In remuneratory contracts, The object is the thing which although they had a different agreement in mind.
the cause is the service or is given in remuneration
 The cause is simulated, it is pure beneficence
benefit which is remunerated
In gratuitous contracts - Relate Art 1353 to Art 1471
In gratuitous contracts, the The object is the thing which
cause is the liberality of the is given or donated
Art. 1354. Although the cause is not stated in the
donor or benefactor
contract, it is presumed that it exists and is lawful, unless the
In onerous contracts
The cause is the prestation or The thing or service itself debtor proves the contrary.
promise of a thing or service Art. 1355. Except in cases specified by law, lesion or
by the other inadequacy of cause shall not invalidate a contract, unless there
Different with respect to May be the same for both
has been fraud, mistake or undue influence
each party parties
GR: Lesion or inadequacy of the cause does not affect the
validity of the contract
Cause Motive 1
Direct and most proximate Indirect or remote reason Exceptions:
reason of a contract
a) When there was fraud, mistake, or undue
Objective or juridical reason Psychological or purely
of a contract personal reason influence (vices of consent);
b) When the parties intended a donation or some
Always the same for each Differs for each contracting
contracting party party
other contract.

Its legality affects the Its legality does not affect

existence or validity of the the existence or validity of Case: Buenaventura vs Court of Appeals, GR No 126376
contract contract.  Want of cause is different from failure to pay
Cases (the motive and cause are one): consideration
-The motive may be regarded as causa when it pre-  The former prevents the existence of a contract,
determined the purpose of the contract (Liguez vs. CA, No L-
the latter results in a right to demand fulfillment
11240)
- Uy vs CA and National Housing Authority, GR No. 120465 or cancellation of the obligation under a valid
contract
Art. 1352. Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is unlawful if it is
contrary to law, morals, good customs, public order or public
policy.

- If the contract has no existing cause, it is inexistent

 Art. 1412 does not apply
- If the cause is existing and true at the time the contract
was entered into but it was illegal/illicit
 The contract is VOID. Apply Art. 1412 (in pari
delicto)
Art. 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that they were
founded upon another cause which is true and lawful.

- The provision applies only to an absolute simulated

contract

1
The condition of mind which incites to action, but
includes also the influence as to the existence of such
contract

19
 CHAPTER 3 e. The power to administer property or those
FORM OF CONTRACTS which should prejudice a third person (Art.
1358 (3);
Art. 1356. Contracts shall be obligatory, in whatever
f. The cession of actions or rights proceeding
form they may have been entered into, provided all the essential
requisites for their validity are present. However, when the law from an act appearing in a public document
requires that a contract be in some form in order that it may be (Art. 1358 (4))
valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable. In such 3) Those which must be registered
cases, the right of the parties stated in the following article a. Chattel mortgages (Art. 2140)
cannot be exercised. b. Sale/transfer of large cattle (Cattle Registration
Act)
GR: Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential Formalities for Enforceability
requisites for their validity are present - Contracts are unenforceable unless it complies with
Statute of Frauds, except if ratified [Art. 1403 (2)]
Exceptions:
- Requirement: Written memorial or memorandum in
1. When the law requires that the contracts be in a writing containing the essential requisites of contracts
certain form to be valid (Art. 1356)
Art. 1357. If the law requires a document or other
2. When law requires that the contract be in a certain special form, as in the acts and contracts enumerated in the
form to be enforceable (Statute of Frauds) following article, the contracting parties may compel each other
to observe that form, once the contract has been perfected. This
3. When required to make the contract effective against right may be exercised simultaneously with the action upon the
third parties (Art. 1357-1358) contract.

- Where the validity of a contract is made to depend

Formalities for Validity (Formal/Solemn Contracts) upon a particular formality, an action under Art. 1357
1) Those which must appear in writing cannot be brought to compel the other party to execute
a. Donation of personal property whose value such formality.
exceeds P5,000 (Art. 748) - The Article applies only when form is needed only for
b. Sale of a piece of land or any interest therein convenience, not for validity or enforceability.
through an agent (Art. 1874) - Article 1357 presupposes the existence of a valid
c. Agreements regarding payment of interest in contract and cannot possibly refer to the form to make
contracts of loan (Art. 1956); it valid.
d. Antichresis (Art. 2134); and
Art. 1358. The following must appear in a public
e. Stipulation limiting common carrier’s duty of
document:
extraordinary diligence to ordinary diligence (1) Acts and contracts which have for their object the
(Art. 1744) creation, transmission, modification or extinguishment of real
rights over immovable property; sales of real property or of an
2) Those which must appear in a public document interest therein are governed by articles 1403, No. 2, and 1405;
a. Donation of immovable properties (Art. 749); (2) The cession, repudiation or renunciation of
b. Partnership where immovable property or real hereditary rights or of those of the conjugal partnership of gains;
rights are contributed (Arts. 1171 and 1773); (3) The power to administer property, or any other
c. Acts/contracts which have for their object the power which has for its object an act appearing or which should
appear in a public document, or should prejudice a third person;
creation, transmission, modification or
(4) The cession of actions or rights proceeding from an
extinguishment of real rights over immovable
act appearing in a public document.
property [Arts. 1358 (1), 1403 (2), 1405]; All other contracts where the amount involved exceeds
d. The cession, repudiation or renunciation of five hundred pesos must appear in writing, even a private one.
hereditary rights or of those of the conjugal But sales of goods, chattels or things in action are governed by
partnership of gains [Art. 1358 (2)]; articles 1403, No. 2 and 1405

20
Principles of Articles 1357 and 1358 CHAPTER 4
REFORMATION OF INSTRUMENTS
1) Arts. 1357-1358 do not require the execution of the
contract either in a public/private document in order Art. 1359. When, there having been a meeting of the
to validate/enforce it but only to insure efficacy, so parties to a contract, their true intention is not expressed in the
that after its existence has been admitted, the party instrument purporting to embody the agreement, by reason of
bound may be compelled to execute the necessary mistake, fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the instrument to the end
document.
that such true intention may be expressed.
2) Even where the contract has not been reduced to the
required form, it is still valid and binding as far as the If mistake, fraud, inequitable conduct, or accident has
contracting parties are concerned. Consequently, both prevented a meeting of the minds of the parties, the proper
articles presuppose the existence of a contract which remedy is not reformation of the instrument but annulment of
is valid and enforceable the contract.
3) When one of the contracting parties invokes Art. 1357 Reformation of Instruments
and 1358 by means of proper action, the effect is to When the true intention of the parties to contract are not
place the existence of the contract in issue, which expressed in the instrument purporting to embody their
must be resolved by the ordinary rules of evidence agreement by reason of mistake, fraud, inequitable
4) Actions to compel the execution of the necessary conduct or accident, one of the parties may ask for the
document and action upon the contract may be reformation of the instrument so that such true intention
exercised simultaneously, unless it appears that the may be expressed.
former action must precede the latter.
5) Although Art. 1357, in connection with Art. 1358, do - Reformation is that remedy in equity by means of
not operate against the validity of the contract nor the which the instrument is amended to conform to the
validity of the acts voluntarily performed by the real intention of the parties.
parties for the fulfillment thereof, it is evident that
under them execution of the required document must Requisites:
precede the determination of the obligations derived 1. There must be a meeting of the minds of the
from the contract. contracting parties
2. Their true intention is not expressed in the
 The contracts covered by Art. 1358 are binding and instrument
enforceable by action or suit despite the absence of 3. Such failure to express their true intention is due
any writing because said article nowhere provides to mistake, fraud, inequitable conduct or accident
that the absence of written form will make the 4. Clear and convincing proof of mistake, accident,
agreement invalid or unenforceable [Dauden- relative simulation, fraud, or inequitable conduct
Hernaez v. de los Angeles, et. al (L-27010)]
Reformation Annulment
Presupposes a valid Based on a defective
contract in which there contract where there has
has already been a been no meeting of the
meeting of the minds but minds because of vitiated
the document/instrument consent
executed does not express
their true intention
Gives life to the contract Involves a complete
by making the instrument nullification of the
conform to the true contract
intention of the parties
(Does not invalidate a
contract)

21
When a Party can Ask for Reformation: 5. When one of the parties brought an action to enforce
1) In case of mutual mistake of the parties (Art. 1361) the contract, there can be no subsequent reformation
- The mistake must be mutual (estoppel)
- Mistake of fact (not of law)
- Case: Bank of the Philippine Islands v. Fidelity Art. 1368. Reformation may be ordered at the instance
and Surety Company of the P.I., 51 Phil. 57 of either party or his successors in interest, if the mistake was
mutual; otherwise, upon petition of the injured party, or his
heirs and assigns.
2) When one party was mistaken and the other party
acted fraudulently (Art. 1362) Plaintiffs in Action for Reformation:
- Mistake is unilateral and the other party acted 1. The injured party, namely:
fraudulently a. The person mistaken. If the mistake is
mutual, either party or successors in interest
3) When one party was mistaken, the other knew or b. The person defrauded
believed that the instrument does not show their real c. Victim of the inequity
intent but concealed the fact to the former (Art. 1363) d. Victim of the accident
- Mistake is unilateral, but the other party is guilty e. The person whose rights are prejudiced by
of concealment the relative simulation (if contract will be
- The party in good faith can ask for reformation given effect)

4) In case of ignorance, lack of skill, negligence or bad 2. His heirs and assigns
faith on the part of the person drafting the instrument
or of the clerk or of the typist (Art. 1364)

5) When parties agree upon the mortgage or pledge of a

real or personal property, but the instrument state that
the property is sold absolutely or with a right or
repurchase (Art. 1365)

Art. 1366. There shall be no reformation in the

following cases:
(1) Simple donations inter vivos wherein no condition
is imposed;
(2) Wills;
(3) When the real agreement is void.

Art. 1367. When one of the parties has brought an

action to enforce the instrument, he cannot subsequently ask for
its reformation.

Reformation is Not Allowed:

1. Simple donation inter vivos wherein no condition is
imposed
2. Wills
3. When the agreement is void (Art. 1366)
- If mistake, fraud, inequitable conduct or
accident prevented a meeting of the minds of the
parties, the proper remedy is annulment of the
contract
- Expediency and convenience are not grounds for
reformation
4. An oral contract

22
 CHAPTER 5 Doubtful Words/Terms
INTERPRETATION OF CONTRACTS - Seek clarity by:
1. Words having different significations should be
Art. 1370. If the terms of the contract are clear and
understood in a way that is in keeping with the
leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control nature and object of the contract (Art. 1375)
If the words appear to be contrary to the evident 2. But, if the words are general, do not construe
intention of the parties, the latter shall prevail over the former. them to include things that are distinct and cases
that are different from those intended by the
Art. 1371. In order to judge the intention of the parties (Art. 1372, par. 2)
contracting parties, their contemporaneous and subsequent acts
3. Interpretation should not favor the party causing
shall be principally considered.
the obscurity (Art. 1377)
The cardinal rule in the interpretation of contracts is that
Doubts as to the principal object
the intention of the contracting parties should always
- Void
prevail because their will has the force of law between
them.
If the rules above are not enough:
 If the intention of the parties is not clear from the a. If gratuitous, and the doubts refer to incidental
contract’s language, the parties’ intention prevails circumstances, apply the rule of least transmission
of rights and interests
Ascertain intent from: b. If onerous, apply the rule of the greatest
1. The contract as a whole (Art. 1374) reciprocity of interests
2. The contemporaneous and subsequent conduct of
the parties (Art. 1371)
3. The usage or customs of the country (Art. 1376) Art. 1379. The principles of interpretation stated in
Rule 123 of the Rules of Court shall likewise be observed in the
 The obscurity will be construed against the party who construction of contracts.
caused the obscurity (Paras, supra, p. 723)
Refers to Rule 130 of the New Rules of Evidence
1. Language in the Place of Execution ((Sec. 8, Rule
Art. 1378. When it is absolutely impossible to settle 130)
doubts by the rules established in the preceding articles, and the - The language of a writing is to be interpreted
doubts refer to incidental circumstances of a gratuitous contract, according to the legal meaning it bears in the
the least transmission of rights and interests shall prevail. If the place of its execution,
contract is onerous, the doubt shall be settled in favor of the - Unless the parties intended otherwise
greatest reciprocity of interests.
If the doubts are cast upon the principal object of the 2. Meaning of Words Used
contract in such a way that it cannot be known what may have
- The terms of a writing are presumed to have been
been the intention or will of the parties, the contract shall be null
used in their primary and general acceptation
and void.
- but evidence is admissible to show that they have
Doubtful Clauses a local, technical, or otherwise peculiar
- Deal with the doubt by: signification, and were so used and understood in
1. Interpreting according to the usage and customs the particular instance, in which case, the
of the place (Art. 1376) agreement must be construed accordingly
2. If there are several meanings, use the one which
will render it most effective (Art. 1373) 3. Conflict Between Printed and Written (Not Printed
3. Interpreting doubtful stipulations together with Words) [Sec. 13, Rule 130]
others; construe them as parts of a whole (Art. - When an instrument consists partly of written
1374) words and partly of a printed form, and the two
4. Interpretation should not favor the party causing are inconsistent, the former controls the latter.
the obscurity (Art. 1377)

23
4. Use of Experts and Interpreters (Sec. 14)
- When the characters in which an instrument is
written are difficult to be deciphered, or the
language is not understood by the Court, the
evidence of persons skilled in deciphering the
characters, or who understood the language, is
admissible to declare the characters or the
meaning of the language

5. Interpretation in Favor of a Natural Right (Sec. 14)

- When an instrument is equally susceptible of two
interpretations, one in favor of a natural right and
the other against it, the former is to be adopted

6. Usage or Customs (Sec. 17)

- An instrument may be construed according to
usage, in order to determine its true character

24
 CONTRACTS REVIEWER

As to nature of Effect on Can it be By Who can it When can it Can it be By whom can Period of
defect Contract assailed? be Assailed? be Assailed? Cured? If it be Cured? Curing
If so, How? so, how?
Rescissible Economic preju- Valid until Yes, by direct GR: Injured Within 4 years Yes, by GR: by the Within 4 years
Contracts dice (lesion) or rescinded by a action for party from (re-) ratification injured party from gaining
(Arts 1381- damage to owner competent rescission only. gaining - The ward capacity
1389) or 3rd person or court By ward, or capacity
litigant through Note: There is By guardian ad
fraud – Arts. no rescission if: litem during
1381 & 1382 incapacity of
a) A party the ward in an
1) Contracts of suffering action against
guardians (acts damage has the original
of other legal guardian
administration) means to obtain
when wards they reparation
represent suffer (action is
lesion of more subsidiary)
than 25% of b) Plaintiff
value of the thing cannot return
what must be
restored;
c) Object is in
hands of 3rd
persons in good
faith; or
d) Contract is
approved by
court

2) contracts in -same- -same- By absentee Within 4 years Yes By absentee Within 4 years
representation of from from
absentees when knowledge of knowledge of
the latter suffer domicile of domicile of
lesion of more absentee knowledge of
than 25% of fraudulent act
value

1Q | 2019-2020 | Dean Ulan | 25

3) Contracts By creditor Within 4 years Yes By creditor Within 4 years
entered into by -same- -same- from from
debtor who is in n.b. (a) to (c) knowledge of knowledge of
state of only fraudulent fraudulent
insolvency; contract contract
i.e. contracts
entered into in
fraud of creditors
(the action is
called the accion
pauliana)
-same- -same- By party -same- Yes By party -same-
4) Contracts n.b. (a) to (c) litigant litigant
which refer to only
things in
litigation without
knowledge &
approval of
litigants or
competent
judicial authority
-same- -same-
5) Contracts (a) to (c) only
specially
declared by law
to be rescissible
(Art. 1098)
-same- -same- By creditor Within 4 years Yes, by By creditor Within 4 years
6) Payments (a) to (c) only from ratification from
made by debtor knowledge of knowledge of
in state of fraudulent fraudulent
insolvency for payment payment
obligation of
which debtor
cannot be
compelled. E.g.
obligation is not
due

26
 As to nature of Effect on Can it be By Who can it When can it Can it be By whom can Period of
defect Contract assailed? be Assailed? be Assailed? Cured? If so, it be Cured? Curing
If so, How? how?
Voidable Legal Valid until Yes. By direct By the party Within 4 years Yes. By By party who Within 4 years
Contracts incapacity (to annulled action to annul, who is from gaining ratification is incapacitated from gaining
(Arts. 1390- give consent) of or incapacitated or regaining (confirmation) or regaining
1402) one of the collaterally, by capacity to act capacity to act
contracting way of defense
parties to an action for
specific
performance
Vitiation of -same- -same- By party Within 4 years -same- By party Within 4 years
consent of one whose consent from cessation whose consent from cessation
of the was vitiated of force, was vitiated of force,
contracting intimidation or intimidation,
parties (thru undue or undue
mistake, influence or 4 influence, or
intimidation, years from 4 years from
violence, undue discovery of discovery of
influence or fraud or fraud or
fraud) mistake mistake

27
 Nature of defect Effect on Can it be By Who can it When can it be Can it be Cured? By whom can it Period of
Contract assailed? be Assailed? Assailed? If so, how? be Cured? Curing
If so, How?
Contract entered Cannot be Yes. Not by direct By owner of At the time one By ratification Person in whose
Unenforceable into in the name enforced by a action but by property party attempts name contract is
Contracts (Arts. of the owner proper action in defense of to enforce the entered into
1403-1408) without authority court unenforceability contract against
or in excess of of contract the other
authority through motion to through a court
dismiss on the action
ground that
contract is
unenforceable
Contracts -same- Yes. By defense By other party or -same- By By party against
covered by the of unenforce- his privies acknowledgement whom the
Statute of Frauds ability of contract or performance of contract is being
& not complying either through: oral contract or by enforced
with the (1) motion to failure to object
requirement of a dismiss complaint seasonable to
written memo on the ground that presentation of oral
contract is evidence, or by
unenforceable acceptance of
(2) objection to benefits under the
presentation of contract
oral evidence to
to prove oral
contract

Both parties are -same- Yes, by defense By other party or -same- By confirmation By parents or
legally of unenforce- privies or by guardians of
incapacitated to ability of contract guardian both parties, or
act through motion to both parties after
dismiss complaint N.B. Cannot be regaining
on the ground that assailed by 3rd capacity to act
contract is persons (Art.
unenforceable 1408)

28
 As to nature of Effect on Can it be By Who can it When can it Can it be Cured? By whom can Period of
defect Contract assailed? be Assailed? be Assailed? If so, how? it be Cured? Curing
If so, How?
Void or Cause, object or Does not Yes, by an By innocent Imprescriptible Cannot be cured
Inexistent purpose of create rights action for party or 3rd
Contracts contract is and cannot declaration persons whose
(Art. 1409) contrary to law, impose interests are
morals, good obligation directly
customs, public affected. (If the
order or public parties are in
policy (Art. pari delicto,
1409 (1)) neither has an
action against
the other)
One or some of -same- -same- By any of the -same- -same-
the essential contracting
requisites of parties, or
valid contract
lacking in fact 3rd persons
or in law: whose interests
(a) absolutely are directly
simulated or affected
fictitious
contract
(b) those whose
cause or object
did not exist at
the time of
transaction
(c) object
outside the
commerce of
man
(d) contemplate
an impossible
service
(e) where
intention of
parties re:
principal object
of contract
cannot be

29
ascertained Art.
1409 (2) to (6)

Contract -same- -same- By the party -same- -same-

expressly for whose
prohibited by protection the
law Art. 1409 prohibition of
(7) the law is
designed or

3rd persons
whose interests
are directly
affected

30
 CONTRACTS REVIEWER

DEFECTIVE CONTRACTS As to how contracts may be assailed

Rescissible Voidable Unenforceable Void/ Assailed
Inexistent directly,
May be assailed directly or collaterally
As to defect and not
Damage or Vitiation of The contract is Void: Defect collaterally
injury to consent entered into in is caused by
one of the excess or illegality or
parties or to without any lack of CHAPTER 6
a third party authority, or essential RESCISSIBLE CONTRACTS
does not element/s
comply with Art. 1380. Contracts validly agreed upon may be
the Statute of Inexistent: rescinded in the cases established by law.
Frauds, or both Absence of at
contracting least one of Contracts which are valid but are defective because of
parties are the essential injury or damage to either of the contracting parties or to
legally requisites of third persons, as a consequence of which it may be
incapacitated a valid rescinded by means of a proper action for rescission.
contract
As to Status of the Contract  Before it is rescinded, the contract is valid and legally
Valid and Valid and Cannot be GR: Do not effective
enforceable enforceable enforced by a produce any
 It can be attacked only by means of direct action for
until until proper action in legal effect
rescinded annulled court rescission
As to Remedy
Requisites of Rescission:
Rescission Annulment; Ratification Declaration
ratification of absolute 1. The contract must be validly agreed upon
nullity or 2. Contract must be rescissible under Arts. 1381 and
inexistence 1382
As to prescription of action or defense 3. Party asking for rescission must have no other legal
Action for Action for The corres- Action for means to obtain reparation for the damages suffered
rescission annulment ponding action declaration
by him (Art. 1383)
prescribes prescribes for recovery, if of nullity or
in 4 years in 4 years there was total inexistence 4. Person demanding rescission must be able to return
or partial per- does not whatever he may be obliged to restore if rescission is
formance of the prescribe granted (Art. 1385)
unenforceable 5. Things which are the object of the contract must not
contract under
have passed legally to the possession of a third person
No. 1 or No. 3
of Art. 1403, acting in good faith (Art. 1385)
may prescribe. 6. Action must be brought within four years (Art. 1393)
As to susceptibility of ratification
Not Not Characteristics:
susceptible susceptible 1) Their defect consists in injury or damage either to one
Susceptible of ratification
of of ratification of the contracting parties or to third persons
ratification 2) Before rescission, they are valid and, therefore,
As to who may assail contracts legally effective
By a May be
3) They can be attacked directly only, and not
contracting assailed not
party or a only by a collaterally
third person contracting 4) They can be attacked only either by a contracting
who is party but party or by a third person who is injured or defrauded
prejudiced even by a 5) They are susceptible of convalidation only by
Only by a contracting party
or damaged third person prescription, and not by ratification
whose
interest is
directly
affected

1Q | 2019-2020 | Dean Ulan | 31

 Rescission Resolution (Art. 1191) CONTRACTS THAT ARE RESCISSIBLE
As to the Nature of the Remedy
A subsidiary action Principal action A. LESION
Lesion is the injury which one of the parties suffers by
As to Nature of the Contract virtue of a contract which is disadvantageous for him. To
Valid and binding until Valid and binding until give rise to rescission, the lesion must be known or could
rescinded resolved have been known at the time of making of the contract.
As to party who may institute action
Requisites:
May be instituted by a The action may be
1. The contract must have been entered into by a
contracting party or by a instituted only by a party
third person to the contract (injured guardian in behalf of his ward or by a legal
party) representative in behalf of an absentee
2. The contract must have been entered into without
As to causes
judicial approval
There are several causes The only ground is failure
or grounds (lesion, fraud, of one of the parties to 3. The ward or absentee must have suffered a lesion
other cases stated by law) comply with what is of more than ¼ of the value of the property which
incumbent upon him is the object of the contract
As to power of the courts
There is no power of the Courts shall have a 4. There must be no other legal means for obtaining
courts to grant an discretionary power to reparation for the lesion
extension of time for grant an extension for
performance of the performance provided 5. The person bringing the action must be able to
obligation so long as there that there is a just cause return whatever he may be obliged to restore
is a ground for rescission.
6. The object of the contract must not be legally in
The court is mandated to
grant the possession of a third person who did not act in
As to contracts which may be rescinded or resolved bad faith
Any contract may be Only reciprocal contracts Three Types of Lesion
rescinded may be resolved 1. Contracts in Behalf of the Ward
Those entered into by guardians where the ward
As to Prescriptive Period
suffers lesion or damage by more than ¼ of the value
Prescribes after 4 years After 10 years
of the things which are the objects thereof
 Applicable only to administrative matters, not to
acts of ownership
Art. 1381. The following contracts are rescissible:  If the guardian enters into a contract falling within
(1) Those which are entered into by guardians the scope of his powers, such as when the contract
whenever the wards whom they represent suffer lesion by more involves acts of administration, express judicial
than one-fourth of the value of the things which are the object approval is not necessary
thereof;
 Contract is rescissible if the ward suffers
(2) Those agreed upon in representation of absentees,
if the latter suffer the lesion stated in the preceding number;
lesion or damage mentioned
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due them;  A guardian is authorized only to MANAGE the
(4) Those which refer to things under litigation if they estate of the ward; should he DISPOSE a portion
have been entered into by the defendant without the knowledge thereof without authority from the court by way
and approval of the litigants or of competent judicial authority; of a contract, the same is unenforceable under
(5) All other contracts specially declared by law to be Art. 1403 (1)
subject to rescission.  NOT rescissible
Art. 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also rescissible.

32
 Issue: Whether or not the contract that was entered Action is initiated by a third party:
into by the guardian of which the ward suffered lesion a. Creditor to one of the contracting parties
is rescissible b. The plaintiff of an ensuing litigation over a
property
1) There must be a lesion suffered by more than ¼
c. Creditor who may have a right to claim for
2) The contract is an act of administration by the
payment from an insolvent debtor
guardian

2. Contracts in Behalf of Absentees Types of Frauds

Those agreed upon in representation of absentees, if 1. Those undertaken in fraud of creditors when the
the latter suffer lesion by more than ¼ of the value of latter cannot in any other manner collect the claims
the things which are subject thereof what due them (accion pauliana)

Example: The value of rent of one unit in an Requisites:

apartment complex is P25,000. The representative of (1) The plaintiff asking for rescission has a credit
the absentee leased it for only P10,000. prior to the alienation;
 This is not an act of ownership (no disposition) (2) The debtor has made a subsequent contract
conveying a patrimonial benefit to a third person;
Note: The sale of real property is an act of ownership. It
(3) The creditor has no other legal remedy to satisfy
will be unenforceable
his claim;
Note: If there is an approval of the court of the sale, (4) The act being impugned is fraudulent;
irrespective of the lesion or excess of authority by the (5) The third person who received the property
guardian or administrator, the contract is VALID (Neither conveyed, if it is by onerous title, has been an
rescissible nor enforceable) accomplice in the fraud

Acts of Ownership Acts of Management  Presupposes a judgement and unsatisfied

Disposition of immovable Disposition of personal execution which cannot exist when the debt is not
properties of ward with and movable properties of yet demandable at the time the rescissory action
judicial approval ward for his support is brought
 Secured creditors are also entitled to accion
3. Heirs (Art. 1098)
pauliana
Partition of inheritance where an heir suffers lesion of
at least ¼ of the shares to which he is entitled
Example: D has a P10 M loan from C. D was not
paying so C sued for enforcement of the payment.
B. CONTRACTS OF FRAUD  See Art. 1177
 Liquid assets of D are worth P500,000
Requisites:
 Personal and real assets would be subject to
1) There must be credit existing prior to the
auction sale in the process of payment by cession.
celebration of the contract
The proceeds consisted of only P2 M
2) There must be fraud, or at least, the intent to
commit fraud to the prejudice of the creditor
 Accion pauliana: C found out that D sold a condo
seeking the rescission
unit to A. C may prove that the sale entered into
3) The creditor cannot in any other legal manner
was to deprive him of the asset in payment of the
collect his credit
judgement debt.
4) The object of the contract must not be legally in
 C can institute an action for rescission by proving:
the possession of a third person who did not act in
a. He no longer has other recourse
bad faith
b. It was to defraud him

33
 Rescissible Contract Simulated Contract C. OTHER CAUSES STATED BY LAW
A valid contract There is no existing 1) Art. 1098
contract 2) Art. 1189(4) – deterioration of the thing through the
Can be assailed by Can be attacked by any fault of the debtor
creditors who became creditor, including one 3) Art. 1526(4) – right of unpaid seller to rescind
such before alienation subsequent to the contract 4) Art. 1538 – deterioration of the object of the sale
The action to rescind, or Insolvency of the debtor 5) Art. 1539 – sale of real estate with a statement of its
accion pauliana, requires making the simulated area at the rate of a certain price for a unit of measure
that the creditor cannot transfer is not a
or number and the vendor failed to deliver the area
recover in any other prerequisite to the nullity
stated, which should be not less than 1/10 of that
manner what is due him of the contract
Action for rescission Does not prescribe stated
prescribes in 4 years 6) Art. 1542 – the vendee does not accede to the failure
Case: Manila Banking Corporation v. Silverio, G.R. to deliver what has been stipulated
No. 132887 7) Art. 1556 – when through eviction, the vendee loses
a part of the thing sold of such importance, in relation
to the whole, that he would not have bought it without
2. Those which refer to things under litigation if they the said part
have been entered into by the defendant without the 8) Art. 1560 – if immovable sold is encumbered with
knowledge and approval of the litigants or of any non-apparent burden or servitude of such nature
competent judicial authority that it cannot be presumed that the vendee could not
 Rescission is a primary remedy have acquired it had he been aware thereof
9) Art. 1567 – election of the vendee to withdraw from
3. Payments made in a state of insolvency for the contract in the cases under Arts. 1561-1566
obligations whose fulfillment the debtor could not be 10) Art. 1659 – rescission by the aggrieved party in a
compelled at the time they were effected contract of lease when the other party does not
 A judicial declaration of insolvency is not comply with Arts. 1654 and 1657
necessary

Requisites before rescission: Note: Distinguish between Right of First Refusal and
(1) It was made in a state of insolvency Option Contract (Common in the Bar Exam)
(2) Obligation must have been one which the debtor
could not be compelled to pay at the time such
payment was effected Right of First Refusal
 A commitment by the lessor that if s/he decides to
Illustration: D is already insolvent. His debt to C1 is
sell the property occupied by the lessee, the lessee
payable on June 15, 2021.
is the first person to whom the lessor would have to
 C1 demands payment from D. His action is based propose the sale
on Art. 1198(1)  If the lessee refuses the sale, then the lessor can
 C2 wants to collect from D, but there is no more offer to sell to other people
money from the latter. He can ask for the  If the lessor sells to a third person first, the lessee
rescission of the payment made by D to C1 on the can file an action for rescission of the contract
basis of Art. 1382 entered into by the lessor with the third person
 To settle the conflict between Art. 1198(1) and  The lessee is bound to the amount to which the
Art. 1382, determine which obligation was lessor originally sold the property to a third party
established first (application of payment) (may be less but not more)
 The most onerous/older debt will be paid first  But, if the lessor sold the property to a 3rd party
(daughter) at a price much lower than its fair market
value, the lessor can sell it at a higher prince than
the original

34
Option Contract Art. 1384. Rescission shall be only to the extent
necessary to cover the damages caused.
 No action for rescission for the one who has an Art. 1385. Rescission creates the obligation to
action for rescission return the things which were the object of the contract,
 The principal contract of sale did not exist yet together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
 The only remedy is damages
demands rescission can return whatever he may be obliged
Cases: to restore.
Neither shall rescission take place when the things
- Litonjua vs. L & R Corporation, G.R. No. 130722 which are the object of the contract are legally in the
- Guzman, Bocaling, & Co vs. Bonnevie, 206 SCRA possession of third persons who did not act in bad faith.
668 In this case, indemnity for damages may be
demanded from the person causing the loss.

Effect of Rescission
Art. 1383. The action for rescission is subsidiary; it
1) As to the parties – mutual restitution together with the
cannot be instituted except when the party suffering damage has
no other legal means to obtain reparation for the same.
fruits and interest
 Applicable to rescissory actions on the ground of
lesion

The Action for Rescission is Subsidiary 2) As to third persons

 It cannot be instituted except when the party suffering  Bad faith or not legally in possession – Obliged
damage has no other legal means to obtain reparation to return
 It is essential that the party who is prejudiced  Legally in possession and not in bad faith –
exhausted all of the other legal means to obtain Indemnity for damages may be demanded (no
reparation rescission)

 Requisites (as to third persons):

Parties Who May Institute Action:
a. The thing must be legally in possession of the
1. The creditor who is defrauded in rescissory actions on
third person;
ground of fraud, and other person authorized to
b. Such third person must not have acted in bad
exercise the same in other rescissory actions
faith
2. Their representatives
Art. 1387. All contracts by virtue of which the
3. Their heirs debtor alienates property by gratuitous title are presumed to
- The heir may institute an action as a have been entered into in fraud of creditors, when the donor
did not reserve sufficient property to pay all debts contracted
representative of the person who suffers from before the donation.
lesion or creditor who is defrauded Alienations by onerous title are also presumed
- If a decedent entered into a contract in order to fraudulent when made by persons against whom some
defraud his heir of his legitime, the heir may judgment has been rendered in any instance or some writ of
institute an action to rescind the contract attachment has been issued. The decision or attachment need
not refer to the property alienated, and need not have been
obtained by the party seeking the rescission.
4. Their creditors by virtue of the subrogatory action In addition to these presumptions, the design to
defined in Art. 1177 defraud creditors may be proved in any other manner
recognized by the law of evidence.

Art. 1388. Whoever acquires in bad faith the things

alienated in fraud of creditors, shall indemnify the latter for
damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for him
to return them.
If there are two or more alienations, the first
acquirer shall be liable first, and so on successively.

35
Presumption of Fraud of Creditors: Disputable Presumptions
1) Alienations of property by gratuitous title if the debtor If it can be established that the transferee acquired the
has not reserved sufficient property to pay all of his property in good faith, without the intention of impairing
debts contracted before such alienation the judgment obtained by the creditor against the
transferor, and that he paid the purchase price in the belief
2) Alienations of property by onerous title if made by a that the latter could freely dispose of the said property, the
debtor against whom some judgment has been presumption of fraud is overthrown
rendered in any instance or some writ of attachment
has been issued. Prescriptive Period:
1. Under Art. 1381 (1) – within 4 years from the time
Note: Debtors will prove that there was no fraud of the termination of the incapacity of the ward
- Case: Contreras and Gingco vs China Banking
Corporation 2. Under Art. 1381 (2) – within 4 years from the time
the domicile of the absentee is known
Badges of Fraud 3. Under Art. 1381 (3) and (4) as well as Art. 1382 –
In determining whether or not a certain conveyance is within 4 years from the time of the discovery of
fraudulent the question in every case, fraud
- Ask whether the conveyance was a bona fide
transaction or merely a trick or contrivance to defeat 4. In certain contracts of sale especially declared by
creditors. law to be rescissible – 6 months or even 40 days
- Does it prejudice the right of creditors? counted from the day of delivery (Arts. 1547,
- If the property is acquired by a purchaser in good faith 1571, 1577
and for value, the acquisition as far as the law is
Cases:
concerned is not fraudulent.
- Khe Hong Cheng vs. CA; 355 SCRA 701
- Anchor Savings Bank v. Furigay; 693 SCRA 384
1) The fact that the cause of consideration of the
conveyance is inadequate
Accion Pauliana presupposes:
2) A transfer made by a debtor after suit has been begun
a. A judgement;
and while it is pending against him
b. The issuance by the trial court of a writ of
execution for the satisfaction of judgement, and
3) A sale on credit by an insolvent debtor
c. The failure of the Sheriff to enforce and satisfy
the judgement of the court
4) Evidence of large indebtedness or complete
insolvency
 The 4-year prescriptive period commences from
the day it has become clear that there are no other
5) The transfer of all or nearly all of his property by a
legal remedies by which the creditor can satisfy
debtor, especially when he is insolvent or greatly
his claims
embarrassed financially.
 NOT from the date of the registration of the deed
sought to be rescinded nor from the date the trial
6) The fact that the transfer is made between father and
court rendered its decision
son, when there are present others of the above
circumstances

7) The failure of the vendee to take exclusive possession

of all the property

36
 CHAPTER 7 Art. 1391. The action for annulment shall be brought
VOIDABLE CONTRACTS within four years.
This period shall begin: In cases of intimidation,
Those which possess all the essential elements for validity violence or undue influence, from the time the defect of the
but the consent is vitiated either by lack of legal capacity consent ceases.
of one of the contracting parties or by mistake violence, In case of mistake or fraud, from the time of the
intimidation, undue influence or fraud even though there discovery of the same.
may have been no damage to the contracting parties. And when the action refers to contracts entered into by
minors or other incapacitated persons, from the time the
guardianship ceases.
Art. 1390. The following contracts are voidable or
annullable, even though there may have been no damage to the Prescriptive Period of an Action for Annulment (Art.
contracting parties: 1391):
(1) Those where one of the parties is incapable of 1) Contracts entered into by incapacitated person –
giving consent to a contract; within 4 years from the time guardianship ceases;
(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud. 2) Where consent is vitiated by violence,
These contracts are binding, unless they are annulled intimidation or undue influence – within 4 years
by a proper action in court. They are susceptible of ratification. from the time such violence, intimidation or
undue influence ceases;

Characteristics of Voidable Contracts: 3) Where consent is vitiated by mistake or fraud –

1. Their defect consists in the vitiation of consent of within 4 years from the time of the discovery of
one of the contracting parties such mistake or fraud.
2. They are binding until they are annulled by a
- Discovery of fraud must be reckoned from the time
competent court
the document was registered in the Office of the
3. They are susceptible of convalidation by
Registry of Deeds. Registration constitutes
ratification or by prescription
constructive notice to the whole world. (Carantes vs.
CA, 1977)
The following contracts are voidable or annullable:
1) Those where one of the parties is incapable of giving
Art. 1392. Ratification extinguishes the action to
consent to a contract annul a voidable contract.
2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence of fraud (Art. Art. 1393. Ratification may be effected expressly or
1390) tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to
 Already discussed in consent as an essential requisite
invoke it should execute an act which necessarily implies an
of contracts intention to waive his right.
 The defect or voidable character cannot be invoked
by third persons Art. 1396. Ratification cleanses the contract from all
its defects from the moment it was constituted.
Modes of Extinguishing an Action for Rescission
Effects of Ratification
1. Prescription
a. Extinguishes the action to annul the contract; and
2. Ratification
b. It cleanses the contract of its defects from the
3. The loss of the thing which is the object of the
moment it was constituted.
contract through the fraud or fault of the person
who is entitled to institute the action. Requisites:
1. The contract should be tainted with a vice which
is susceptible of being cured
2. The confirmation should be effected by the
person who is entitled to do so under the law

37
 3. It should be effected with knowledge of the vice Art. 1398. An obligation having been annulled, the
or defect of the contract contracting parties shall restore to each other the things
4. The cause of the nullity or defect should have which have been the subject matter of the contract, with their
fruits, and the price with its interest, except in cases provided
already disappeared by law.
In obligations to render service, the value thereof
shall be the basis for damages.
Forms of Ratification: Art. 1399. When the defect of the contract consists
in the incapacity of one of the parties, the incapacitated
1. Express – If, with the knowledge of the reason person is not obliged to make any restitution except insofar
which rendered the contract voidable and such as he has been benefited by the thing or price received by
reason having ceased, the person who has a right to him.
invoke it should expressly declare his desire to Art. 1400. Whenever the person obliged by the
convalidate it, or what amounts to the same thing, decree of annulment to return the thing can not do so because
it has been lost through his fault, he shall return the fruits
to renounce his right to annul the contract.
received and the value of the thing at the time of the loss,
with interest from the same date.
2. Tacit – If, with the knowledge of the reason which Art. 1401. The action for annulment of contracts
rendered the contract voidable and such reason shall be extinguished when the thing which is the object
having ceased, the person who has a right to invoke thereof is lost through the fraud or fault of the person who
it should execute an act which necessarily implies has a right to institute the proceedings.
If the right of action is based upon the incapacity of
an intention to waive his right any one of the contracting parties, the loss of the thing shall
not be an obstacle to the success of the action, unless said
loss took place through the fraud or fault of the plaintiff.
Art. 1397. The action for the annulment of Art. 1402. As long as one of the contracting parties
contracts may be instituted by all who are thereby obliged does not restore what in virtue of the decree of annulment he
principally or subsidiarily. However, persons who are is bound to return, the other cannot be compelled to comply
capable cannot allege the incapacity of those with whom they with what is incumbent upon him.
contracted; nor can those who exerted intimidation, violence,
or undue influence, or employed fraud, or caused mistake
base their action upon these flaws of the contract. Effects of Annulment
1) In contract has not yet been consummated
General Rule: Action for annulment may be instituted (executory), parties shall be released from the
by all who are thereby obliged principally or subsidiarily. obligations arising therefrom;
A stranger to the contract cannot institute an action for 2) If contract has already been consummated
annulment. (executed) rules provided in Arts. 1398-1402 shall
Requisites: govern.
1) Plaintiff must have interest in the contract;
Obligations of Mutual Restitution (Arts. 1398-1399)
2) The victim and not the party responsible for the
vice or defect must assert the same. a) Obligation to give – The parties shall restore to
each other the things which have been the subject
Exception: matter of the contract, with their fruits, and the
If a third person is prejudiced in his rights with respect to price with its interest, except in cases provided by
one of the contracting parties, and can show detriment law
which would positively result to him from the contract in b) Obligation to do or not to do – There will have to
which he has no intervention (Teves v. People’s Homesite be an apportionment of damages based on the
& Housing Corp., GR No. 21498, June 27, 1968) value of such prestation with corresponding
interests

 In case of incapacity of one of the contracting

parties, the incapacitated person is not obliged to
make any restitution except insofar as he has been

38
 benefited by the thing or price received by him CHAPTER 8
(Art. 1399) UNENFORCEABLE CONTRACTS
Those which cannot be enforced by proper action unless
 If the nullity arises from some other cause, the
they are ratified, because:
general rule in Art. 1398 governs
1) They are entered into without or in excess of
authority (Art 1403 (1); Art. 1317);
- No consent insofar as the person in whose
Effect of Failure to Make Restitution (Arts. 1400-
name the contract is entered into is concerned
1402)
a) Where loss is due to the fault of the defendant 2) They do not comply with the Statute of Frauds
- He shall return the fruits received and the value of [Art. 1403 (2)];
the thing at the time of the loss, with interest from - There is no writing, note, or memorandum by
the same date. which the contract may be proved

b) Loss is due to the plaintiff 3) Both contracting parties do not possess the
- The action for annulment shall be extinguished. required legal capacity.
- Consent is absolutely vitiated by the legal
c) Loss is due to fortuitous event incapacity of both contracting parties
- The contract can still be annulled, the defendant
can be held liable only for the value of the thing Characteristics
at the time it was lost, without interest 1. They cannot be enforced by a proper action in
- If it is the plaintiff who cannot return the thing court
because it has been lost through a fortuitous 2. They are susceptible of ratification
event, the contract may still be annulled, but he 3. They cannot be assailed by third persons
must pay to the defendant the value of the thing Art. 1403. The following contracts are
at the time of the loss unenforceable, unless they are ratified:
(1) Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of

Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum, thereof, be
in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to
be performed within a year from the making
thereof;
(b) A special promise to answer for the
debt, default, or miscarriage of another;
(c) An agreement made in consideration of
marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods,
chattels or things in action, at a price not less than
five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the
evidences, or some of them, of such things in action,
or pay at the time some part of the purchase money;
but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time

39
 of the sale, of the amount and kind of property sold,  Refers only to agreements which by their terms
terms of sale, price, names of the purchasers and are not to be performed on either side within a
person on whose account the sale is made, it is a year from execution thereof
sufficient memorandum;
(e) An agreement for the leasing for a
longer period than one year, or for the sale of real 2) A special promise to answer for the debt, default or
property or of an interest therein; miscarriage of another.
(f) A representation as to the credit of a  A promise must be collateral, not independent or
third person. original
(3) Those where both parties are incapable of giving
 If the promisor becomes primarily liable for the
consent to a contract. payment of the debt, the promise is NOT within
the statute
 If the promise is collateral to the agreement of
I. CONTRACTS WITHOUT OR IN EXCESS OF another and the promisor becomes thereby
AUTHORITY merely a surety, the promise must be in writing.
- Contracts entered into in the name of another person (Reiss vs. Memije, 15 Phil. 350)
by one who has been given no authority or legal
representative 3) An agreement made in consideration of marriage,
- Governed by Art. 1317 other than a mutual promise to marry.
 Marriage settlements and donations by reason of
Principles:
marriage
1) No one may contract in the name of another without
being authorized by the latter or unless he has a right
4) An agreement for the sale of goods, chattels or things
to represent him. If he is duly authorized, he must act
in action, at a price not less than Five hundred pesos.
within the scope of his powers
5) An agreement for the leasing of real property for a
2) A contract entered into in the name of another by one
longer period than one year,
who has no authority or legal representation, or who
 An agreement for the leasing for a longer period
has acted beyond his powers, is unenforceable
than one year is unenforceable by action unless
the same, or some note or memorandum thereof,
3) However, such contract may be ratified, expressly or
be in writing and subscribed by the party charged,
impliedly, by the person in whose behalf it has been
or by his agent (Syquia vs. CA; 151 SCRA 507)
executed, before it is revoked by the other contracting
party
6) An agreement for the sale of real property or an
interest therein
II. STATUTE OF FRAUDS  The sale of the land or interest therein is in
writing, subscribed by the party charged. The
Form Required by the Statute writing must be in the form of a public document
- The only formality required is that the contract or (Art. 1358) [Zaide vs CA; 163 SCRA 705]
agreement must be in writing and subscribed by the
party charged or by his agent 7) A representation as to the credit of a third person
 Jurado, Obligations and Contracts, 2010, p. 569
Effect of Noncompliance with the Statute
 A verbal agreement of a sale of land is VALID
- The contract or agreement is unenforceable by action
 But there is no action for specific performance
- What is affected by the defect of the contract or
unless it is ratified. It cannot be enforced because
agreement is not its validity, but its enforceability
it is not evidenced by any note or memorandum
Contracts Covered: or writing
1) An agreement that by its terms is not to be performed
within a year from the making thereof.

40
Effect of Performance of Contract Ratification of Contracts Infringing the Statute of
- The Statute of Frauds applies only to EXECUTORY Frauds (Art 1405)
CONTRACTS, not to those that are partially or
Such contracts may be ratified by:
completely fulfilled.
1) Failure to object to the presentation of oral
- Further, the statute does not apply to actions which
evidence to prove such contracts; or
are neither for specific performance of the contract
nor for the violation thereof. 2) Acceptance of benefits under these contracts
- Take note that the provision mentions “unenforceable
by action.” The prohibition, thus, applies on actions
which spring from the enforcement of the contract. Question: Can an oral sale of land be judicially enforced
Case: Mactan-Cebu International Airport Authority vs. as between the contracting parties, if the land has not been
Lozado delivered but the buyer has paid ten percent (10%) of the
purchase price?

Principles Governing the Statute of Frauds  Yes, an oral sale of land where the land has not
a) It applies only to executory contracts. been delivered but the buyer has paid 10% of
the purchase price may be judicially enforced
b) The defense under the Statute of Frauds may be
waived by ratification. Note: The unenforceability of a contract can only be
assailed by parties thereto (Art. 1408). This defense is
c) It is exclusive. It applies only to the agreements or personal to the party to the agreement.
contracts enumerated under Art. 1403 (2).

d) The Statute of Frauds is a personal defense. The Art. 1406. When a contract is enforceable under the
Statute of Frauds, and a public document is necessary for its
defense that a contract does not comply with the
registration in the Registry of Deeds, the parties may avail
Statute of Frauds is available only to the
themselves of the right under Article 1357.
contracting parties and their heirs. Strangers
cannot attack the unenforceability of a contract. The right of one party to have the other execute the public
document needed for convenience of registration is given
only when the contract is both valid and enforceable
III. BOTH PARTIES ARE INCAPACITATED (Paras, Obligations and Contracts, p. 813)
- If only one of the parties is incapacitated, the contract
is voidable
- May be ratified expressly or impliedly.
- It may be ratified by parents/guardians. It may also be
ratified by the contracting parties upon attaining the
age of majority

Ratification by the Ratification by the

Parent/Guardian of Parents or Guardians
One of the Contracting of Both Parties or by
Parties or by the Latter Both of Such Themselves
Himself upon Attaining upon Attaining Capacity
Capacity
The contract is voidable. The contract is validated
The rules on voidable from its inception
contracts shall govern

41
 CHAPTER 9 Contracts which are inexistent and void ab initio
VOID OR INEXISTENT CONTRACTS
1. Those whose cause, object or purpose is contrary
In general, they are those which lack absolutely either in to law, morals, good customs, public order or
fact or in law one or some of the elements essential for its public policy;
validity. 2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the
Note: The defense of illegality of contract is not available
time of the transaction;
to third persons whose interests are not directly affected
4. Those whose object is outside the commerce of
(Art. 1421)
men;
- A contract which is the direct result of a previous 5. Those which contemplate an impossible service;
illegal contract, is also void and inexistent (Art. 1422) 6. Those where the intention of the parties relative to
the principal object of the contract cannot be
Void Inexistent ascertained;
All of the requisites of a One or some or all of the 7. Those expressly prohibited or declared void by
contract are present but requisites essential for the law.
the cause, object or validity of a contract are
purpose is contrary to law, absolutely lacking
morals, good customs, Characteristics
public order, or public 1) GR: They produce no legal effects whatsoever in
policy or contract itself is accordance with the principle “quod nullum est
prohibited or declared nullum producit effectum.”
void by law.
 Exception: Nullity of the contracts due to illegal
Principle of pari delicto is Principle of pari delicto is
cause or object, when executed (not merely
applicable. Neither party not applicable. The
may be heard to invoke its contract is open to attack executory), will produce the effect of barring any
unlawful character as a even by the parties action by a guilty party to recover what he has
ground for relief already given (Jurado, supra, p. 580).
May produce legal effectsCannot produce legal
effect Case: Liguez v. Court of Appeals; 102 Phil. 577
Covers Art. 1409 nos. 1, Covers Art. 1409 nos. 2
4, 5, 6, and 7 and 3 2) They are not susceptible of ratification
3) The right to set up the defense of inexistence or
absolute nullity cannot be waived or renounced
Art. 1409. The following contracts are inexistent and
4) The action or defense for the declaration of their
void from the beginning:
(1) Those whose cause, object or purpose is contrary inexistence or absolute nullity is imprescriptible
to law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the Art. 1410. The action or defense for the declaration of
time of the transaction; the inexistence of a contract does not prescribe.
(4) Those whose object is outside the commerce of
men; Art. 1411. When the nullity proceeds from the
(5) Those which contemplate an impossible service; illegality of the cause or object of the contract, and the act
(6) Those where the intention of the parties relative to constitutes a criminal offense, both parties being in pari delicto,
the principal object of the contract cannot be ascertained; they shall have no action against each other, and both shall be
(7) Those expressly prohibited or declared void by prosecuted. Moreover, the provisions of the Penal Code relative
law. to the disposal of effects or instruments of a crime shall be
These contracts cannot be ratified. Neither can the applicable to the things or the price of the contract.
right to set up the defense of illegality be waived. This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim what he has
given, and shall not be bound to comply with his promise.

42
 Art. 1412. If the act in which the unlawful or 9) One who lost in gambling because of fraudulent
forbidden cause consists does not constitute a criminal offense, schemes practiced on him. He is allowed to recover
the following rules shall be observed: his losses. [Art. 315, 3(b), RPC] even if gambling is
(1) When the fault is on the part of both contracting prohibited.
parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s undertaking;
Rules when only one of the parties is at fault:
(2) When only one of the contracting parties is at fault, 1) Executed Contracts - Guilty party is barred from
he cannot recover what he has given by reason of the contract, recovering what he has given to the other party by
or ask for the fulfillment of what has been promised him. The reason of the contract. Innocent party may demand for
other, who is not at fault, may demand the return of what he has the return of what he has given
given without any obligation to comply with his promise.
2) Executory Contracts - Neither of the contracting
PRINCIPLE OF IN PARI DELICTO (Equal Fault)
parties can demand for the fulfillment of any
Applies only to void contracts consisting in the illegality
obligation from the contract nor may be compelled to
of the cause or object of the contract, and both of the
comply with such obligation.
parties are at fault or in pari delicto
- Does not apply to inexistent contracts
I. Contract is Void because of Illegality of Cause or
- Ex dolo malo non oritur actio
Object
- In pari delicto potior est conditio defedentis
Acts constitute a criminal offense:
a. Both are in pari delicto
General Rule: When the defect of a void contract consists - Both shall have no cause of action against each
in the illegality of the cause or object of the contract and other
both of the parties are at fault or in pari delicto, the law - Both shall be prosecuted
refuses them any remedy and leaves them where they are. - Penal code provisions on disposal of effects or
instrument of crime applicable to things & price
Exceptions:
1) Payment of usurious interest (Art. 1413) b. Only one party is guilty, the other is innocent
2) Payment of money or delivery of property for an - Innocent party may claim what he gave
illegal purpose, where the party who paid or - Innocent party not bound to comply with the
delivered repudiates the contract before the purpose promise (Art. 1411)
has been accomplished, or before any damage has
been caused to a third person (Art. 1414); II. Contracts is Void because the Causa is Unlawful or
3) Payment of money or delivery of property made by Forbidden
an incapacitated person (Art. 1415) Acts do not constitute a criminal offense:
4) Agreement or contract not illegal per se but merely a. Both parties are at fault
prohibited by law, and the prohibition is designed - Neither may recover what he gave or demand
for the plaintiff’s protection (Art. 1416) performance by the other
5) Payment of any amount in excess of the maximum
price of any article or commodity fixed by law (Art. b. Only one of the contracting parties is at fault
1417) - Party at fault cannot recover what he gave or
6) Contract whereby a laborer undertakes to work demand fulfillment of what was promised him
longer than the maximum number of hours fixed by - Party not at fault may demand the return of what
law (Art. 1418); he gave without any obligation to comply with his
7) Contract whereby a laborer accepts a wage lower promise
than the minimum wage fixed by law (Art. 1419);
8) In case of divisible contracts, the legal terms may
be enforced separately from the illegal terms (Art.
1420)

43