UP 2010 Civil Law Obligations and Contracts

CIVIL LAW REVIEWER TABLE of CONTENTS
OBLIGATIONS
Table of Contents
Chapter I. General Provisions.......................91

I. Obligations ..........................................91
II. Sources of Obligations ........................91
90
Chapter II. Nature and Effect of Obligations93
OBLIGATIONS
I. Kinds of Prestations ............................93
II. Breach of Obligation............................94
III. Fortuitous Event (Force Majeure) .......96
IV. Remedies to Creditors ........................96
V. Usurious Transactions and Rules on
Interest .........................................................97
Chapter III. Different Kinds of Obligations ..98

I. Pure and Conditional Obligations .......98
II. Reciprocal Obligations ......................100
III. Obligations with a Period ..................100
IV. Alternative and Facultative Obligations
101
V. Joint and Solidary Obligations ..........103
Effects of Prejudicial and Beneficial Acts
(Art.1212) ...................................................105
VI. Divisible and Indivisible Obligations..106
VII. Oblligations with a Penal Clause ..106
Chapter IV. Extinguishment of Obligations

.......................................................................107
I. Payment or Performance ..................107
II. Loss or Impossibility..........................109
III. Condonation or Remission of the Debt
109
IV. Confusion or Merger of Rights ..........110
V. Compensation ...................................110
VI. Novation ............................................111
Charts: Payment & Performance ................114

CIVIL LAW REVIEWER Chapter I. GENERAL PROVISIONS
Chapter I. General Provisions

OBLIGATIONS & CONTRACTS TEAM
OBLIGATIONS & CONTRACTS

Prof. Solomon Lumba I. OBLIGATIONS
Faculty Editor
II. SOURCES OF OBLIGATIONS
Leo Ledesma A. LAW
Lead Writer B. CONTRACTS
Krizel Malabanan C. QUASI-CONTRACTS
Ivy Velasco D. DELICTS
Tin Reyes E. QUASI-DELICTS
Frances Domingo 91
Hazel Abenoja
OBLIGATIONS
Writers
Article 1156, Civil Code. An obligation is a juridical
CIVIL LAW necessity to give, to do or not to do.
Kristine Bongcaron
Patricia Tobias I. Obligations
Subject Editors
ACADEMICS COMMITTEE Elements of an Obligation (De Leon, 2003)—

Kristine Bongcaron 1. ACTIVE SUBJECT (Obligee/Creditor): the
Michelle Dy person who has the right or power to
Patrich Leccio demand the prestation.
Editors-in-Chief 2. PASSIVE SUBJECT (Obligor/Debtor): the
PRINTING & DISTRIBUTION person bound to the perform the prestation.
3. PRESTATION (Object): the conduct
Kae Guerrero required to be observed by the
DESIGN & LAYOUT debtor/obligor (to give, to do or not to do).
4. VINCULUM JURIS (Juridical or Legal Tie;
Pat Hernandez Efficient Cause): that which binds or
Viktor Fontanilla
connects the parties to the obligation.
Rusell Aragones
Romualdo Menzon Jr.
Rania Joya II. Sources of Obligations
LECTURES COMMITTEE
A. Law
Michelle Arias Art. 1158, Civil Code. Obligations derived from law
Camille Maranan
are not presumed. Only those expressly determined in
Angela Sandalo
Heads
this Code or in special laws are demandable, and
shall be regulated by the precepts of the law which
Katz Manzano Mary Rose Beley establishes them; and as to what has not been
Sam Nuñez Krizel Malabanan foreseen, by the provisions of this Book.
Arianne Cerezo Marcrese Banaag
Volunteers
B. Contracts
MOCK BAR COMMITTEE Art. 1159. Has the Force of Law Between
Lilibeth Perez Parties. Obligations arising from contracts have
the force of law between the contracting parties
BAR CANDIDATES WELFARE and should be complied with in good faith
Dahlia Salamat
C. Quasi-Contracts
LOGISTICS Art. 2142, Civil Code. Certain lawful, voluntary and
Charisse Mendoza unilateral acts give rise to the juridical relation of
quasi-contract to the end that no one shall be unjustly
SECRETARIAT COMMITTEE enriched or benefited at the expense of another.
Jill Hernandez
Lawful Distinguished from crimes
Head
Voluntary Distinguished from quasi-delict,
Loraine Mendoza Faye Celso which are based on fault and
Mary Mendoza Joie Bajo negligence
Members
Unilateral Distinguished from contract which is
based on agreement
Kinds of Quasi-Contracts action (res judicata)

 Negotiorum Gestio: officious or voluntary  if judgment of acquittal
management of the property or affairs of contained a declaration
another without the knowledge or consent of that no negligence can
be attributed to the
the latter.
accused and that the
 Solutio Indebiti: undue payment. The fact from which civil
juridical relation arises when: action might arise did
o a thing is received without any right; and not exist
o the thing delivered by mistake. 92
 Others: See Arts. 2164-2175 E. Quasi-Delicts (Voluntary acts or omissions
OBLIGATIONS
(De Leon, 2003) with fault or negligence causing damage to
another; not a crime nor a contract)
D. Delicts (Acts or omissions punished by law;
crimes) Quasi-Delict Crimes
Private, against Public, against the State
Extent of Civil Liability individual
Governed by the Revised Penal Code and the Criminal intent is not Criminal intent is
Civil Code, includes: necessary necessary for criminal
1. Restitution; liability
2. Reparation of damages caused; and Present in any act or An act can is only
3. Indemnity for consequential damages (Art. omission where fault or punishable when there is
104, Revised Penal Code). negligence intervenes a law penalizing it
(Tolentino, 1987)
Gives rise to liability for There are crimes from
Enforcement of Civil Liability damages to the injured which no civil liability
1. Independent: Criminal and civil action party arises
arising from the same offense may be Reparation, Fine or imprisonment or
instituted separately. compensation or both, to public treasury
2. Suspended: However, after criminal action indemnification of the
has been commenced prosecution for civil injury suffered by the
action is suspended in whatever stage it injured party
may be found, until final judgment in the Preponderance of Proof of guilt beyond
criminal proceeding is rendered; evidence reasonable doubt
3. Impliedly Instituted: Civil action is impliedly Can be compromised Can never be
instituted with the criminal action, when: compromised
○ offended party expressly waives the civil
action or reserves the right to institute a Requisites of Liability (DWD)
separate civil action; or 1. Wrongful act or omission by fault or
○ the law provides for an independent civil negligence
action 2. Damage or injury proven by the person
claiming recovery
Barredo v. Garcia, (1942): The same negligent act 3. Direct causal connection between the fault
may give rise to an action based on delict or quasi- or negligence and the damage or injury
delict and the injured party is free to choose which
remedy to enforce. Liability for Quasi- Liability for Crimes
Delict (Art. 2180, NCC) (Art. 103, RPC)
Mendoza vs. Arrieta, (1979): If the civil action is
based on quasi-delict, there is no need to reserve the Primary, can be directly Subsidiary, employee
right to file a civil action in the criminal case. sued by the injured must first be convicted
party and sentenced to pay
civil indemnity
Effect of Acquittal on Civil Actions
All employers, whether Employer is only liable
Barred No Effect engaged in some when he is engaged in
 if based on the very  an independent civil enterprise or not, are some kind of business
same facts on which action is allowed by law liable for acts of or industry
the criminal action  acquittal is due to lack employees, even
which ended in of proof beyond household helpers
acquittal was based reasonable doubt Avoid civil liability by Subsidiary liability is
 if the facts alleged in proving exercise of absolute and cannot be
the civil case has been diligence of a good avoided by any proof of
found to be non- father of a family diligence
existent in the criminal
CIVIL LAW REVIEWER Chapter II. NATURE and EFFECT of OBLIGATIONS
Chapter II. Nature and Effect of OBLIGATION TO GIVE

Obligations
Specific Thing Generic Thing Limited
I. KINDS OF PRESTATIONS Generic Thing
II. BREACH OF OBLIGATIONS Particularly Object is When the
III. FORTUITOUS EVENTS designated or designated only generic objects
IV. REMEDIES physically by its class/ are confined to
V. USURIOUS TRANSACTIONS segregated genus/ species. a particular
from all other of Debtor can give class. 93
the same class; anything of the
OBLIGATIONS
identified by same class as
I. Kinds of Prestations individuality. long as it is of
the same kind.
KINDS OF PRESTATION Cannot be Can be
1. TO GIVE: real obligation; to deliver either substituted. substituted by
(1) a specific or determinate thing, or (2) a any of the same
generic or indeterminate thing. class and same
2. TO DO: positive personal obligation; kind.
includes all kinds of work or services.
3. NOT TO DO: negative personal Personal Right Real Right
obligation; to abstain from doing an act; Vested before delivery Vested after delivery
A right enforceable only A right enforceable
includes the obligation not to give.
against the debtor against the world
Right of the creditor to Right pertaining to a
Accessories: those joined to or included with demand from the debtor, person over a specific
the principal for the latter’s completion, better the fulfillment of a thing, without a passive
use, perfection or enjoyment prestation to give, to do subject individually
or not to do determined against
Accessions: additions to or improvement upon whom such right may be
a thing, either naturally or artificially personally enforced
Duties of the Debtor Rights of the creditor

To Give  To preserve or take care of the thing  To compel specific performance
Specific due  To recover damages in case of breach of
Thing  To deliver the thing itself the obligation, exclusive or in addition to
(Asked  To deliver the fruits of the thing specific performance
in ’83,  To deliver the accessions and  Entitlement to fruits and interests from the
’84, ’85 accessories time the obligation to deliver arises
and  To pay for damages in case of breach
’86)
To Give  To deliver a thing of the quality intended  To ask for performance of the obligation
Generic by the parties taking into consideration  To ask that the obligation be complied with
Thing the purpose of the obligation and other by a third person at the expense of the
circumstances debtor
 Creditor cannot demand a thing of  To recover damages in case of breach of
superior quality neither can the debtor obligation
deliver a thing of inferior quality
 To be liable for damages in case of
breach
To Do  To do it  To compel performance
 To shoulder the cost of having someone  To recover damages where personal
else do it qualifications of the debtor are involved
 To undo what has been poorly done
 To pay for damages in case of breach
Not To  Not to do what should not be done  To ask to undo what should not be done
Do  To shoulder the cost of undoing what  To recover damages, where it would be
should not have been done physically or legally impossible to undo
 To pay for damages in case of breach what has been undone, because of :
o the very nature of the act itself;
o rights acquired by third persons who
acted in good faith;
o when the effects of the acts prohibited
are definite in character and will not 94
cease even if the thing prohibited be
OBLIGATIONS
undone.
II. Breach of Obligation  Effect of Contributory Negligence

Reduces or mitigates the recoverable
damages, UNLESS, the negligent act or
A. Voluntary – fraud, negligence, delay or
omission of the creditor is the
contravention of tenor of the obligation
proximate cause of the event which led
B. Involuntary – fortuitous event
to the damage or injury complained of.
In this case, he cannot recover.
TYPES OF BREACH
 Diligence Required (De Leon, 2003)
Substantial Breach Slight or Casual Breach
Total breach Partial breach
a. By stipulation: that agreed upon by
Amounts to Non- Obligation is partially the parties.
Performance; performed; b. By law: in the absence of
Basis for rescission Gives rise to liability for stipulation, that required by law in
under Art. 1191 and damages only the particular case.
payment of damages c. Diligence of a good father of a
family: if both the contract and law
1. FRAUD (DOLO): deliberate or intentional are silent.
evasion of the normal fulfillment of an  Future Negligence: may be waived
obligation (De Leon, 2003). except in cases where the nature of the
obligation or the public requires another
 Future Fraud: Any waiver of action for standard of care (i.e. extraordinary
future fraud is void (Art. 1171). diligence as for a common carrier)
 Past Fraud: can be subject of a valid
waiver by the aggrieved party (De Leon, Fraud Negligence
2003). There is deliberate There is no deliberate
 Woodhouse vs. Halili, (1953): In order intention to cause intention to cause damage
that fraud may vitiate consent, it must be damage
the dolo causante and not merely the Liability cannot be Liability may be mitigated
dolo incidente, inducement to the mitigated
Waiver for future fraud Waiver for future
making of the contract. The false
is void negligence may be
representation was used by plaintiff to allowed in certain cases:
get from defendant a bigger share of net  gross – can NEVER
profits. This is just incidental to the be excused in
matter in agreement. Because despite advance; amounts to
plaintiff’s deceit, respondent would have wanton attitude; rules
still entered into the contract. on fraud shall apply
 simple – may be
2. NEGLIGENCE or FAULT (CULPA): excused in certain
cases
omission of that diligence which is required
by the nature of the obligation and
Mandarin Villa Inc. v. CA (1996): Test of Negligence:
corresponds with the circumstances of the
Did the defendant in doing the alleged negligent act
person, of the time and of the place (Art. use the reasonable care and caution which an
1173). ordinary and prudent person would have used in the
same situation? If not, then he is guilty of negligence.
 Extent of Damages to be Awarded Mora Solvendi Mora Accipiendi

Requisites Requisites
Bad Faith Good Faith 1. Obligation must be 1. Debtor offers of
Debtor is liable for all Debtor is liable only for liquidated, due and performance
damages which can be the natural and demandable 2. Offer must be in
reasonably attributed to probable 2. Non-performance by compliance with the
the non-performance of consequences of the the debtor on period prestation
the obligation. Any waiver breach of obligation and agreed upon 3. Creditor refuses the
or renunciation made in fortuitous events 3. Demand, judicial or performance
anticipation of such extra-judicial, by the without just cause 95
liability is null and void creditor
OBLIGATIONS
Effects Effects
Culpa Contractual Culpa Aquiliana Asked 1. The debtor is liable 1. The responsibility of
in ’83, ’84, and ’86) for damages the debtor is
Negligence is merely Negligence is substantive 2. The debtor is liable reduced to fraud
incidental in the and independent even if the loss is due and gross
performance of an to fortuitous events negligence
obligation 3. For determinate 2. The debtor is
objects, the debtor exempted from risk
There is always a pre- There may or may not be
shall bear the risk of of loss of the thing
existing contractual a pre-existing contractual
loss which is borne by
relation obligation
the creditor
The source of obligation The source of obligation
3. The expenses
of defendant to pay is the defendant’s
incurred by the
damages is the breach or negligence itself
debtor for the
non-fulfillment of the
preservation of the
contract
thing after the mora
Proof of the existence of The negligence of the shall be chargeable
the contract and of its defendant must be to the creditor
breach or non-fulfillment proved 4. If the obligation
is sufficient prima facie to bears interest, the
warrant recovery debtor does not
Proof of diligence in the Proof of diligence in the have to pay from
selection and supervision selection and supervision the time of delay
of the employees is NOT of the employee is a 5. The creditor is liable
available as defense defense for damages
6. The debtor may
 Culpa Criminal: wrong or negligence in relieve himself of
the commission of a crime obligation by
consigning the thing
3. DELAY or DEFAULT (MORA): failure to Rules on Mora, Delay or Default

perform an obligation on time which
constitutes breach of the obligation (De Unilateral Obligations Reciprocal Obligations
Leon, 2003). General Rule: General Rule:
 Mora Solvendi: delay on the part of the Delay occurs from the
debtor to fulfill his obligation either to “No demand no delay”. moment one party fulfills
his undertaking, while the
give (Ex re) or to do (Ex persona),
The mere expiration of other does not comply or
(Asked in ’83, ’84, ’85, and ’86); the period fixed by the is not ready to comply in
parties is not enough in a proper manner with
No Mora Solvendi in: order that the debtor may what is incumbent upon
 Negative Obligations because delay incur in delay. him.
is impossible (De Leon, 2003); No delay if neither party
 Natural Obligations (Tolentino, performs his undertaking
1987). (Art. 1169, par. 2).
Exceptions Exception:
 Mora Accipiendi: delay on the part of 1. the obligation or law different dates for the
provides performance of
the creditor to accept the performance of 2. time is of the respective obligations are
the obligation essence fixed by the parties
 Compensatio Morae: delay of the 3. demand useless
parties in reciprocal obligations; effect: 4. debtor
as if there is no default. acknowledges that
he is in default
4. CONTRAVENTION OF THE TENOR: 2. The event must be unforeseeable or

violation of the terms and conditions inevitable
stipulated in the obligation, which must not 3. The event renders it impossible for debtor to
be due to a fortuitous event or force majeure fulfill his obligation in a normal manner
(De Leon, 2003). 4. The debtor must be free from any
 “In any manner contravenes the participation in the aggravation of the injury
tenor” means any illicit act, which to the creditor (Tolentino, 1987; De Leon,
impairs the strict and faithful fulfillment 2003)
of the obligation, or every kind of 5. It must be the only and sole cause, not 96
defective performance (Tolentino, 1987). merely a proximate cause.
OBLIGATIONS
III. Fortuitous Event (Force Majeure)
IV. Remedies to Creditors
Any event which could not be foreseen, or which
though foreseen are inevitable (Art. 1174) Art. 1170, Civil Code. Those who in the performance
of their obligations are guilty of fraud, negligence, or
A happening independent of the will of the delay and those who in any manner contravene the
debtor and which makes the normal fulfillment of tenor thereof, are liable for damages.
the obligation impossible (De Leon, 2003).
Transmissibility of Rights
A. Act of God: an accident, due directly or Art. 1178: Rights acquired by virtue of an
exclusively to natural causes without human obligation are transmissible in character,
intervention, which by no amount of UNLESS prohibited:
foresight, pains or care, reasonably to have 1. by their very nature (i.e. personal
been expected, cold have been prevented. obligations)
B. Act of Man: force majeure is a superior or 2. by stipulation of the parties
irresistible force, which is essentially an act 3. by operation of law
of man; Includes unavoidable accidents, (De Leon, 2003)
even if there has been an intervention of
human element, provided that no fault or Primary Remedies
negligence can be imputed to the debtor Arts. 1165-1168: PRESS
(Asked in ’81, ’87 and ’88) 1. Specific Performance – performance
by the debtor of the prestation itself
Liability in case of Fortuitous Event 2. Substituted Performance – someone
No person shall be responsible for fortuitous else performs or something else is
events, UNLESS: performed at the debtor’s expense
1. expressly specified by law (Arts. 552(2), 3. Equivalent Performance – right to
1942, 2147, 2148, 2159) claim damages (in either performance or
2. liability specified by stipulation rescission)
3. the nature of the obligations requires 4. Rescission – right to rescind or cancel
assumption of risk (Art. 1174) the contract
4. when debtor is guilty of concurrent or 5. Pursue the Leviable – to attach the
contributory negligence properties of the debtor, except those
5. debtor has promised to deliver the same exempt by law from execution
thing to two or more persons who do not
have the same interests (Art. 1165 par. 3) Subsidiary Remedies of Creditor
6. the thing is lost due to the obligor’s fraud,
negligence, delay or contravention of the General Rule: Contracts are binding only
tenor of the obligation (Art. 1170) between the parties thereto, and their heirs,
7. the obligation to deliver a specific thing assignees, and the estate, UNLESS: Accion
arises from a crime (Art. 1268) Subrogatoria and Accion Pauliana
8. the object is a generic thing, i.e. the genus 1. Accion Subrogatoria: right of creditor to
never perishes exercise all of the rights and bring all of the
actions which his debtor may have against
Requisites for Exemption third persons; Novation by change of debtor
1. The event must be independent of the (Art. 1291, par.3).
debtor’s will (fraud or negligence)
Requisites
a. Debtor to whom the right of action Siguan v. Lim, (1999): Petitioner cannot invoke the
properly pertains must be indebted to credit of a different creditor to justify the rescission of
the creditor the subject deed of donation, because the only
b. The debt is due and demandable creditor who may benefit from the rescission is the
creditor who brought the action; those who are
c. The creditor must be prejudiced by the
strangers to the action cannot benefit from its effects.
failure of the debtor to collect his own
rd
debt from 3 persons either through
malice or negligence
V. Usurious Transactions and Rules on
97
d. The debtor’s assets are insufficient
OBLIGATIONS
(debtor is insolvent) Interest
e. The right of action is not purely personal
to the debtor USURY: stipulation of interest rates higher than
the ceiling provided by law.
2. Accion Pauliana: Rescission, which
involves the right of the creditor to attack or Note: Usury Law (Act No. 2655, as amended)
impugn by means of a rescissory action any was repealed by Central Bank Circular No. 905,
act of the debtor which is in fraud and to the Dec. 10, 1982.
prejudice of his rights as creditor.
INTEREST
Requisites: CASAL
a. There is a credit in favor of plaintiff Art. 1176, Civil Code. Receipt of the principal without
prior to alienation reservation as to the interest shall give rise to a
b. The debtor has performed a disputable presumption that the interest has been
subsequent contract conveying a paid. Receipt of the latter installment without
patrimonial benefit to third persons reservation as to prior installments shall likewise give
rise to a disputable presumption that such prior
c. The creditor has no other legal remedy
installments have been paid.
to satisfy his claim
d. The debtor’s acts are fraudulent to the
Determination of Interests
prejudice of the creditor
Eastern Shipping Lines v. CA (1961)
e. The third person who received the
property is an accomplice in the fraud
Stage 1
For loan or forbearance NOT for loan or
Accion Subrogatoria Accion Pauliana of money, goods or forbearance of money,
Not necessary that Credit must exist before credit, the interest rate goods or credit, the
creditor’s claim is prior to the fraudulent act is 12% interest rate is 6%
the acquisition of the right
by the debtor a) Interest = interest a) If date of demand is
No need for fraudulent Fraudulent intent is rate stipulated in certain, compute from
intent required if the contract writing + 12% legal the date when demand
rescinded is onerous interest, computed is made (judicial or
No period for prescription Prescribes in 4 years from date of judicial extra-judicial)
from the discovery of the demand (filing of
fraud complaint)
b) If there is no b) If date of demand is
stipulated interest rate, NOT certain, compute
3. Accion Directa (Art. 1729, 1652, 1608, the interest rate is 12% from the date of trial
1893): the right of lessor to go directly to a computed from date of court decision (judicial
sublessee for unpaid rents of the lessee default or demand demand)
(judicial or extra-
4. The right of laborers or persons who furnish judicial)
materials for a piece of work undertaken by Stage 2
a contractor to go directly to the owner for Add 12% interest from finality of SC decision until
any unpaid claim due to the contractor fully paid (equivalent to a forbearance of credit)
5. The right of vendor against every possessor

whose right is derived from the vendee
6. The right of a principal against a substitution

appropriated by an agent
CIVIL LAW REVIEWER Chapter III. DIFFERENT KINDS of OBLIGATIONS
 The mere intention of the debtor to

Chapter III. Different Kinds of Obligations prevent, without actually preventing
fulfillment is not sufficient.
I. PURE AND CONDITIONAL OBLIGATIONS Constructive fulfillment will not hold
II. RECIPROCAL OBLIGATIONS when the debtor acts pursuant to a
III. OBLIGATIONS WITH A PERIOD
right. There is constructive
IV. ALTERNATIVE AND FACULTATIVE
OBLIGATIONS fulfilment:
V. JOINT AND SOLIDARY OBLIGATIONS a. Intent of the obligor to prevent
VI. DIVISIBLE AND INDIVISIBLE OBLIGATIONS fulfilment; and 98
VII. OBLIGATIONS WITH A PENAL CLAUSE b. Actual prevention of compliance
OBLIGATIONS
 Principle of Retroactivity in
I. Pure and Conditional Obligations Suspensive Conditions
Art.1187, par.1: once the condition is
(Asked in ’79, ’88, ’00, ’03) fulfilled its effects must logically retroact
to the moment when the essential
Pure Obligation (Art.1179): Effectivity or elements, which gave birth to the
extinguishment does not depend upon the obligation have taken place. The
fulfillment or non-fulfillment of a condition or condition which is imposed is only
upon the expiration of a term or period and accidental, not an essential element of
characterized by the quality of its being the obligation.
IMMEDIATELY DEMANDABLE.  Applied only to consensual
contracts. No application to real
Conditional Obligation (Art.1181): Effectivity is contracts which can only be
subject to the fulfillment or non-fulfillment of a perfected by delivery.
condition, which is characterized to be a
FUTURE and UNCERTAIN event. To Give To Do/Not To Do
If reciprocal, the fruits In obligations to do or not
Effects of Conditions and interests shall be to do, the court shall
1. Suspensive Condition: Obligation shall deemed to have been determine the retroactive
only be effective upon the fulfillment of the mutually compensated effect of the condition
condition (Art.1181). What is acquired by the as a matter of justice and that has been complied
obligee upon the constitution of the convenience with.
obligation is mere hope or expectancy, but is (Art. 1187, par. 1) (Art. 1187, par. 2)
If unilateral, the debtor The power of the court
protected by law.
shall appropriate the includes the
fruits and interests determination whether or
Before Fulfillment After Fulfillment received, unless from the not there will be any
The demandability and The obligation arises or nature and circumstance retroactive effects. This
acquisition or effectivity becomes effective. it should be inferred that rule shall likewise apply
of the rights arising from The obligor can be the intention of the in obligations with a
the obligation is compelled to comply with persons constituting the resolutory condition (Art.
suspended. Anything what is incumbent upon same was different. 1190 par. 3)
paid by mistake during him.
such time may be
recovered.
 Preservation of Creditor’s Rights
Art.1188, par.1: The creditor may,
 Doctrine of Constructive Fulfillment before the fulfillment of the condition,
of Suspensive Conditions bring the appropriate action for the
Art. 1186: the condition shall be deemed preservation of his rights. However, this
fulfilled when the obligor actually does not grant any preference of credit
prevented the obligee from complying but only allows the bringing of the proper
with the condition, and that such action for the preservation of the
prevention must have been voluntary or creditor’s rights.
willful in character.
 Applicable to suspensive conditions 2. Resolutory Condition: Obligation becomes
and not to resolutory conditions. demandable immediately after its
 The article can have no application establishment or constitution. The rights are
to an external contingency which is immediately vested to the creditor, but
lawfully within the control of the always subject to the threat or danger of
obligor. extinction by the happening of the resolutory
condition (Tolentino, 1987).
needed to make the obligation demandable is that the

Before Fulfillment After Fulfillment sale be consummated and the price thereof remitted
Preservation of creditor’s Whatever may have to the islands. There were still other conditions that
rights (Art. 1188, par. 1) been paid or delivered by had to concur to effect the sale, mainly that of the
also applies to one or both of the parties presence of a buyer, ready, able and willing to
obligations with a upon the constitution of purchase the property under the conditions set by the
resolutory condition the obligation shall have intestate.
to be returned upon the
fulfillment of the 6. Impossible Condition: conditions which
condition. There is no are impossible, contrary to good customs, or 99
return to the status quo. public policy and those prohibited by law
OBLIGATIONS
However, when condition shall annul the obligations which depend
is not fulfilled, rights are
consolidated and they
upon them (Art. 1183).
become absolute in  If pre-existing obligation, only the
character impossible condition is void, but not the
obligation.
3. Potestative Condition  If divisible obligation, that part which is
not affected by the impossible or
Exclusively Exclusively Exclusively unlawful condition shall be valid.
upon the upon the upon the  If the condition is not to do an
Creditor’s Will Debtor’s Will Debtor’s Will impossible thing, it shall be considered
in case of a in case of a as not having been agreed upon (Art
Suspensive Resolutory 1183, par. 2). Consequently, it becomes
Condition Condition pure and immediately demandable.
(Art. 1182) (Art. 1179, par
 If attached to a simple or remuneratory
2)
donation (Art. 727), or testamentary
Condition and Condition and Condition and
obligation is obligation are obligation is disposition (Art. 873), condition is
valid void because to valid because in considered as not imposed while the
allow such such situation, obligation is valid.
condition would the position of
be equivalent to the debtor is 7. Positive Condition: Obligation shall be
sanctioning exactly the extinguished as soon as the time expires or
obligations same as the if it becomes indubitable that the event will
which are position of the not take place (Art.1184)
illusory. It also creditor when
constitutes a the condition is
direct suspensive. It 8. Negative Condition: Obligation shall be
contravention of does not render rendered effective from the moment the time
the principle of the obligation indicated has lapsed, or if it has become
mutuality of illusory. evident that the event will not occur
contracts. (Art.1185)
 When no period has been fixed, the
4. Casual Condition: The fulfillment of the intention of the parties is controlling,
condition depends upon chance and/or upon and the time shall be that which the
the will of a third person (Art. 1182) parties may have contemplated, taking
into account the nature of the obligation
5. Mixed Condition: The fulfillment of the (Art 1185, par. 2).
condition depends partly upon the will of a
party to the obligation and partly upon
chance and/or will of a third person Effects of Loss, Deterioration, and
Improvement in Real Obligations Pending the
Osmena v. Rama: Defendant executed an Condition (Art. 1189)
endorsement saying that she’ll pay her debt if the
house in which she lives is sold. Such condition Without With Debtor’s
depended upon her exclusive will thus it is void. Debtor’s Fault/Act
Fault/Act
Hermosa v. Longara: The condition that payment Loss Obligation is Obligation is
should be made by Hermosa as soon as he receives extinguished converted into
funds from the sale of his property in Spain is a mixed one of
condition. The condition implies that the obligor indemnity for
already decided to sell the house and all that was damages
Deterioration Impairment to be Creditor may shouldered by the first infractor. This shall
borne by the choose be determined by the courts. However, if it
creditor between cannot be determined who was the first
bringing an infractor, the contract shall be deemed
action for
extinguished and each shall bear his own
rescission of
the obligation damages (Art.1192).
OR bringing an
action for UP v. Delos Angeles (1970): The injured party may
specific extra-judicially rescind the contract on account of the 100
performance breach of the other party. However, this is without
OBLIGATIONS
with damages prejudice to the option of the other party to resort to
in either case. the courts in order to determine if the rescission made
is valid, if not, the party who rescinded the contract
Improvement Improvement at Improvement will be sentenced to pay damages.
the debtor’s by the thing’s
expense, the nature or by  Where the other party does not oppose the
debtor shall time shall inure extra-judicial declaration of rescission, such
ONLY have to the benefit of declaration shall produce legal effect.
usufructuary the creditor  Effect is retroactive therefore invalidating
rights and unmaking the juridical tie between the
contracting parties, leaving things in their
Loss, defined: when the thing perishes; goes status before the celebration of the contract.
out of commerce; disappears in such a way that
its existence is unknown or it cannot be
recovered
III. Obligations with a Period
II. Reciprocal Obligations Period or Term (Asked in ’84, ’86 and ’91):
Interval of time, which either suspends
demandability or produces extinguishment.
Obligations which are established from same The period must be: future, certain, and possible
cause, such that one obligation is correlative to (Tolentino, 1987).
the other. It results in mutual relationship
between the creditor and the debtor. It is  Fortuitous event does not interrupt the
performed simultaneously, so that the running of the period. It only relieves the
performance of one is conditioned upon the contracting parties from the fulfillment of
simultaneous fulfillment of the other. their respective obligations during the
period.
Tacit Resolutory Condition: if one of the  Kinds of Period (Art. 1193):
parties fail to comply with what is incumbent 1. Ex die - period with a suspensive effect.
upon him, there is a right on the part of the other Obligation becomes demandable after
to rescind the obligation. The power to rescind is the lapse of the period.
given to the injured party (Tolentino, 1987). 2. In diem - period with a resolutory effect.
Obligation is demandable at once but is
Rescission of Reciprocal Obligations (Art. extinguished upon the lapse of the
1191, CC) period.
 Right to rescind is implied in reciprocal
obligations thus where one party fails to Art. 1180, Civil Code. When the debtor binds himself
comply with this obligation under a contact, to pay when his means permit him to do so, the
the other party has the right to either obligation shall be deemed to be one with a period,
demand the performance or ask for the subject to the provisions of Article 1197.
resolution of the contract.
 Based on the breach of faith committed by Term/Period and Condition Distinguished
the person who is supposed to comply with
the obligation as compared to the rescission Term/Period Condition
referred to in Art. 1308 which involves the Interval of time which is Fact or event which is
damage or lesion, or injury to the economic future and certain future and uncertain
interest of a person.
Must necessarily come, May or may not happen
 Where both parties have committed a although it may not be
breach of obligation, the liability will be known when
Exerts an influence upon Exerts an influence upon  Art. 1197 does not apply to contract of
the time of demandability the very existence of the services and to pure obligations.
or extinguishment of an obligation itself  The court, however, to prevent
obligation unreasonable interpretations of the
No retroactive effect Has retroactive effect immediate demandability of pure obligations,
unless there is an
agreement to the contrary
may fix a reasonable time in which the
When it is left exclusively When it is left exclusively debtor may pay.
to the will of the debtor, to the will of the debtor, (Tolentino, 1987)
the existence of the the very existence of the 101
obligation is not affected obligation is affected When Debtor Loses Right to Use Period
OBLIGATIONS
Art.1198: I GIV A LA
Benefit of the Period 1. Debtor becomes Insolvent, unless he gives
Presumption: Period in an obligation is a guaranty or security for his debt, after
presumed to be established for the benefit of obligation is contracted
both the creditor and debtor, UNLESS: If from 2. Debtor fails to furnish the Guaranties or
the tenor of the obligation or other securities promised
circumstances, it shall appear that the period 3. Debtor by his own acts Impaired said
has been established in favor of either the guaranties or securities after their
creditor or debtor (Art. 1196). establishment, and when through a
fortuitous event they disappear, unless he
Period for the Benefit of either Creditor or immediately gives new one equally
Debtor satisfactory
4. Debtor Violates any undertaking, in
Creditor Debtor consideration of which the creditor agreed to
Creditor may demand Debtor may oppose any the period
the fulfillment or premature demand on 5. Debtor attempts to Abscond
performance of the the part of the oblige for 6. By Law or stipulation
obligation at any time the performance of the 7. Parties stipulate an Acceleration Clause
but the obligor cannot obligation, of if he so
compel him to accept desires, he may
payment before the renounce the benefit of In the cases provided, the obligation becomes
expiration of the period the period by performing immediately due and demandable even if the
his obligation in advance period has not yet expired. The obligation is thus
converted into a pure obligation (Tolentino,
1987).
When court may fix period
Art. 1197: as general rule, the court is not
authorized to fix a period for the parties (De IV. Alternative and Facultative
Leon, 2003). Obligations
Araneta v. Phil. Sugar Estates, provides:
Alternative Obligations Facultative Obligations
First, the Court shall determine:
 If the obligation does not fix a period, but from Several objects are due Only one object is due
its nature and circumstances, it can be inferred May be complied with by May be complied with by
that a period was intended delivery of one of the the delivery of another
 If the period is void, such as when it depends objects or by performance object or by the
upon the will of the debtor of one of the prestations performance of another
 If the debtor binds himself when his means which are alternatively prestation in substitution
permit him to do so. due of that which is due
Second, it must decide what period was “probably Choice may pertain to Choice pertains only to
contemplated by the parties”. debtor, creditor, or third the debtor
person
 The only action that can be maintained
Loss/impossibility of all Loss/impossibility of the
under Art. 1197 is the action to ask the objects/prestations due to object/prestation due to
courts to fix the term within which the debtor fortuitous event shall fortuitous event is
must comply with his obligation. The extinguish the obligation. sufficient to extinguish
fulfillment of the obligation itself cannot be The loss/impossibility of the obligation
demanded until after the court has fixed the one of the things does not
period for compliance, therewith, and such extinguish the obligation.
period has arrived. Culpable loss of any of Culpable loss of the
the objects alternatively object which the debtor
due before the choice is may deliver in Effect of Loss of Objects

made may give rise to substitution before the
liability on the part of the substitution is effected Art. 1204: Debtor’s Choice
debtor does not give rise to any Fortuitous Debtor’s Fault
liability on the part of the Event
debtor All Lost Debtor is Creditor shall have
released from the a right to indemnity
A. Alternative Obligations obligation for damages based
on the value of the
Several prestations are due but the performance last thing which 102
of one is sufficient (De Leon, 2003). disappeared or
OBLIGATIONS
service which
Right of Choice become impossible
Some Debtor to deliver Debtor to deliver
Art. 1200: to the debtor, UNLESS:
that which he that which the
1. when it is expressly granted to the shall choose creditor shall
creditor from among the choose from among
2. when it is expressly granted to a third remainder the remainder
person without damages
One Debtor to deliver Debtor to deliver
Limitations to the right of choice Remains that which that which remains
1. impossible prestations remains
2. unlawful prestations
3. those which could not have been the Art. 1205: Creditor’s Choice
object of the obligation Fortuitous Debtor’s Fault
4. only one prestation practicable (Art. Event
1202) All Lost Debtor is Creditor may claim
released from the the price/value of
(De Leon, 2003)
obligation any of them with
indemnity for
When choice shall produce effect damages
Art. 1201: Choice shall produce no effect except Some Debtor to deliver creditor may claim
from the time it has been communicated. The that which he any of those
effect of the notice is to limit the obligation of the shall choose subsisting without a
object or prestation selected. Notice of selection from among the right to damages
or choice may be in any form provided it is remainder OR price/value of
sufficient to make the other party know that the the thing lost with
right to damages
selection has been made. It can be:
One Creditor may Creditor may claim
o oral Remains claim any of the remaining thing
o in writing those subsisting without a right to
o tacit without a right to damages OR the
o any other equivocal means damages OR price/value of the
 Choice of the debtor when communicated to price/value of the thing lost with right
the creditor does not require the latter’s thing lost with to damages
concurrence. right to damages
 When the choice is rendered impossible
through the creditor’s fault, the debtor may
bring an action to rescind the contract with B. Facultative Obligation
damages (Art.1203).
 Obligation is converted into a simple Only one prestation has been agreed upon but
obligation when: the debtor may render another in substitution
o When the person who has the right of (De Leon, 2003)
choice has communicated his choice
(Art. 1201) Effect of Loss of Substitute
o When only one prestation is practicable
(Art. 1202) Before Substitution is After Substitution is
Made Made
If due to bad faith or The loss or
fraud of obligor: obligor deterioration of the
is liable substitute on account
of the obligor’s delay,
negligence or fraud
If due to the negligence obligor is liable authorize a creditor to demand anything

of the obligor: obligor is because once from his co-debtors
not liable substitution is made, 5. Defense of res judicata is not extended from
the obligation is one debtor to another
converted into a simple
one with the substituted
thing as the object of Joint Divisible Obligation
the obligation. Art. 1208: Each creditor can demand only for the
payment of his proportionate share of the
credit, while each debtor can be liable only for 103
the payment of his proportionate share of the
V. Joint and Solidary Obligations
OBLIGATIONS
debit
A. Joint Obligations Presumption: Credit or debt shall be presumed

to be divided into as many equal shares as there
One where a concurrence of several creditors, are creditors or debtors.
or of several debtors, or of several creditors and  Joint creditor cannot act in representation of
debtors, by virtue of which, each of the creditors the others, neither can a joint debtor be
has a right to demand, and each of the debtors compelled to answer for the liability of
is bound to render compliance with his others.
proportionate part of the prestation which
constitute the object of the obligation (Obligacion Joint Indivisible Obligation
Mancomunada). Art. 1209: no creditor can act in representation
of the other; no debtor can be compelled to
Presumption: Obligation is presumed joint if answer for the liability of the others.
there is a concurrence of several creditors, of  If there are two or more debtors, the
several debtors, or of several creditors and fulfillment of or compliance with the
debtors in one and the same obligation (Art. obligation requires the concurrence of all the
1207). debtors, although each for his own share
and for the enforcement of the obligation
Exceptions:  In case of breach where one of the joint
1. When the obligation expressly stated that debtors fails to comply with his undertaking,
there is solidarity the obligation can no longer be fulfilled or
2. When the law requires the solidarity performed. Consequently, it is converted
3. When the nature of the obligation requires into one of indemnity for damages.
solidarity  In case of insolvency of one of the
4. When the nature or condition is imposed debtors, the others shall not be liable for his
upon heirs or legatees, and the testament shares. To hold otherwise would destroy the
expressly makes the charge or condition in joint character of the obligation.
solidum
5. When the solidary responsibility is imputed Joint Divisible Joint Indivisible
by a final judgment upon several defendants Obligations Obligations
In case of breach of In case of breach where
Principal Effects of Joint Liability obligation by one of the one of the joint debtors
1. Demand by one creditor upon the debtor, debtors, damages due fails to comply with his
produces the effects of default only with must be borne by him undertaking, the
alone obligation can no longer
respect to the creditor who demanded and
be fulfilled or performed.
the debtor on whom the demand was made, Thus action must be
but not with respect to others converted into indemnity
2. Interruption of prescription by the judicial for damages.
demand of one creditor upon a debtor, does
not benefit the other creditors nor interrupt  Plurality of Creditors: If one or some of
the prescription as to other debtors the creditors demands the prestation,
3. Vices of each obligation arising from the the debtor may legally refuse to deliver
personal defect of a particular debtor or to them, he can insist that all the
creditor does not affect the obligation or right creditors together receive the thing, and
of the others if any of them refuses to join the others,
4. Insolvency of a debtor does not increase the the debtor may deposit the thing in court
responsibility of his co-debtors, nor does it by way of consignation (Tolentino,
1987).
B. Solidary Obligation A solidary creditor cannot assign his

rights without the consent of the others.
An obligation where there is concurrence of (Art. 1213)
several creditors, or of several debtors, or of  Each debtor may pay to any solidary
several creditors and several debtors, by virtue creditor, but if any demand, judicial or
of which, each of the creditors has the right to extrajudicial, has been made by one of
demand, and each of the debtors is bound to them, payment must be made to him.
render, entire compliance with the prestation (Art. 1214)
which constitutes the object of the obligation 2. Passive (solidarity among debtors): Each 104
(Obligacion Solidaria). debtor can be made to answer for the
OBLIGATIONS
others, with the right on the part of the
Indivisibility Solidarity debtor-payor to recover from the others their
Refers to the prestation Refers to the legal tie or respective shares.
which constitutes the vinculum, and  Creation of a relationship of mutual
object of the obligation consequently to the guaranty among co-debtors
subjects or parties of  The total remission of the debt in favor
the obligation
of a debtor releases all the debtors
Plurality of subjects is not Plurality of subjects is
required indispensable  All the debtors are liable for the loss of
In case of breach, When there is liability the thing due, even if such loss is
obligation is converted into on the part of the caused by the fault of only one of them
indemnity for damages debtors because of the and for delay, even if it is caused by just
because the indivisibility of breach, the solidarity one of them
the obligation is terminated among the debtors  The interruption of prescription as to
remains one debtor affects all the others; but the
renunciation by one debtor of
 The indivisibility of an obligation does not prescription already had does not
necessarily give rise to solidarity. Nor does prejudice the others
solidarity itself imply indivisibility. (Art. 1211) 3. Mixed: Solidarity among creditors and
debtors
Kinds of Solidary Obligations  Solidarity is not destroyed by the fact
1. Active (solidarity among creditors): Each that the obligation of each debtor is
creditor has the authority to claim and subject to different conditions or periods.
enforce the rights of all, with the resulting The creditor can commence an action
obligation of paying everyone of what against anyone of the debtors for the
belongs to him. compliance with the entire obligation
 Creation of a relationship of mutual minus the portion or share which
agency among co-creditors. corresponds to the debtor affected by
the condition or period.
____________________________________________________________________________________
Effects of Modes of Extinguishment
Assignment of Loss or
Compensation &
Rights in Solidary Novation Remission Impossibility
Confusion
Obligations
 The solidary  If prejudicial, the  If it is partial, the  If entire  If not debtors’
creditor cannot solidary creditor rules regarding obligation, fault, the
assign his right who effected the application of obligation is totally obligation is
because it is novation shall payment shall extinguished. extinguished
predicated upon reimburse the apply (w/o)  If for the benefit  If thru debtors’
mutual others for prejudice to the of one of the OR fortuitous
confidence, damages incurred right of other debtors covering event after delay,
UNLESS, the (1) by them; creditors who his entire share, the obligation is
the assignment is  If beneficial and have not caused he is completely converted into
to a co-creditor; secured by one, the confusion or released from the indemnity for
(2) assignment is he shall be liable compensation to creditor/s. damages but the
with consent of to the others for be reimbursed to  If for the benefit solidary character
co-creditor the share the extent that of one of the of the obligation
(obligation & their rights are debtors and it remains.
benefits) which diminished or covers only part
corresponds to affected of his share, his

them  If total, the character as a
 If by substituting obligation is solidary debtor is
the debtor, the extinguished, not affected.
solidary creditor what is left is the
who effected the ensuing liability
novation is liable for reimbursement
for the acts of the
new debtor in
deficiency or 105
damages
OBLIGATIONS
 If by subrogating
a third person in
creditor’s rights,
the obligation is
not in reality
extinguished as
the relation
between the other
creditors and the
debtor/s is
maintained.
Effects of Prejudicial and Beneficial Acts The creditor may proceed If two or more solidary
(Art.1212) against any one of the debtors offer to pay, the
solidary debtors or all creditor may choose
1. Each one of the solidary creditors may do simultaneously (Art. which offer to accept.
whatever may be useful or beneficial to the 1216) (Art. 1217)
others, but not anything which may be A creditor’s right to The solidary debtor who
prejudicial to the latter. proceed against the made the payment shall
2. As far as the debtors are concerned, a surety exists have the right to claim
prejudicial act performed by a solidary independently of his right from his co-debtors the
creditor is binding. to proceed against the share which corresponds
3. As between the solidary creditors, the principal to them with interest,
UNLESS barred by
creditor who performed such act shall incur prescription or illegality.
the obligation of indemnifying the others for (Art. 1218)
damages.
 When a solidary debtor pays the entire
Defenses Available to a Solidary Debtor (Art. obligation, the resulting obligation of the co-
1222) debtors to reimburse him becomes joint.
1. Those derived from the nature of the  If payment was made before the debt
obligation became due, no interest during the
2. Those personal to him intervening period may be demanded. (Art.
3. Those pertaining to his own share 1217 par. 2)
4. Those personally belonging to other co-  When one of the solidary debtors cannot
debtors but only as regards that part of the reimburse his share to the debtor paying the
debt for which the latter are responsible. obligation due to insolvency, such share
shall be borne by all his co-debtors, in
Effects proportion to the debt of each. (Art. 1217,
par. 2)
Demand Upon a Payment by a Debtor
Solidary Debtor
Inchausti v. Yulo, (1914): Debtors obligated
The demand made Full payment made by
themselves solidarily, so creditor can bring its action
against one of them shall one of the solidary
against any of them. Remission of any part o fthe
not be an obstacle to debtors extinguishes the
debt, made by the creditor in favor of one of the
those which may obligation. (Art. 1217)
solidary debtors, inures to the benefit of the rest of
subsequently be directed
them.
against the others so
long as the debt has not
been fully collected. (Art.
1216)
VI. Divisible and Indivisible Obligations  If the principal obligation is void, penal
clause shall also be void. However, the
nullity of the penal clause does not carry
A. Divisible Obligations
with it the nullity of the principal
obligation (Art.1230).
One which is susceptible of partial performance;
that is, the debtor can legally perform the
Purposes of Penalty
obligation by parts and the creditor cannot 1. Funcion coercitiva de garantia - to insure the
demand a single performance of the entire
obligation (Tolentino, 1987). 2.
performance of the obligation.
Funcion liquidatoria - to liquidate the amount of
106
OBLIGATIONS
damages to be awarded to the injured party in
B. Indivisible Obligations case of breach of the principal obligation
(compensatory).
One which cannot be validly performed in parts 3. Function estrictamente penal - to punish the
(Tolentino, 1987). obligor in case of breach of the principal
 Divisibility/indivisibility refers to the obligation (punitive).
performance of the prestation and not to the
thing which is the object thereof. The thing Effects of Penalty
may be divisible, yet the obligation may be 1. The penalty shall substitute the indemnity for
indivisible. damages and payment of interest in case of
 When the obligation has for its object the non-compliance (Art. 1226), UNLESS:
a. There is a stipulation to the contrary
execution of a certain number of days of b. The obligor refuses to pay the penalty
work, the accomplishment of work by c. The obligor is guilty of fraud
metrical units, or analogous things which by 2. Debtor cannot exempt himself from the
their nature are susceptible of partial performance of the principal obligation by
performance, it shall be divisible (Art.1225, paying the stipulated penalty unless this
par. 2). right has been expressly reserved for him
 When there is plurality of debtors and (Art. 1227).
creditors, the effect of divisibility/indivisibility 3. Creditor cannot demand the fulfillment of the
of the obligation depend upon whether the principal obligation and demanding the
obligation is joint or solidary. satisfaction of the penalty at the same time
 A joint indivisible obligation give rise to unless the right has been clearly granted to
indemnity for damages from the time anyone him (Art. 1227). Tacit or implied grant is
of the debtors does not comply with is admissible.
undertaking. a. If creditor has chosen fulfillment of the
(Art. 1224) principal obligation and performance thereof
become impossible without his fault, he may
Effect still demand the satisfaction of the penalty.
Creditor cannot be compelled partially to receive b. If there was fault on the part of the debtor,
the prestation in which the obligation consists; creditor may demand not only satisfaction of
neither may the debtor be required to make the penalty but also the payment of damages.
c. If creditor chooses to demand the
partial payment (Art. 1248), UNLESS:
satisfaction of the penalty, he cannot
 The obligation expressly stipulates the afterwards demand the fulfillment of the
contrary obligation.
 The different prestations constituting the
objects of the obligation are subject to Proof of Actual Damage
different terms and conditions Art. 1228: Proof of actual damages is not
The obligation is in part liquidated and in part necessary is applicable only to the general rule
unliquidated stated in Art. 1226 and not to the exceptions.
The penalty is exactly identical with what is
known as “liquidated damages” in Art. 2226.
VII. Oblligations with a Penal Clause
When Penalty may be Reduced
Penal Clause: An accessory undertaking to Art. 1229:
assume greater liability in case of breach (De 1. If the principal obligation has been partly
Leon, 2003). It is attached to an obligation in complied with.
order to ensure performance. The enforcement 2. If the principal obligation has been irregularly
of the penalty can be demanded by the creditor complied with.
only when the non-performance is due to the 3. If the penalty is iniquitous or unsconscionable
fault or fraud of the debtor. even if there has been no performance.
CIVIL LAW REVIEWER Chapter IV. EXTINGUISHMENT of OBLIGATIONS
singular. There must be full and faithful compliance

Chapter IV. Extinguishment of with the terms of the contract.
Obligations
B. Payment by Cession (Art. 1255)
I. PAYMENT OR PERFORMANCE
II. LOSS OF THE THING DUE OR IMPOSSIBILITY Act whereby a debtor abandons all his property
OF PERFORMANCE to his creditors, so that the latter may apply the
III. CONDONATION OR REMISSION OF THE proceeds (of its sale) to their credits.
DEBT
IV. CONFUSION OR MERGER OF RIGHTS 107
V. COMPENSATION
C. Dation in payment (Art. 1245)
OBLIGATIONS
VI. NOVATION
Delivery and transmission of ownership of a
thing by the debtor to the creditor as an
accepted equivalent of the performance of the
I. Payment or Performance obligation (dacion en pago).
Art. 1232, Civil Code. Payment means not only Dation in payment Payment by cession
delivery of money but also performance, in any
manner, of the obligation. In favor of only one There are various
creditor creditors
See Diagrams of Prof. Labitag at the end Payment extinguishes the Extinguishes credits
obligation to the extent of only up to the extent of
section of Obligations.
the value of the thing proceeds from sale of
delivered, unless the assigned property,
SPECIAL FORMS OF PAYMENT parties agree that the unless otherwise
obligation be totally agreed upon
A. Application of Payment (Art. 1252) extinguished
Transfer of ownership of Only possession and
Designation of the debt to which should be thing alienated to creditor administration with
applied a payment made by a debtor who owes authorization to convert
several debts to the same creditor property to cash with
which the debts shall
be paid
Rules on Application— Not necessarily in state of Assignment
1. Preferential right of debtor - debtor has the financial difficulty presupposes
right to select which of his debts he is insolvency of debtor.
paying. Assignment of only some Assignment involves all
2. The debtor makes the designation at the specific thing the property of the
time he makes the payment debtor.
3. If not, the creditor makes the application, by
so stating in the receipt that he issues, D. Tender of payment and consignation
unless there is cause for invalidating the
contract. 1. Tender of payment: Manifestation made by
4. If neither the creditor nor debtor exercises debtor to creditor of his desire to comply
the right to apply, or if the application is not with his obligation, with offer of immediate
valid, the application is made by operation of performance
law.  Preparatory act to consignation
5. If debt produces interest - payment not  Extrajudicial in character
deemed applied to the principal unless
interests are covered. 2. Consignation: Deposit of the object of
6. When no application can be inferred from obligation in a competent court in
the circumstances of payment, it is applied accordance to the rules prescribed by law,
to: to the most onerous debt of the debtor; or whenever the creditor unjustly refuses
if debts due are of the same nature and payment or because of some circumstances
burden, to all the debts in proportion which render direct payment to the creditor
7. Rules of application of payment may not be impossible or inadvisable.
invoked by a surety or solidary guarantor.  Principal act which constitutes a form of
payment.
Reparations Commission vs. Universal Deep Sea  Judicial in character.
Fishing Corp. (1978): Rules on application of payment
cannot be made applicable to a person whose
obligation as a mere surety is both contingent and
When Tender and Refusal Not Required (Art. 2. After approval of the court or acceptance by
1259)— the creditor, with the consent of the latter -
1. Creditor is absent or unknown, or does not Obligation remains in force, but guarantors
appear at the place of payment and co-debtors are liberated. Preference of
2. Creditor is incapacitated to receive the thing the creditor over the thing is lost.
due at time of payment 3. After approval of the court or acceptance by
3. Without just cause, creditor refuses to give the creditor, and without creditor’s consent -
receipt Obligation subsists, without change in the
4. Two or more persons claim the same right to liability of guarantors and co-debtors, or the 108
collect creditor’s right of preference.
OBLIGATIONS
5. Title of the obligation has been lost
Art. 1259, Civil Code. Expenses of consignation,
Effects of Withdrawal by Debtor when properly made, shall be charged against the
Arts. 1260- 1261 creditor.
1. Before approval of the court - Obligation
remains in force.
Requisites and Effects
Application of
Cession Dation Tender and Consignation
Payment
Requisites Requisites Requisites Requisites
1. Plurality of 1. Plurality of debts 1. Should not be 1. There is a debt due
debts 2. Plurality of prejudicial to 2. consignation is made because
2. Debts are of creditors other creditors of some legal cause
the same kind 3. Partial insolvency 2. Should not 3. previous notice of consignation
3. Debts are owed of the debtor constitute a was given to those persons
to the same 4. Abandonment of pactum interested in the performance
creditor and by the totality of the commissorium of the obligation
the same debtor’s 4. amount or thing due was
debtor properties for the placed at the disposal of the
4. All debts must benefit of the court
be due creditors 5. after the consignation has been
5. Payment made 5. Acceptance by made, the persons interested
is not sufficient the creditors were notified thereof
to cover all
debts
Effects Effects Effects Effects
Payment of debt Assignment liberates Extinguishment of If accepted by the creditor or
designated as to debtor up to the debt from as an declared properly made by the
corresponding amount of the net equivalent of the Court:
amount proceeds of the sale performance of the 1. Debtor is released in same
of his assets obligation manner as if he had performed
Assignment does not the obligation at the time of
vets title to the consignation
property in the 2. Accrual of interest is
creditors, suspended from the moment of
who are only consignation.
authorized to sell it. 3. Deterioration or loss of the
thing or amount consigned,
occurring without the fault of
debtor, must be borne by
creditor from the moment of
deposit
4. Any increment or increase in
the value of the thing after
consignation inures to the
benefit of the creditor
II. Loss or Impossibility Loss of the thing when in possession of the

(Asked in ’83, ’84, ’85, and ’94) debtor: Loss was due to the debtor’s fault.
Burden of explaining the loss of the thing falls
A. Loss upon him, UNLESS, due to a natural calamity:
earthquake, flood, storm, etc.
A thing is lost when it perishes, goes out of
commerce or disappears in such a way that its Subjective impossibility: Where there is no physical
existence is unknown or it cannot be recovered or legal loss, but the thing belongs to another, the 109
performance by the debtor becomes impossible. The
(Art. 1189, par. 2)
OBLIGATIONS
debtor must indemnify the creditor for damages.
Effects of Loss
B. Impossibility of Performance (Arts. 1266-
Obligation to Deliver a Obligation to Deliver a
1267, CC)
Specific Thing Generic Thing
Extinguishment of the Loss of a generic thing
obligation if the thing was does not extinguish an When prestation becomes legally or physically
destroyed w/o fault of the obligation, UNLESS, impossible (by fortuitous event or force
debtor and before he has Delimited generic majeure), the debtor is released.Impossibility
incurred delay. things: kind or class is must have occurred without fault of debtor, and
limited itself, and the after the obligation has been constituted.
whole class perishes
PARTIAL IMPOSSIBILITY
rd 1. Courts shall determine whether it is so
Action against 3 persons - creditor shall have important as to extinguish the obligation.
all the rights of action the debtor may have 2. If debtor has performed part of the obligation
rd
against 3 persons by reason of the loss. when impossibility occurred, creditor must
pay the part done as long as he benefits
Presumption: The loss was due to the debtor’s from it.
fault, UNLESS: 3. If debtor received full payment from creditor,
1. Law provides that the debtor shall be liable he must return excess amount
even if the loss is due to fortuitous events corresponding to part which was impossible
(Arts. 1942, 1979, 2147, 2159) to perform.
2. Obligor is made liable by express stipulation
3. Nature of the obligation requires an Doctrine of Unforeseen Events
assumption of risk When the service has become so difficult as to
4. Fault or negligence concurs with the be manifestly beyond the contemplation of all
fortuitous event the parties, the obligor may be released in whole
5. Loss occurs after delay or in part (De Leon, 2003).
6. Debtor has promised to deliver the same
thing to two or more different parties Requisites:
7. Obligation arises from a criminal act 1. Event could not have been foreseen at the
8. Borrower in commodatum: saves his own time of the constitution of the contract.
things and not the thing of the creditor 2. Event makes performance extremely difficult
during a fortuitous event but not impossible.
3. Event not due to any act of the parties.
In Reciprocal Obligations 4. Contract is for future prestation.
Extinguishment of the obligation due to loss of
the thing or impossibility of performance affects
both the creditor and debtor; the entire juridical
relation is extinguished.
III. Condonation or Remission of the
Debt
Partial loss
Art. 1264: Partial loss due to a fortuitous event CONDONATION: An act of liberality, by virtue of
does not extinguish the obligation; thing due which, without receiving any equivalent, creditor
shall be delivered in its present condition, renounces the enforcement of the obligation.
without any liability on the part of the debtor, The obligation is extinguished either in whole or
UNLESS, the obligation is extinguished when in such part of the same which to remission
the part lost was of such extent as to make the refers.
thing useless.
Requisites Effects
1. Debt must be existing and demandable Arts. 1275- 1277:
2. Renunciation must be gratuitous; without 1. The obligation is extinguished from the time
any consideration the characters of the debtor and creditor are
3. Debtor must accept the remission merged in the same person.
2. In joint obligations, confusion does not
Effect extinguish the obligation except as regards
Art. 1273: Renunciation of the principal debt the corresponding share of the creditor or
shall extinguish the accessory obligations, but debtor in whom the two characters concur. 110
remission of the latter leaves the principal 3. In solidary obligations, confusion in one of
OBLIGATIONS
obligation in force. the solidary debtors extinguishes the entire
obligation.
Presumptions 4. Obligation is not extinguished when
Arts. 1271, 1272, 1274: confusion takes place in the person of
 Whenever the private document in which the subsidiary debtor (e.g. guarantor), but
debt is found in the possession of the merger in the person of the principal debtor
debtor, it shall be presumed that the creditor shall benefit the former.
delivered it voluntarily, unless contrary is
proved.
 Delivery of a private document evidencing V. Compensation
credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action
COMPENSATION: Offsetting of two obligations
of creditor against the latter.
which are reciprocally extinguished if they are of
the same value, or extinguished to the
Kinds
concurrent amount if of different values. (Asked
1. As to form (Art. 1270)
in ’80, ’81, ’98, and ’02)
 Express: made formally; in accordance
with forms of ordinary donations
Compensation Confusion
 Implied: inferred from the act of the
parties There must always be 2 Involves only one
2. As to extent obligations obligation
 Total: entire obligation
 Partial: may refer only to amount of There are 2 persons who are There is only one
indebtedness, or to an accessory mutually debtors and person whom the
obligation, or to some other aspect of creditors of each other in 2 characters of the
the obligation separate obligations, each creditor and debtor
3. As to constitution arising from the same cause. meet
 Inter vivos: effective during the lifetime
of the creditor Kinds
 Mortis causa: effective upon death of the 1. As to extent
creditor; must be contained in a will or  Total: Debts are of the same amount
testament  Partial: Amounts are not equal
2. As to origin
 Legal: takes place by operation of law
 Conventional: parties agree to
IV. Confusion or Merger of Rights compensate their mutual obligations
even when some requisite in Art. 1279 is
CONFUSION: The meeting in one person of the lacking (Art. 1282).
qualities of creditor and debtor of the same  Judicial: decreed by court when there is
obligation. counterclaim; effective upon final
judgment (Art. 1283).
Requisites  Facultative: when it can be claimed by
1. It should take place between principal debtor one of the parties who, however, has the
and creditor right to object to it.
2. It must be complete and definite- Parties
must meet all the qualities of creditor and
debtor in the obligation/ in the part affected.
Requisites Effects VI. Novation

1. Each obligor is 1. Effects rise from the
bound principally, moment all the
and at the same time requisites concur. NOVATION: Extinguishment of an obligation by
a principal creditor of 2. Debtor claiming its the substitution or change of the obligation by a
the other benefits must prove subsequent one which extinguishes or modifies
2. Both debts must compensation; once the first either by changing the object or principal
consist in a sum of proven, effects conditions, or by substituting the person of the
money, or if the retroact from the debtor, or by subrogating a third person in the
things due are moment when the rights of the creditor. A juridical act of dual 111
FUNGIBLE, of the requisites concurred.
function—it extinguishes an obligation, and at
OBLIGATIONS
same kind & quality 3. Both debts are
3. Both debts are due extinguished to the the same time, it creates a new one in lieu of the
4. Debts are liquidated concurrent amount, old. (Asked in ’78, ’88, ’94 and ’01)
and demandable eventhough the
5. There must be no creditors and debtors Requisites
retention or are not aware of the 1. A previous valid obligation
controversy over compensation. 2. Agreement of all the parties to the new
either of the debts, 4. Accessory obligation
rd
commenced by 3 obligations are also 3. Extinguishment of the old obligation
persons and extinguished.
communicated in
4. Validity of the new obligation
due time to the
debtor Novation is not presumed.
6. Compensation is not  Express novation: Parties must expressly
prohibited by law disclose their intent to extinguish the old
obligation by creating a new one.
Compensation is prohibited in:  Implied novation: No specific form is
1. Contracts of depositum required. There must be incompatibility
2. Contracts of commodatum between the old and new obligation or
3. Future support due by gratuitous title contract.
4. Civil liability arising from a penal offense (Asked in ’79, ’82, ’88, and ’94)
5. Obligations due to the government
6. Damage caused to the partnership by a California Bus Line v. State Investment (2003): In the
partner absence of an unequivocal declaration of
extinguishment of the pre-existing obligation, only
ASSIGNMENT OF CREDIT (Art. 1285): proof of incompatibility between the old and new
No effect and does not bind the debtor unless obligation would warrant a novation by implication.
and until the latter is notified of the assignment The restructuring agreement merely provided for a
or learns of it. new schedule of payments and authority giving Delta
to take over management and operations of CBLI in
Without case it fails to pay installments. There was no change
With Debtor’s With Debtor’s
Debtor’s in the object of prior obligations.
Consent Knowledge
Knowlege
Debtor’s Debtor may set Debtor may Test of Incompatibility
consent to up setup Whether or not the old and new obligation can
assignment of compensation compensation
stand together, each one having an independent
credit of debts of all credits
constitutes a (maturing) (maturing) prior existence. No incompatibility exists when they
waiver of before the to the can stand together. Hence, there is no novation.
compensation, assignment of assignment and Incompatibility exists when they cannot stand
unless he credit but not of also latter ones together. Hence, there is novation.
reserved his subsequent until he had
right to ones knowledge of Effects
compensation. the assignment.
In General If Original If New
Facultative compensation: Compensation which Obligation is Obligation is
can only be set up at the option of a creditor, when Void Void
legal compensation cannot take place because some 1. Old Novation is void if New obligation is
legal requisites in favor of the creditor are lacking. obligation is the original void, the old
Creditor may renounce his right to compensation, and extinguished obligation was obligation
he himself may set it up.As opposed to conventional and replaced void, except subsists, unless
compensation, facultative compensation is unilateral by the new when annulment the parties
one may be claimed intended that the
and does not depend upon the agreement of the stipulated. only by the former realations
parties.
debtor, or when shall be Expromision Delegacion

ratification extinguished in Initiative for change does Debtor (delegante) offers
validates acts any event. (Art. not emanate from the or initiates the change,
that are voidable. 1297)
(Art. 1298) 1. New obligation
debtor, and may and the creditor
rd
1. Original void: No novation Even be made without (delegatorio) accepts 3
obligation is void: 2. New obligation his knowledge. person (delegado) as
No novation voidable: consenting to the
2. Original Novation is substitution
obligation effective Requisites Requisites
voidable:
Effective if
1. Consent of the 1. Consent of old 112
creditor and the new debtor, new debtor,
contract is ratified
OBLIGATIONS
before novation debtor and creditor
2. Knowledge or
consent of the old
 Accessory obligations are also extinguished, debtor is not
but may subsist only insofar as they may required
rd
benefit 3 persons who did not give their Effects Effects
consent to the novation OR may not be 1. Old debtor is 1. Insolvency of the
affected upon agreement between the released new debtor revives
parties. 2. Insolvency of the the obligation of the
new debtor does not old debtor if it was
Original or new obligation with suspensive or revive the old anterior and public,
resolutory condition obligation in case the and known to the old
old debtor did not debtor.
Art. 1299: If original obligation was subject to a agree to expromision 2. New debtor can
suspensive or resolutory condition, the new 3. If with knowledge demand
obligation shall be under the same condition, and consent of old reimbursement of
unless it is otherwise stipulated. debtor, new debtor the entire amount he
can demand has paid, from the
Compatible Conditions Incompatible reimbursement the original debtor. He
Conditions entire amount paid may compel creditor
 Fulfillment of both  Original obligation is and w/ subrogation to subrogate him to
conditions: new extinguished, while of creditor’s rights all of his rights.
obligation becomes new obligation exists 4. If without knowledge
demandable  Demandability shall of the old debtor,
 Fulfillment of be subject to new debtor can
condition concerning fulfillment/ demand
the original nonfulfillment of the reimbursement only
obligation: old condition affecting it up to the extent that
obligation is revived; the latter has been
new obligation loses benefited w/o
force subrogation of
 Fulfillment of creditor’s rights
condition concerning
rd
the new obligation: 2. Subrogation of a 3 person in the rights
no novation; of the creditor
requisite of a a. Conventional subrogation: by
previous valid and
agreement of the parties;
effective obligation
lacking rd
Requisites: the consent of the 3
person, and of the original parties (Art.
OBJECTIVE NOVATION 1301).
1. Change of the subject matter
Conventional Assignment of credit
2. Change of causa or consideration
subrogation
3. Change of the principal conditions or terms Debtor’s consent is Debtor’s consent is not
necessary required
SUBJECTIVE NOVATION Extinguishes an Refers to the same right
1. Substitution of the Debtor: Consent of obligation and gives which passes from one
creditor is an indispensable requirement rise to a new one person to another, without
both in expromision and delegacion. modifying or extinguishing
the obligation
Defects/ vices in the Defects/ vices in the old

old obligation are obligation are not cured
cured
b. Legal subrogation: by operation of law
Legal subrogation is not presumed,

except in the following circumstances:
1. When creditor pays another creditor
113
who is preferred, even without the
OBLIGATIONS
debtor’s knowledge
rd
2. When a 3 person not interested in
the obligation pays with the express
or tacit approval of the debtor
3. When, even without the knowledge
of the debtor, a person interested in
the fulfillment of the obligation
without prejudice to the effects of
confusion as to the latter’s share
effects of confusion as to the latter’s
share
Effects
Total Partial
1. Transfers to the 1. A creditor, to whom
person subrogated partial payment has
the credit with all the been made, may
rights thereto exercise his right for
appertaining, either the remainder, and
against the debtor or shall be preferred to
rd
3 persons. the person
2. Obligation is not subrogated in his
extinguished, even if place in virtue of the
the intention is to partial payment.
pay it.
3. Defenses against the
old creditor are
retained, unless
waived by the debtor
CIVIL LAW REVIEWER Charts: PAYMENT & PERFORMANCE
Charts: Payment & Performance

by Professor Eduardo A. Labitag
UP College of Law
(Asked in ’75, ’84, ’88, ’95, and ’98)
WHO CAN PAY? Legend:

G = General Rule 114
In GENERAL  = Exception
OBLIGATIONS
1. Debtor or his: C = Creditor
2. Authorized Agent D = Debtor
3. Heir
4. Successor-in- interest
3rd PERSON
Interested in obligation Not interested in obligation 3rd person (whether or not

(creditor cannot refuse (creditor may refuse to accept interested in obligation) does not
to accept valid payment) payment [1236]) intend to be reimbursed (1238)
Payment w/ or Payment with Payment without Debtor must give

w/o debtor’s debtor’s consent debtor’s knowledge consent
knowledge (express/tacit) or against the will of D
Effects: Effects: Effects: Effects:

1. Valid payment; 1. 3rd person is entitled 3rd person can only be 1. Payment is deemed
obligation extinguished to full reimbursement reimbursed only insofar as as a donation/offer of
2. Debtor to reimburse 2. Legal subrogation payment has been beneficial to donation
fully 3rd person interested (novation) – 3rd person debtor(1236, 2nd. par.) 2. Donation must be in
in obligation is subrogated/step into burden of proof on 3rd person proper form (if above
3. 3rd person subrogated the shoes of creditor cannot compel C to subrogate P5Th must be in
to rights of creditor him (1237) writing
No free disposal & no Effects: Payment is invalid  w/o prejudice to

In Obligation to Give, if capacity to alienate natural obligations
PAYOR has
Minor who entered Effects: No right to recover fungible
contract w/o consent of thing delivered to creditor who spent 114
parent or guardian or consumed it in good faith
TO WHOM PAYMENT MAY BE MADE
In GENERAL
• Creditor /person in whose favor obligation was
constituted, or
• His successor in interest, or
• Any person authorized to received payment (1240) 115
OBLIGATIONS
G – NOT valid
Payment to Incapacitated
Creditor (1241)
 1) If C has kept the thing delivered
2) Insofar as payment benefited C
 Exception to proof of benefit:

Payment to 3rd G VALID if 3rd .3rd person acquires C’s rights after payment
PERSON (1241, person proves .C ratifies payment
2nd par.) that it .C’s conduct leads D to believe that 3rd
redounded to person had authority to receive payment
C’s benefit .Assignment of credit without notice to D
If no demand is made, D may pay to ANY of

solidary creditors
In Case of
ACTIVE
SOLIDARITY
If any judicial/extrajudicial demand is made by any
one of the creditors who made the demand (1214) 115
Effect:  Extinguishment if fault or

No extinguishment negligence can be imputed
If payment is made to creditor
to a WRONG
PARTY  Payment in good faith to person in
possession of credit = debtor released
(1242)
If debtor pays creditor after being

judicially ordered to retain debt =
payment not valid (1243)
Payment made in good faith to any

person in possession of credit
Effect: D released (1242)
WHAT IS TO BE PAID?  IDENTITY
In GENERAL
The very prestation (thing or service
Give: Debtor cannot compel C

1. Specific thing itself
2. Accessions & accessories
to receive a different 116
Obligation to give a specific thing even latter
3. If with loss, improvements,
OBLIGATIONS
SPECIFIC thing has same value or more
deterioration  Apply Art. valuable than that due
1189 (1244)
G:
C cannot demand a thing of superior quality;
can demand inferior
D cannot deliver a thing of inferior quality
 Unless quality & circumstances have been

Obligation to give a stated (1246) purpose and other circumstances
GENERIC thing of obligation considered
Obligation to pay sum of money, if D alienates

property to C = DACION EN PAGO governed by
law on SALES (1245)
Identity: The very same act promised to be done

Obligation to DO or or not to be done
NOT to DO  Substitution cannot be done against C’s will
(1244, 2nd par.)
1. Payment of domestic obligations in Phil.

Currency
 Exceptions under R.A. 4100; R.A. 8183 –
Payment of
Foreign currency if agreed to by parties
MONEY
2. In case of extraordinary inflation/deflation,
basis
of payment is value of currency at the time of
obligation was established (1250)
Payment of No interest (i.e., for the use of someone’s money)

INTEREST shall be due unless expressly stipulated in writing
HOW IS PAYMENT TO BE MADE  INTEGRITY
In GENERAL  Effect if C accepts incomplete

performance (1235): WAIVER
1233 – Complete delivery or rendering
1248 – C cannot be compelled to - May be express or implied
received partial prestations; D cannot If C knows the incompleteness/
be compelled to give partial payments irregularity of the payment, and he
still accepts it w/o objection, then
 Exceptions:
obligation is deemed extinguished
(estoppel) 117
1. Contrary stipulation * There must be intent to waive
OBLIGATIONS
2. When debt is in part liquidated & in part  Except if C has no knowledge of
unliquidated the incompleteness
3. When there are several subjects/parties
are bound under different terms/conditions
In Case of SUBSTANTIAL D may recover as if there had

PERFORMANCE IN been complete fulfillment
GOOD FAITH (1234) - Less damages suffered by C
INTEREST – If principal amount is

received w/o reservation as to
interest  interest is presumed to
PRESUMPTIONS have been paid (1176; 1253)
in payment of
INTERESTS &
INSTALLMENTS INSTALLMENTS  If a latter
installment of a debt is received
w/o reservation to prior
installments
 Prior installments are
presumed paid (1176, 2nd par.)
WHERE PAYMENT IS TO BE MADE (ART. 1251)
In GENERAL
In the place designated in the obligation
If obligation is to deliver a Expenses of Making 118

SPECIFIC thing Payment
 Place of performance is
OBLIGATIONS
wherever the thing was at
the moment obligation was
In GENERAL
constituted
Extrajudicial expenses
If no place is designated  Unless there is a required by the payment
contrary express shall be borne by DEBTOR
stipulation
In any other case  Unless otherwise

 Domicile of debtor stipulated
If D changes his domicile

in bad faith or after he has As to JUDICIAL expenses
incurred in delay  Rules of Court shall
 Additional expenses govern
shall be borne by D
WHEN PAYMENT IS TO BE MADE?
When obligation is due and

demandable but D may pay before
due date if period is for benefit of D
119
In GENERAL
OBLIGATIONS
Payment to be made when the creditor
makes a demand
(judicially/extrajudicially)
 Exceptions wherein demand of creditor is not

necessary for delay to exist:
1. When obligation/law expressly declares
2. Nature & circumstances of the obligation
designation of time is controlling motive or
establishment of contract
3. When demand would be useless
WHY SHOULD PAYMENT BE MADE?
Because C may compel D to pay, and

failure to pay will allow C to satisfy credit
from properties of D that are not exempt
from execution
- end of Obligations -
CIVIL LAW REVIEWER TABLE of CONTENTS
CONTRACTS
Table of Contents
Chapter I. General Provisions.....................122

I. Classification of Contracts.................122
II. Elements of Contracts.......................123
III. Stages of Contracts...........................123
IV. Charactertics of Contracts (MARCO) 123
Chapter II. Essential Requisites .................125 121

I. Consent .............................................125
CONTRACTS
II. Object ................................................127
III. Cause ................................................127
Chapter III. Forms of Contracts ..................129

I. Rules .................................................129
II. Kinds of Formalities...........................129
Chapter IV. Reformation of Contracts........130
Chapter V. Interpretation of Contracts.......130
Chapter VI. Defective Contracts .................131

I. Rescissible Contracts (Arts. 1380-1389)
131
II. Voidable Contracts (Arts. 1390-1402)
132
III. Unenforceable Contracts (Arts. 1403-
1408) ..........................................................133
IV. Void or Inexistent Contracts (Arts. 1409-
1422) ..........................................................134
Chapter I. General Provisions

OBLIGATIONS & CONTRACTS TEAM
OBLIGATIONS & CONTRACTS

Prof. Solomon Lumba I. CLASSIFICATION
Faculty Editor
II. ELEMENTS
Leo Ledesma III. STAGES
Lead Writer IV. CHARACTERISTICS
Krizel Malabanan
Ivy Velasco Article 1305, Civil Code. A contract is a meeting of
Tin Reyes minds, between two persons whereby one binds
Frances Domingo
himself, with respect to the other, to give something
Hazel Abenoja
Writers or to render some service.
CIVIL LAW 122

I. Classification of Contracts
CONTRACTS
Kristine Bongcaron
Patricia Tobias
Subject Editors
A. To formation:
1. Consensual: consent is enough; e.g.
ACADEMICS COMMITTEE sale
Kristine Bongcaron 2. Real: consent and delivery is required;
Michelle Dy e.g. deposit, pledge
Patrich Leccio 3. Solemn or formal: special formalities are
Editors-in-Chief required for perfection e.g. donation of
realty
PRINTING & DISTRIBUTION
Kae Guerrero B. To relation to other contracts:
1. Principal: may exist alone; e.g. lease
DESIGN & LAYOUT
2. Accessory: depends on another contract
Pat Hernandez for its existence; e.g. guaranty
Viktor Fontanilla 3. Preparatory: a preliminary step towards
Rusell Aragones
the celebration of a subsequent
Romualdo Menzon Jr.
Rania Joya contract; e.g. agency
LECTURES COMMITTEE C. To nature of vinculum

Michelle Arias 1. Unilateral: only one party is bound by
Camille Maranan the prestation; e.g. commodatum
Angela Sandalo 2. Bilateral (synallagmatic): where both
Heads parties are bound by reciprocal
Katz Manzano Mary Rose Beley prestations; e.g. sale
Sam Nuñez Krizel Malabanan
Arianne Cerezo Marcrese Banaag D. To fulfillment of prestations
Volunteers
1. Commutative: fulfillment is determined in
MOCK BAR COMMITTEE advance
2. Aleatory: fulfillment is determined by
Lilibeth Perez chance
BAR CANDIDATES WELFARE
E. By equivalence of prestations
Dahlia Salamat 1. Gratuitous: no correlative prestation is
LOGISTICS received by a party
2. Onerous: there is an exchange of
Charisse Mendoza correlative prestations
3. Remuneratory: the prestation is based
SECRETARIAT COMMITTEE
on services or benefits already received
Jill Hernandez
Head F. By the time of fulfillment
Loraine Mendoza Faye Celso 1. Executed: obligation is fulfilled at the
Mary Mendoza Joie Bajo time contract is entered into
Members 2. Executory: fulfillment does not take
place at the time the contract is made
G. To their purpose
1. Transfer of ownership, e.g. sale III. Stages of Contracts

2. Conveyance of Use, e.g. Commodatum
3. Rendition of Service, e.g. agency
A. Preparation, conception or generation:
period of negotiation and bargaining, ending
H. To their subject matter
at the moment of agreement
1. Things, e.g. sale, deposit
2. Services, e.g. agency
B. Perfection or birth: the moment when the
parties come to agree on the terms of the
I. To their designation
contract
1. Nominate: the law gives the contract a
special designation or particular name
C. Consummation or death: the fulfillment or
e.g. deposit 123
performance of the terms agreed upon
2. Innominate: the contract has no special
CONTRACTS
name
Article 1305, Civil Code. INNOMINATE IV. Charactertics of Contracts (MARCO)

CONTRACTS shall be regulated by the stipulations
of the parties, by the general provisions of Titles I A. MUTUALITY
and II of [the Civil Code], by the rules governing the The contract must bind both contracting parties;
most analogous nominate contracts, and by the
its validity or compliance cannot be left to the will
customs of the place.
of one of them (Art.1308).
Classes of Innominate Contracts
Taylor v. Uy Teng Piao, 1922: [BUT] a contract may
1. Do ut des: I give so that you may give expressly confer upon one party the right to cancel
2. Do ut facias: I give so that you may do the contract because the exercise of that right is a
3. Facio ut facias: I do so that you may do fulfillment of the provisions of the contract itself
4. Facio ut des: I do so that you may give
 The release must be binding on both parties.
 The determination of the performance may
rd
II. Elements of Contracts be left to a 3 person, whose decision shall
NOT be binding if:
A. Essential: Those without which the contract  It is evidently inequitable (the courts will
would not exist (consent, object, causa). decide)
 The decision had not been made known
B. Natural: Those which are derived from the to both parties (Art.1309)
nature of the contract and ordinarily
accompany the same-they are presumed to B. AUTONOMY
exist unless the contrary is stipulated e.g. The contracting parties may establish such
warranty in sales stipulations, clauses, terms and conditions as
they may deem convenient, provided they are
C. Accidental: Those which exist only if not contrary to law, morals, good customs,
stipulated public order, or public policy (Art. 1306).
Solemn Real Consensual

Common Consent, subject matter, causa C. RELATIVITY
Elements Contracts take effect only between parties, their
Special Formality Delivery None assigns and heirs UNLESS, obligations arising
Elements from the contract are not transmissible by their
Example Donationo Loan, Others (1) nature, (2) by stipulation or (3) by provision of
f personal pledge law. The heir is not liable beyond the value of
property the property he received from the decedent. (Art.
more than
1311)
P5K
Exception: Strangers may enforce the contract
in their favor in the ff. cases:
1. Stipulations Pour Autrui—
If a contract should contain some stipulation
in favor of a third person, he may demand its
fulfilment provided he communicated his
acceptance to the obligor before its Requisites:

revocation. A mere incidental benefit or a. Existence of a valid contract
interest of a person is not sufficient. The b. Knowledge of the third person of the
contracting parties must have clearly and existence of the contract; and
deliberately conferred a favour upon a third c. Interference by third person without
person (Art.1311). legal justification or excuse
Requisites: D. CONSENSUALITY
a. There must be a stipulation in favor of a Contracts are perfected by mere consent and
third person from that moment, the parties are bound not only
b. The stipulation must be part, not the to the fulfillment of what has been expressly
whole of the contract stipulated but also to all consequences which, 124
c. The contracting parties must have according to their nature, may be in keeping with
CONTRACTS
clearly and deliberately conferred a good faith, usage and law, (Art.1315) EXCEPT
favor upon a third person, NOT a mere real contracts, such as deposit, pledge and
incidental benefit or interest. commodatum, are not perfected until the
d. The third person must have delivery of the object of the obligation.
communicated his acceptance to the (Tolentino)
obligor before its revocation
e. No relation of agency exists between E. OBLIGATORY FORCE
any of the parties and the third person
favored Art. 1159, Civil Code. Obligations arising from
contracts have the force of law between the
Florentino v. Encarnacion, 1977: contracting parties and should be complied with in
a. Contracts to perform personal acts good faith.
which cannot be as well performed by
others are discharged by the death of Art. 1308, Civil Code. The contract must bind both
contracting parties; its validity or compliance cannot
the promissor. Conversely, where the
be left to the will of one of them.
service or act is of such a character that
it may as well be performed by another, Art. 1315, Civil Code. Contracts are perfected by
or where the contract, by its terms, mere consent, and from that moment the parties are
shows that performance by others bound not only to the fulfillment of what has been
was contemplated, death does not expressly stipulated but also to all the consequences
terminate the contract or excuse which, according to their nature, may be in keeping
nonperformance. with good faith, usage and law.
b. In this case the stipulation is a
stipulation pour atrui because the true Art. 1356, Civil Code. Contracts shall be obligatory,
intent of the parties is to confer a direct in whatever form they may have been entered into,
and material benefit upon a third party. provided all the essential requisites for their validity
are present. However, when the law requires that a
contract be in some form in order that it may be valid
Accion Directa: Where the statute
or enforceable, or that a contract be proved in a
authorizes the creditor to sue on his certain way, that requirement is absolute and
debtor’s contract, e.g. lessor v. sub- indispensable. In such cases, the right of the parties
lessee (Art. 1651,1652) (J.B.L. Reyes) stated in the following article cannot be exercised.
2. Third Person In Possession—

When the third person comes into
possession of the object of a contract
creating real rights (Art 1312)
3. Fraud—
Where the contract is entered into in order to
defraud a person (Art. 1313)
4. Tortuous Interference—
Where the third person induces a
contracting party to violate his contract
(Art.1314).
CIVIL LAW REVIEWER Chapter II. ESSENTIAL REQUISITES
OFFER TERMINATES upon:

Chapter II. Essential Requisites a. Rejection by the offeree
b. Incapacity (death, civil interdiction,
I. CONSENT insanity, or insolvency) of the offeror or
II. OBJECT
offeree before acceptance is conveyed
III. CAUSE
c. Counter-offer
d. Lapse of the time stated in the offer
without acceptance being conveyed
I. Consent e. Revocation of the offer before learning
of acceptance
Conformity of the parties to the terms of the f. Supervening illegality before acceptance
contract; the acceptance by one of the offer (J.B.L. Reyes) 125
made by the other. (Manresa)
CONTRACTS
2. Acceptance
Requisites: Requisites:
1. It must be manifested by the concurrence of a. Unqualified and Unconditional, i.e. it
the offer and acceptance (Arts. 1319-1326) must conform with all the terms of the
2. The contracting parties must possess the offer, otherwise it is a counter-offer (Art.
necessary legal capacity (Arts. 1327-1329) 1319)
3. It must be intelligent, free, spontaneous, and b. Communicated to the offeror and
real (not vitiated) (Arts. 1330-1346) learned by him (Arts. 1319, 1322). If
made through an agent, the offer is
A. Concurrence accepted from the time the acceptance
1. Offer: a unilateral proposition which one is communicated to such agent.
party makes to the other for the celebration c. Express/Implied, but is not presumed
of the contract. (Tolentino)
OPTION CONTRACT: A preparatory
Requisites: contract in which one party grants to the
a. Definite other, for a fixed period, the option to decide
b. Intentional whether or not to enter into a principal
c. Complete contract. (Art. 1324)
Invitations to make offers With consideration Without consideration

(advertisements) Offeror cannot Offeror may withdraw by
 Business advertisements of things for unilaterally withdraw his communicating withdrawal
sale, are NOT definite offers, just offer to the offeree before
acceptance
invitations to make an offer, UNLESS
the contrary appears (Art. 1325)
 Advertisements for bidders are
B. Capacity
invitations to make proposals, advertiser
1. Incapacitated to Give Consent
is NOT bound to accept lowest or
a. Minors, UNLESS, the minor’s consent
highest bid, UNLESS contrary appears;
is operative in contracts:
the bidder is the offeror (Art. 1326).
 Statements of intention: no contract  For necessaries (Art.1427)
results even if accepted  Where the minor actively
misrepresents his age (estoppel)
Rosenstock v. Burke, 1924:
FACTS: Elser, in a letter, informed Burke that he was  Mercado v. Espiritu, 1917:
‘in a position and is willing to entertain’ the purchase Minors held in estoppel through
of the yacht under some terms. active misrepresentation
HELD: The word “entertain” applied to an act does not  Bambalan v. Maramba, 1928:
mean the resolution to perform said act, but simply a There is no estoppel if the minority
position to deliberate for deciding to perform or not to was known.
perform said act. It was merely a position to deliberate b. Insane or demented persons,
whether or not he would purchase the yacht and
UNLESS, they contract during a lucid
invitation to a proposal being made to him, which
might be accepted by him or not.
interval
c. Deaf-mutes who do not know how to
read and write.
2. Disqualified to Contract (Art. 1329): 2. Intimidation

a. Those under Civil interdiction for When one of the contracting parties is
transactions inter vivos (RPC Art. 34) compelled by a reasonable and well-
b. Undischarged insolvents (Insolvency grounded fear of an imminent and grave evil
Law, Sec.24) upon his person or property, or upon the
c. Husband and wife: cannot donate (Art. person or property of his spouse,
123 FC) to each other, nor sell if the descendants or ascendants, to give his
marriage is under ACP (Art.1490) consent (Art. 1335).
d. The ff. cannot purchase (Art. 1491):
 The guardian: his ward’s property Martinez v. HSBC, 1910: The conveyance of several
 The agent: the principal’s property properties by to her husband’s creditors, though
126
 Executors and administrators: reluctant is still consent. She assented to the
requirements of the defendants, the civil and criminal
CONTRACTS
property under administration
actions against them would be dropped. A contract is
 Public officers-state property under
valid even though one of the parties entered into it
their administration against his wishes and desires, or even against his
 Justices, judges, prosecutors, clerks better judgment. Contracts are also valid even though
of court, lawyers-property attached they are entered into by one of the parties without
in litigation. hope of advantage or profit.
e. Members of Ethnic Minorities: their
contracts (excluding sale of personal 3. Violence
property or personal service contracts) Irresistible force used to extort consent
must be approved by the Governor or (J.B.L. Reyes)
his representative. (Public Land Act)
4. Undue Influence
Incapacity to Give Disqualification to When a person takes improper advantage of
Consent (Art. 1327) Contract (Art.1329) his power over the will of another, depriving
Restrains the exercise of Restrains the very right the latter of a reasonable freedom of choice
the right to contract itself (Art. 1337).
Based on subjective Based on public policy
circumstances of certain and morality
persons Circumstances:
a. Relationship of the parties (family,
Voidable Void spiritual, confidential etc.)
b. That the person unduly influenced was
suffering from infirmity (mental
C. Vices of Consent (Art. 1330, CC) (MIVUF) weakness, ignorance etc.) (Art.1337)
1. Mistake
Inadvertent and excusable disregard of a 5. Fraud
circumstance material to the contract. (J.B.L. When through insidious words or
Reyes) machinations of one of the contracting
 In order that mistake may invalidate parties, the other is induced to enter into a
consent, it should refer to the contract which, without them, he would not
substance of the thing which is the have agreed to (Art. 1338).
object of the contract, or to those
conditions which have principally moved Art. 1339, Civil Code. Failure to disclose facts, when
one or both parties to enter into the there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.
contract (Art.1331)
Art. 1340, Civil Code. The usual exaggerations in
Mistake of Fact Mistake of Law Mutual Mistake
trade, when the other party had an opportunity to
When one or When one or  Must be as know the facts, are not in themselves fraudulent.
both contracting both parties to the legal
parties believe arrive at an effect of an
Art. 1341, Civil Code. A mere expression of an
that a fact exists erroneous agreement
opinion does not signify fraud, unless made by an
when in reality it conclusion on  Must be
expert and the other party has relied on the former's
does not, or vice the mutual
special knowledge.
versa interpretation of  Real purpose
a question of of the parties
law or the legal must have Art. 1342, Civil Code. Misrepresentation by a third
effects been person does not vitiate consent, unless, such
frustrated misrepresentation has created substantial mistake
and the same is mutual. Aleatory contract: where one of the contracting
parties assumes the risk that the thing will never
Art. 1343, Civil Code. Misrepresentation made in come into existence, e.g. insurance
good faith is not fraudulent but may constitute error.
III. Cause
SIMULATION OF CONTRACTS (Art. 1345-
1346): Declaration of a non-existent will made
deliberately for the purpose of producing the It is the impelling reason for which a party
appearance of a transaction that does not exist, assumes an obligation under a contract.
or which is different from the one which actually
arose. (J.B.L. Reyes) Requisites:
a. Existing
Absolute Relative b. Licit or Lawful 127
No real transaction is Real transaction is hidden c. True
CONTRACTS
intended
Fictitious contract Disguised contract Cause in:
Void Bound as to hidden
agreement, so long as it Onerous Renumeratory Pure
does not prejudice a third Contracts Contracts Beneficence
person and is not contrary As to each of The service or Mere
to law, morals, good the contracting benefit which is liberality of
customs, public order or parties is remunerated the
public policy understood to benefactor
be the
undertaking or
II. Object the promise of
the thing or
service by the
The thing right or service which is the subject other party
matter of the obligation arising from the contract.
In Villaroel v. Estrada (1940), where a moral
Requisites: obligation is based upon a previous civil obligation,
a. Lawful: Not contrary to law, morals, good which has already been barred by the statute of
customs, public order or public policy. limitations at the time the contract is entered into, it
b. Actual or possible constitutes a sufficient cause or consideration to
support a contract (Natural Obligation).
c. Transmissible: Within the commerce of man BUT,
d. Determinate or determinable In Fisher v. Robb (1939), if the moral obligation arises
wholly from ethical consideration, it cannot constitute
All things or services may be the object of a sufficient cause to support an onerous contract, as
contracts, EXCEPT: when the promise is made on the erroneous belief
 Things which are outside the commerce of that one was morally responsible for the failure of an
men enterprise (Moral Obligation).
 Intransmissible rights
 Future inheritance except in cases Cause Defined Effect
authorized by law Lack of Absence or total The contract
 Impossible things or services Cause lack of cause confers no right
and has no legal
 Objects which are indeterminable as to their
effect
kind, the genus should be expressed Illegality of Contrary to law, Null and Void
Cause morals, good
In order that a thing, right or service may be the customs, public
object of a contract, it should be in existence at policy and
the moment of the celebration of the contract, or public order
at least, it can exist subsequently or in the Falsity of Cause is stated Void if it should
future. cause but is untrue not be proved that
it was founded
A FUTURE THING may be the object of a upon another
cause which was
contract, such contract may be interpreted as a: true and lawful
 Conditional contract: where its efficacy Lesion or Cause is not Shall not invalidate
should depend upon the future existence of inadequacy proportionate to the contract
the thing of cause object except when
a)there is fraud,
mistake, undue
influence
b)when parties
intended a
donation
Liguez v. CA (1957): In making the donation in

question, Lopez was not moved exclusively by the
desire to benefit Liguez, but also to secure her
cohabiting with him, so that he could gratify his sexual
impulses. The donation was an onerous transaction
and clearly predicated upon an illicit causa.
128
CONTRACTS
CIVIL LAW REVIEWER Chapter III. FORMS OF CONTRACTS
d. The cession of actions or rights

Chapter III. Forms of Contracts proceeding from an act appearing in
a public document.
I. RULES e. All other contracts where the
II. KINDS OF FORMALITIES amount involved exceeds five
hundred pesos must appear in
writing, even a private one. But
I. Rules sales of goods, chattels or things in
action are governed by Articles,
1403, No. 2 and 1405.
Contracts shall be obligatory, in whatever form
they may have been entered into, provided all
2. Donation of immovable properties (Art. 129
the essential requisites for their validity are
749)
present. (Art. 1356)
CONTRACTS
Spiritual System of the Spanish Code: The law looks
3. Partnership where immovable property
more on the spirit rather than the form of contracts. or real rights are contributed to the
common fund (Arts.1771 and 1773)
Exceptions:
 When the law requires that a contract be in BF Corporation v. CA, 1998: A contract may be
encompassed in several instruments even though
some form for validity (Arts. 1357-1358) every instrument is not signed by the parties since it is
 When the law requires that contract be in sufficient if the unsigned instruments are clearly
some form to be enforceable (Statute of identified or referred to and made part of the signed
Frauds) instruments.
II. Kinds of Formalities
A. Contracts Which Must Appear in Writing:

1. Donation of personal property whose
value exceeds five hundred pesos (Art
748)
2. Sale of a piece of land or any interest
therein through an agent (Art 1874)
3. Antichresis (Art 2134)
4. Agreements regarding payment of
interests in contracts of loans (Art. 2314)
B. Contracts Which Must Appear in a Public

Document
1. Art. 1358:
a. Acts and contracts which have for
their object the creation,
transmission, modification or
extinguishment of real rights over
immovable property; sales of real
property or of an interest therein a
governed by Articles 1403, No. 2,
and 1405;
b. The cession, repudiation or
renunciation of hereditary rights or
of those of the conjugal partnership
of gains;
c. The power to administer property, or
any other power which has for its
object an act appearing or which
should appear in a public document,
or should prejudice a third person;
CIVIL LAW REVIEWER Chapter IV. REFORMATION OF CONTRACTS
Chapter V. INTERPRETATION OF CONTRACTS
Chapter IV. Reformation of Contracts Chapter V. Interpretation of Contracts
Reformation of Contracts (Art 1359-1369) RULES ON DOUBTS (Art. 1378)

REFORMATION: is that remedy in equity by
means of which a written instrument is made or Principal Gratuitous Onerous
construed so as to express or conform to the Objects Contracts Contracts
real intention of the parties when some error or Doubts where Absolutely Absolutely
mistake has been committed. (J.B.L. Reyes) it cannot be impossible to impossible to
known what settle doubts by settle doubts by
Requisites (Art 1359): may have the rules and the rules and
1. There must be a meeting of the minds of the been the only refer to only refer to
contracting parties; intention or incidental incidental 130
will of the circumstances circumstances
2. Their true intention is not expressed in the
CONTRACTS
parties, the the least the doubt shall
instrument; contract shall transmission be settled in
3. Such failure to express their true intention is be null and of rights and favor of the
due to mistake, fraud, inequitable conduct, void. interests shall greatest
or accident; and prevail. reciprocity of
4. There is clear and convincing proof of interests.
mistake, fraud, inequitable conduct, or
accident.
If the mistake, fraud, inequitable conduct, or accident

has prevented the meeting of the minds of the parties,
the proper remedy is not reformation but annulment of
the contract. (See also Art 1390)
Who May Ask for Reformation (Art. 1368):

1. Either party or his successors in interest, if
the mistake was mutual; otherwise,
2. Upon petition of the injured party, or his
heirs and assigns.
NO REFORMATION in (Art. 1366):

1. Simple donations inter vivos wherein no
condition is imposed;
2. Wills;
3. When the real agreement is void.
Implied Ratification (Art. 1367): The action to

enforce the instrument bars subsequent action
to reform.
CIVIL LAW REVIEWER Chapter VI. DEFECTIVE CONTRACTS
Chapter VI. Defective Contracts
I. RESCISSIBLE
II. VOIDABLE
III. UNENFORCEABLE
IV. VOID OR INEXISTENT
I. Rescissible Contracts (Arts. 1380-1389)
What are the 131

Contracts are
rescissible Contracts in Contracts refer
CONTRACTS
Contracts of entered into to
contracts? (Art representation to things in
guardians defraud existing
1381; see also Art of absentees litigation
creditors
1382)
What makes it When the acts of When the acts When the creditors If entered into by
defective? administration of administration cannot in any other the defendant
cause LESION or cause LESION manner collect the without the
damage to the or damage to claims due them knowledge &
WARD they the ABSENTEE approval of the
represent by more they represent litigants or
than 25% of the by more than competent judicial
value of the thing 25% of the value authority
of the thin
Effect on the Valid until rescinded (Art 1380)
Contract
How to rescind? Direct Action (different from action for Accion Pauliana for Contracts in Fraud of
rescission under Art 1191) Creditors
NO rescission if: NO rescission if:

1. Injured party has other legal 1. Injured party has other legal means to
means to obtain reparation (Art obtain reparation (Art 1383)
1383). 2. Plaintiff cannot return his part of the
2. Plaintiff cannot return his part of obligation (Art 1385 par 1)
the obligation (Art 1385 par 1) 3. Object of the contract is in the hands of
3. Object of the contract is in the third person, onerously acquired by
hands of third person, onerously him in good faith (Art 1385 par 2)
acquired by him in good faith (Art
1385 par 2)
4. If the court approves the
contracts under Art 1381 par 1
and 2 (Art 1386)
Who can rescind? In general, by By absentee By creditor(s) By party litigant
injured party
By ward, or by
guardian ad litem
of ward during
incapacity of ward
in an action
against the
original guardian
When to rescind Within four years Within 4 years Within 4 years from Within 4 years
(Art 1389) from [re-] gaining from knowledge knowledge of from knowledge of
capacity of domicile of fraudulent contract fraudulent contract
absentee
II. Voidable Contracts (Arts. 1390-1402)
What makes it
Incapacity of one party to the Consent vitiated by mistake, violence,
defective? (Art
contract intimidation, undue influence or fraud
1390)
Effect on the Valid until annulled by competent court (Art 1390 last par)
Contract
How to annul? 1. Directly, by an action for annulment
2. Indirectly, by counterclaim asking for positive action of the court to set aside the
contract
Annulment cannot proceed when: 132

1. the object of the contract is lost through fraud or deceit of the person with right to
CONTRACTS
institute proceedings (art 1401 par 1);
2. the right of action is based upon the incapacity of any one of the contracting
parties and the thing is lost through the fault or fraud of the plaintiff (Art 1401 par
2)
Who can/cannot 1. Parties who are obliged principally or subsidiarily
annul? 2. Persons who are capable cannot allege the incapacity of those with whom they
(Art 1397) contracted
3. Persons who exerted intimidation, violence, or undue intimidation, or employed
fraud, or caused mistake, cannot base their action upon these flaws of the
contract
When? (Art 1391) Within four years after guardianship of Within four years
minors or incapacitated persons 1. After intimidation, violence or undue
ceases influence ceases
2. From the time of discovery of mistake
or fraud
Effect of 1. Mutual restitution of the things delivered, along with fruits and price paid with
Annulment interest (Art 1398)
2. Damages to be paid by party who caused defect of the contract, by virtue of
Article 20 and 21 of the Civil Code
How to Cure 1. Express (written or oral manifestation) or tacit ratification (acts or conduct) by
Defect? (Arts injured party, or guardian of incapacitated person.
1392 - 1396) - Ratification does not require the conformity of the contracting party
who has no right to bring the action for annulment (Art 1395)
III. Unenforceable Contracts (Arts. 1403-1408)
What are the Contracts covered by

unenforceable Statute of Frauds which
Contract entered into Contract where both
contracts? (Art did not comply with the
without authority of, or parties are incapable
1403) written memorandum
in excess of authority of giving consent to
requirement
given by owner contract
(See Art 1403 par 2)
Effect on the No effect unless ratified. Cannot be enforced by a proper action in court.
Contract
How to assail? Not by direct action. Not by direct action. Not by direct action. 133
1. As a defense, by 1. As a defense, by motion 1. As a defense, by
CONTRACTS
motion to dismiss the to dismiss the complaint motion to dismiss the
complaint on the on the ground that the complaint on the
ground that the contract contract is unenforceable; ground that the
is unenforceable 2. Objection to the contract is
presentation of oral unenforceable
evidence to prove an oral
contract (See Art 1405)
Who can assail? By person whose name By party against whom the By party against whom
*an the contract was entered contract is being enforced; the contract is being
unenforceable into; By owner of property. or his privies. enforced; or his privies;
contract cannot or parents or guardians
be assailed by persons, as it is a
third persons (Art personal defense
1408)
When? When a party asks the court to enforce the contract
How to Cure 1. Ratification by person 1. Ratification by party 1. By ratification of

Defect? (Art whose name the against whom the party against whom
1403) contract was entered the contract is being
into
contract is being enforced; or his
enforced privies; or parents or
2. By failure to object to the guardians
presentation of oral  The ratification by
evidence to prove an oral one party converts
contract or by the the contract into a
acceptance of benefits voidable contract (Art
under the contract (Art 1407)
1405)
IV. Void or Inexistent Contracts (Arts. 1409-1422)
What makes it Contract’s Cause, Object Inexistent contracts, or Contracts expressly

defective? of Purpose is contrary to contracts whose essential prohibited or declared
morals, good customs, elements are absent void by law (Art 1409
public order or public (Art Art 1409 par 2, 3, 4,5) par 7); contracts
policy which are direct
(Art 1409 par 1) results of a previous
illegal contract (art
1422)
Contracts which 1.Those whose Cause, Object of Purpose is contrary to morals, good customs,
are inconsistent public order or public policy 134
and void from the 2.Those which are absolutely simulated or fictitious
CONTRACTS
beginning (Art 3.Those whose cause or object did not exist at the time of the transaction
1409) 4.Those whose object is outside the commerce of men
5.Those which contemplate an impossible service
6.Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained
7.Those expressly prohibited or declared void by law
How to assail? 1. File for action for declaration of inexistence or nullity of contract
2.As a defense during trial (Art 1409 last par). Such defense not available to third
persons not directly affected by contract (Art 1421)
3.In pari delicto applies when cause or object of contract constitutes a criminal
offense (Art 1411)
Who can assail? 1. Innocent party Art 1. Any of the parties 1. Any person whose
1411 par 2; Art 1412 2. Any person whose interests are
par2) interests are directly directly affected by
2. Less-guilty party, upon affected by the contract the contract Art
court discretion (Art 1421) (1421)
3. Incapacitated person 2. By party for whose
who is a party to an protection the
illegal contract, upon prohibition of the
court discretion (Art law is designed (Art
1415) 1416)
4. Any person whose
interests are directly
affected by the
contract (Art 1421)
When? The action or defense does not prescribe (Art 1410)
- end of Contracts -

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UP 2010 Civil Law Obligations and Contracts

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CIVIL LAW REVIEWER TABLE of CONTENTS

Chapter I. General Provisions.......................91

Chapter III. Different Kinds of Obligations ..98

Chapter IV. Extinguishment of Obligations

Charts: Payment & Performance ................114

Chapter I. General Provisions

OBLIGATIONS & CONTRACTS

ACADEMICS COMMITTEE Elements of an Obligation (De Leon, 2003)—

Kinds of Quasi-Contracts action (res judicata)

Chapter II. Nature and Effect of OBLIGATION TO GIVE

Duties of the Debtor Rights of the creditor

II. Breach of Obligation  Effect of Contributory Negligence

 Extent of Damages to be Awarded Mora Solvendi Mora Accipiendi

3. DELAY or DEFAULT (MORA): failure to Rules on Mora, Delay or Default

4. CONTRAVENTION OF THE TENOR: 2. The event must be unforeseeable or

5. The right of vendor against every possessor

6. The right of a principal against a substitution

 The mere intention of the debtor to

needed to make the obligation demandable is that the

due before the choice is may deliver in Effect of Loss of Objects

If due to the negligence obligor is liable authorize a creditor to demand anything

A. Joint Obligations Presumption: Credit or debt shall be presumed

B. Solidary Obligation A solidary creditor cannot assign his

Effects of Modes of Extinguishment

corresponds to affected of his share, his

singular. There must be full and faithful compliance

Requisites and Effects

II. Loss or Impossibility Loss of the thing when in possession of the

Requisites Effects VI. Novation

debtor, or when shall be Expromision Delegacion

Defects/ vices in the Defects/ vices in the old

b. Legal subrogation: by operation of law

Legal subrogation is not presumed,

Charts: Payment & Performance

WHO CAN PAY? Legend:

Interested in obligation Not interested in obligation 3rd person (whether or not

Payment w/ or Payment with Payment without Debtor must give

Effects: Effects: Effects: Effects:

No free disposal & no Effects: Payment is invalid  w/o prejudice to

TO WHOM PAYMENT MAY BE MADE

 Exception to proof of benefit:

If no demand is made, D may pay to ANY of

Effect:  Extinguishment if fault or

If debtor pays creditor after being

Payment made in good faith to any

WHAT IS TO BE PAID?  IDENTITY

Give: Debtor cannot compel C

 Unless quality & circumstances have been

Obligation to pay sum of money, if D alienates

Identity: The very same act promised to be done

1. Payment of domestic obligations in Phil.

Payment of No interest (i.e., for the use of someone’s money)

HOW IS PAYMENT TO BE MADE  INTEGRITY

In GENERAL  Effect if C accepts incomplete

In Case of SUBSTANTIAL D may recover as if there had

INTEREST – If principal amount is

WHERE PAYMENT IS TO BE MADE (ART. 1251)

If obligation is to deliver a Expenses of Making 118

In any other case  Unless otherwise

If D changes his domicile

WHEN PAYMENT IS TO BE MADE?

When obligation is due and

 Exceptions wherein demand of creditor is not

WHY SHOULD PAYMENT BE MADE?