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CIVIL LAW REVIEW 2 Notes

(As per syllabus of Atty. Uribe

Art. 1956. No interest shall be due unless it has been expressly

stipulated in writing.

I. OBLIGATIONS

Requisites of Natural :

A. IN GENERAL

1.
2.

1. DEFINITION:

Article 1156. An obligation is a juridical necessity to

give, to do or not to do.
Obligation () is a juridical relation whereby a person (called the
creditor) may demand from another (debtor) the observance of
determinate conduct, and in case of breach, may obtain satisfaction
from the assets of the latter.
2.
KINDS OF OBLIGATIONS
ENFORCEABILITY

AS

TO

BASIS

there is a juridical tie between two persons

the tie is not given effect by law
an w/o a sanction, susceptible of voluntary
performance, but not thru compulsion by legal
means.

Voluntary fulfillment may be understood as spontaneous,

free from fraud or coercion or it may be understood as meaning
without knowledge or free from error;
- w/ knowledge that he cannot be compelled to pay ;
RATIO: reputation (clan)

&

Examples of natural s:

Support of a natural child

Indemnification of a woman seduced

Support of relatives, by consanguinity or affinity

(a) Natural Obligations

Article 1423. Obligations are civil or natural.

(b) Civil Obligations:

Civil obligations give a right of action to compel their

performance.

Article 1157. Obligations arise from:

(1) Law; (s ex lege)
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

Natural obligations, not being based on positive law but

on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment
by the obligor, they authorize the retention of what has
been delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.

3. PRESCRIPTION OF ACTIONS

(Arts. 1423 1430 not exclusive enumeration; some

others)

Article 1139. Actions prescribe by the mere lapse of time fixed by

law. (1961)

Art. 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the
contract cannot recover what he has delivered or the value of the
service he has rendered.

Article 1140. Actions to recover movables shall prescribe eight years

from the time the possession thereof is lost, unless the possessor has
acquired the ownership by prescription for a less period, according to
articles 1132, and without prejudice to the provisions of articles 559,
1505, and 1133. (1962a)

Art. 1425. When w/o the knowledge or against the will of the debtor,
a third person pays a debt w/c the obligor is not legally bound to pay
bec. the action thereon has prescribed, but the debtor later
voluntarily reimburses the third person, the obligor cannot recover
what he has paid.

Article 1141. Real actions over immovables prescribe after thirty

years.
This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription. (1963)

Art. 1428. When, after an action to enforce a civil obligation has

failed, the defendant voluntarily performs the obligation, he cannot
demand the return of what he has delivered or the payment of the
value of the service he has rendered.

Article 1142. A mortgage action prescribes after ten years. (1964a)

Article 1143. The following rights, among others specified elsewhere
in this Code, are not extinguished by prescription:
(1) To demand a right of way, regulated in article 649;
(2) To bring an action to abate a public or private nuisance.
(n)

Art. 1429. When a testate or intestate heir voluntarily pays a debt of

the decedent exceeding the value of the property w/c he received by
will or by the law of intestacy fr. the estate of the deceased, the
payment is valid & cannot be rescinded by the payer.
Art. 1430. When a will is declared void bec. it has not been executed
in accordance w/ the formalities required by law, but one of the
intestate heirs, after the settlement of the debts of the deceased, pays
a legacy in compliance w/ a clause in the defective will, the payment
is effective & irrevocable.

Article 1144. The following actions must be brought within ten years
from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Article 1145. The following actions must be commenced within six
years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)

Art. 1960. If the borrower pays interest when there has been no
stipulation therefor, the provisions of this Code concerning solutio
indebiti, or natural obligations, shall be applied, as the case may be.
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authorize the retention of what has been delivered or rendered by
reason thereof".

Article 1146. The following actions must be instituted within four

years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any act, activity, or
conduct of any public officer involving the exercise of powers or
authority arising from Martial Law including the arrest, detention
and/or trial of the plaintiff, the same must be brought within one (1)
year. (As amended by PD No. 1755, Dec. 24, 1980.)

DBP V. CONFESOR
DOCTRINE: The right to prescription may be waived or renounced.
Art. 1112 - Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the
future. Prescription is deemed to have been tacitly renounced when
the renunciation results from acts which imply the abandonment of
the right acquired.

Article 1147. The following actions must be filed within one year:
(1) For forcible entry and detainer;
(2) For defamation. (n)

4. ESSENTIAL ELEMENTS OF AN OBLIGATION:

(1) Active Subject This refers to the creditor or the obligee.
A creditor generally used in an obligation to give
while obligee is used in an obligation to do

Article 1148. The limitations of action mentioned in articles 1140 to

1142, and 1144 to 1147 are without prejudice to those specified in
other parts of this Code, in the Code of Commerce, and in special
laws. (n)

(2) Passive Subject This refers to the debtor or the obligor.

debtor is used in an obligation to give
while obligor is used in an obligation to do
The first two elements must be determinate or determinable.
The following are possible combinations:

Article 1149. All other actions whose periods are not fixed in this
Code or in other laws must be brought within five years from the
time the right of action accrues. (n)

(3) Object of the obligation - the conduct or activity that must be

observed by the debtor, this is always an activity or conduct, the
prestation.

Article 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be
counted from the day they may be brought. (1969)

(4) Vinculum juris - the legal tie, whereby upon default or refusal of
the debtor to perform, the creditor can go to court.

Article 1151. The time for the prescription of actions which have for
their object the enforcement of obligations to pay principal with
interest or annuity runs from the last payment of the annuity or of the
interest. (1970a)

Article 1152. The period for prescription of actions to demand the

fulfillment of obligation declared by a judgment commences from the
time the judgment became final. (1971)

When a person says "I promise to pay you when I

like to," there is no obligation here bec. there is no
vinculum juris.
Juridical tie, the efficient cause established by
the various sources of s
> by virtue of which the debtor is bound in favor
of the creditor to perform the prestation.

** All the above 3/4 elements are agreed upon by commentators as

essential elements. The following two are being debated.

Article 1153. The period for prescription of actions to demand

accounting runs from the day the persons who should render the same
cease in their functions.
The period for the action arising from the result of the accounting
runs from the date when said result was recognized by agreement of
the interested parties. (1972)

(i) Causa debendi/ obligationes (Castan) This is what

makes the obligation demandable. This is the proximate why
of an obligation.
(ii) Form - This is controversial. This is acceptable only if
form means some manifestation of the intent of the parties.

Article 1154. The period during which the obligee was prevented by
a fortuitous event from enforcing his right is not reckoned against
him. (n)

B. SOURCES OF CIVIL s
1. LAW:

Article 1155. The prescription of actions is interrupted when they are

filed before the court, when there is a written extrajudicial demand by
the creditors, and when there is any written acknowledgment of the
debt by the debtor. (1973a)

Article 1158. Obligations derived from law are not

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

VILLAROEL V. ESTRADA
DOCTRINE: The rule that a new promise to pay a debt must be
made by the same person obligated or otherwise legally authorized by
it, is not applicable to this case since there was voluntarily
assumption of the obligation

ANSAY V. CA

an agreement is not necessary in order that a

party may demand from another the
fulfillment of an arising from the application
of a law in the circumstances;

SAGRADA ORDEN VS. NACOCO [91 P 503]

DOCTRINE: Civil obligations are a right of action to compel their

performance. Natural obligations, not being based on positive law
but on equity and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the obligor, they

Is the enumeration in Art. 1157 exclusive or merely illustrative?

Doctrine: The sense that the case of Sagrada Orden tells us is that the
enumeration is exclusive.
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2. CONTRACTS:

(1) When the property or business is not neglected or

abandoned;
(2) If in fact the manager has been tacitly authorized by
the owner.

Article 1159. Obligations arising from contracts have

the force of law between the contracting parties and
should be complied with in good faith.

In the first case, the provisions of articles 1317, 1403, No.

1, and 1404 regarding unauthorized contracts shall govern.

Article 1305. A contract is a meeting of minds between

two persons whereby one binds himself, with respect to
the other, to give something or to render some service.

In the second case, the rules on agency in Title X of this

Book shall be applicable.

obligations derived fr. contract has the force of law

bet. the contracting parties (jus civili )

there must be compliance in good faith (jus

gentium.)

3. QUASI-CONTRACTS:

NEGOTIORUM GESTIO juridical relation which

arises whenever a person voluntarily takes charge of an
agency or management of the business or property of
another without any power or authority from the latter.

b. Solutio indebiti

Article 1160. Obligations derived from quasi-contracts

shall be subject to the provisions of Chapter 1, Title
XVII, of this Book.

Article 2154. If something is received when there

is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.

Article 2142. Certain lawful, voluntary and unilateral acts

give rise to the juridical relation of quasi-contract to the end
that no one shall be unjustly enriched or benefited at the
expense of another.

SOLUTIO INDEBITI juridical relation which arise

whenever person unduly delivers a thing through or by
mistake of another who has no right to demand it.

c. Other Quasi-contracts

Article 2143. The provisions for quasi-contracts in this

Chapter do not exclude other quasi-contracts which may
come within the purview of the preceding article.

See Article 2143;

NOTE: The enumeration is not exclusive

QUASI-CONTRACT is a juridical relation which arises from

certain unlawful, voluntary and unilateral acts, to the end that no one
may be unjustly enriched or benefited at the expense of another.

4. ACTS OR OMISSIONS PUNISHED BY LAW (DELICT or

CRIMES but not Felony which is limited To those punished
under RPC ):

The act must be:

Article 1167. If a person obliged to do something fails to

do it, the same shall be executed at his cost.

(1) Lawful thus different from delict which is unlawful;

This same rule shall be observed if he does it in

contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone.

(2) Voluntary thus different from quasi-delict which is

based on fault or negligence or lack of foresight;
(3) Unilateral thus different from contract, in which
parties agree.

Article 2177. Responsibility for fault or negligence

under the preceding article is entirely separate and
distinct from the civil liability arising from negligence
under the Penal Code. But the plaintiff cannot recover
damages twice for the same act or omission of the
defendant.

e.g. in negotiorum gestio:

Benefits Conferred Voluntarily
For preservation of Property or Business
EXTRA-CONTRACTUAL OBLIGATIONS
(s without an agreement / based in IMPLIED CONSENT)

TITLE V - Civil Liability, RPC: CHAPTER ONE Persons Civilly Liable for Felonies

Q: HOW MANY?

Article 100. Civil liability of a person guilty of felony. Every person criminally liable for a felony is also civilly
liable.

A: In NCC, 2 nominate and some innominate QCs

a. Negotiorum Gestio

[CHAPTER 2, RPC: What Civil Liability Includes]

Article 2144. Whoever voluntarily takes charge of the

agency or management of the business or property of
another, without any power from the latter, is obliged to
continue the same until the termination of the affair and its
incidents, or to require the person concerned to substitute
him, if the owner is in a position to do so.

Article 104. What is included in civil liability. The civil

liability established in articles 100, 101, 102, and 103 of
this Code includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.

This juridical relation does not arise in either of these

instances: ELEMENTS
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QUASI DELICT
it is subsidiary (imputed)
Diligence of good father of the
family may be set up by the ER as
a defense

foresee harm to the person injured as a reasonable

consequence of the course about to be pursued?

DELICT
ERs liability is primary in RPC
In RPC, such defense of GFF is
not available

KINDS OF NEGLIGENCE:
(1) Culpa aquiliana, also known as culpa extracontractual, or negligence as a source of ,
QUASI-DELICT;
Governed by Arts. 2176-2194
NO contractual relation at all

A person while not criminally liable may still be civilly liable

Failure of the plaintiff to reserve in the criminal case his right
to file a separate civil action is not fatal to the civil action after the
acquittal of the accused.

(2) Culpa contractual, or negligence in the

performance of a contractual .
Governed by Art. 1179 (common carrier), &
all on contracts

When the acquittal is based on ground that the guilt of the

accused has not been proved beyond reasonable doubt,
plaintiff has the right to institute a civil action for damages
(culpa aquiliana).

Q: Is it possible that even if there is a contract bet. the parties, a

quasi-delict can still be committed by one against the other
regarding the area covered by the contract?

PERSONS
LIABLE:
LIABILITY, 2180)
1.
2.
3.
4.
5.
6.

A: Yes, according to the case of Araneta v. de Joya, 57 SCRA 59.

The same act can give rise to obligations arising fr. different sources.
5. QUASI-DELICTS: (culpa aquiliana / negligence / torts*)
[NCC, CHAPTER 2 - Quasi-delicts]

Article 2176. Whoever by act or omission causes damage

to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the
provisions of this Chapter. (memorize!)

father / mother
guardians
owners/managers
employers
the State
teachers

The responsibility shall cease if they can prove that they

have observed diligence of good father of the family to
prevent damage;

REQUISITES OF LIABILITY (IMPUTED):

1.
2.
3.

Article 1162. Obligations derived from quasi-delicts

shall be governed by the provisions of Chapter 2, Title
XVII of this Book, and by special laws.

the fault of negligence of the defendant

the damage suffered or incurred by the plaintiff
the relation of the fault or negligence and damage
incurred by the plaintiff

Balane:
The Code Commission did not choose to use tort. This is
bec. tort does not exactly have the same meaning as quasi-delict. Tort
[BROADER] covers intentional torts w/c in quasi-delict is
considered as civil liability arising fr. acts or omissions punishable by
law. There are some QD w/c are not covered by tort. Dean Bocobo
suggested the ancient term culpa aquiliana. But this did not merit the
approval of the Code Commission.

* Torts is seldom used by SC in juris., it is broader term for

actionable wrong which may not be negligence, may be malicious
tortuous act which is not anymore QD.

(IMPUTED/vicarious

QUASI-DELICTS the fault or negligence of a person

who, by his act or omission connected or not with, but
independent from any contractual relation, causes damage
to another person;

The omission to do something which ordinarily reasonable

men guided by those considerations which ordinarily
regulate the conduct of human affairs, would do; or doing
something which prudent and reasonable men would not do.

A TORT is a civil wrong (an actionable wrong)

consisting of a violation of a right or a breach of duty for
which the law grants a remedy in damages or other relief.
The right is created by law in favor of a person called a
creditor to compel another called a debtor to observe duty
or a prestation either to render what is due him or to refrain
from causing him injury.

Liability on QD is based on Equity, man is responsible not

only for acts conscious and intentional acts but also for his
lack of foresight, care and diligence which may cause harm
to another.

Classes of Torts According to Manner of Commission

ELEMENTS:
(1) A duty on the part of the defendant to protect
the plaintiff from the injury of which the latter
complains;
(2) A failure to perform that duty, and
(3) An injury to the plaintiff through such failure.
TEST OF NEGLIGENCE: Would a prudent man, in the
position of the person on who negligence is attributed,
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1.

Intentional Torts
a. tortfeasor desires to cause the consequences
of his act, or
b. tortfeasor believes that the consequences are
substantially certain to result from it
c. ex. Art. 26, 32 & 33 (CC)

2.

Negligent Torts:
a. tortfeasors conduct merely creates a
forseeable risk of harm which may or may
not occur
b. Art. 2176 (CC)

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3.

Strict Liability Torts:

ex. Art. 2183 & 2187 (CC)

Quantum of
Evidence
Compromise

Q: If there is a contract bet. the parties, can there be a quasi-delict

committed by one against the other regarding the area covered by
the contract?

(1) Wrongful act or omission imputable to the defendant by

reason of his fault or negligence;
(2) Damage or injury proven by the person claiming recovery;
(3) A direct causal connection between the negligent act and the
injury.

CANGCO VS. MANILA RAILROAD CO. [38 P 768] Balane: There are two important principles that we learn fr. this case:

DOCTRINE OF PROXIMATE CAUSE is that which, in

natural and continuous sequence, unbroken by any efficient
intervening cause, produces injury and without which the result
would not have occurred.
The exemplification by the Court in one case is simple and
explicit; viz: "(T)he proximate legal cause is that acting
first and producing the injury, either immediately or by
setting other events in motion, all constituting a natural and
continuous chain of events, each having a close causal
connection with its immediate predecessor, the final event
in the chain immediately affecting the injury as a natural
and probable result of the cause which first acted under
such circumstances that the person responsible for the first
event should, as an ordinarily prudent and intelligent
person, have reasonable ground to expect at the moment of
his act or default that an injury to some person might
probably result therefrom."

The difference in concept bet. contract & quasi-delict is that in a

contract, there is a pre-existing juridical tie bet. the parties.
Violation of the contract gives rise to liability but not to the
juridical tie. Juridical tie is not borne by a violation. In quasidelict, it is precisely the wrongful act w/c gives rise to the
juridical tie. Liability & juridical tie are simultaneous.
Contracts & quasi-delicts create two concentric circles w/ quasidelict as the bigger circle.
CASE: Where there could still be QD even when there is contract
of carriage
GUTIERREZ VS. GUTIERREZ [56 P 177]
HELD: The court found both drivers negligent. The owner of the
truck was made liable for culpa contractual, under the contract of
carriage. The owner of the car was made liable under Art. 2180,
imputed liability for culpa aquiliana.

Nature of Act

Gives rise to

As to nature of
Right violated
Is a Wrong
against
Criminal
Intent
Legal Basis for
liability
Liability for
Damages
Form
of
Redress

C. COMPLIANCE WITH OBLIGATIONS:

Article 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty
and good faith.
Article 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence
of a good father of a family, unless the law or the
stipulation of the parties requires another standard of
care.
Article 1164. The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him.
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery.
Article 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned.

NEGLIGENCE
Culpa
mere want of care
or diligence, not
voluntary act or
omission
the want or care or
diligence

A single act may be a crime and a QD at the

same time; (Art. 100, RPC)
Injured party cannot recover damages twice
for the same act or omission of defendant;
(must choose 1 Rem.)

QUASI-DELICT
private right

CRIME
public right

the individual

the State

not needed

Necessary

Broad

penal law necessary

every QD gives rise to

liability for damages
reparation for injury
suffered/indemnificatio

there
are
crimes
without civil liability
punishment/fine/impris
onment

can be compromised

beyond
reasonable
doubt
criminal liability can
never be compromised

REQUISITES FOR LIABILITY: (onus)

A: If you look at Art. 2176, you get the impression that if there is a
contract bet. the parties, they cannot be liable for quasi-delict on an area
covered by the contract. The case of Cangco has not really resolve this
controversy.

FRAUD
dolo
involves willfulness
or deliberate intent
to cause damage or
injury to another
the act itself

n/compensation
preponderance

Balane:
Kinds of performance.-5

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1.

specific performance - performance by the debtor

himself ( applies only to to give )

2.

substitute performance - performance at the

expense of the debtor

3.

equivalent performance - grant of damages

Article 1246. When the obligation consists in the delivery of

an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into
consideration.
Article 1460. A thing is determinate when it is particularly
designated or physical segregated from all others of the same
class.
The requisite that a thing be determinate is satisfied if at the
time the contract is entered into, the thing is capable of being
made determinate without the necessity of a new or further
agreement between the parties
Article 442. Natural fruits are the spontaneous products of
the soil, and the young and other products of animals.
Industrial fruits are those produced by lands of any kind
through cultivation or labor.
Civil fruits are the rents of buildings, the price of leases of
lands and other property and the amount of perpetual or life
annuities or other similar income

Articles 1163 - 1166 cover obligation to give.

Three Accessory Obligations:
1.

Art. 1163.-- To take care of the thing w/ the diligence of a

good father of a family until actual delivery.

2.

Art. 1164.-- To deliver the fruits to the creditor (fruits

produced after obligation to deliver arises.)

3.

Art. 1166.-- To deliver accessions & accessories.

Balane:

From the time the obligation arises, the creditor has a

personal right against the debtor as to the fruits. But
he has no real right over them until actual delivery.
Real right is a right w/c is enforceable against the
whole world. He has only the personal right against the
debtor w/ regard to the undelivered fruits.
This is bec. of the principle Non nudis pactis, sed
traditione, dominia rerum transferentur (It is not by
mere agreement, but by delivery, is ownership
transferred.)
Personal right arises fr. the time the obligation to deliver
arises whereas the real right does not arise until actual
delivery.

REAL :
a. DETERMINATE particularly designated from a particular
class;
PRINCIPAL to give (to deliver) a determinate thing;
ACCESSORY exists even when not expressly
stipulated;

Articles 1165 - 1167.-- Remedies Available to the Creditor (specific

performance, substitute performance, equivalent performance.)

(1) Art. 1163 to take care of the thing with

proper diligence of a good father of the family;

A. In obligations to give

(2) Art. 1164 to deliver the fruits;

(441) natural / industrial / civil
the to deliver arises only if the
creditor is entitled;

1. A determinate thing
a. Specific performance
b. Equivalent performance
2. A generic thing, all remedies are available

(3) Art. 1166 delivery of the accessions and of

the accessories (Art 440);

B. In an obligation to do, make a distinction:

In obligation to do, w/c is purely personal only equivalent
performance is available
In an obligation to do w/c is not personal:
a. substitute performance
b. equivalent performance

b. GENERIC THING is one that is indicated only by its kinds,

without being distinguished from others of the same kind.
(indeterminate)

Note: In obligations to do, specific performance is not available.

The reason for this is that specific performance will give rise to
involuntary servitude.

In an to deliver a generic thing, the object is

determinable; when delivered it becomes determinate.

DELIMITED GENERIC not totally generic nor specific; oblig.

To deliver one of SEVERAL things; does not have designation nor
physical segregation; Rule re Fortuitous Events still apply.

C. Obligation not to do
1. substitute performance
2. equivalent performance.

DETERMINATION OF DILIGENCE REQUIRED:

In all these cases, the creditor has the option of resolution or

rescission under Art. 1191. In addition, he can also claim
damages.
Article 1244. The debtor of a thing cannot compel the
creditor to receive a different one, although the latter may be
of the same value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot
be substituted by another act or forbearance against the
obligee's will.
Article 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money,
shall be governed by the law of sales.

(1) LAW e.g. extra ordinary diligence required in Common

carriers
(2) Stipulation of Parties
(3) Presumed: diligence of a Good father of the Family if none is
specified/expressed by law or agreement.
REAL RIGHT is the power by a person over a specific thing,
susceptible of being exercised against the whole world.
PERSONAL RIGHT belongs to a person who may demand from
another, as a definite passive subject, the fulfillment of a prestation.
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From the moment the to deliver a determinate thing

arises, the creditors earns a personal right over the thing
and its fruits, but only delivery or tradition transfers
ownership that is a real right over the thing against the
whole world.
For failure to deliver, the creditors remedy is not
reivindicacion but specific performance.

Article 1181. In conditional obligations, the acquisition of

rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which
constitutes the condition.
Article 1182. When the fulfillment of the condition
depends upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or upon
the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code.

[CHAPTER 2: Right of Accession GENERAL

PROVISIONS]

First sentence of Art. 1182.--

Article 440. The ownership of property gives the right by

accession to everything which is produced thereby, or
which is incorporated or attached thereto, either naturally
or artificially.

The condition must be suspensive, potestative & depends

on the sole will of the debtor.
EXAMPLE: "I promise to sell you my car for P1.00
whenever I like."

Kinds of Fruits;
1) CIVIL derived by virtue of juridical relation
2) Natural spontaneous products of the soil and the young and
other products of animals;
3) Industrial produced by lands of any kind through cultivation or
labor or by reason of human labor.

Q: Why does it make the obligation void?

A: Bec. such an obligation lacks one of the essential elements of an
obligation, the vinculum juris, the binding force-- the means by w/c it
is enforceable in court. In this case, there is no binding force. There is
no obligation. It is a joke.

D. KINDS OF CIVIL OBLIGATIONS

Potestative Condition is one w/c depends solely on the will of

either one party.

1. AS TO PERFECTION & EXTINGUISHMENT:

EXAMPLE: " I will give you my plantation in Davao

provided you reside in Davao permanently."

a. PURE

Casual Condition is one where the condition is made to depend

upon a third person or upon chance.

Article 1179. Every obligation whose performance does

not depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once.

EXAMPLE: "I will give you my land in Floridablanca if Mt.

Pinatubo erupts this year."

Every obligation which contains a resolutory condition

shall also be demandable, without prejudice to the effects
of the happening of the event.

Mixed Condition is one w/c depends partly upon the will of one of
the parties & partly on either chance or the will of a third person.
Q: What if the condition is suspensive, potestative & depends
solely on the will of the creditor, is the conditional obligation valid?

Article 1197. If the obligation does not fix a period, but

from its nature and the circumstances it can be inferred that
a period was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of the
period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them.

A: Yes. In fact, the obligation is not even a condition obligation. It is

a pure obligation, binding at once.
CASE: the term which parties attempted to fix were so uncertain it
must be regarded as condition
SMITH BELL V. SOTELO MATTI [44 P 874]

CASE: re Art. 1179, par. 2

PAY V. PALANCA [57 SCRA 618]
The obligation being due & demandable (bec. Of the
phrase upon demand), it would appear that the filing of
the suit after 15 yrs. was much too late.

Where the fulfillment of the condition does not depend on

the will of the obligor, but on that of a 3rd person who
can, in no way be compelled to carry it out, the obligor's
part of the contract is complied w/, if he does all that is in
his power, & it then becomes incumbent upon the other
contracting party to comply w/ the terms of the contract.

Q: Does the happening of a condition give rise to the ?

Article 1183. Impossible conditions, those contrary to good

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

A: Not necessarily, only if suspensive condi.; if resolutory condi, the

happening extinguishes the ;

The condition not to do an impossible thing shall be

considered as not having been agreed upon.

PURE demandable at once running of Rx.pd. starts

immediately upon creation of the ;

Q: In an with a TERM will the answer above be the same?

There are 2 classes of impossible conditions:

b. CONDITIONAL

1.
7

Impossible in fact

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2.

Article 1185. The condition that some event will not happen
at a determinate time shall render the obligation effective
from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed
fulfilled at such time as may have probably been
contemplated, bearing in mind the nature of the obligation.

EXAMPLE: "I promise to sell my car to Mr. M for P2 if he

can swim across the Pacific Ocean for 2 hours."
3.
4.

Impossible in law or one w/c attaches an illegal condition

EXAMPLE: "I promise to sell my car to Mr. M for P2 on
condition that he burns the College of Law."

Effect of Impossible Condition It annuls the obligation w/c

depends upon them.

Balane: This article refers to a suspensive condition.

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

The entire juridical tie is tainted by the impossible condition.

Correlate this w/ Articles 727 & 873.

Balane: This article refers to a suspensive condition.

Art. 727. Illegal or impossible conditions in simple & remuneratory

donations shall be considered as not imposed.

Doctrine of Constructive Compliance There are three requisites

in order that this article may apply:

Art. 873. Impossible conditions & those contrary to law or good

customs shall be considered as not imposed & shall in no manner
prejudice the heir, even if the testator should otherwise provide.

1.
2.
3.

Tolentino:
In contracts, an impossible condition annuls the contract.
In gratuitous dispositions, the impossible condition is
simply disregarded.

Intent on the part of the obligor to prevent fulfillment of the

condition. The intent does not have to be malicious.
Actual prevention of compliance (by the obligor)
Constructive compliance can have application only if the
condition is potestative. It can also apply to Mixed condition
as to that part w/c the obligor should perform.

Kinds of Conditional Obligations:

Balane: The first statement is inaccurate bec. donation is a contract &

in a donation, the impossible condition does not annul the contract. It
is simply disregarded. The proper way to say it is that:
In an onerous transaction, an impossible condition annuls
the condition obligation.
In a gratuitous disposition, as in a donation or
testamentary disposition, an impossible condition
attached to the disposition is simply considered as not
imposed.

(a) Suspensive Condition (Condition precedent)

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

Q: Why is there a difference?

A: Bec. in a donation as well as in a testamentary disposition, the
causa or consideration is the liberality of the donor or testator, as the
case may be. Even if you take away the impossible condition, there is
still a reason for the disposition to exist-- liberality. They (donation &
testamentary disposition) have both their underpinnings, liberality.

But in an onerous transaction, since an onerous prestation

w/c is reciprocal requires concomitant performances, that impossible
condition becomes part of the causa. Therefore, if the condition is
impossible, there is failure of causa. In no causa, there is also no
contract.

In obligations to do and not to do, the courts shall

determine, in each case, the retroactive effect of the
condition that has been complied with.

Balane:
This article refers to suspensive condition.

Paras:

This article sets forth the rule of retroactivity in an obligation to give.

This rule is logical but impractical. Many modern Civil Codes have
discarded it.

Positive suspensive condition to do an impossible/ illegal

thing The obligation is void (Art. 1183, par. 1.)
A negative condition (not to do an impossible thing)
Just disregard the condition (Art. 1183, par. 2.)
A condition not to do an illegal thing (negative) This is
not expressly provided for in the provision but is implied.
The obligation is valid.
EXAMPLE: "I will sell you a piece of land provided you do
not plant marijuana on it."

No Retroactivity as to the Fruits Notice that there is no

retroactivity w/ respect to the fruits. The fruits are deemed to cancel
out each other. If only one of the thing produces fruits, there is no
obligation to deliver the fruits.
Article 1188. The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the preservation of his
right.

Article 1184. The condition that some event happen at a

determinate time shall extinguish the obligation as soon as
the time expires or if it has become indubitable that the event
will not take place.

The debtor may recover what during the same time he has paid by
mistake in case of a suspensive condition.
Balane: This article refers to suspensive conditions.

Balane: This article refers to suspensive conditions. If the condition is

resolutory, the effect is the opposite.

Bring the appropriate actions According to JBL Reyes,

the phrase "may xxx bring the appropriate actions" is inaccurate. To
8

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bring action is to file a suit. But the creditor is not restricted to filing
a suit.
The proper verb is not "bring" but "take." For example, in a
sale of land subject to suspensive condition, the creditor should have
the suspensive condition annotated on the title of the land. This is not
bringing an appropriate action but taking an appropriate action.

Past event unknown to the parties It is really the knowledge of the

event w/c constitutes the future. It is the knowledge w/c is future &
uncertain.
c. WITH A TERM OR PERIOD:
Article 1180. When the debtor binds himself to
pay when his means permit him to do so, the
obligation shall be deemed to be one with a
period, subject to the provisions of article 1197.

The principle in this article is: Vigilantibus et non dormientibus jura

subveniunt w/c means that the laws aid those who are vigilant,
not those who sleep upon their rights.
Q: Why does Art. 1188 give the creditor a recourse although
technically the creditor still have no right?

Balane:
A term is a future and certain event upon w/c the
demandability (or extinguishment) of an obligation depends.

A: Bec. as a matter of fact, although technically the creditor still have

no right, he is already expecting a right. You cannot let the creditor sit
& fold his arms & wait for his right of expectancy to be rendered
illusory.

Tolentino: Period must be (1) future (2) certain and (3) possible.
A term can either be:

Article 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss or
deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood that the
thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it
cannot be recovered;
(3) When the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages
in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall
have no other right than that granted to the usufructuary.
(1122)

suspensive term (ex die -- fr. the day) or one the arrival of
w/c will make the obligation demandable;

2.

resolutory term (in die -- into the day) or one the arrival of
w/c will extinguish the obligation. The period after which the
performance must terminate.

Terms classified accdg to source;

1.
2.
3.

Legal, period fixed by law

voluntary, stipulated by parties
judicial, fixed/allowed by courts

May also be,

(a) express, specified

(b) tacit, e.g. stipulated to do some work which
may only be done at a particular season.

Or,

1. original period
2. grace period, extension fixed by parties

Or

a. definite, fixed known date or time,

b. indefinite, event will happen but not known when

Effect of Period: with term are demandable only when day fixed
for performance arrive; Rt. Of Axn arises only when date fixed
arrives;

(b) Resolutory Condition (Condition subsequent)

Balane: Art. 1190 refers to resolutory conditions. This is just the
opposite of Art. 1189.

Article 1193. Obligations for whose fulfillment a

day certain has been fixed, shall be demandable
only when that day comes.

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

Obligations with a resolutory period take effect at

once, but terminate upon arrival of the day
certain.

In case of the loss, deterioration or improvement of the thing,

the provisions which, with respect to the debtor, are laid
down in the preceding article shall be applied to the party
who is bound to return.

A day certain is understood to be that which must

necessarily come, although it may not be known
when.

As for the obligations to do and not to do, the provisions of

the second paragraph of article 1187 shall be observed as
regards the effect of the extinguishment of the obligation.

If the uncertainty consists in whether the day will

come or not, the obligation is conditional, and it
shall be regulated by the rules of the preceding
Section.

Balane: A condition is a future & uncertain event upon w/c an

obligation or provision is made to depend.

MANRESA: A term or period is an interval of time, w/c, exerting an

influence on an obligation as a consequence of a juridical act, either
suspends its demandability or produces its extinguishment.

Tolentino:
xxx
Futurity & uncertainty must concur as
characteristics of the event.

1.

Distinguished fr. Condition:

A past thing can never be a condition. A condition is

always future & uncertain.

As to fulfillment
9

CONDITION
uncertain event

TERM / PERIOD
an event that must

amdcm

As to influence on
the obligation

a condition gives rise

to an obligation or
extinguishes
one
already existing

Effect

May have retroactive

effect

As to time

may refer to a past

event unknown to the
parties
a condition w/c
depends exclusively
on the will of the
debtor annuls the
obligation

necessarily
come,
whether on a date
known before hand
or at a time w/c
cannot
be
predetermined
has no effect upon
the existence of
obligations, but only
their demandability
or performance
NO retroactive effect,
except when there is
a special agreement
always refer to the
future

Presumed for whose benefit: BOTH

Article 1196. Whenever in an obligation a period is designated, it is
presumed to have been established for the benefit of both the creditor
and the debtor, unless from the tenor of the same or other
circumstances it should appear that the period has been established in
favor of one or of the other.
Balane:
General rule: If a period is attached in an obligation, the presumption
is that it is for the benefit of both parties.

The consequence is that the creditor cannot compel the

performance before the arrival of the term; the debtor cannot
compel acceptance bef. the arrival of the term.

a period left to the

debtor's will merely
empowers the court
to fix such period

If the term is for the benefit of the creditor The creditor can
demand performance anytime; but the debtor cannot insist on payment
bef. the period.

Balane: In a (suspensive) term, the obligation has already arisen

except that it is not yet demandable.

If the term is for the benefit of the debtor The creditor cannot
demand performance anytime; but the debtor can insist on performance
anytime.

As to will of debtor

EXAMPLE: "I promise to pay w/in 60 days." This is a term

for the benefit of the debtor.

Article 1194. In case of loss, deterioration or improvement of the

thing before the arrival of the day certain, the rules in article 1189
shall be observed.

"I promise to pay Clara the sum of P100,000 on or before

Oct. 31, 1996." This is a term for the benefit of the debtor.
In of Loan, without interest, term is usually for benefit of debtor,
thus he may pay in advance;
If there is stipulation as to interest, period is generally for both parties,
debtor cannot pay in advance vs. will of creditor; unless he also pays
interest in full.

Balane: There are three requisites in order for Art. 1189 to

apply1. There is loss, deterioration or delay
2. There is an obligation to deliver a determinate thing (on the
part of the debtor)
3. There is loss, deterioration or improvement before the
happening of the condition.
4. The condition happens.

When NO period is fixed

Balane:

Article 1195. Anything paid or delivered before the arrival of the

period, the obligor being unaware of the period or believing that the
obligation has become due and demandable, may be recovered, with
the fruits and interests.

1195 applies only in to give;

Cases where the Courts may fix a period

1. Art. 1197, par. 1
Article 1197. If the obligation does not fix a period, but
from its nature and the circumstances it can be inferred that
a period was intended, the courts may fix the duration
thereof.

Balane:
Mistaken Premature Delivery This article assumes 2 things:
(1) the delivery was by mistake;
(2) the mistake was discovered bef. the term arrives.

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

Both the things & the fruits can be recovered.

If the term has already arrived, the question is moot & academic. But
can he recover the fruits produced during the meantime? It depends on
what school of thought you follow:

In every case, the courts shall determine such period as

may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them.

Tolentino : According to one school of thought, the debtor is entitled

to the fruits produced in the meantime.
Caguioa : According to another school of thought, all the fruits
received during the pendency of the term belong to the creditor.

Exceptions: (a) Art. 1682

Article 1682. The lease of a piece of rural land, when its duration has
not been fixed, is understood to have been made for all the time
necessary for the gathering of the fruits w/c the whole estate leased
may yield in one year, or w/c it may yield once, although two or more
years may have to elapse for the purpose.

When fruits & interests cannot be recovered notwithstanding

premature delivery:
1.
2.
3.
4.

When the obligation is reciprocal & there has been premature

performance (by both parties);
When the obligation is a loan in w/c the debtor is bound to
pay interest;
When the period is for the creditor's exclusive benefit;
When the debtor is aware of the period & pays anyway.
(Knowledge, tacit waiver of benefit of term)

Article 1687. If the period for the lease has not been fixed, it is
understood to be fr. year to year, if the rent agreed upon is annual; fr.
month to month, if it is monthly; fr. week to week, if the rent is weekly;
& fr. day to day, if the rent is to be paid daily. xxx
10

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DOCTRINE: A lease to an alien for a reasonable period is valid.
Art. 1606 in pacto de retro sale where the period is not specified by the
parties:

We concluded that "as the lease contract was part of a scheme to

violate the Constitution it suffers from the same infirmity that renders
the other contracts void and can no more be saved from illegality than
the rest of the contracts."
Art. 1180. When the debtor binds himself to pay when his means
permit him to do so, the obligation shall be deemed to be one w/ a
period, subject to the provisions of article 1197.

Art. 1606. The right referred to in article 1601 (the right of

conventional redemption on the part of the vendor a retro), in the
absence of an express agreement, shall last four years fr. the date of the
contract. XXX

contract of services for an indefinite term (bec. fixing of a

period by the courts may amount to involuntary servitude)

When debtor loses the benefit of period

Article 1198. The debtor shall lose every right to make use of the
period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the guaranties
or securities which he has promised;
(3) When by his own acts he has impaired said guaranties
or securities after their establishment, and when
through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
(5) When the debtor attempts to abscond.

Art. 1197. Xxx The courts shall also fix the duration of the period
when it depends upon the will of the debtor.
Art. 1191. Xxx the court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Art. 1687. xxx However, even though a monthly rent is paid, & no
period for the lease has been set, the courts may fix a longer term for
the lease after the lessee has occupied the premises for over one year.
If the rent is weekly, the courts may likewise determine a longer period
after the lessee has been in possession for over six months. In case of
daily rent, the courts may also fix a longer period after the lessee has
stayed in the place for over one month.
Art. 1180. When the debtor binds himself to pay when his means
permit him to do so, the obligation shall be deemed to be one w/ a
period, subject to the provisions of article 1197.

(6) Art. 2109 - If the creditor is deceived on the substance or quality of

the thing pledged, he may either claim another thing in its stead, or
demand immediate payment of the principal obligation. (The sixth
ground was added by Prof. Balane.)

CASE: Where obligation does not fix a period; When fixing a period
is mere formality

Effects of Loss of Term (1198):

becomes immediately due & demandable even if period

has not yet expired.

is converted to a pure

Insolvency of DEBTOR need not be judicially declared;

state of financial difficulty is enough.

CHAVEZ V. GONZALES [32 SCRA 547] Def. virtually admitted non-performance by returning the typewriter he
was obliged to repair in a non-working condition, w/ essential parts,
missing. Plaintiff had the thing fixed by another and later demanded fr.
Def. payment of actual, compensatory, temperate and moral damages.
ISSUE: WON Def. may not be held liable b/c did not contain a
period.

Balane: In number one, factual insolvency is enough. A judicial

declaration of insolvency is not required.

HELD: He cannot invoke Art. 1197 of the NCC. The time for
compliance having evidently expired, & there being a breach of
contract by non-performance, it was academic for the pltff. to have first
petitioned the court to fix a period for the performance of the contract
before filing his complaint in this case. The fixing of a period would
thus be a mere formality & would serve no purpose than to delay.

2.
OBLIGATIONS ACCORDING TO PLURALITY OF
OBJECTS:
A. Simple
B. Multiple

ENCARNACION V. BALDOMAR [77 P 470] C. CONJUNCTIVE

where the debtor must perform more than one prestation

Plaintiff was owner of a house in Legarda, Manila leased to defendant

on month-to-month basis with rental of P35. After the was plainitiff
demanded def. to vacate b/c he needed it d/t destruction of his office.
WON:def may continue to occupy indefinitely as long as he pays
rentals

Q: A promised to deliver to B his carabao, dog & goat.

What kind of is this? A: conjunctive
D. ALTERNATIVE OBLIGATIONS
where the debtor must perform any of several prestations

HELD: The continuance & fulfillment of the contract of lease cannot

be made to depend solely & exclusively upon the free & uncontrolled
choice of the lessees bet. continuing paying the rentals or not,
completely depriving the owner of all say in the matter.

when several objects due, the fulfillment of one is sufficient,

generally the debtor chooses which one.
E. FACULTATIVE
where only one thing is due but the debtor has reserved the
right to substitute it w/ another (Art. 1206)

ELEIZEUI V. LAWN TENNIS CLUB [2 P309] DOCTRINE: The term of a lease whose termination is expressly left
to the will of the lessee must be fixed by the courts according to the
character & conditions of the mutual undertakings, in an action
brought for that purpose xxx.

election here is never granted to creditor

Q: In conjunctive, right to choose is always with debtor?

A: NO. No right to choose b/c all must be performed.

PHILBANKING V. LUI SHE [21 SCRA 53] 11

Q: in Alternative, rt. To choose can be given to 3rd person?

A: YES. (Art. 1000) as long as it is not contrary to law, morals, PO, PP,
etc.

amdcm
Articles 1202 to 1205 talk of the loss of some of the prestations before
performance.
1. If the choice is debtor's

Q: In an agreement where there is no stipulation as to who has rt. to

choose?
A: It depends. If Alternative, generally debtor chooses; if facultative,
only with debtor

a. When only one prestation is left (whether or not the rest of the
prestations have been lost through fortuitous event or through the fault
of the debtor), the debtor may perform the one that is left.-- Art. 1202.

Q: What if debtor has rt. to choose and he delays?

A: rt. is not lost by mere delay; (before creditor files his action)

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

Alternative Obligations

b. If the choice is limited through the creditor's own acts, the

debtor can ask for resolution plus damages.--

Art. 1199. A person alternatively bound by different prestations shall

completely perform one of them.
The creditor cannot be compelled to receive part of one &
part of the other undertaking.

Art. 1203. If through the creditor's acts the debtor cannot make a
choice according to the terms of the obligation, the latter may rescind
the contract w/ damages.

Tolentino: The characteristic of alternative obligations is that, several

objects being due, the fulfillment of one is sufficient xxx.

c. If everything is lost through the debtor's fault, the latter is liable

to indemnify the creditor for damages.--

Art. 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.
The debtor shall have no right to choose those prestations
w/c are impossible, unlawful or w/c could not have been the object of
the obligation.

Art. 1204. The creditor shall have a right to indemnity for damages
when, through the fault of the debtor, all the things w/c are alternatively
the object of the obligation have been lost, or the compliance of the
obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing
w/c disappeared, or that of the service w/c last became impossible.
Damages other than the value of the last thing or service may also be
awarded.

Balane:
Q: To whom does the right of choice belong?
A: General rule: To the debtor (Art. 1200.)

d. If some things are lost through the debtor's fault, the debtor can still
choose fr. those remaining.

Exception: When expressly granted to the creditor (cannot

be implied)

e. If all are lost through fortuitous event, the obligation is extinguished.

* There is a third possibility where the choice may be

made by a third person upon agreement of the parties.
(expressed)

f. If all prestations but one are lost through fortuitous event, & the
remaining prestation was lost through the debtor's fault, the latter is
liable to indemnify the creditor for damages.

Q: What is the technical term of the act of making a choice in

alternative obligations?
A: Concentration.

g. If all but one are lost through the fault of the debtor & the last one
was lost through fortuitous event, the obligation is extinguished.

2. Choice is the creditor's

The right to choose is indivisible debtor cant choose part of

one prestation and part of another;
Here, plaintiffs action must be in alternative form;

Art. 1205. When the choice has been expressly given to the creditor,
the obligation shall cease to be alternative fr. the day when the selection
has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the
following rules:

Art. 1201. The choice shall produce no effect except fr. the time it has
been communicated.
Balane:
Requirement of Communication of choice If the choice belongs to
the creditor, of course, he has to communicate his choice to the debtor.
The debtor is not a prophet.

(1) If one of the things is lost through a fortuitous event, he shall

perform the obligation by delivering that w/c the creditor should choose
fr. among the remainder, or that w/c remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor,
the creditor may claim any of those subsisting, or the price of that w/c,
through the fault of the former, has disappeared, w/ a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by
the creditor shall fall upon the price of any one of them, also w/
indemnity for damages.

No required form may be ORAL, IN WRITING, TACITLY, OR

OTHER UNEQUIVOCAL MEANS.
Q: If the choice belongs to the debtor, why require communication
before performance if the choice belongs to him anyway?
A: To give the creditor an opportunity to consent to the choice or
impugn it. (Ong v. Sempio-Dy, 46 P 592.)

The same rules shall be applied to obligations to do or not to do in case

one, some or all of the prestations should become impossible.

BUT how can the creditor impugn it if the choice belongs to the debtor.
The better reason would be to give the creditor a chance to prepare for
the performance.

a. If one or some are lost through fortuitous event, the creditor

may choose fr. those remaining.-- Art. 1205 (1)

Not CONSENT: only declaration of choice made, communicated to

the other party, unilateral decal.of will;
12

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b. If one or some are lost through the debtor's fault, the creditor has
choice fr. the remainder or the value of the things lost plus damages.-Art. 1205 (2), supra.

becomes impossible, is not extinguished but has

become a simple that must be performed; and
he will be liable for damages in delay, neglect or
bad faith.

c. If all are lost through the debtor's fault, the choice of the creditor
shall fall upon the price of any of them, w/ indemnity for damages.-Art. 1205 (3), supra.

d. If some are lost through the creditor's fault, the creditor may choose
fr. the remainder.
e. If all are lost through fortuitous event, the obligation is
extinguished.

3. AS TO RIGHTS & s OF MULTIPLE PARTIES

[Joint & Solidary Obligations, Arts. 1207-1222]

f. If all are lost through the creditor's fault, the obligation is

extinguished.

a. JOINT OBLIGATIONS

Distinguished fr. Facultative obligations:

Balane: A joint obligation is one in w/c each of the debtors is liable

only for a proportionate part of the debt or each creditor is entitled only
to a proportionate part of the credit.

Art. 1206. When only one prestation has been agreed upon, but the
obligor may render another in substitution, the obligation is called
facultative.
The loss or deterioration of the thing intended as a substitute,
through the negligence of the obligor, does not render him liable. But
once the substitution has been made, the obligor is liable for the loss of
the substitute on account of his delay, negligence or fraud.

In joint obligations, there are as many obligations as there are

debtors multiplied by the number of creditors.
There are three kinds of joint obligations:
1)

Tolentino: Facultative vs. Alternative

As to contents of the
obligation

Alternative
there are various
prestations all of w/c
constitute parts of the
obligation
the nullity of one
prestation does not
invalidate the
obligation, w/c is still
in force w/ respect to
those w/c have no
vice

As to nullity

As to choice
As to effect of loss

the right to choose

may be given to the
creditor
only the impossibility
of all the prestations
due w/o fault of the
debtor extinguishes
the obligation

2)
Facultative
only ONE principal
prestation constitutes
the obligation, the
accessory being only
a means to facilitate
payment.
the nullity of the
principal prestation
invalidates the
obligation & the
creditor cannot
demand the substitute
even when this is
valid
only the debtor can
choose the substitute
prestation.
the impossibility of
the principal
prestation is
sufficient to
extinguish the
obligation, even if the
substitute is possible

3)

The joint obligation has been variously

mancomunada or mancomunada simple or pro rata;

In theory, it is easy to distinguish a facultative

obligation fr. an alternative one. But in practice, it
is difficult to distinguish the two. You just have to
find out what the parties really intended.

Only One prestation is DUE and enforceable by

the creditor at the time of choice; if the substitute
becomes impossible d/t fault of debtor the is not
affected, thus no damages;

If after choosing the substitute and choice is

communicated to creditor, the principal prestation

termed

In P/N the phrase "We promise to pay," used by 2 or more

signers, creates a pro rata liability (JOINT);
While I promise to pay followed by signatures of 2 or
more persons solidary; individually and collectively; individually and
jointly.
JOINT character is PRESUMED: WHEN no stipulation as to
liability of several debtors, presumption is joint, and each is liable only
for his proportionate part of the ;
J/FO of court as to several defendants when solidarity has not been
specified, the liability of the defendants in joint; court cannot amend.
Effects of Joint Liability:
1. The demand by one creditor upon one debtor, produces the
effects of default only w/ respect to the creditor who
demanded & the debtor on whom the demand was made, but
not w/ respect to the others;
2. The interruption of prescription by the judicial demand of
one creditor upon a debtor, does not benefit the other
creditors nor interrupt the prescription as to other debtors.
On the same principle, a partial payment or
acknowledgement made by one of several joint debtors does
not stop the running of the statute of limitations as to the
others;
3. The vices of each obligation arising fr. the personal defect of
a particular debtor or creditor does not affect the obligation
or rights of the others;
4. The insolvency of a debtor does not increase the
responsibility of his co-debtors, nor does it authorize a
creditor to demand anything fr. his co-creditors;
5. In the joint divisible obligation, the defense of res judicata is
not extended fr. one debtor to another. (Manresa)

Facultative obligations always involve choice by the

debtor.

Active joint where the obligation is joint on the

creditor's side;
Passive joint where the obligation is joint on
the debtor's side; &
Multiple Joint where there are multiple parties
on each side of a joint obligation.

Tolentino:

Balane:

If principal becomes impossible by fault or

negligence of creditor, debtor cannot be compelled
to perform the substitute (no more substitute,
becomes simple) extinguished.

13

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nature of the obligation requires solidarity Art. 19-22, NCC;

a moral wrong cannot be divided into parts,
thus must
be solidary; akin to QD/QC (2183 &
2187)
(4)

Art. 1208. If fr. the law, or the nature or the wording of the obligations
to w/c the preceding article refers the contrary does not appear, the
credit or debt shall be presumed to be divided into as many equal shares
as there are creditors or debtors, the credits or debts being considered
distinct fr. one another, subject to the Rules of Court governing the
multiplicity of suits.

Liability may arise fr. the provisions of articles 19 to 22 of

the NCC. If 2 or more persons acting jointly become liable
under these provisions, their liability should be solidary bec.
of the nature of the obligation. xxx The acts giving rise to
liability under these articles have a common element-- they
are morally wrong.

Art. 10, RPC; Art. 2194, & Art. 2157, NCC

b. SOLIDARY OBLIGATIONS
Balane:
A solidary obligation is one in w/c the debtor is liable for
the entire obligation or each creditor is entitled to demand the whole
obligation. If there is only one obligation, it is a solidary obligation.

(5)

imposed by final judgment upon several defendants must be

expressed in the JFO, cannot be amended after finality.

There are three kinds of solidarity:

Characteristics of Active Solidarity (solidary creditors): (Tolentino)
(1) Active solidarity where there are several creditors
w/ one debtor in a solidary obligation;
(2) Passive solidarity where there is one creditor w/
several debtors solidary bound;
(3) Mixed Solidarity where there are several creditors
& several debtors in a solidary obligation.

ESSENCE mutual agency, or mutual representation, whc consists

in the authority of ea creditor to claim & enforce the rts. Of all, w/d
resulting to pay ea one what belongs to him.
1.

Tolentino:

Solidary obligations may also be referred to as

mancomunada solidaria or joint & several or in
solidum.
It has also been held that the terms "juntos o
separadamente" in a promissory note creates a solidary
responsibility;
Where there are no words used to indicate the character
of a liability, the phrase "I promise to pay," followed by
the signatures of 2 or more persons, gives rise to an
individual or solidary responsibility.
The words "individually & collectively" also create a
solidary liability.
So does an agreement to be
"individually liable" or "individually & jointly
liable."

2.

3.
4.

Debtor may pay any of the creditors but if any demand,

judicial or extrajudicial is made on him, he must pay only to
the one demanding payment (Art. 1214);

5.

One creditor does not represent the others in such acts as

novation, compensation & remission (even if the credit
becomes more advantageous). In these cases, even if the
debtor is released, the other creditors can still enforce their
rights against the creditor who made the novation,
compensation or remission;

6.

Each creditor may renounce his right even against the will of
the debtor, & the latter need not thereafter pay the obligation
to the former.

Active Solidarity
Art. 1211. Solidarity may exist although the creditors & the debtors
may not be bound in the same manner & by the same periods &
conditions.
Art. 1207. The concurrence of two or more creditors or of two or more
debtors in one & the same obligation does not imply that each one of
the former has a right to demand, or that each one of the latter is bound
to render, entire compliance w/ the prestation. There is solidary liability
only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.
Balane:

Characteristics of Passive Solidarity (solidary debtors):

ESSENCE ea debtor can be made to answer for the others,
w/resulting right to the debtor-payor to recover fr others their respective
shares, akin to mutual guaranty (Manresa):
1. Each debtor may be required to pay the entire obligation but
after payment, he can recover fr. the co-debtors their
respective shares (this is something similar to subrogation);

Q: When is an obligation w/ several parties on either side Joint or

Solidary?
A: The presumption is that an obligation is joint bec. a joint
obligation is less onerous that a solidary one.
There is solidary obligation in the ff.:
(1)

when the obligation expressly so states stipulation by parties;

(2)

when a will expressly makes charging or a condition in solidum;

(3)

when the law requires crimes, conspiracy, act or 1 is act of

all; in torts joint tortfeasors

The liability of joint tortfeasors, w/c include all

persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or
abet the commission of a tort, or who approve of it,
after it is done, if done for their benefit. (Tolentino)

Since it is a reciprocal agency, the death of a solidary creditor

does not transmit the solidarity to each of his heirs but to all
of them taken together;

(Similar to Art. 1005 where bros.&sisters of

decedent inherit in their own rt. per capita while
nephews & nieces, per stirpes by rt. of
representation.)
Each creditor represents others in the act of requiring
payment, & in all other acts w/c tend to secure the credit or
make it more advantageous. Hence, if he receives only a
partial payment, he must divide it among the other creditors.
He can interrupt the period of prescription or render the
debtor in default, for the benefit of all other creditors;
A credit once paid is shared equally among the creditors
unless a different intention appears;

14

2.

Interruption of prescription as to one debtor affects all the

others; but the renunciation by one debtor of prescription
already had does not prejudice the others, bec. the
extinguishment of the obligation by prescription
extinguishes also the mutual representation among the
solidary debtors.

3.

The debtor who is required to pay may set up by way of

compensation his own claim against the creditor, in this
case, the effect is the same as that of payment;

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4.

The total remission of the debt in favor of a debtor releases

all the debtors; but when this remission affects only the share
of one debtor, the other debtors are still liable for the
balance of the obligation.

5.

All the debtors are liable for the loss of the thing due, even if
such loss is caused by the fault of only one of them, or by
fortuitous event after one of the debtors has incurred in
delay;

6.

The interests due by reason of the delay of one of the debtors

are borne by all of them.

MALAYAN INSURANCE V. CA [165 S 536] Art. 1212. Each one of the solidary creditors may do whatever may be
useful to the others, but not anything w/c may be prejudicial to the
latter.
Acts beneficial: each solidary debtor may,
interrupt prescription,
constitute a debtor in default,
bring suit so that may produce interest
Acts prejudicial: solidary creditor cannot do anything prejudicial to
the others, like remission, novation, compensation, merger or confusion
but such provision in 1212 conflicts w/ 1215;

Legal Bonds in solidarity may be uniform or varied:

Uniform when debtors are bound by same conditions and
clauses;

Tolentino:
Harmonize 1212 & 1215 by such acts of
extinguishment, whc is prejudicial to co-creditors, will be valid so as to
extinguish the claim vs. debtors, but not w/respect to the rts.of cocreditors whc subsists and may be enforced vs such creditor who
performed the act alone.

Varied where obligors, although liable for the same prestation,

are nevertheless not subject to same terms and conditions;
before fulfillment of such condition or arrival of such term,
an action may be brought vs.such debtor or any other
solidary debtor for recovery of the entire , minus the
portion corresponding to the debtor affected by the varied
condition or term; upon happening however, this portion may
be claimed by creditor from any of the debtors.

Balane:
There is an apparent conflict bet. Art. 1212 & 1215. Art.
1212 states that the agency extends only to things w/c will
benefit all co-creditors. But not anything w/c is prejudicial to
the latter. In Art. 1215, he can do an acts prejudicial to the
other creditors, like remission for instance.

when one of solidary debtors is bound by varied terms and

conditions, for instance a suspensive condition or a
suspensive period, creditors may still demand for fulfillment
of the whole prestation prior to the happening of the
condition or arrival of the term, minus the share of this
debtor bound by varied condition/term. This latter portion
may be demanded from anyone of the debtors soon as the
term arrives or condition happens.

Art. 1213. A solidary creditor cannot assign his rights w/o the consent
of the others.
Art. 1214. The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extrajudicial, has been made by one of them,
payment should be made to him.
Tolentino: Mutual agency whc is the essence of active solidarity,
implies mutual confidence, thus one creditor cannot assign/transfer his
rts to another w/o consent of the others.

EX. Is sureties who are solidarily liable w/other debtors but

binds themselves to varied conditions distinct fr the principal
debtors; BUT, the of surety may not be greater than that
of ea principal debtor, nor more burdensome.

Effects of Unauthorized Transfer: no effect, no rts. transferred;

assignee does not become solidary creditor, co-creditors and debtor/s
not bound by such transfer;

payment made by this assignee will not extinguish ; suit

filed by him may not interrupt Rx.

EXCEPT, if the assignee is also one of the co-creditors, b/c

mutual confidence is incumbent.

An to pay sum of money is not novated in a new instrument

wherein the old is ratified, by changing only the terms of payment
and adding other s not incompatible w/the old one. [Inchausti &
Co. v. Yulo, 34 Phil 978, 1908]
CASE: An agreement to be individually liable or individually
and jointly liable denotes a solidary obligation, not a joint
liability.

Justice JBL REYES: Art. 1213 places unjustifiable and unnecessary

burden on the rts of solidary creditors upon his own share. The article
shd have read as:

A solidary creditor who assigns his rts w/o the consent of his
co-creditors shall answer subsidiarily for any prejudice
caused by the assignee in connection w/ d credit assigned.

Liability was compared to agent&principal;

Balane:
General Rule A debtor may pay any of the solidary creditors.

[RONQUILLO V. CA [132 S 274, Sept. 28, 1983]

The term "individually" has the same meaning as "collectively,"
"separately," "distinctively," "respectively" or "severally."
An agreement to be "individually liable" undoubtedly creates a several
obligation, & a "several obligation" is one by w/c one individual binds
himself to perform the whole obligation.
xxx [T]he phrase juntos or separadamente used in the P/N is an
express statement making each of the persons who signed it
individually liable for the payment of the full amount of the
obligation contained therein. xxx In the absence of a finding of
facts that the defendants made themselves individually liable for the
debts incurred, they are each liable only for 1/2 of said amount.

Exception If demand is made by one creditor upon the debtor, in

w/c case the latter must pay the demanding creditor only.
Tolentino:
Judicial Demand when such is made by one of solidary creditors,
tacit mutual representation is deemed revoked.

Defendant-debtor shd pay to d plaintiff-creditor to effect

extinguishment; payment to any of other creditors who did
not sue would be deemed payment to a 3rd person.

The obligation in the case at bar being described as "individually

& jointly," the same is therefore enforceable against one of the
numerous obligors.

CASE DOCTRINE: The direct liability of the insurer under

indemnity contracts against TPL does not mean that the insurer
can be held solidarily liable w/ the insured &/ or the other parties
found at fault.

plaintiff-creditor merely consolidates in himself the

representation of all the others, but the essence of solidarity
of creditors shd not be nullified;

Extra-judicial Demand same as above; demand by several

creditors separately, debtor shd pay the one who notified him 1st ; if
15

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they demand at d same time, or collectively, debtor may choose to
whom to pay.
Other Instances:
Debtor upon whom demand was made pays to a creditor other
than the one who made the demand in violation of Art. 1214
This is considered payment to a third person (Art. 1241, par.
2) & the debtor can still be made to pay the debt. The only
concession given to the debtor is that he is allowed to deduct the
share of the receiving creditor fr. the total amount due even if he
paid the entire amount due to that creditor.

Factors to consider in Effects of Acts under 1215:

1. the relation bet. Creditors and that of debtors;
2. the relation among co-debtors themselves.
Baviera:

Principals are always liable solidarily;

Agents are not liable solidarily unless expressly

stipulated (res inter alios acta)
b. Passive Solidarity

Creditor A makes demand on debtor Y Does it mean that he

cannot pay the share pertaining to creditor B?
A: According to commentators he can. But this is dangerous bec.
there may already be an agreement on the part of the creditors.

Art. 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those w/c may
subsequently be directed against the others, so long as the debt has not
been fully collected.

Tolentino warns that to make the debtors pay for the whole amount to
the demanding creditor even if partial payment has already been
made to another creditor might amount to unjust enrichment. This
rule/restriction has already been scrapped in some modern civil
codes allowing freedom of choice to the debtor even after
demand.

Q: If a judgment made in an action brought by a solidary

cretditor vs a solidary debtor will it be res judicata vs the codebtors?
A: A favorable judgment that inures to the benefit of the co-creditors
will be res judicata as to the latter;
An adverse judgment would have the same effect if the action of the
plaintiff-creditor is not founded on a cause personal to him, but actually
consolidates in him all the rts.as well of his co-creditors. (Tolentino)
similarly translated as to co-debtors;

Since in solidarity, there is unity of legal tie, notwithstanding

plurality of subjects;

A judgment that declares the does not exist extinguished

the the defendant-debtor, and such decision inures to the
benefit of co-debtors, unless the cause is personal to the defdebtor.

Q: There are three creditors A, B & C & there are three debtors X,
Y & Z. A makes a demand on Y. X pays B.
A: This is not covered by Art. 1214.
Art. 1215. Novation, compensation, confusion or remission of the
debt, made by any of the solidary creditors or w/ any of the solidary
debtors, shall extinguish the obligation, w/o prejudice to the provisions
of article 1219.
The creditor who may have executed any of these acts, as well as he
who collects the debt, shall be liable to the others for the share in the
obligation corresponding to them.
Art. 1219. The remission made by the creditor of the share w/c affects
one of the solidary debtors does not release the latter fr. his
responsibility towards the co-debtors, in case the debt had been totally
paid by anyone of them before the remission was effected.
Art. 1915. If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency.
Tolentino:
Novation A solidary debtor binds himself alone, assumes the debt,
releases the other debtors. But this debtor cannot bind himself to a new
debt w/o the consent of others.

Extent of Liability

Liability
Effects of Extension
of time granted by
creditor

PASSIVE
SOLIDARITY
Solidary debtors
whole

Primary
solidary remains

SURETY
solidary guaranty
only to the extent of
contract
stipulations/as
expressed
Subsidiary
releases the surety

CASE: If one of the alleged solidary debtor dies during the

pendency of the collection case, the court where said case is pending
retains jurisdiction to continue hearing the charge as against the
surviving defendants. (1216)

If creditor makes the novation w/one debtor and does not secure
consent of other debtors, the latter is released. The new contract binds
only the debtor who secured the novation.
Mere extension of time given by creditor to a solidary debtor does not
release others from the no novation here.

[PNB V. INDEPENDENT PLANTERS [122 SCRA 113] Held: It is crystal clear that Art. 1216 is the applicable provision in this
matter. Said provision gives the creditor the SUBSTANTIVE right to
proceed against anyone of the solidary debtors or some or all of them
simultaneously. The choice is undoubtedly left to the solidary creditor
to determine against whom he will enforce collection. In case of the
death of the solidary debtors, he (the creditor) may, if he so chooses,
proceed against the surviving solidary debtors w/o necessity of filing a
claim in the estate of the deceased debtors. It is not mandatory for him
to have the case dismissed against the surviving debtors & file its
claim in the estate of the deceased solidary debtor.

Dation in payment by one debtor extinguishes as in payment if made

immediately, otherwise if promised only, this is a novation.
When merger & compensation is total there is extinguishment of the
s; only reimbursements remain; if partial tho, applic. Of payments
shd govern;
A surety who is bound in solidum will be released by any material
alteration in the principal contract made w/o knowledge & consent of
surety, e.g. extension of time, unless suretys liability is varied, as in
installment payments.

Rules of Procedure cannot prevail over substantive law.-If Sec. 6, Rule 86, ROC were applied literally, Art. 1216 would, in
effect, be repealed since under the ROC, petitioner has no choice but to
proceed against the estate of Manuel Barredo only. Obviously, this
provision diminishes the Bank's right under the NCC to proceed against
any one, some or all of the solidary debtors. Such a construction is not
sanctioned by the principle xxx that a substantive law cannot be

When 1 creditor makes a remission, the extent of that particular is

extinguish, this creditor is liable to co-creditors for their shares.
When remission favors only one debtor, in full share, this debtor is
released fr solidary , if partial, he retains the solidary & becomes a
surety of the whole ;
16

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amended by a procedural law. Otherwise stated, Sec. 6 of Rule 86
cannot be made to prevail over Art. 1216, the former being merely
procedural, while the latter, substantive.

Q: Can A demand the P9,000 fr. Y?

A: Yes. But he can recover the same fr. W, X & Z.

Tolentino: Passive Solidarity vs. Suretyship

Similarity:

Q: If W paid the whole debt before A remits Ys share, may W

still demand reimbursement of Ys share?
A: Yes, Art. 1219, Y will not be released from his solidary . Upon
Ws full payment the entire was extinguished, theres nothing more
to remit in Ys favor.

(1) both stands for some other person;

(2) both may require reimbursement

If surety binds itself in solidum, creditor may go vs. anyone

of them.

Distinctions

Extension of Time
given by creditor

Passive Solidarity
Solidary debtor is
liable for his own
& that of his codebtors
Primary liability
does not release a
solidary
debtor
(novation)

Q: After A remits share of Y, W pays in full the remaining 12,000. X

then becomes insolvent. May Y be compelled to contribute to the share
of X?
A: Yes (Manresa and Tolentino), gratuitous acts shd be construed
restrictively as to permit the least transmission of rts (Art.1378). Thus,
if W paid 9,000 and X and Z were suppose to reimburse him 3000 ea,
Y could be compelled to contribute 1000 as to the insolvency of X.

Suretyship
liable only as to his
own
Subsidiary liability
releases a solidary
guarantor or surety
(extinguishment)

Art. 1220. The remission of the whole obligation, obtained by one of

the solidary debtors, does not entitle him to reimbursement fr. his codebtors.

Art. 1217. Payment made by one of the solidary debtors extinguishes

the obligation. If two or more solidary debtors offer to pay, the creditor
may choose w/c offer to accept.
He who made the payment may claim fr. his co-debtors only
the share w/c corresponds to each, w/ the interest for the payment
already made. If the payment is made before the debt is due, no interest
for the intervening period may be demanded.
When one of the solidary debtors cannot, bec. of his
insolvency, reimburse his share to the debtor paying the obligation,
such share shall be borne by all his co-debtors, in proportion to the debt
of each.

Art. 1221. If the thing has been lost or if the prestation has become
impossible w/o the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be
responsible to the creditor, for the price & the payment of damages &
interest, w/o prejudice to their action against the guilty or negligent
debtor.
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the solidary debtors
has incurred in delay through the judicial or extrajudicial demand upon
him by the creditor, the provisions of the preceding paragraph shall
apply.

Art. 1218. Payment by a solidary debtor shall not entitle him to

reimbursement fr. his co-debtors if such payment is made after the
obligation has prescribed or become illegal.

Art. 1895. If solidarity has been agreed upon, each of the agents is
responsible for the non-fulfillment of the agency, & for the fault or
negligence of his fellow agents, except in the latter case when the
fellow agents acted beyond the scope of their authority.

Art. 1219. The remission made by the creditor of the share w/c affects
one of the solidary debtors does not release the latter fr. his
responsibility towards the co-debtors, in case the debt has been totally
paid by anyone of them before the remission was effected.

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses w/c are derived fr. the nature of the obligation &
of those w/c are personal to him, or pertain to his own share. With
respect to those w/c personally belong to the others, he may avail
himself thereof only as regards that part of the debt for w/c the latter are
responsible.

Tolentino: Payment by one solidary debtor in whole extinguishes

the and releases the credit gives rise to a new for
reimbursement by the other debtors to this one debtor who paid (JOINT
); plaintiff creditor may be properly substituted by the debtor who
paid;

Effects of 1221 limited to non-performance b/c of loss of d thing or

impossibility of prestation thats due if such is d/t FE, w/o fault or
delay on any debtor, then is extinguished; no debtor is liable.

EXCEPT: If payment was made after the prescribed or become

illegal (mistake or not). (1218)

After the has prescribed or becomes illegal, it is no longer

due & demandable. None of the solidary debtors can be
compelled by the creditors to pay.

Thus, if one debtor pays, he cannot reimburse fr his codebtors b/c his action will not revive the inexistent ;

Generally, neither could he recover fr the creditor to whom

he paid (Art. 1424); except perhaps under solutio indebiti.
Balane:
Effect of Remission.-- Problem: Solidary debtors W, X, Y & Z are
indebted to A for P12,000. A remits the share of Y (P3,000)
Q: Can Y be sued?
A: Yes, for the P9,000 (P12,000 less P3,000 share of Y) his share was
remitted but not the solidary
Q: Supposing X is insolvent?
A: Y can still be made to contribute. Remission will benefit Y only in
so far as his share is concerned. His liability in case of insolvency of
one co-creditor is not affected.
17

If debtor is at fault on the loss/impossibility; Or if in delay

even b4 d loss/impossibility the is converted to
indemnification (of the price, damages & interests).

If guilty debtor is made to pay by demand of creditor, he

cannot recover fr his co-debtors (if there was loss/imp), he
will shoulder the whole amount of the loss thing +
indemnity;

If another co-debtor pays the whole amount he could recover

fr his co-debtors;

In case of non-performance without loss of the thing/has

not become impossible: but there is delay, fraud, fault or
negligence, or some other breach of , creditor may also
recover damages; here, if guilty debtor pays, he will not

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shoulder the whole amount, his co-debtors will pay him their
equivalent share in the original . Guilty debtor shoulders
the amount of damages though.

Tolentino:

Balane:
Three Defenses of Solidary Debtor:
1.

2.

3.

Those derived fr. the nature of the obligation is a total

defense;
e.g., prescription, illegality of obligation (illicit object);
vitiated consent; unenforceability under the Statute of
Frauds; non-happening of condition; arrival of resolutory
period; extinguished d/t payment, remission;

When division would diminish the value of the whole

QUALITATIVE, when the thing is not really homogeneous,
i.e. inheritance;
QUANTITATIVE, when the thing divided is homogeneous
and may be separated into parts if movable, or limits may be
set if immovable;
IDEAL, when parts are not separated materially, but
assigned to several persons, as in pro-indiviso co-owners;

Three Exceptions to the Rule on Indivisibility:

Those defenses personal to the debtor-defendant;

e.g., insanity If it involves vitiation of consent, total
defense. If it involves a special term or a condition, a partial
defense.

1.

When the parties so provide. (Art. 1248, par. 1.)

2.

When the nature of the obligation necessarily

entails performance in parts.

Those defenses personal to other co-debtors;

e.g., defense as to the share corresponding to other debtors is
a partial defense, i.e. suspensive condition or period as to the
of one co-debtor.

3.

Where the law provides otherwise.

Divisibility of Obligation distinguished fr. divisibility of object:

Divisibility of obligation or prestation does not

necessarily mean a divisible obligation.

Divisibility of object is not the same as divisibility of

obligation.

But the reverse is not the same. Indivisibility of object

means an indivisible obligation.

c. DISJUNCTIVE OBLIGATION
Disjunctive : not covered by NCC; there are 2 or more creditors and
2 or more debtors but they are named disjunctively as debtors and
creditors in the alternative.
* rules on solidary s must apply b/c if rules on alternative s will
be applied then the debtor will generally be given the choice to whom
shall he give payment.

Art. 1224. A joint indivisible obligation gives rise to indemnity for

damages fr. the time anyone of the debtors does not comply w/ his
undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the
corresponding portion of the piece of the thing or of the value of the
service in w/c the obligation consists.

Example: A binds himself to pay P100 either to X or Y A

or B will pay 100 to X.
4. AS TO PERFORMANCE OF PRESTATION

Art. 1225. For the purposes of the preceding articles, obligations to

give definite things & those w/c are not susceptible of partial
performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a
certain number of days of work, the accomplishment of work by
metrical units, or analogous things w/c by their nature are susceptible
of partial performance, it shall be divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so provided by law or
intended by the parties.
In obligations not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each particular case.

a. DIVISIBLE OBLIGATIONS
Art. 1223. The divisibility or indivisibility of the things that are the
object of obligations in w/c there is only one debtor & only one creditor
does not alter or modify the provisions of Chapter 2 of this Title
(Nature & Effect of Obligations).
Balane:

This kind of obligations has something to do w/ the

performance of the prestation, & not to the thing.

The thing may be divisible but the may still be indivisible,

e.g. to deliver 100 sacks of jasmine rice found in
Warehouse of specific address on a fixed date (determinate
);

Or thing is indivisible but performance is divisible, i.e. stageby-stage construction of a public road where obligor may
deliver every 15% of work done and collect its proportionate
cost from govt agency concerned, performance bonds here
may also be termed as such.
Divisible obligation is one susceptible of partial performance.
An indivisible obligation is one that must be performed in one
act.

TOLENTINO: To enforce a Joint Indivisible , Art. 1209 has

established the necessity of COLLECTIVE FULFILLMENT and
the action must be against all the debtors.
in case of non-performance by any of the debtors, the is
converted into liability for losses & damages = DIVISIBLE.
THUS, if one debtor is insolvent, or fails to pay his share,
the other debtors will no longer be liable for his share. The
entire liability for all damages is shouldered by the defaulting
debtor.

Test of Divisibility: WON it is susceptible of partial performance.

Solidarity vs. Indivisibility:

General rule: Obligation is indivisible w/c means that it has to be

performed in one act singly.

Solidarity
Refers to vinculum, and
principally to the subjects of
Requires plurality of subjects
Solidarity remains even in case of

Why? Bec. the law provides so: Unless there is an express stipulation
to that effect, the creditor cannot be compelled partially to receive the
prestations in w/c the obligation consists. Neither may the debtor be
required to make partial payments. xxx (Art. 1248, par. 1.)
18

Indivisibility
refers to the prestation or the
object of the
plurality not reqd
when is converted to liability

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for damages, the indivisibility
ceases to exist, each debtor
becomes liable for his part of
indemnity
indivisibility affects the heirs of a
decedent debtor, they remain to
be bound to perform the same
prestation

Art. 618. Easements are indivisible. If the servient estate is divided

between two or more persons, the easement is not modified, & each of
them must bear it on the part w/c corresponds to him.
If it is the dominant estate that is divided between two or more persons,
each of them may use the easement in its entirety, w/o changing the
place of its use, or making it more burdensome in any other way.

Factors to Determine Whether is Divisible or not:

1. will or intention of the parties, whc may be expressed or
presumed;
2. objective or purpose of stipulated prestation;
3. nature of the thing;
4. provisions of law affecting the prestation

In s to give, indivisibility is presumed; except:

1. when work is agreed to be by units of
time or measure;
2. or otherwise susceptible of partial
performance = divisible

Art. 2089. A pledge or mortgage is indivisible, even though the debt

may be divided among the successors in interest of the debtor or of the
creditor.
Therefore, the debtor's heir who has paid a part of the debt
cannot ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the
debt return the pledge or cancel the mortgage, to the prejudice of the
other heirs who have not been paid.
From these provisions, it is expected the case in w/c, there
being several things given in mortgage or pledge, each one of them
guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the
extinguishment of the pledge or mortgage as the portion of the debt for
w/c each thing is specially answerable is satisfied.

breach of one, they all remain

liable for indemnity

Death of debtor terminates

solidarity

(2) Express provision of law

In indivisible , partial performance is equal to nonperformance. Thus, partial payment based on quantum meruit is
not availed. (Arts. 1233 and 1248 forbids partial fulfillment)
Work half done is worst than work undone!

Art. 2090. The indivisibility of a pledge or mortgage is not affected by

the fact that the debtors are not solidarily liable.

Exceptions:

Art. 1612. If several persons, jointly & in the same contract, should
sell an undivided immovable w/ a right of repurchase, none of them
may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an
immovable alone has left several heirs, in w/c case each of the latter
may only redeem the part w/c he may have acquired.

(1) has been substantially performed in good faith debtor

may recover as if there had been complete performance,
minus the damages suffered by creditor;
(2) Creditor accepts, despite partial performance, with
knowledge of incompleteness, without protest is
deemed fully performed.

Consideration

ENTIRE
single

Prestation/s
When a part is illegal
One void undertaking

whole
unenforceable
void

Viz. Statute of Frauds

must be in writing

Art. 1613. In the case of the preceding article, the vendee may demand
of all the vendors or co-heirs that they come to an agreement upon the
repurchase of the whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial redemption.

SEVERABLE
apportioned
(expressly/implied)
several, distinct,
separate items
partly enforceable

Art. 1248. Unless there is an express stipulation to that effect, the

creditor cannot be compelled partially to receive the prestations in w/c
the obligation consists. Neither may the debtor be required to make
partial payments.
However, when the debt is in part liquidated & in part unliquidated, the creditor may demand & the debtor may effect the payment
of the former w/o waiting for the liquidation of the latter.

if not illegal, then

valid covenants may
be enforced
if separate chattels
may be sold below
limits set by Statute
of Frauds, even when
the sumtotal exceeds,
not affected

Art. 1583. Unless otherwise agreed, the buyer of goods is not bound to
accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by
stated installments, w/c are to be separately paid for, & the seller makes
defective deliveries in respect of one or more installments, or the buyer
neglects or refuses w/o just cause to take delivery of or pay for one or
more installments, it depends in each case on the terms of the contract
& the circumstances of the case, whether the breach of contract is so
material as to justify the injured party in refusing to proceed further &
suing for damages for breach of the entire contract, or whether the
breach is severable, giving rise to a claim for compensation but not to a
right to treat the whole contract as broken.

b. INDIVISIBLE OBLIGATIONS
Art. 1209. If the division is impossible, the right of the creditors may
be prejudiced only by their collective acts, & the debt can be enforced
only by proceeding against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
Art. 1210. The indivisibility of an obligation does not necessarily give
rise to solidarity. Nor does solidarity of itself imply indivisibility.

(3) Express agreement

Examples of Indivisible Obligations:

Art. 1714. If the contractor agrees to produce the work fr. material
furnished by him, he shall deliver the thing produced to the employer &
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of

(1) By virtue of its object

19

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title & against hidden defects & the payment of price in a contract of
sale.

Balane: Articles 1226 to 1230 on obligation w/ a penal clause is the

same as liquidated damages found in Articles 2226 to 2228 by
authority of Lambert v. Fox, 26 Phil. 588.

c. JOINT INDIVISIBLE
(Tolentino) Penal Clause.-- A penal clause is an accessory
undertaking to assume greater liability in case of breach. The purpose
is to strengthen the coercive force of the obligation. When a penal
clause is present, damages do not have to be proved.

Joint Indivisible : there are several debtors or creditors but the

prestation is indivisible Ex. Delivery of a house or a determinate
thing;
fulfillment requires the concurrence of ALL debtors, although they
are each for his part; and on side of creditors, collective action required
for acts whc may be prejudicial;
Consent required, must still communicate choice after consensus
INDIVISIBILITY

SOLIDARITY

Refers
to
the
prestation, whc is not
capable of partial
performance

Refers to the legal tie

or vinculum defining
the extent of liability

Thus, DUAL FUNCTION OF PENAL CLAUSE:

(1) To provide for liquidated damages
(2) To strengthen the coercive force of the by threat of greater
resp.in case of breach.
Characteristics of Penal Clause:
1. Subsidiary (also called alternative) upon non-performance, only
the penalty may be demanded.

Effects
to
creditors

Joint

Each cannot demand

more than his share

Each may demand

the full prestation

Exception: Where penalty is joint (cumulative) - where

both the principal undertaking & penalty may be demanded
-- Art. 1227, second sentence: "xxx unless this right has
been clearly granted him."

Effects
debtors

joint

Each is not liable for

more than his share

Each has the duty to

comply with entire
prestation

Notice the word clearly (not explicitly) w/c means that the
right can be clearly granted by implication.

to

2. Exclusive penal clause is for reparation. It takes the place of

damages.

Art. 1224. A joint indivisible obligation gives rise to indemnity for

damages fr. the time anyone of the debtors does not comply w/ his
undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the value of the
service in w/c the obligation consists.
If there is plurality of creditors to only one debtor, (GR) the can be
performed by delivery of the object to all the creditors jointly;

Delivery to only one creditor makes the debtor liable for

damages to the other debtors for non-performance, unless
they have authorized this one creditor to collect in their
behalf;

If only one or some, not all creditors demand fulfillment the

debtor may refuse to deliver and insist that all the creditors
together receive the thing, if not consignation to the court
may be had;

In non-performance, debtor is liable for damages here

w/respect to damages, the prestation becomes divisible, each
creditor may recover proportionately.

Exception: When it is for punishment in w/c case both

penalty & damages may be demanded, namely- If there is a stipulation that both penalty & damages are
recoverable in case of breach
If the obligor refuses to pay the penalty
If the obligor is guilty of fraud in the fulfillment of his
obligation.
Balane: The SC considered the 4% interest as not a penal clause bec. it
does not strengthen the coercive force of the obligation.
ROBES-FRANCISCO V. CFI [86 S 59]
CASE DOCTRINES: The theory that penal and liquidated damages
are the same cannot be sustained where obligor is guilty of fraud in
fulfillment of ;

The penalty clause does not partake of the nature of

liquidated damages.

Party to a contract whc was breached by the other, may be

given the rt. to recover actual damages instead of stipulated
liquidated damages.

A creditor, in case of fraud by the obligor is entitled to

stipulated penalty plus the difference bet.the proven damages
& such stipulated penalty.

Q: Is an -not do divisible or not? No (Tolentino)

A: -not do when there are several debtors, is a joint indivisible .
d. SOLIDARY INDIVISIBLE

PAMINTUAN V. CA [94 S 556] ISSUE:WON the Co. is entitled only to liquidated damages as
appearing in the contract of sale?
We hold that appellant's contention cannot be sustained bec. the second
sentence of Art. 1226 itself provides that "nevertheless, damages
shall be paid if the obligor xxx is guilty of fraud in the fulfillment of
the obligation." xxx The trial court & the CA found that Pamintuan
was guilty of fraud bec. he did not make a complete delivery of the
plastic sheeting & he overpriced the same. xxx

5. AS TO THE PRESENCE OF AN ACCESSORY

UNDERTAKING IN CASE OF BREACH
a. OBLIGATIONS W/ A PENAL CLAUSE
Art. 1226. In obligations w/ a penal clause, the penalty shall substitute
the indemnity for damages & the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance w/ the provisions of this Code.

Penalty & Liquidated damages:

20

There is no justification for the NCC to make an apparent

distinction bet. penalty & liquidated damages bec. the settled
rule is that there is no difference bet. penalty & liquidated
damages insofar as legal results are concerned & either may
be recovered w/o the necessity of proving actual damages &
both may be reduced when proper. Xxx

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debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.

We further hold that justice would be adequately done in this

case by allowing Yu Ping Kun Co., Inc. to recover only the
actual damages proven, & not to award to it the stipulated
liquidated damages of P10,000 for any breach of the
contract. The proven damages supersede the stipulated
liquidated damages.

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

This view finds support in the opinion of Manresa that in

cases of fraud the difference bet. the proven damages & the
stipulated penalty may be recovered.

Partial Performance refers to extent or quantity of fulfillment

Irregular Performance refers to the form

Doctrine of Strict Construction will apply as against the

enforcement of the penalty in its entirety, when the clause is
clearly punitive, not when it is impliedly intended as
liquidated damages;

Thus penalty is mitigated in:

1. partial or irregular performance
2. iniquitous or unconscionable penalty

Legality of Penal clause: not contrary lo law, morals, public order

(e.g. usurious, immoral, unjust, merciless)
How construed: strictly construed, in accord w/stipulation, (effecting
minimal rts)
When there could be damages aside from Penalty:
(1) Express provision: ex. legal interest of 12% p.a. aside fr
penalty may be had, plus attorneys fees of 20%

1. Distinguished fr. with suspensive condition:

(2) Debtor refused to pay penalty

(3) Theres fraud in debtors non-performance

Non-performance gives rise to presumption of

fault, debtor has burden of proof: defenses may be
force majeure, or act of creditor himself;
CASE:

Happening of the condition gives rise to the ; in penal there

is already a principal
The principal itself is dependent upon a future and
uncertain event; in penal, only the accessory (the penalty)
depends upon non-performance or breach.

BACHRACH V. ESPIRITU [52 P 346]

2. Distinguished fr. alternative obligations

RE: Chattel Mortgage with PENAL CLAUSE

ISSUE: WON the 12% interest p.a. plus additional penalty of 25%
makes the contract usurious?

Art. 1227. The debtor cannot exempt himself fr. the performance of
the obligation by paying the penalty, save in the case where his right
has been expressly reserved for him. Neither can the creditor demand
the fulfillment of the obligation & the satisfaction of the penalty at the
same time, unless this right has been clearly granted him. However, if
after the creditor has decided to require the fulfillment of the obligation,
the performance thereof should become impossible w/o his fault, the
penalty may be enforced.

HELD: Art. 1152 of the OCC permits the agreement upon a penalty
apart fr. the interest. Should there be such an agreement, the penalty
xxx does not include the interest, & as such the two are different &
distinct things w/c may be demanded separately. The penalty is not to
be added to the interest for the determination of whether the interest
exceeds the rate fixed by law, since said rate was fixed only for the
interest.

Art. 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.
The debtor shall have no right to choose those prestations
w/c are impossible, unlawful or w/c could not have been the object of
the obligation.

BUT, considering partial performance, SC reduced penalty to 10%

in accord with Art. 1154. (Art. 1229, NCC)
Art. 1227. The debtor cannot exempt himself fr. the performance of
the obligation by paying the penalty, save in the case where this right
has been expressly reserved for him. Neither can the creditor demand
the fulfillment of the obligation & the satisfaction of the penalty at the
same time, unless this right has been clearly granted him. However, if
after the creditor has decided to require the fulfillment of the obligation,
the performance thereof should become impossible w/o his fault, the
penalty may be enforced.

ALTERNATIVE
2 or more s are due but
performance of 1 is enough
Impossibility of one of s, the
other/s subsists
Debtor can choose whc prestation
to fulfill

GR: Debtor cannot avoid performance by paying the penalty; except

when expressly granted to debtor.
GR as to creditor: may not demand both fulfillment and payment of
penalty at the same time; except if such rt. is granted clearly.
as to the last sentence, when it becomes impossible w/o creditors
fault will happen only if thru debtors fault or delay, for penalty to
become enforceable; b/c if thru FE w/o credotors nor debtors fault,
principal would be extinguished and so will the penal clause.

X obliged to deliver a horse to Y

or pay him P500

W/PENAL CLAUSE
theres only 1 principal , only in
case of non-performance shall the
penal clause be enforceable
impossibility of principal , penal
clause extinguished
debtor cannot choose to pay
penalty to avoid performance,
unless expressed
X obliged to deliver a horse to Y.
if he fails he will pay him P500

2. Distinguished fr. Facultative obligations

Art. 1206. When only one prestation has been agreed upon, but the
obligor may render another in substitution, the obligation is called
facultative.
The loss or deterioration of the thing intended as a substitute,
through the negligence of the obligor does not render him liable. But
once the substitution has been made, the obligor is liable for the loss of
the substitute on account of his delay, negligence or fraud.

Art. 1228. Proof of actual damages suffered by the creditor is not

necessary in order that the penalty may be demanded.
Baviera: Courts enforce contracts according to their terms
Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied w/ by the
21

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When demand would be useless, as when the obligor has rendered it
beyond his power to perform.-- Example is the case of Chavez
v. Gonzales, infra.

Art. 1227. The debtor cannot exempt himself fr. the performance of
the obligation by paying the penalty, save in the case where this right
has been expressly reserved for him. Neither can the creditor demand
the fulfillment of the obligation & the satisfaction of the penalty at the
same time, unless this right has been clearly granted him. However, if
after the creditor has decided to require the fulfillment of the obligation,
the performance thereof should become impossible w/o his fault, the
penalty may be enforced.
FACULTATIVE
Debtor has power to make
substitution
Creditor cannot demand both
prestations

w/ PENAL CLAUSE
GR, none; except when expressed

GUARANTY
Is a by whc virtue, a 3rd person
(guarantor) obliged himself to
fulfill prestation in lieu of
debtors non-performance
Intended to insure performance of
principal
Accessory & subsidiary
Principal debtor cannot be
guarantor
Subsists even when principal is
voidable or unenforceable

w/ PENAL CLAUSE
to pay penalty is different fr the
principal , but also paid in lieu
of debtors non-performance

E. BREACH OF OBLIGATIONS (ART. 1170)

Art. 1170. Those who in the performance of their obligation are guilty
of fraud, negligence or delay, & those who in any manner contravene
the tenor thereof, are liable for damages.
Irregularity of Performance [Articles 1169 - 1174]

such right to demand both may be

given

Art. 1169. Those obliged to deliver or to do something incur in delay

fr. the time the obligee judicially or extrajudicially demands fr. them
the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary
in order that delay may exist:
When the obligation or the law expressly so declare;
When fr. the nature & the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract;
When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner w/
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.

Intended to insure performance of

principal
Accessory & subsidiary
both s can be assumed by one
person
penalty is extinguished in such
case, unless assumed by 3rd
person

Q: When does delay set in?

Balane: Two Classes of Irregularity of Performance:

A: Delay sets-in in the following manner:

1. Attributable to the debtor

A. Fraud
B. Negligence
C. Delay

1. For Reciprocal simultaneous obligations

by the readiness of one of the parties to perform & his letting the
other party know; & the other party is not ready to comply in a proper
manner w/ what is incumbent upon him.

2. Not attributable to the debtor

A. Fortuitous event.

2. For Reciprocal obligations w/c are not simultaneous

MANNER OF BREACH

Gen. Rule: Demand is necessary (Art. 1169, par.

(1) This is called mora solvendi ex persona.
Exception: When demand is not necessary (the exceptions
are found in Art. 11 69, par. 2.) This is called mora solvendi
ex re

(1) Fraud
Art. 1171. Responsibility arising fr. fraud is demandable in all
obligations. Any waiver of an action for future fraud is void.

Q: What kind of demand is necessary?

A: Judicial or extra-judicial

Article 1338. There is fraud when, through insidious words

or machinations of one of the contracting parties, the other
is induced to enter into a contract which, without them, he
would not have agreed to.

Exceptions:
When the obligation or the law expressly so declare.-- when the
contract says that w/o the necessity of demand, default sets in
upon the failure of the obligor to perform on due date. There must
be something in the contract w/c explicitly states that the demand
is not necessary in order that delay may set in.

Article 1344. In order that fraud may make a contract

voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay
damages.

When fr. the nature & the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the
establishment of the contract.

Balane: Is it correct to say that fraud in Art. 1170 means deceit or

insidious machinations? No.

Illustration: Bong Baylon is getting married in Valentines '96.

Inno Sotto was supposed to make Ella's (the bride) wedding gown.
Feb. 14 comes , no gown was delivered. Ella gets married in blue
jeans & T-shirt. Finally, on Feb. 15, Inno delivers the gown. xxx
Ella sues Inno for breach. Inno says there was no demand. In this
case, demand is not necessary in order that delay may exist.

LEGASPI OIL VS. CA [224 S 213] - Definition of Fraud.-

22

In general, fraud may be defined as the voluntary execution

of a wrongful act, or willful omission, knowing &

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intending the effects w/c naturally & necessarily arise fr.

such act or omission;
The fraud referred to in Art. 1170 is the deliberate &
intentional evasion of the normal fulfillment of obligation;
It is distinguished fr. negligence by the presence of deliberate
intent, w/c is lacking in the latter.

= default / mora, in the fulfillment of s;

REQUISITES to be In Default:
is demandable and liquidated
debtor delays performance
creditor requires performance, jud or extrajud demand

Fraud as used in Art. 1170 is different fr. fraud as a cause for vitiation
of consent in contracts (more properly called deceit w/c prevents the
contract fr. arising; this is found in Art. 1380, et seq.)

Art. 1165. xxx. If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have the same interest,
he shall be responsible for any fortuitous event until he has effected the
delivery.
Article 1786.
Every partner is a debtor of the
partnership for whatever he may have promised to
contribute thereto.
He shall also be bound for warranty in case of eviction with
regard to specific and determinate things which he may
have contributed to the partnership, in the same cases and
in the same manner as the vendor is bound with respect to
the vendee. He shall also be liable for the fruits thereof
from the time they should have been delivered, without the
need of any demand.
Article 1788.
A partner who has undertaken to
contribute a sum of money and fails to do so becomes a
debtor for the interest and damages from the time he should
have complied with his obligation.
The same rule applies to any amount he may have taken
from the partnership coffers, and his liability shall begin
from the time he converted the amount to his own use.
Article 1896. The agent owes interest on the sums he has applied to his
own use from the day on which he did so, and on those which he still
owes after the extinguishment of the agency.

fraud as referred here is the deliberate and intentional evasion of

normal fulfillment of s; thus, as ground for damages fr this article,
implies some kind of malice or dishonesty, whc does not cover
mistake, erros of judgment made in GF.
Evasion of a legit. for benefits admittedly received constitutes
unjust enrichment.
Q: What is a synonym for fraud as used in Art. 1170?
A: Malice.
Effects of Fraud:
1. Creditor may insist on performance, specific or substitute
(Art. 1233.)
2. Creditor may resolve/ rescind (Art. 1191.)
3. Damages in either case (Art. 1170.)
(2) Negligence
Art. 1171. Responsibility arising fr. fraud is demandable in all
obligations. Any waiver of an action for future fraud is void.
Art. 1172. Responsibility arising fr. negligence in the performance of
every kind of obligation is also demandable, but such liability shall
may be regulated by the courts, according to the circumstances.
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence w/c is required by the nature of the
obligation & corresponds w/ the circumstances of the persons, of the
time & of the place. When negligence shows bad faith, the provisions
of articles 1171 & 2201, paragraph 2, shall apply.

Article 1942.
The bailee is liable for the loss of the
thing, even if it should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from
that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after
the accomplishment of the use for which the commodatum
has been constituted;
(3) If the thing loaned has been delivered with appraisal of
its value, unless there is a stipulation exempting the bailee
from responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is
not a member of his household;
(5) If, being able to save either the thing borrowed or his own thing, he
chose to save the latter. (OBLIGATIONS OF THE BAILEE)

Negligence is the absence of something that should be there

due diligence.

Measure of Due Diligence.-- There are two guides:

1.
2.

Diligence demanded by circumstances of person, place &

time
Care required of a good father of a family (fictional bonus
pater familias who was the embodiment of care, caution &
protection in Roman law.)

In common law, the degree of care required is the diligence of a

prudent businessman. This is actually the same as the diligence of a
good father of a family.

Delay is the non-fulfillment of the obligation w/ respect to time.

Kinds of Delay:
1. Mora Solvendi -- delay in the performance (on the part
of the debtor);

Effects of Negligence:
1. Creditor may insist on performance, specific or substitute
(Art. 1233.)
2. Creditor may resolve/ rescind (Art. 1191.)
3. Damages in either case (Art. 1170.)

2. Mora Accipiendi -- delay in the acceptance (on the part

of the creditor);

From 1173 = culpa contractual

from 2176 = culpa aquiliana or extra-contractual

3. Compensation Morae -- mutual delay

Art. 2201. xxx
(2) In contracts & quasi-contracts, the damages for w/c the obligor
who acted in good faith is liable shall be those that are the natural &
probable consequences of the breach of the obligation, & w/c the

** In both cases, for liability to attach, such negligence must be the

proximate cause of the injury to plaintiff.
(3) Delay
See Art. 1169.
23

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be iniquitous such that he would be liable only for the cost of that
telegram paid for 30 yrs ago.

parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall
be responsible for all damages w/c may be reasonably attributed to the
non-performance of the obligation.

EXCUSE FOR NON-PERFORMANCE:

1. Loss due to Fortuitous Events
Art. 1174. Except in cases expressly specified by law, or when it
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events w/c could not be foreseen, or w/c ,though foreseen, were
inevitable.

(4) Any other manner of contravention

includes any illicit acts which impair the strict and faithful
fulfillment of , or every kind of defective performance;
CASE:

in any manner contravene the tenor of contract

To constitute a caso fortuito that will exempt a person fr.

responsibility, it is necessary that: [Austria vs. Abad,June 10, 1971]
1. the event must be independent of human will;
2. the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner;
3. that the obligor must be free of participation in, or
aggravation of, the injury to the creditor.

AGCAOILI VS. GSIS [165 S 1]

WON Agcaoili breached the by failing to occupy the
house w/in 3 days as stipulated? NO, argument of GSIS devoid of
merit.
There being a perfected of sale, it was the duty of GSIS
as seller to deliver the thing sold in a condition suitable for enjoyment
by the buyer for the purpose contemplated.

Balane:
General Rule: The happening of a fortuitous event exonerates the
debtor fr. liability.

CASE DOCTRINE:
One who assumes a contractual obligation & fails to
perform the same on account of his inability to meet certain bank
requirements w/c inability he knew & was aware of when he entered
into the contract, should be held liable in damages for breach of
contract.

EXEMPTIONS FROM APPLICATION OF G.R. ON F.E.:

1.
2.
3.

ARRIETA VS. NARIC [10 S 79]

When the law so specifies.-- e.g., if the debtor is already in

delay (Art. 1165, par. 3.)
When the parties so agree
When the nature of the obligation requires the assumption of
risk, e.g., an insurance contract.

WON NARIC was in breach of contract?

EXAMPLES OF BY Express Provision of Law:

YES> NARICs culpability arises from its willful and deliberate

assumption of al s even as it was well aware of its own financial
incapacity to undertake the prestation.

IN Depositary
Art. 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing w/o the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been
authorized to use the same.

Under Art. 1170, not only debtors guilty of fraud, negligence or

default but also every debtor, in general, who fails the performance
of his obligation is bound to indemnify for the losses & damages
caused thereby.
Meaning of phrase "in any manner contravene the tenor" of the
obligation in Art. 1170 The phrase includes any illicit task w/c
impairs the strict & faithful fulfillment of the obligation, or every kind
of defective performance.

Q: What if a depositor was in the premises of the bank & was

robbed of his money w/c he was about to deposit?

Balane: This phrase is a catch-all provision. At worst, it is a

superfluity. At best, there is a safety net just in case there is a culpable
irregularity of performance w/c is not covered by fraud, negligence or
delay. In this case, the SC was apparently not sure as to what category
the breach fell. This phrase is not really an independent ground.

A: Bank cannot be held liable for fortuitous event (robbery) esp in

CAB where the money has not yet been actually deposited.
Art. 1979 provides for instances wherein depositary is still liable even
in cases of fortuitous event.

TIME IS OF THE ESSENCE

TELEFAST VS. CASTRO [158 s 445] HELD: Petitioner & private respondent Sofia C. Crouch entered into
a contract whereby, for a fee, petitioner undertook to send said private
respondent's message overseas by telegram. This, petitioner did not do,
despite performance by said pvt. resp. of her obligation by paying the
required charges. Petitioner was therefore guilty of contravening its
obligation to said private respondent & is thus liable for damages.

Q: What kind of diligence is required of a depositary?

A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a SDB was stolen, rules on
deposit will not apply bec. the contract governing the transaction is
LEASE of safety deposit box.

ISSUE;WON there was here breach of contract, and WON only actual
damages are due?
YES, Art. 1170, ALSO Art. 2176 applied.

Bailee in Commodatum
This liability is not limited to actual or quantified damages. To
sustain petitioners contention and award actual damages only would
24

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Art. 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event:
(1) If he devotes the thing to any purpose different fr. that for w/c it has
been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for w/c the commodatum has been
constituted;
If the thing loaned has been delivered w/ appraisal of its value, unless
there is a stipulation exempting the bailee fr. responsibility in case of a
fortuitous event;
If he lends or leases the thing to a third person, who is not a member of
his household;
(5) If, being able to save either the thing borrowed or his own thing, he
chooses to save the latter.

Common Carrier
Art. 1763. A common carrier is responsible for injuries suffered by a
passenger on account of the willful acts or negligence of other
passengers or of strangers, if the common carrier's employees through
the exercise of the diligence of a good father of a family could have
prevented or stopped the act or omission.
(2) when it is otherwise declared by stipulation (1174)
Express agreement
Art. 1306. The contracting parties may establish such
stipulations, clauses, terms & conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.

In Negotiorum Gestio
(3) when the nature of the requires the assumption of risks
Art. 2147. The officious manager shall be liable for any fortuitous
event:
(1) If he undertakes risky operations w/c the owner was not accustomed
to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the
owner;
(4) If he assumed the management in bad faith.

Aleatory Contract
Art. 2010. By an aleatory contract, one of the parties or both
reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of
an event w/c is uncertain, or w/c is to occur at an indeterminate time.
Art. 1175. Usurious transactions shall be governed by special laws.
Tolentino:

Art. 2148. Except when the management was assumed to save the
property or business fr. imminent danger, the officious manager shall
be liable for fortuitous events:
(1) If he is manifestly unfit to carry on the management;
(2) If by his intervention he prevented a more competent person fr.
taking up the management.

Usury.-- Usury is the contracting for or receiving something in excess

of the amount allowed by law for the loan or forbearance or money,
goods or chattels.
Special law on usury.-- The Usury Law was Act No. 2655. This law
was repealed during the period of martial law, leaving parties free to
stipulate higher rates.
CASES:

Payee in Solutio Indebiti

Art. 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or w/c should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the
thing fr. any cause, & for damages to the person who delivered the
thing, until it is recovered.

Balane: Some of the elements were present in this case. What was
absent was the last element.
NPC VS. CA [161 S 334] - NPC cannot escape liability bec. its
negligence was the proximate cause of the loss & damage even
though the typhoon was an act of God.
To be exempt fr. liability for loss bec. of an act of God, he must be
free fr. any previous negligence or misconduct by w/c the loss or
damage may have been occasioned.

Lessee
Art. 1648. Every lease of real estate may be recorded in the Registry of
Property. Unless a lease is recorded, it shall not be binding upon third
persons.
Art. 1671. If the lessee continues enjoying the thing after the expiration
of the contract, over the lessor's objection, the former shall be subject to
the responsibilities of a possessor in bad faith.
Art. 552. xxx.

(2) ACT OF CREDITOR

CASE: City of Mla. failed to exercise the diligence of a good father
of a family w/c is a defense in quasi-delict.
JIMENEZ vs. CITY OF MANILA [150 S 510]
ISSUE: WON the City of Manila shd be held solidarily liable w/
Asiatic integ. Corp. for injuries suffered by petitioner?

A possessor in bad faith shall be liable for deterioration

or loss in every case, even if caused by a fortuitous event.

CASE: Requisites for exemption fr. liability due to an "act of God."

Independent Contractor
Art. 1727. The contractor is responsible for the work done by persons
employed by him.
Art. 1728. The contractor is liable for all the claims of laborers &
others employed by him, & of third persons for death or physical
injuries during the construction.

Juan F. NAKPIL & SONS vs. CA [144 S 596] - October 3, 1986

To exempt the obligor fr. liability under Art. 1174, for a breach of
an obligation due to an "act of God," the following must concur:
1.
25

the cause of the breach of the obligation must be

independent of the will of the debtor;

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2.
3.

the event must be either unforeseeable or unavoidable;

(c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; &
the debtor must be fee fr. any participation in, or
aggravation of the injury to the creditor.

Article 1178. Subject to the laws, all rights acquired in virtue of

an obligation are transmissible, if there has been no stipulation to
the contrary.
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.

CASE DOCTRINE: "One who negligently creates a dangerous

condition cannot escape liability for the natural & probable
consequences thereof, although the act of a third person, or an act of
God for w/c he is not responsible, intervenes to precipitate the loss."
(citing Tucker v. Milan, 49 OG 4379, 4380.)

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

NAKPIL & SONS VS. CA [160 S 334] - APRIL 15, 1988

The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.

NPC VS. CA [222 S 415] Petitioners cannot be heard to invoke

the act of God or force majeure to escape liability for the loss or
damage sustained by the pvt. respondents since they, the petitioners,
were guilty of negligence. The event then was not occasioned
exclusively by an act of God or force majeure; a human factor-negligence or imprudence-- had intervened. The effect then of the
force majeure in question may be deemed to have, even if only partly,
resulted fr. the participation of man. Thus, the whole occurrence was
thereby humanized, as it were, & removed fr. the rules applicable to
acts of God.
NPC VS. CA [223 S 649] Petitioners have raised the same issues
& defenses as in the 2 other decided cases therein mentioned.
Predictably therefore, this petition must perforce be dismissed bec. the
losses & damages sustained by the private resp.'s had been proximately
caused by the negligence of the petitioners, although the typhoon w/c
preceded the flooding could be considered as a force majeure.

Article 1192. In case both parties have committed a breach of the

obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
Article 2236. The debtor is liable with all his property, present
and future, for the fulfillment of his obligations, subject to the
exemptions provided by law. (Concurrence & Preference of
Credits)

F. REMEDIES FOR BREECH OF OBLIGATIONS:

Article 302. Neither the right to receive legal support nor any
money or property obtained as such support or any pension or
gratuity from the government is subject to attachment or
execution. (Support)
Article 1708. The laborer's wages shall not be subject to
execution or attachment, except for debts incurred for food,
shelter, clothing and medical attendance. (Contract Labor)

Article 1165. When what is to be delivered is a determinate

thing, the creditor, in addition to the right granted him by article
1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall
be responsible for any fortuitous event until he has effected the
delivery.

FAMILY CODE:
Art. 153. The family home is deemed constituted on a house and
lot from the time it is occupied as a family residence. From the
time of its constitution and so long as any of its beneficiaries
actually resides therein, the family home continues to be such and
is exempt from execution, forced sale or attachment except as
hereinafter provided and to the extent of the value allowed by
law.

Article 1166. The obligation to give a determinate thing includes

that of delivering all its accessions and accessories, even though
they may not have been mentioned.
Article 1167. If a person obliged to do something fails to do it,
the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of
the tenor of the obligation. Furthermore, it may be decreed that
what has been poorly done be undone.

Art. 155. The family home shall be exempt from execution,

forced sale or attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the constitution of the
family home;
(3) For debts secured by mortgages on the premises
before or after such constitution; and
(4) For debts due to laborers, mechanics, architects,
builders, materialmen and others who have rendered
service or furnished material for the construction of
the building.

Article 1168. When the obligation consists in not doing, and the
obligor does what has been forbidden him, it shall also be undone
at his expense.
Article 1170. Those who in the performance of their obligations
are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.

R.O.C. RULE 39, SEC. 13:

Article 1177. The creditors, after having pursued the property in

possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to defraud
them.

Section 13. Property exempt from execution. Except as

otherwise expressly provided by law, the following property, and
no other, shall be exempt from execution:

26

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The judgment obligor's family home as provided by law, or
the homestead in which he resides, and land necessarily
used in connection therewith;
Ordinary tools and implements personally used by him in
his trade, employment, or livelihood;
Three horses, or three cows, or three carabaos, or other
beasts of burden, such as the judgment obligor may select
necessarily used by him in his ordinary occupation;
His necessary clothing and articles for ordinary personal
use, excluding jewelry;
Household furniture and utensils necessary for
housekeeping, and used for that purpose by the judgment
obligor and his family, such as the judgment obligor may
select, of a value not exceeding one hundred thousand
pesos;
Provisions for individual or family use sufficient for four
months;
The professional libraries and equipment of judges,
lawyers, physicians, pharmacists, dentists, engineers,
surveyors, clergymen, teachers, and other professionals, not
exceeding three hundred thousand pesos in value;
One fishing boat and accessories not exceeding the total
value of one hundred thousand pesos owned by a fisherman
and by the lawful use of which he earns his livelihood;
So much of the salaries, wages, or earnings of the judgment
obligor for his personal services within the four months
preceding the levy as are necessary for the support of his
family;
Lettered gravestones;
Monies, benefits, privileges, or annuities accruing or in any
manner growing out of any life insurance;
The right to receive legal support, or money or property
obtained as such support, or any pension or gratuity from
the Government;
Properties specially exempted by law.

But, law may not compel or force debtor to comply w/ , if to do,

would amount to invol. Serv., if debt, no imprisonment. If can
only be done by debtor, then only rem is damages.

But no article or species of property mentioned in this section

shall be exempt from execution issued upon a judgment
recovered for its price or upon a judgment of foreclosure of a
mortgage thereon.

A: Against non-exempt properties of the debtor.-- The debtor is liable

w/ all his property, present & future, for the fulfillment of his
obligations, subject to the exemptions provided by law. (Art.
2236.)

RE 1168 NOT TO DO was done may compel debtor to

UNDO; but if impossible to undo, rem is damages.
RE 1170 RECOVERABLE DAMAGES = when the is to do
something other than the payment of money;
If is payment of money, 2209 is the rule re damages when
debtors incurs in delay, is payment of interest if w/o stipulation to the
contrary, as agreed upon, if if no agreement, the legal interest.
RE 1177 RIGHTS OF CREDITORS:
1.

To levy by attachment & execution upon all the property

of debtor except if exempt by law;

2.

to exercise all the rights and actions of the debtor, except

those inherently personal to him; accion subrogatoria;
prior court approval is not required.
This shd concur w/d ff. requisites:
a. Cr. Has interest in the rt. or axn. Not only bcoz of
his credit but d/t insolvency of debtor;
b. Malicious or negligent inaction of debtor at level
whc endanger claim of Cr;
c. Debtors rt. vs. 3rd person must be patrimonial, or
susceptible of being transformed to patrim.value.

3.

ask for rescission of s made by debtor in fraud of Cr.s

rts.

Balane:
Q: Against what can the obligee demand performance?

If number one is not enough, the creditor goes to any claims w/c the
debtor may have against third persons. This is called accion
subrogatoria, wherein the creditor is subrogated in the rights of
the debtor.
Personal rts. Of debtor:
1. Rt. to subsistence, support he receives exempt
2. Public rts;
3. Rts. Pertaining to honor
4. Rt. to use remaining powers available to him, e.g. SPA
of agency or deposit; administrator; to accept a
5. Non-patrimonial rts estab. Status, legit or illegit child;
annulment of marriage, legal sep., those arising fr, PFR;
6. Personal rts. Arising fr. Patrimonial source, e.g. to
revoke a donation d/t ingratitude, to demand exclusion
of an unworthy heir;

Tolentino:
RE 1165 REMEDIES OF CREDITOR: For failure of debtor to
comply,
1. SPECIFIC PERFORMANCE, to obtain compliance of
the prestations, whether determinate or generic; this action
implies a contractual relation;
2. TO RESCIND OR RESOLVE THE
3. AN ACTION FOR DAMAGES exclusively or in
addition to 1 & 2.
Constitutional prohibition vs. imprisonment for debt applies,
except in subsidiary imprisonment when civil liability arising from
crime is not paid; or in contempt;

Accion pauliana (Articles 1380-89).-- This is the right of creditors to

set aside fraudulent transfers w/c the debtor made so much of it as
is necessary to pay the debts.
pertains to acts whc debtor may have done in fraud of Cr. E.g.
alienation of property, renunciation of inheritance or rt. of
usufruct, assgnmnt of credit, remission of debts.

Exception to exception on the GR re FE: Debtor in default may

still prove that he is not liable for FE bcoz even if he had not
performed, the loss wud still have occurred in the same manner.
RE 1167 Performance of by another at creditors choice a&
at debtors cost court may not by discretion merely award
damages to Cr. When the may be done in spite of debtors refusal
to do so;

(1) EXTRAJUDICIAL REMEDIES:

(a) EXPRESSLY GRANTED BY LAW
(b) STIPULATED BY THE PARTIES
27

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Art. 1170. Those who in the performance of their obligation are guilty
of fraud, negligence or delay, & those who in any manner contravene
the tenor thereof, are liable for damages.

(a) EXPRESSLY GRANTED BY LAW, extrajudicial rem.

(In Obligations of the Partners)
Article 1786. Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with
regard to specific and determinate things which he may have
contributed to the partnership, in the same cases and in the same
manner as the vendor is bound with respect to the vendee. He
shall also be liable for the fruits thereof from the time they should
have been delivered, without the need of any demand.
Article 1788. A partner who has undertaken to contribute a sum
of money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his
obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use.

(b) SUBSIDIARY REM 1380 /1177

Article 1380. Contracts validly agreed upon may be rescinded in
the cases established by law. (Rescissible Contracts)
Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to defraud
them.
--Rescission in reciprocal in Art. 1191 is not identical to Rescission of
s in Art. 1380+.
Requisites of Rsn of a K (1380):
a rescissible K, ex. under Art. 1381 & 1382
no other legal means to obtain reparation for damages (Art. 1383)
person demanding Rsn must be able to return whatever he may be
obliged to restore if Rsn granted (Art. 1385)
objects of K must not have passed legally to possn of 3rd p. in GF (Art.
1385)
Axn for Rsn brought w/in 4 years (Art. 1389)

(In Delivery of the Thing Sold)

Article 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods may have passed
to the buyer, the unpaid seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price
while he is in possession of them;
(2) In case of the insolvency of the buyer, a right of
stopping the goods in transitu after he has parted with the
possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this
Title.
Where the ownership in the goods has not passed to the buyer,
the unpaid seller has, in addition to his other remedies a right of
withholding delivery similar to and coextensive with his rights of
lien and stoppage in transitu where the ownership has passed to
the buyer.

Rescindable Ks are valid until voided & cant be attacked

collaterally as in a land registration proceeding. Direct proceeding
necessary.
Rsn only for legal cause, as those in Art. 1381 & 1382
Lesion under Art. 1381 par. 1 & 2, to give rise to Rsn, must be
known or could have been known at the time of making the K, & not
due to circs subseq thereto or unknown to the parties.
Accion Pauliana: Axn to set aside Ks in fraud of Crs. (Art. 1381 par. 3)
Requisites for Accion Pauliana:
1. Pff. Asking for Rsn has a credit prior to alienation, though
demandable later
2. Dbt has made a subsequent K conveying a patrimonial
benefit to 3rd p.
3. Cr-Pff has no other legal remedy to satisfy his claim
4. Act being impugned is fraudulent
5. 3rd p. who received prop., if by onerous title, is accomplice in
the fraud

(2) JUDICIAL REMEDIES:

(a) PRINCIPAL REMEDY 1191 / 1170
(b) SUBSIDIARY REM 1380 /1177
(c) ANCILLARY REM The Rules of Court

Rsn. is a subsidiary axn, w/c presupposes that the Cr has exhausted

the prop. of the Db. Fraudulent conveyance must be shown.

(a) PRINCIPAL REMEDY 1191 / 1170

Test: WON conveyance by dbtor a bona fide transxn

Article 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
Notes on 1191:
Two remedies are alternative & not cumulative, subject to the
exception in par. 2 where he may also seek rescission even after he has
chosen fulfillment if the latter should become impossible

Badges/ Signs of Fraud:

1. consideration of conveyance is inadequate
2. transfer made by Db after suit has begun & while pending v.
him
3. a sale upon credit by insolvent Db
4. evidence of large indebtedness or complete insolvency
5. transfer of all or nearly all of prop of Db who is insolvent or
greatly embarrassed financially
6. transfer is made between father & son
7. failure of vendee to take exclusive possn of prop
8. If alienation is gratuitous, GF of transferee does NOT protect
him O.W. Unjust enrichment
9. If alienation is by onerous title, transferee must be a party to
the fraud, to have Rsn
As a rule, Rsn benefits only Cr who obtained Rsn. And the extent of
revocation is only to the amount of prejudice suffered by Cr. As to the
excess, the alienation is maintained
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Axn for Rsn may be brought by:
(1) the person injured by the Rescue K,
(2) heirs of this person, &
(3) their Crs by virtue of rt granted under Art. 1177.

Issues:
W/N Tolentino can compel specific performance.
W/N Tolentinos liability to pay the P17,000 covered by the
promissory note subsists.

Rt. of transferee to retain prop. depends upon the nature of the

transfer & upon the complicity of the former in the fraud.

Held: NO. The agreement is a loan agreement, w/c is a reciprocal

obligation. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other; & when one party has
performed or is ready & willing to perform his part of the contract, the
other party who has not performed or is not ready & willing to perform
incurs in delay. The promise of Tolentino to pay was the consideration
for the obligation of the Bank to furnish the P80,000. When Tolentino
executed a real estate mortgage, he signified his willingness to pay the
loan. From such date, the obligation of the Bank to furnish the P80,000
accrued. The Banks delay started in 1965, lasted for 3 years or when
the Monetary Board issued Resolution No. 967 in 1968, w/c prohibited
the Bank fr. doing further business. Resolution No. 1049 cannot
interrupt the default of the Bank in releasing the P63,000 bec. said
resolution merely prohibited the Bank fr. making new loans. Since the
Bank was in default in fulfilling its reciprocal obligation under the loan
agreement, Tolentino may choose between specific performance or
rescission w/ damages in either case. But since the Bank is now
prohibited fr. doing further business, the Court cannot grant specific
performance. Rescission is the only alternative remedy left. However,
rescission is only for the P63,000 balance, bec. the bank is in default
only insofar as such amount is concerned.

When K cant be rescinded bec. 3rd p. is in GF, the party who caused
the loss is liable for the damages
Badges of fraud, & Art. 1387: Presumptions. May be rebutted by
satisfactory & convincing evidence.
Art. 1388: Cr. With axn only v. subsequence transferees only when an
axn lies v. 1st transferee. If 1st Tfee in GF, no liability. If 1st Tfee in
BF, the rescissible char. Of 2nd alienation depends upon how 2nd Tfee
acquired the thing.
Art. 1191. The power to rescind obs. Is implied in reciprocal ones, in
case on of the obligors should not comply w/ what is incumbent upon
him.
The injured party may choose between the fulfillment & the rescission
of the ds., w/ the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The ct. shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be w/o prejudice to the rts of third persons who
have acquired the thing, in accordance w/ Arts. 1385 & 1388 & the
Mortgage Law.

The promissory note gave rise to Tolentinos reciprocal

obligation to pay the P17,000 loan when it falls due. Art. 1192 provides
that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably
tempered by the Court. The liability of the Bank for damages in not
furnishing the entire loan is offset by the liability of Tolentino for
damages, in the form of penalties & surcharges for not paying his
overdue P17,000 debt.

Art. 1192. In case both parties have committed a breach of the

obligation, the liability of the 1st infractor shall be equally tempered bye
the cts. If it cannot be det. Which of the parties 1st violated the , the
same shall be deemed extinguished, & each shall bear his own
damages.

--CASES:

Tolentino:
Similarities between Rsn under Art. 1191 & Art. 1380+:
(1) both presuppose s validly entered into & existing, &
(2) both require mutual restitution when declared proper.

UNIVERSAL FOOD CORP. vs. CA: (1970)

ISSUE: WON the rescission of the Bill of Assignment by the CA is
proper?

Differences:
(1) Rsn under 1191 may be demanded only by party to the , under
1380+ by 3rd p. prejudiced by the ;
(2) Rsn under 1191 may be denied when there is sufficient reason to
justify extension of time to perform, under 1380+ such reason does
NOT affect rt. to ask for Rsn;
(3) Non-perf. is the only grd. for Rsn under 1191, while there are
various reasons of equity as grds. under 1191 applies only to recip. ds.
where one party has not performed, while under 1380(+) may be
unilateral or reciprocal & even when has been fulfilled.

In this connection, we quote for ready reference the following articles

of the new Civil Code governing rescission of contracts:
ART. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission even
after he has chosen fulfillment, if the latter should become
impossible.

CENTRAL BANK VS. CA (1985)

Facts: Islands Savings Bank approved the loan application of
Tolentino for P80,000. To secure the loan, Tolentino executed a real
estate mortgage on his 100-hectare land. Only P17,000 was released by
the Bank, for w/c Tolentino executed a promissory note payable w/in 3
years. The balance was not released. In 1965, the Monetary Board of
the Central Bank issued Resolution No. 1049 prohibiting the Bank fr.
doing business in the Philippines. The Bank filed an application for
extrajudicial foreclosure of the real estate mortgage of Tolentino for
non-payment of the promissory note for P17,000. In turn, Tolentino
filed an action for injunction, specific performance or rescission,
alleging that the Bank failed to fulfill its obligation to lend the balance
of P63,000.

The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 of the Mortgage Law.

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ART. 1383. The action for rescission is subsidiary; it
cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for
the same.

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro,
but I would like to add that the argument of petitioner, that the
rescission demanded by the respondent-appellee, Magdalo
Francisco, should be denied because under Article 1383, NCC
rescission can not be demanded except when the party suffering
damage has no other legal means to obtain reparation, is predicated
on a failure to distinguish between a rescission for breach of contract
under Article 1191 of the Civil Code and a rescission by reason of
lesion or economic prejudice, under Article 1381, et seq.

ART. 1384. Rescission shall be only to the extent

necessary to cover the damages caused.
HELD: The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.

(rescission for breach of contract under Article 1191 ) The

rescission on account of breach of stipulations is not predicated on
injury to economic interests of the party plaintiff but on the breach of
faith by the defendant, that violates the reciprocity between the
parties. It is not a subsidiary action, and Article 1191 may be
scanned without disclosing anywhere that the action for rescission
thereunder is subordinated to anything other than the culpable breach
of his obligations by the defendant. This rescission is in principal
action retaliatory in character, it being unjust that a party be
held bound to fulfill his promises when the other violates his. As
expressed in the old Latin aphorism: "Non servanti fidem, non est
fides servanda." Hence, the reparation of damages for the breach is
purely secondary.

The injured party may choose between fulfillment and rescission of

the obligation, with payment of damages in either case.
In this case before us, there is no controversy that the provisions of
the Bill of Assignment are reciprocal in nature. The petitioner
corporation violated the Bill of Assignment, specifically paragraph 5(a) and (b), by terminating the services of the respondent patentee
Magdalo V. Francisco, Sr., without lawful and justifiable cause.
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement. The question of
whether a breach of a contract is substantial depends upon the
attendant circumstances. The petitioner contends that rescission of
the Bill of Assignment should be denied, because under article 1383,
rescission is a subsidiary remedy which cannot be instituted except
when the party suffering damage has no other legal means to obtain
reparation for the same.

(Rescission by reason of lesion or economic prejudice, under

Article 1381, et seq. ) On the contrary, in the rescission by reason
of lesion or economic prejudice, the cause of action is subordinated to
the existence of that prejudice, because it is the raison d'etre as well
as the measure of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot be maintained or
continued, as expressly provided in Articles 1383 and 1384. But the
operation of these two articles is limited to the cases of rescission for
lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not, apply to cases under Article 1191.

However, in this case the dismissal of the respondent patentee

Magdalo V. Francisco, Sr. as the permanent chief chemist of the
corporation is a fundamental and substantial breach of the Bill of
Assignment. He was dismissed without any fault or negligence on his
part. Thus, apart from the legal principle that the option to demand
performance or ask for rescission of a contract belongs to the
injured party, the fact remains that the respondents-appellees had
no alternative but to file the present action for rescission and
damages. It is to be emphasized that the respondent patentee would
not have agreed to the other terms of the Bill of Assignment were it
not for the basic commitment of the petitioner corporation to appoint
him as its Second Vice-President and Chief Chemist on a permanent
basis; that in the manufacture of Mafran sauce and other food
products he would have "absolute control and supervision over the
laboratory assistants and personnel and in the purchase and
safeguarding of said products;" and that only by all these measures
could the respondent patentee preserve effectively the secrecy of the
formula, prevent its proliferation, enjoy its monopoly, and, in the
process afford and secure for himself a lifetime job and steady
income. The salient provisions of the Bill of Assignment, namely, the
transfer to the corporation of only the use of the formula; the
appointment of the respondent patentee as Second Vice-President and
chief chemist on a permanent status; the obligation of the said
respondent patentee to continue research on the patent to improve the
quality of the products of the corporation; the need of absolute
control and supervision over the laboratory assistants and personnel
and in the purchase and safekeeping of the chemicals and other
mixtures used in the preparation of said product all these
provisions of the Bill of Assignment are so interdependent that
violation of one would result in virtual nullification of the rest.

It is probable that the petitioner's confusion arose from the defective

technique of the new Code that terms both instances as rescission
without distinctions between them; unlike the previous Spanish Civil
Code of 1889, that differentiated "resolution" for breach of
stipulations from "rescission" by reason of lesion or damage. 1 But
the terminological vagueness does not justify confusing one case with
the other, considering the patent difference in causes and results of
either action.
MAGDALENA ESTATES VS. LOUIS MYRICK (1941)
ISSUE: WON petitioners contention is correct, that a bilateral
contract may be resolved or cancelled only by the prior mutual
agreement of the parties, which is approved by the judgment of the
proper court; and that the letter of MEI was not assented to by the
respondent, and therefore, cannot be deemed to have produced a
cancellation, even if it ever was intended.
HELD: Where the terms of a writing are clear, positive and
unambiguous, the intention of the parties should be gleaned from the
language therein employed, which is conclusive in the absence of
mistake. The letter said cancelled and it was unequivocal.
The fact that the contracting parties herein did not provide for
resolution is now of no moment, for the reason that the obligations
arising from the contract of sale being reciprocal, such obligations are
governed by article 1124 of the Civil Code which declares that the
power to resolve, in the event that one of the obligors should not
perform his part, is implied.

Separate Opinion: REYES, J.B.L., J., concurring:

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Upon the other hand, where, as in this case, the petitioner cancelled
the contract, advised the respondent that he has been relieved of his
obligations thereunder, and led said respondent to believe it so and
act upon such belief, the petitioner may not be allowed, in the
language of section 333 of the Code of Civil Procedure (now section
68 (a) of Rule 123 of the New Rules of Court), in any litigation the
course of litigation or in dealings in nais, be permitted to repudiate
his representations, or occupy inconsistent positions, or, in the letter
of the Scotch law, to "approbate and reprobate."

unless attack thereon should become barred by acquiescence,

estoppel or prescription.
ZULUETA VS. MARIANO
ISSUE: WON the original to sell was rescinded d/t the automatic
resc.clause in the , thus the case was unlawful detainer cognizable
by the MTC or one of judicial rescission of cognizable by then
CFI?

U.P. VS. DELOS ANGELES (1970)

HELD: Thus, the basic issue is not possession but one of rescission
or annulment of a contract, which is beyond the jurisdiction of the
Municipal Court to hear and determine.

ISSUE: whether petitioner U.P. can treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial
pronouncement to that effect.

A violation by a party of any of the stipulations of a

contract on agreement to sell real property would entitle the
other party to resolved or rescind it. An allegation of such
violation in a detainer suit may be proved by competent
evidence. And if proved a justice of the peace court might
make a finding to that effect, but it certainly cannot declare
and hold that the contract is resolved or rescinded. It is
beyond its power so to do. And as the illegality of the
possession of realty by a party to a contract to sell is
premised upon the resolution of the contract, it follows that
an allegation and proof of such violation, a condition
precedent to such resolution or rescission, to render
unlawful the possession of the land or building erected
thereon by the party who has violated the contract, cannot
be taken cognizance of by a justice of the peace court. ...

In the first place, UP and ALUMCO had expressly stipulated that,

upon default by the debtor ALUMCO, the creditor (UP) has "the
right and the power to consider, the Logging Agreement as rescinded
without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil Code,
this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from
entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without
court intervention. In other words, it is not always
necessary for the injured party to resort to court for
rescission of the contract.

True, the contract between the parties provided for extrajudicial

rescission. This has legal effect, however, where the other party does
not oppose it. Where it is objected to, a judicial determination of the
issue is still necessary.

Of course, it must be understood that the act of party in treating a

contract as cancelled or resolved on account of infractions by the
other contracting party must be made known to the other and is
always provisional, being ever subject to scrutiny and review by the
proper court. If the other party denies that rescission is justified, it
is free to resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing, decide
that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced.

A stipulation entitling one party to take possession of the

land and building if the other party violates the contract
does not ex proprio vigore confer upon the former the right
to take possession thereof if objected to without judicial
intervention and' determination.
But while respondent Judge correctly ruled that the Municipal Court
had no jurisdiction over the case and correctly dismissed the appeal,
he erred in assuming original jurisdiction, in the face of the objection
interposed by petitioner. Section 11, Rule 40, leaves no room for
doubt on this point:

In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively
and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting party
who believes itself injured must first file suit and wait for a judgment
before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).

Section 11. Lack of jurisdiction A case tried by an

inferior court without jurisdiction over the subject matter
shall be dismiss on appeal by the Court of First Instance.
But instead of dismissing the case, the Court of First
Instance may try the case on the merits, if the parties
therein file their pleadings and go to trial without any
objection to such jurisdiction.
There was no other recourse left for respondent Judge, therefore,
except to dismiss the appeal.

We see no conflict between this ruling and the previous jurisprudence

of this Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation, 1 since in every
case where the extrajudicial resolution is contested only the final
award of the court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense that
judicial action will be necessary, as without it, the extrajudicial
resolution will remain contestable and subject to judicial invalidation,

If an inferior court tries a case without jurisdiction over the

subject-matter on appeal, the only authority of the CFI is to
declare the inferior court to have acted without jurisdiction
and dismiss the case, unless the parties agree to the exercise

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by the CFI of its original jurisdiction to try the case on the
merits. 4

They had no opportunity to question nor change any of the terms of

the agreement. It was offered to them on a "take it or leave it" basis.

The foregoing premises considered, petitioner's prayer for a Writ of

Execution of the judgment of the Municipal Court of Pasig must
perforce be denied.

The contract to sell, being a contract of adhesion, must be construed

against the party causing it. We agree with the observation of the
plaintiffs-appellees to the effect that "the terms of a contract must be
interpreted against the party who drafted the same, especially where
such interpretation will help effect justice to buyers who, after having
invested a big amount of money, are now sought to be deprived of the
same thru the prayed application of a contract clever in its
phraseology, condemnable in its lopsidedness and injurious in its
effect which, in essence, and in its entirety is most unfair to the
buyers."

PALAY, INC. vs. CLAVE (1983)

HELD: Well settled is the rule, as held in previous jurisprudence,
that judicial action for the rescission of a contract is not necessary
where the contract provides that it may be revoked and cancelled
for violation of any of its terms and conditions.

BOYSAW VS INTERPHIL
The power to rescind obligations is implied, in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him. [Part 1, Art. 1191, Civil Code].
There is no doubt that the contract in question gave rise to
reciprocal obligations. "Reciprocal obligations are those which
arise from the same cause, and in which each party is a debtor
and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be
performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other"
[Tolentino]
The power to rescind is given to the injured party.
"Where the plaintiff is the party who did not perform the undertaking
which he was bound by the terms of the agreement to perform 4 he is
not entitled to insist upon the performance of the contract by the
defendant, or recover damages by reason of his own breach " [Seva
vs. Alfredo Berwin 48 Phil. 581].
Another violation of the contract in question was the
assignment and transfer, first to J. Amado Araneta, and subsequently,
to appellant Yulo, Jr., of the managerial rights over Boysaw without
the knowledge or consent of Interphil. The assignments, from
Ketchum to Araneta, and from Araneta to Yulo, were in fact
novations of the original contract which, to be valid, should have
been consented to by Interphil.

However, even in the cited cases, there was at least a written notice
sent to the defaulter informing him of the rescission. As stressed in
University of the Philippines vs. Walfrido de los Angeles the act of a
party in treating a contract as cancelled should be made known
to the other.
ANGELES VS CALASANZ
ISSUE: WON the contract to sell has been automatically and validly
cancelled by the defendants-appellants
HELD: The right to rescind the contract for non-performance of one
of its stipulations, therefore, is not absolute. In Universal Food Corp.
v. Court of Appeals (33 SCRA 1) the Court stated that
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the
very object of the parties in making the agreement. (Song
Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827)
The question of whether a breach of a contract is
substantial depends upon the attendant circumstances.
The breach of the contract adverted to by the defendantsappellants is so slight and casual when we consider that apart from
the initial downpayment of P392.00 the plaintiffs-appellees had
already paid the monthly installments for a period of almost nine (9)
years. In other words, in only a short time, the entire obligation
would have been paid.

Novation which consists in substituting a new debtor in

the place of the original one, may be made even without
the knowledge or against the will of the latter, but not
without the consent of the creditor. [Art. 1293]
Creditor not bound to deal w/unilaterally substituted
debtor - Under the law when a contract is unlawfully novated by an
applicable and unilateral substitution of the obligor by another, the
aggrieved creditor is not bound to deal with the substitute.
The consent of the creditor to the change of debtors,
whether in expromision or delegacion is an, indispensable
requirement . . . Substitution of one debtor for another may delay or
prevent the fulfillment of the obligation by reason of the inability or
insolvency of the new debtor, hence, the creditor should agree to
accept the substitution in order that it may be binding on him.
Thus, in a contract where x is the creditor and y is the
debtor, if y enters into a contract with z, under which he transfers to z
all his rights under the first contract, together with the obligations
thereunder, but such transfer is not consented to or approved by x,
there is no novation. X can still bring his action against y for
performance of their contract or damages in case of breach.
[Tolentino]
From the evidence, it is clear that the appellees, instead of
availing themselves of the options given to them by law of rescission
or refusal to recognize the substitute obligor Yulo, really wanted to
postpone the fight date owing to an injury that Elorde sustained in a

Article 1234 If the obligation has been substantially performed in

good faith, the obligor may recover as though there had been a strict
and complete fulfillment, less damages suffered by the obligee.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is
business, yet, it cannot be denied that this subdivision is
likewise purposely done to afford those landless, low
income group people of realizing their dream of a little
parcel of land which they can really call their own.
The contract to sell entered into by the parties has some
characteristics of a contract of adhesion. The defendants-appellants
drafted and prepared the contract. The plaintiffs-appellees, eager to
acquire a lot upon which they could build a home, affixed their
signatures and assented to the terms and conditions of the contract.
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recent bout. That the appellees had the justification to renegotiate the
original contract, particularly the fight date is undeniable from the
facts aforestated. Under the circumstances, the appellees' desire to
postpone the fight date could neither be unlawful nor unreasonable.
We uphold the appellees' contention that since all the rights
on the matter rested with the appellees, and appellants' claims, if any,
to the enforcement of the contract hung entirely upon the former's
pleasure and sufferance, the GAB did not act arbitrarily in acceding
to the appellee's request to reset the fight date to November 4, 1961.
It must be noted that appellant Yulo had earlier agreed to abide by the
GAB ruling.

(1) Payment or Performance;

(2) Loss of the thing due;
(3) Condonation or Remission of the debt;
(4) Confusion or Merger of the rights of creditor & debtor;
(5) Compensation;
(6) Novation.
Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, & prescription are
governed elsewhere in this Code.
Balane:

PILIPINAS BANK VS. I.A.C.

ISSUE: WON the Contract to Sell was rescinded or cancelled, under
the automatic rescission clause contained therein.
HELD: We find the petition meritless. While it is true that a
contractual provision allowing "automatic rescission" (without
prior need of judicial rescission, resolution or cancellation) is
VALID, the remedy of one who feels aggrieved being to go to
Court for the cancellation of the rescission itself, in case the
rescission is found unjustified under the circumstances, still in the
instant case there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the many extensions
granted private respondents by the petitioner. In all these extensions,
the petitioner never called attention to the proviso on "automatic
rescission."

Art. 1231 gives us ten modes of extinguishing an obligation.

One of the modes mentioned is rescission.
But it does not tell us whether this is rescission under
Art. 1191 (resolution) or rescission under
Art. 1380, et. seq.
If it means both, then we have eleven modes of extinguishing
an obligation under Art. 1231. (Similar to Tolentinos)

This enumeration is not exclusive.

Other modes of extinguishing an obligation are the following:

CENTRAL BANK VS. CA (1985)

Issues: W/N Tolentino can compel specific performance.
WON Tolentino is entitled to rescission.
Held: NO. The agreement is a loan agreement, w/c is a reciprocal
obligation. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other; & when one party has
performed or is ready & willing to perform his part of the contract, the
other party who has not performed or is not ready & willing to perform
incurs in delay. The promise of Tolentino to pay was the consideration
for the obligation of the Bank to furnish the P80,000. When Tolentino
executed a real estate mortgage, he signified his willingness to pay the
loan. From such date, the obligation of the Bank to furnish the P80,000
accrued. The Banks delay started in 1965, lasted for 3 years or when
the Monetary Board issued Resolution No. 967 in 1968, w/c prohibited
the Bank fr. doing further business. Resolution No. 1049 cannot
interrupt the default of the Bank in releasing the P63,000 bec. said
resolution merely prohibited the Bank fr. making new loans. Since the
Bank was in default in fulfilling its reciprocal obligation under the loan
agreement, Tolentino may choose between specific performance or
rescission w/ damages in either case. But since the Bank is now
prohibited fr. doing further business, the Court cannot grant specific
performance. Rescission is the only alternative remedy left. However,
rescission is only for the P63,000 balance, bec. the bank is in default
only insofar as such amount is concerned.

1.

Death particularly where the obligation is purely

personal, e.g., death of one partner dissolves the
partnership/agency;

2.

Renunciation by the creditor

3.

Compromise

4.

Arrival of Resolutory Term / fulfillment of reso.condi.

5.

Mutual Desistance or mutuo disenso (Saura v. DBP)

6.

In some cases, Unilateral Withdrawal, e.g., in partnership,

any partner can w/draw any time fr. the partnership.

7.

In some cases, change of civil status, e.g., if marriage is

annulled, it extinguishes obligations like the obligation to
give support, among others.

8.

Unforeseen Events (rebus sic stantibus) (Art. 1267.)

9.

Want of Interest GR: No, but there are certain cases:

if it is equitable to deem the extinguished d/t want of

interest of Cr in the fulfillment of such .

10. Abandonment of the thing as in Art. 662, partywall;

Or aband.of a vessel under Code of Comm.
11. Insolvency of debtor judicially declared & discharged.
Illustration: Carale owns a restaurant. He hires Molina as a chef. In
the contract of employment, there was a stipulation that if Molina
resigns fr. Carale's restaurant, he cannot seek employment fr. another
restaurant for a period of five years. Subsequently, Molina resigns fr.
Carale's restaurant & wants to apply to Mildo's House of Chicken. In
this case, Molina cannot work w/ Mildo's bec. of the stipulation in the
contract he signed w/ Carale. Suppose, however, Carale, closes down
his restaurant & engages in a totally different business, a construction
business, for example, Molina can apply for work at Mildo's even
before the lapse of the five year prohibitive period.

The promissory note gave rise to Tolentinos reciprocal

obligation to pay the P17,000 loan when it falls due. Art. 1192 provides
that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably
tempered by the Court. The liability of the Bank for damages in not
furnishing the entire loan is offset by the liability of Tolentino for
damages, in the form of penalties & surcharges for not paying his
overdue P17,000 debt.

In this case, Molina can make out a case of extinguishment

of obligation on the ground of want of interest. The obvious purpose of
the stipulation is to prevent unfair competition.
SAURA IMPORT & EXPORT BANK VS. DBP [44 S 445]
ISSUE: WON the of RFC to Saura in the perfected loan
subsists

G. MODES OF EXTINGUISHMENT OF OBLIGATIONS

Art. 1231. Obligations are extinguished BY:
33

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(1) Identity, of the prestation, & the very thing or service due must
be delivered or released;
(2) its integrity prestation must be fulfilled completely

Held:
When RFC turned down the request of Saura, the negotiations which
had been going on for the implementation of the loan agreement
reached an impasse. Saura, Inc. obviously was in no position to
comply with RFC's conditions. So instead of doing so and insisting
that the loan be released as agreed upon, Saura, Inc. asked that the
mortgage be cancelled, which was done by RFC. The action thus
taken by both parties was in the nature of mutual desistance - what
Manresa terms as "mutuo disenso" - which is a mode of
extinguishing obligations. It is a concept that derives from the
principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment.
Extinguishment of s by mutual desistance Where after approval
of his loan, the borrower, instead of insisting for its release, asked that
the mortgage given as security be cancelled & the creditor acceded
thereto, the action taken by both parties was in the nature of mutual
desistance - what Manresa terms "mutuo disenso" - w/c is a mode of
extinguishing obligations. It is a concept that derives fr. the principle
that since mutual agreement can create a contract, mutual disagreement
by the parties can cause its extinguishment.

For BALANE:
Art. 1233 states these requisites of payment
I.
Re: The prestation
1. Identity
2. Integrity
3. Indivisibility
II.

Re: The parties

1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor

III.

Re: Time & place

Discussion:
I. With respect to prestation:
1. Identity

If specific prestation, this requisite means that the very thing

or service must be delivered. (Art. 1244.)

A. PAYMENT OR PERFORMANCE
CONCEPT OF PAYMENT
Art. 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.

Governing rule: RA 529 as amended by RA 4100

it is the fulfillment of the prestation due whc extinguishes the

by the realization of the purposes for whc it was constituted.

In case of money debts, you will have to pay in legal

tender in the Philippines. This law supersedes Art. 1249.

it is a juridical act whc is voluntary, licit and made with the

intent to exting. d ;
it is made not only by 1 who owes money but also by 1 bound to
do something or to refrain fr doing

If generic, the requisite requires the delivery of something of

neither inferior or superior quality (Art. 1246). It must be
something in the middle. In case of money, there are
special rules:

If the parties stipulate that payment will be made in

foreign currency, the obligation to pay is valid but
the obligation to pay in foreign currency is void.
Payment will be made in Phil. currency.

LEGAL TENDER means such currency whc in a given jus can be

used for payment of debts public & priv, &whc cannot be refused by
Cr.

Thus, Payment is identical w/ Fulfillment.

Requisites of Payment or Performance:

[TOLENTINO]
1. the person who pays must have requisite capacity
2. the person to whom payment is made
3. the thing to be paid in accordance w/ the
4. the manner, time and place of payment, etc.

In the RP the ff are legal tender: (sec. 54, RA 265)

1. RP silver peso & half peso for debts of any amount, RP
subsidiary silver coins 20 & 10 for up to P20 debts, and RP
minor nickel &copper coins for up to P2.00 debts;
2. RP Treasury certs., new Victory series (EO 25, s. 1944, already
w/drawn fr circ)
3. All notes and coins issued by CB.

payment shd be made by the debtor to the creditor at the right time
and place.

Q: How do you convert?

A: In case of an obligation w/c is not a loan in foreign currency, if
incurred bef. RA 529, conversion must be as of the time the obligation
was incurred.

KINDS:
1. NORMAL when Db voluntarily performs
2. ABNORMAL when Db is forced by judicial proceeding

If incurred after RA 529 became effective, the conversion must be as of

the time the obligation was incurred (Kalalo v. Luz)

Balane:

If the loan is in foreign currency, the conversion is as of the time of

payment. (RA 529.)

Payment or Performance are used interchangeably. But technically,

Payment in obligations to give,
Performance in obligations to do.

Payment in negotiable paper This may be refused by the creditor.

Payment in manager's check or certified check is not payment in
legal tender. The ruling in Seneris has been reversed in the case
of Bishop of Malolos. The Malolos ruling is better. I found it
hard to accept that manager's check or certified check is good as
legal tender. There are always risks to w/c cashier's checks are
subject. What if after having issued a cashier's check, the draweebank closes, what happens to your cashier's check?

Payment/ performance is the paradigmatic mode of extinguishment of

an obligation.

It is the only normal way of extinguishing an obligation.

Art. 1233. A debt shall not be understood to have been paid unless the
thing or service in w/c the obligation consists has been completely
delivered or rendered, as the case may be.
Tolentino: This art. States Two requisites for Payment:
34

 In any event, payment by check can be refused by the creditor. And

even if payment by check is accepted by the creditor, the acceptance is
only a provisional payment until the check is
(a) encashed or
(b) when through the fault of the creditor they have been
impaired.

amdcm
b. With the creditor's consent -- Anyone.
This is a departure fr. the rule in the Old Civil Code w/c
did not require consent on the part of the creditor.
c. Effect of payment by a third person:
1.

If the payment was w/ the debtor's consent, he becomes

the agent of the debtor. The effect is subrogation
(Articles 1236-1237.) Exception: If the person paying
intended it to be a donation. (Art. 1238.)

2.

If payment was w/o the debtor's consent, the third

person may demand repayment to the extent that the
debtor has been benefited. (Art. 1236, par. 2.)

The case of Namarco v. Federation, 49 SCRA 238, interprets the

phrase "when through the fault of the creditor, they have been
impaired" as to apply only to a check used in payment if issued by a
person other than the debtor.
Why? Bec. if the check was issued by the debtor himself, all that the
debtor have to do is to issue another check.
Revaluation in case of extraordinary inflation or deflation (Art.
1250)

2. Who may be the payee?

This rule has never been used. It was only during the Japanese
occupation that there was a recognition of extraordinary inflation
in this country.

1.
2.
3.
4.

The obligee proper (Articles 1240, 1626.)

His successor or transferee (Art. 1240.)
His agent (ibid.)
Any third person subject to the following qualifications:
a. provided it redounded to the obligee's benefit &
only to the extent of such benefit. (Art. 1241, par.
2.)
b. If it falls under Art. 1241, par. 2 nos. 1, 2 & 3,
benefit is deemed to be total.

5.

Anyone in possession of the credit. (Art. 1242.)

Exceptions to the requirement of identity

(i) Dacion en pago (Art. 1245.)
(ii) Novation
In both cases, there is a voluntary change in the object.
2. Integrity There must be delivery of the entire prestation due.
(Art. 1233) or completely fulfilled;

In all these five (5) cases, it is required that the debt should not have
been garnished. (Art. 1243.)
III. With respect to the time & place of payment:

The exceptions to the requirement of integrity are:

1. In case of substantial performance in good faith (Art. 1234.)
This is an equity rule.
2. In case of waiver of obligee/ creditor (Art. 1235.)
3. In case of application of payments if several debts are
equally onerous (Art. 1254, par. 2.)

1. When payment to be made: When due

2. Place (Art. 1251.)
Primary rule: As stipulated
Secondary rule: Place where the thing was at the time the obligation
was constituted if the obligation is to deliver a determinate thing.

3. Indivisibility This means that the obligor must perform the

prestation in one act & not in parts. (Art. 1248.)

Tertiary rule: At the debtor's domicile

There are several exceptions to this requirement:
1. In case or express stipulation. (Art. 1248.)
2. In case of prestations w/c necessarily entail partial
performance. (Art. 1225, par. 2)
3. If the debt is liquidated in part & unliquidated in part. (Art.
1248.)
4. In case of joint divisible obligations (Art. 1208.)
5. In solidary obligations when the debtors are bound under
different terms & conditions. (Art. 1211.)
6. In compensation when a balance is left. (Art. 1290.)
7. If the work is to be delivered partially, the price or
compensation for each part having been fixed. (Art. 1720.)
8. In case of several guarantors who demand the right of
division. (Art. 2065.)
9. In case of impossibility or extreme difficulty of single
performance.

Balane:
** Payment or Performance are used interchangeably.
But technically, payment is used in obligations to give whereas
performance is used in obligations to do. Payment/ performance is the
paradigmatic mode of extinguishment of an obligation. It is the only
normal way of extinguishing an obligation.
Art. 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict &
complete fulfillment, less damages suffered by the obligee.
Substantial Performance:
1. an attempt in GF to perform, w/o any willful or intentional
departure fr it
2. deviation fr perf. of must be slight, & omission or defect
must be so technical & unimpt, & must not pervade the
whole, must not be so material to the achievement of the very
purpose of the parties;
3. party claiming substantial perf. must show attempt in GF

II. With respect to the parties

There are two parties involved:
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
Requirements:
1. Art. 1226 - 1238. Who should the payor be:

J.M. TUASON V. JAVIER [31 S 829] - In the interest of justice &

equity, court may grant the vendee a new term where he substantially
performed in good faith according to Art. 1234, regardless of Art.
1592 of the same Code.

a. Without need of the creditor's consent

1. The debtor himself
2. His heirs or assigns
3. His agent
4. Anyone interested in the fulfillment of the
obligation, e.g., a guarantor
35

amdcm
Art. 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict &
complete fulfillment, less damages suffered by the obligee.
LEGARDA HERMANOS V. SALDANA [55 S 324] - The Court's
doctrine in J.M. Tuason v. Javier is fully applicable to the present case,
RE Substantial performance of in GF, Art. 1234.

Unless authorized by law or by consent of the obligee, a

public officer has no authority to accept anything other
than money in payment of an obligation under a judgment
being executed.

In the absence of an agreement, either express or implied, payment

means the discharge of a debt or obligation in money & unless the
parties so agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of payment of his debt.
Consequently, Unless authorized by law or by consent of the obligee, a
public officer has no authority to accept anything other than money in
payment of an obligation under a judgment being executed. Strictly
speaking, the acceptance by the sheriff of the petitioner's checks, in the
case at bar, does not, per se, operate as a discharge of the judgment
debt. [PAL V. CA (181 S 557)]

AZCONA V. JAMANDRE [151 S 317] ISSUE: WON the payment of P7000, lacking of 200 fr the agreed
annual rental of 7200, amounts to delay and ground for rescission
HELD: No. the receipt showed full payment as per contract; no
mention of the short of 200; whc means that rental was reduced,
perhaps b/c of the reduction of the 80Ha. By 16Ha. Used by Pet. As
grazing land. But the rest of the subsists.

Tolentino:
Authority to receive: LEGAL or CONVENTIONAL
Legal: conferred by law, such as authority of guardian to inc. creditor
(Cr), or the admr of estate

xxx If the petitioner is fussy enough to invoke it now, it stands to

reason that he would have fussed it too in the receipt he willingly
signed after accepting, w/o reservation & apparently w/o protest only
P7,000. Art. 1235 is applicable.

Conventional: autho. Fr. Cr himself, as when agent is appted. To

collect fr. Debtor (Dr)

Petitioner says that he could not demand payment of the balance of

P200 on 10/26/60, date of receipt bec. the rental for the crop year 19611962 was due on or before 1/30/61. But this would not have prevented
him fr. reserving in the receipt his right to collect the balance when it
fell due. Moreover, there is evidence in the record that when the due
date arrived, he made any demand, written or verbal, for the payment
of that amount.
Art. 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, & w/o expressing any protest or
objection, the obligation is deemed fully complied w/.
1. To whom payment should be made

Payment to wrong party does NOT extinguish

oblig to Cr, if there is no fault or negligence w/c
can be imputed to the latter, even when Db acted
in utmost GF & by mistake as to the person of his
Cr, or thru error induced by fraud of 3P, EXCEPT
AS PROV. IN ART. 1241

Deposit by Db in bank, in the name of & to the

credit of Cr, w/o latters autho. Does NOT
constitute payment; but when the Cr cannot be
found in the place of payment, such deposit may
be a valid excuse for not holding the Db in default

GR: Consignation in ct. of thing or amt. due, when properly made

will ext. oblig.

Art. 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any
person authorized to receive it.

Art. 1241. Payment to a person who is incapacitated to administer his

property shall be valid if he has kept the thing delivered, or insofar as
the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as
it has redounded to the benefit of the creditor. Such benefit to the
creditor need not be proved in the following cases:
If after the payment, the third persons acquires the creditor's rights;
If the creditor ratifies the payment to the third person;
If by the creditor's conduct, the debtor has been led to believe that the
third person had authority to receive the payment.

ARAAS V. TUTAAN [127 S 828]

Payment by judgment debtor to the wrong party does not
extinguish judgment debt.
*** It is elementary that payment made by a judgment debtor to a
wrong party cannot extinguish the judgment obligation of such
debtor to its creditor. xxx

A payment in order to be effective to discharge an

obligation must be made to the proper parties.--

Baviera: Number three is Estoppel in Pais

In general, a payment, in order to be effective to discharge an

obligation, must be made to the proper person. Thus, payment must be
made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment.

Tolentino:
1.

When Cr is incapacitated, payment must be made to his

legal rep. or deliver the thing to ct. for consignation ff.
Art. 1256

Payment made to one having apparent authority to receive the

money will, as a rule, be treated as though actual authority had
been given for its receipt.

2.

Likewise, if payment is made to one who by law is authorized to act for

the creditor, it will work a discharge. The receipt of money due on a
judgment by an officer authorized by law to accept it will, therefore
satisfy the debt.

Paymt. to Incap. Cr shall be valid only insofar as it

accrued to his benefit. Absence of benefit, Db may be
made to pay again by Cr when he attains capacity, or his
legal rep during the inc.

3.

Same principles are applicable to paymt made to 3P, but

person who paid has right to recover fr. 3P

4.

In ff. Cases, paymt. To 3P releases Db:

xxx The theory is where a payment is made to a person

authorized & recognized by the creditor, the payment to
such a person so authorized is deemed payment to the
creditor. xxx

(a) when w/o notice to assngmt. of credit, he pays to

original Cr [Art. 1626] &

36

(b) when in GF he pays to one in possn of credit [Art.

1242]
5.

amdcm
In obligations to do or not to do, an act or forbearance cannot
be substituted by another act or forbearance against the obligee's will.

If mistake of Db due to fault of Cr, then Cr cannot

demand anew
Tolentino:

Art. 1242. Payment made in good faith to any person in possession of

the credit shall release the debtor.
(Assignment of Credits & Other Incorporeal Rights)
Art. 1626. The debtor who, before having knowledge of the
assignment, pays his creditor shall be released fr. the obligation.

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

creditor in satisfaction of a debt in money, shall be governed by the law
of sales.
Art. 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality & circumstances have not
been stated, the creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality. The purpose
of the obligation & other circumstances shall be taken into
consideration.

2. Who shall make payment

Art. 1236. The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand fr. the debtor what he
has paid, except that if he paid w/o the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been
beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or
against the will of the latter, cannot compel the creditor to subrogate
him in his rights, such as those arising fr. a mortgage, guaranty, or
penalty.
Art. 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, w/c requires the
debtor's consent. But the payment is in any case valid as to the creditor
who has accepted it.
Art. 2173. When a third person, w/o the knowledge of the debtor, pays
the debt, the rights of the former are governed by articles 1236 & 1237.
(Other Quasi-Contracts)
Art. 1239. In obligations to give, payment made by one who does not
have the free disposal of the thing due & capacity to alienate it shall not
be valid, w/o prejudice to the provisions of article 1427 under the Title
on "Natural Obligations."
Art. 1427. When a minor between eighteen & twenty-one years of age,
who has entered into a contract w/o the consent of the parent or
guardian, voluntarily pays a sum of money or delivers a fungible thing
in fulfillment of the obligation, there shall be no right to recover the
same fr. the obligee who has spent or consumed it in good faith.

Tolentino:

Cr or Db may waive the benefit of this Art.

Cr may require a thing of inferior qlty & Db may deliver a

thing of superior qlty, unless the price to be pd in the latter
case is dependent upon the qlty
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With
regard to judicial costs, the Rules of Court shall govern.
Art. 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the prestations in w/c
the obligation consists. Neither may the debtor be required to make
partial payments.
However, when the debt is in part liquidated & in part
unliquidated, the creditor may demand & the debtor may effect the
payment of the former w/o waiting for the liquidation of the latter.
BALANE CASE:
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, & if it is not possible to deliver such currency, then
in the currency w/c is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the fault
of the creditor they have been impaired.
In the meantime, the action derived fr. the original obligation
shall be held in abeyance.

NOTE: age of majority is now 18.

Tolentino:

Where the person paying has no capacity to make the pymt,

the Cr cannot be compelled to accept it. Consignn will not
be proper.

In case Cr accepts, the pymt will not be valid, except in the

case provided in A 1427.

TIBAJIA V. CA (1993)

Art. 1243. Payment made to the creditor by the debtor after the latter
has been judicially ordered to retain the debt shall not be valid.

ISSUE: whether or not payment by means of check (even by

cashier's check) is considered payment in legal tender as required by
the Civil Code, Republic Act No. 529, and the Central Bank Act.

Tolentino:

Pmt to Cr after the credit has been attached or garnished is

void as to the party who obtained the attachmt or
garnishmt, to the extent of the amt of jdgmt in his favor;

Defects of the thing delivered may be waived by the Cr, if he

expressly so declares, or if, w/ knowledge thereof, he accepts
the thing w/o protest or disposes of it or consumes it

Art. 1249. The payment of debts in money shall be made in the

currency stipulated, and if it is not possible to deliver such currency,
then in the currency which is legal tender in the Philippines.

Db can therefor be made to pay again to the party who

secured the attachtmt or garnishmt, but he can recover the
same to the extent of what he has pd to his Cr

The delivery of promissory notes payable to order, or bills of

exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the fault
of the creditor they have been impaired.

Art. 1244. The debtor of a thing cannot compel the creditor to receive
a different one, although the latter may be of the same value as, or more
valuable than that w/c is due.
37

amdcm
In the meantime, the action derived from the original obligation shall
be held in abeyance.;

policy, and null, void and of no effect, and no such

provision shall be contained in, or made with respect to,
any obligation hereafter incurred. Every obligation
heretofore or here after incurred, whether or not any such
provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any
coin or currency which at the time of payment is legal
tender for public and private debts: Provided, That, ( a) if
the obligation was incurred prior to the enactment of this
Act and required payment in a particular kind of coin or
currency other than Philippine currency, it shall be
discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was
incurred, (b) except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in
which case the rate of exchange prevailing at the time of
the stipulated date of payment shall prevail. All coin and
currency, including Central Bank notes, heretofore or
hereafter issued and declared by the Government of the
Philippines shall be legal tender for all debts, public and
private.

b. Section 1 of Republic Act No. 529, as amended, which

provides:
Sec. 1. Every provision contained in, or made with respect to, any
obligation which purports to give the obligee the right to require
payment in gold or in any particular kind of coin or currency other
than Philippine currency or in an amount of money of the Philippines
measured thereby, shall be as it is hereby declared against public
policy null and void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation thereafter
incurred. Every obligation heretofore and hereafter incurred, whether
or not any such provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment in any coin or
currency which at the time of payment is legal tender for public and
private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank
Act) which provides:

Under the above-quoted provision of Republic Act 529, if the

obligation was incurred prior to the enactment of the Act and
require payment in a particular kind of coin or currency other
than the Philippine currency the same shall be discharged in
Philippine currency measured at the prevailing rate of exchange
at the time the obligation was incurred.

Sec. 63. Legal character Checks representing deposit money do

not have legal tender power and their acceptance in the payment of
debts, both public and private, is at the option of the creditor:
Provided, however, that a check which has been cleared and credited
to the account of the creditor shall be equivalent to a delivery to the
creditor of cash in an amount equal to the amount credited to his
account.

As we have adverted to, Republic Act 529 was enacted on June

16, 1950. In the case now before us the obligation of appellant to pay
appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued
on August 25, 1961, or after the enactment of Republic Act 529. It
follows that the provision of Republic Act 529 which requires
payment at the prevailing rate of exchange when the obligation was
incurred cannot be applied.

From the aforequoted provisions of law, it is clear that this petition

must fail.
A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not a
valid tender of payment and may be refused receipt by the
obligee or creditor.

Republic Act 529 does not provide for the rate of exchange for the
payment of obligation incurred after the enactment of said Act. The
logical conclusion, therefore, is that the rate of exchange should
be that prevailing at the time of payment.

KALALO V. LUZ [34 S 337] - Under RA 529, if the obligation was

incurred prior to the enactment in a particular kind of coin or currency
other than the Phil. currency the same shall be discharged in Phil.
currency measured at the prevailing rate of exchange at the time the
obligation was incurred. RA 529 does not provide for the rate of
exchange for the payment of the obligation incurred after the enactment
of said Act. The logical conclusion is that the rate of exchange should
be that prevailing at the time of payment for such contracts.

This view finds support in the ruling of this Court in the case of
Engel vs. Velasco & Co. where this Court held that even if the
obligation assumed by the defendant was to pay the plaintiff a sum of
money expressed in American currency, the indemnity to be allowed
should be expressed in Philippine currency at the rate of exchange at
the time of judgment rather than at the rate of exchange prevailing on
the date of defendant's breach. This is also the ruling of American
court as follows:

ISSUE: WON the recommendation in the Report that the payment of

the amount due to the plaintiff in dollars was legally permissible, and
if not, at what rate of exchange it should be paid in pesos.

The value in domestic money of a payment made in

foreign money is fixed with respect to the rate of
exchange at the time of payment.

HELD: Under the agreement, Exhibit A, appellee was entitled to 20%

of $140,000.00, or the amount of $28,000.00. Appellee, however,
cannot oblige the appellant to pay him in dollars, even if appellant
himself had received his fee for the IRRI project in dollars. This
payment in dollars is prohibited by Republic Act 529 which was
enacted on June 16, 1950. Said act provides as follows:

PONCE V. CA [90 S 533] - It is to be noted that while an agreement

to pay in dollars is declared as null & void & of no effect, what the law
specifically prohibits is payment in currency other than legal tender. It
does not defeat a creditor's claim for payment, as it specifically
provides that "every other domestic obligation xxx whether or not any
such provision as to payment is contained therein or made w/ respect
thereto, shall be discharged upon payment in any coin or currency w/c
at the time of payment is legal tender for public & pvt. use." A
contrary rule would allow a person to profit or enrich himself
inequitably at another's expense.

SECTION 1. Every provision contained in, or made with

respect to, any obligation which provision purports to give
the obligee the right to require payment in gold or in a
particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public
38

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certifying a check, as regards both parties, is to enable the holder to use
it as money." When the holder procures the check to be certified, "the
check operates as an assignment of a part of the funds to the creditors."
Hence, the exception to the rule enunciated under Sec. 63 of the CB
Act shall apply in this case:
Sec. 63. Legal Character Checks representing deposit do
not have legal tender power and their acceptance in payment
of debts, both pub & priv, is at the option of the Cr.
Provided, however that a check w/c has been cleared &
credited to the account of the creditor shall be equivalent
to a delivery to the creditor in cash in an amount equal to
the amount credited to his account.

ISSUE: WON the subject matter is illegal and against public policy,
thus, doctrine of pari delicto applies.
HELD: WE DISAGREE. It is to be noted that while an agreement
to pay in dollars is declared as null and void and of no effect, what
the law specifically prohibits is payment in currency other than
legal tender. It does not defeat a creditor's claim for payment, as it
specifically provides that "every other domestic obligation ... whether
or not any such provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment in any coin or
currency which at the time of payment is legal tender for public and
private debts." A contrary rule would allow a person to profit or
enrich himself inequitably at another's expense.

BISHOP OF MALOLOS V. IAC [191 S 411]

Finding of suff.avail.funds by CA does not constitute proof of tender of
pymnt. (non sequitur)

Section 1 of Republic Act No. 529, which was enacted on June 16,
1950:
Section 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the
Philippines which provision purports to give the obligee the right to
require payment in gold or in a particular kind of coin or currency
other than Philippine currency or in an amount of money of the
Philippines measured thereby, be as it is hereby declared against
public policy, and null and void and of no effect and no such
provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply
to (a) transactions were the funds involved are the proceeds of loans
or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies and
instrumentalities, and international financial and banking institutions
so long as the funds are Identifiable, as having emanated from the
sources enumerated above; (b) transactions affecting high priority
economic projects for agricultural industrial and power development
as may be determined by the National Economic Council which are
financed by or through foreign funds; (c) forward exchange
transactions entered into between banks or between banks and
individuals or juridical persons; (d) import-export and other
international banking financial investment and industrial transactions.
With the exception of the cases enumerated in items (a) (b), (c) and
(d) in the foregoing provision, in, which cases the terms of the
parties' agreement shall apply, every other domestic obligation
heretofore or hereafter incurred whether or not any such provision
as to payment is contained therein or made with- respect thereto,
shall be discharged upon payment in any coin or currency which at
the time of payment is legal tender for public and private debts:
Provided, That if the obligation was incurred prior to the
enactment of this Act and required payment in a particular kind
of coin or currency other than Philippine currency, it shall be
discharge in Philippine currency measured at the prevailing rates
of exchange at the time the obligation was incurred, except in
case of a loan made in foreign currency stipulated to be payable
in the currency in which case the rate of exchange prevailing at
the time of the stipulated date of payment shall prevail All coin
and currency, including Central Bank notes, heretofore and
hereafter issued and d by the Government of the Philippines shall
be legal tender for all debts, public and private. (As amended by
RA 4100, Section 1, approved June 19, 1964)

Tender of Payment involves a positive & uncondi. Act by the obligor

of offering legal tender currency as payment to oblige for the &
demanding that the latter accept the same.
Since a negotiable instrument is only a substitute for money & not
money, the delivery of such an instrument does not, by itself, operate as
payment. A check, whether a manager's check or ordinary check, is
not legal tender, & an offer of a check in payment of a debt is not a
valid tender of payment & may be refused receipt by the obligee or
creditor.
Tolentino:

Legal tender: such currency w/c in a given jurisdiction can

be used for the pmts of debts, public & private, & w/c cannot
be refused by the Cr

Since pmt must be in money that is legal tender, pmt in

check even when good may be validly refused by Cr

Pymt by Check: WON MgrC or ordinary is NOT a valid

tender of pmt

Art. 1250. In case an extraordinary inflation or deflation of the

currency stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
Baviera:
This article applies to contracts only. EXTRAORDINARY means
unusual or beyond the common fluctuation, not foreseen
Tolentino: Does NOT apply where oblig to pay arises fr law,
independent of Ks, like the taking of private prop by the govt in the
exercise of its pwr of emt domain
FIL. PIPE & FOUNDRY CORP. V. NAWASA
Issue: WON there was extraord inflation to apply Art 1250
Held: None. Extraord. inflation exists when there is a decrease or
increase in the purchasing pwr of the Phil currency w/c is unusual or
beyond the common fluctuation value of the said currency, & such dec
or inc cud not have been reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of the estab of the
obligation. The decline of the purchasing pwr of the currency cannot be
considered extraord. It was due to oil embargo crisis the effect of w/c
was worldwide.

NEW PACIFIC TIMBER V. SENERIS [101 S 686] Where a check is certified by the bank on w/c it is drawn, the
certification is equivalent to acceptance. Said certification "implies
that the check is drawn upon sufficient funds in the hands of the
drawee, that they have been set apart fort its satisfaction, & that
they shall be so applied whenever the check is presented for
payment. It is an understanding that the check is good then, & shall
continue to be good, & this agreement is as binding on the bank as its
notes in circulation, a certificate of deposit payable to the order of the
depositor, or any other obligation it can assume. The object of

VELASCO V. MERALCO [42 S 556]

HELD: From the employment of the words "extraordinary inflation or
deflation of the currency stipulated" in Art. 1250, it can be seen that the
same envisages contractual obligations where a specific currency is
selected by the parties as the medium of payment; hence it is
inapplicable to obligations arising fr. tort & not fr. contract.
39

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Besides, there is no showing that the factual assumption of said article
has come into existence.

Db does not have to be insolvent, agreement only betw d

parties makes dation possible.

COMMISSIONER OF PUBLIC HIGHWAYS V. BURGOS [96 S

831] ISSUE: WON Article 1250 applicable in determining JUST
compensation payable to Amigable fr taking in 1924.

When personal prop is delivered it is PLEDGE, not dation, unless

parties clearly stipulate, but in doubt, the presumption is pledge,
w/lesser transmission of rts.
Warranties of Db Dation is an onerous transmission or of
alienation, provision in Sales Re warranty vs eviction & vs hidden
defects of d thing applies, Db is vendor, Cr is vendee;

If Cr is evcted, original is not revived, but Cr is entitled to

recover fr breach of warranty in Art. 1555.

Art. 1250 does applies only to cases where a contract or agreement is

involved. It does not apply where the obligation to pay arises fr. law,
independent of contracts. The taking of private property by the govt in
the exercise of its power of eminent domain does not give rise to a
contractual obligation.

[Balane]

Dacion en pago, in Roman law, called "datio in solutum", in

French, "dation en paiement," in Spanish, "dacion en
pago.")

Dation in payment is possible only if there is a debt in

money. Instead of money, a thing is delivered in
satisfaction of the debt in money. (Dation en pago is
explained in the case of Filinvest v. Phil Acetylene).

DEL ROSARIO V. SHELL [164 S 556]

ISSUE: WON the effect of EO 195 is official devaluation of peso as
contemplated in the Lease Contract
HELD: In the case at bar, while no express reference has been made to
metallic content, there nonetheless is a reduction in par value or in the
purchasing power of Phil. currency. Even assuming there has been no
official devaluation as the term is technically understood, the fact is that
there has been a diminution or lessening in the purchasing power of the
peso, thus there has been a "depreciation" (opposite of "appreciation.")
Moreover, when laymen unskilled in the semantics of economics use
the terms "devaluation" or "depreciation" they certainly mean them in
their ordinary signification-decrease in value.
Hence, as
contemplated by the parties herein in their lease agreement, the term
"devaluation" may be regarded as synonymous w/ "depreciation," for
certainly both refer to a decrease in the value of the currency. The
rentals should therefore, by their agreement, be proportionately
increased.

There are two ways at looking at dacion en pago:

1. Classical way where dacion en pago is treated as a sale.
2.

Castan has another view Both are wrong.

* A dacion en pago is not a sale bec. there is no intention to enter
into a contract of sale.
* It is not also a novation bec. in novation, the old obligation is
extinguished & a new obligation takes its place.
** But here, the old obligation is extinguished. What takes its
place? Nothing. So what is it? It is a special form of payment
w/c resembles a sale.

Art. 1251. Payment shall be made in the place designated in the

obligation.
There being no express stipulation & if the undertaking is to
deliver a determinate thing, the payment shall be made wherever the
thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile
of the debtor.
If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by him.
These provisions are w/o prejudice to venue under the Rules
of Court.

There are two more things to remember in the cases of Filinvest v.

Phil. Acetylene, supra. & Lopez v. CA, 114 SCRA 671:

FILINVEST V. PHIL. ACETYLENE [111 S 421]

ISSUE: WON the return of mortgaged vehicle to appellee by
voluntary surrender by appellant totally extinguished the , as in
dacion en pago?

Dacion en pago (Art. 1245.)

Application of payments (Subsection 1.)
Payment by cession (Subsection 2.)
Consignation (Subsection 3.)

HELD: We find appellant's contention devoid of persuasive force.

The mere return of the mortgaged motor vehicle by the mortgagor, the
herein appellant, to the mortgagee, the herein appellee, does not
constitute dation in payment in the absence, express or implied of the
true intention of the parties. The demand for return merely showed
appellees interest to secure the value of the vehicle and prevent loss,
damage, destruction or fraudulent transfer to 3P, as shown in the doc,
Vol. Surr. w/SPA To Sell whc never said that such return is in full
satisfaction of the mortgaged debt. The conveyance was as to rts only,
ownership never left the mortgagor, as such burdens on the property
shd still be shouldered by him.

Dacion en pago (Art. 1245.)

Art. 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the law
of sales.
[Tolentino]
Dation in payment is the delivery & transmission of
ownership of a thing by the Db to the Cr as an accepted equivalent of
perf. of ;

Dacion en pago, according to Manresa, is the transmission of the

ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of an obligation.

In dacion en pago, as a special mode of payment, the debtor

offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt.

It may be a thing or a real rt (i.e. usufruct), or of a credit vs a 3P;

EX: assgmnt by an heir-Db of his interests in Sx to the Cr, made after d
death of decedent, extinguishes d .
Effect on
delivered

Dacion en pago can take place only if both parties consent.

Q: To what extent is the obligation extinguished?

Answer: Up to the value of the thing given (the thing must be
appraised) unless the parties agree on a total extinguishment.
(Lopez. v. CA, supra.)

Four Special Kinds of Payments:

1.
2.
3.
4.

Modern concept w/c treats dacion en pago as a novation.

extinguished to the extent of the value of thng

Dacion en pago in the nature of sale.-- The undertaking really

partakes in one sense of the nature of sale, that is, the creditor is really
40

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buying the thing or property of the debtor, payment for w/c is to be
charged against the debtor's debt.

As such, the essential elements of a contract of sale, namely,

consent, object certain, & cause or consideration must be
present.

[Tolentino]

Necessary that s must all be due

Only in case of mutual agreement, or upon consent of the

party in whose favor the term was estab, that pmts may be
applied to s w/c have not yet matured

Dacion en pago in its modern concept.-- In its modern concept, what

actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract
of sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or novation, to
have the effect of totally extinguishing the debt or obligation.

Art. 1253. If the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been covered.
Art. 1254. When the payment cannot be applied in accordance w/ the
preceding rules, or if application can not be inferred fr. other
circumstances, the debt w/c is most onerous to the debtor, among those
due, shall be deemed to have been satisfied.
If the debts due are of the same nature & burden, the
payment shall be applied to all of them proportionately.

CITIZENS SURETY V. CA [162 S 738]

RATIO: There is no dation in payment when there is no obligation
to be extinguished

[Baviera]
The ff. Are the rules for applicn of pmts:
1 - The first choice belongs to the Db
2 - If the Db did not choose, the Cr may choose, w/c he will manifest in
a receipt.
3 - If neither specified the applicn, pmt shall be made to the most
onerous debt.

ISSUE: WON CA erred in concluding there was dation in

payment by the execution of the Deed of Assgment?
HELD: The transaction could not be dation in payment. xxx [W]hen
the deed of assignment was executed on 12/4/59, the obligation of the
assignor to refund the assignee had not yet arisen. In other words, there
was no obligation yet on the part of the petitioner, Citizens' to pay
Singer Sewing Machine Co. There was nothing to be extinguished on
that date, hence, there could not have been a dation in payment.

Payment by Cession

Application of Payment

[Balane]

Property is turned over by the debtor to the creditor who

acquires the right to sell it & divide the net proceeds among
themselves.

[Balane]
Application of payment (Imputacion in Spanish) is the
designation of a debt w/c is being paid by the debtor who has several
obligations of the same kind in favor of the creditor to whom the
payment is made.
Rules where the amount sent by the debtor to the creditor is less
than all that is due:
No.1:

Q: Why is payment by cession a special form of payment?-A: Bec. there is no completeness of performance (re: integrity.)
In most cases, there will be a balance due.
Q: Difference between dacion en pago & payment by cession:

Apply in accordance w/ the agreement.

In dacion en pago, there is a transfer of ownership fr. the debtor to the

creditor.

No.2:
Debtor may apply the amount (an obvious limitation bec. of
the principles of indivisibility & integrity) where there would be partial
payment.
No.3:

Creditor can make the application.

No.4:

Apply to the most onerous debt. (Art. 1252, par. 1.)

In payment by cession, there is no transfer of ownership. The creditors

simply acquire the right to sell the properties of the debtor & apply the
proceeds of the sale to the satisfaction of their credit.
Q: Does payment by cession terminate all debts due?A: Generally, NO, only to the extent of the net proceeds. The
extinguishment of the obligation is pro tanto.

Exc. In Legal cession where the extinguishment of the

obligation is total. Legal cession is governed by the
Insolvency Law.

Q; What are the rules to determine w/c is the most onerous debt?
A: (1252)
1. If one is interest paying & the other is not, the debt w/c is
interest paying is more onerous.
2.

If one is a secured debt & the other is not, the secured debt is
more onerous

3.

If both are interest free, one is older than the first, the newer
one is more onerous bec. prescription will take longer w/
respect to the newer debt.

Art. 1255. The debtor may cede or assign his property to his creditors
in payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor fr. responsibility for the net
proceeds of the thing assigned. The agreements w/c, on the effect of
the cession, are made between the debtor & his creditors shall be
governed by special laws.

5th Rule: Proportional application if the debts are equally onerous.

Tender of Payment & Consignation

Art. 1252. He who has various debts of the same kind in favor of one
& the same creditor, may declare at the time of making the payment, to
w/c of them the same must be applied. Unless the parties so stipulate,
or when the application of payment is made by the party for whose
benefit the term has been constituted, application shall not be made as
to debts w/c are not yet due.
If the debtor accepts fr. the creditor a receipt in w/c an
application of the payment is made, the former cannot complain of the
same, unless there is a cause for invalidating the contract.

Art. 1256. If the creditor to whom tender of payment has been made
refuses w/o just cause to accept it, the debtor shall be released fr.
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following
cases:
When the creditor is absent or unknown, or does not appear at the place
of payment;
When he is incapacitated to receive the payment at the time it is due;
41

amdcm
When, w/o just cause, he refuses to give a receipt;
When two or more persons claim the same right to collect;
When the title of the obligation has been lost.

1.

that there was a debt due;

2.

that the consignation of the obligation had been made

because the creditor to whom tender of payment was
made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be
entitled to receive the amount due (Art. 1176,NCC);

3.

that previous notice of the consignation had been given

to the person interested in the performance of the
obligation (Art. 1177,NCC);

4.

that the amount due was placed at the disposal of the

court (Art. 1178,NCC); and

5.

that after the consignation had been made the person

interested was notified thereof (Art. 1178,NCC).

Failure in any of these requirements is enough ground to

render a consignation ineffective. (Jose Ponce de Leon vs.
Santiago Syjuco, Inc., 90 Phil. 311).

Without prior notice, a consignation is void as payment.

(Limkako vs. Teodoro, 74 Phil 313)

In order to be valid, the tender of payment must be

made in lawful currency. While payment in check by the
debtor may be acceptable as valid, if no prompt objection
to said payment is made (Desbarats vs. Vda. de Mortera, L4915, May 25, 1956)

The fact that in previous years payment in check was

accepted does not place its creditor in estoppel from
requiring the debtor to pay his obligation in cash (Sy vs.
Eufemio, L-10572, Sept. 30, 1958).

Thus, the tender of a check to pay for an obligation is

not a valid tender of payment thereof (Desbarats vs. Vda.
de Mortera, supra).

Tender of payment must be distinguished from

consignation

[Balane]
Subsection 3.-- Tender of Payment & Consignation
The title of the subsection is wrong. It should have been
Consignation only bec. that is the special mode of payment & not the
tender of payment.

It is a special mode of payment bec. payment is made not to

the creditor but to the court.
Consignation is an option on the part of the debtor bec.
consignation assumes that the creditor was in mora
accipiendi (when the creditor w/o just cause, refuses to
accept payment.)

Consequence when the creditor w/o just cause, refuses to accept

payment The debtor may just delay payment. But something still
hangs above his head. He is therefore, given the option to consign.
Distinguish this fr. BGB (German Civil Code) w/c states that mora
accipiendi extinguishes the obligation.
[Tolentino]
Tender of pmt b4 consign is required by the present Art only
in case where the Cr refuses to accept it w/o just cause
Effect on INTEREST: When tender is made in a form that Cr cld
have immdtly realized pymt (cash), followed by a prompt attempt
of the Db to make consignn., the accrual of interest will be
suspended fr. the date of such tender.
But when tender is not accompanied by means of pmt, & the Db did
not take any immdte step to consign, then interest is not suspended
fr. the time of such tender.
CASES:
SOCO V. MILITANTE [123 S 160] - Requiremts of consignn
ISSUE: WON the provisions in Arts. 1256-1261, NCC re rquisites
of Consignation must be complied w/fully & strictly, mandatorily /
did the lower ct. err in ruling substantial compliance thereto?

Tender is the antecedent of consignation, that is, an act

preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which
the debtor desires or seeks to obtain.

HELD: We do not agree with the questioned decision. We hold that

the essential requisites of a valid consignation must be complied
with fully and strictly in accordance with the law, Articles 1256 to
1261, New Civil Code. That these Articles must be accorded a
mandatory construction is clearly evident and plain from the very
language of the codal provisions themselves which require absolute
compliance with the essential requisites therein provided. Substantial
compliance is not enough for that would render only a directory
construction to the law. The use of the words "shall" and "must"
which are imperative, operating to impose a duty which may be
enforced, positively indicate that all the essential requisites of a valid
consignation must be complied with. The Civil Code Articles
expressly and explicitly direct what must be essentially done in order
that consignation shall be valid and effectual.

Tender of payment is extrajudicial, while consignation is

necessarily judicial, and the priority of the first is the
attempt to make a private settlement before proceeding to
the solemnities of consignation. (8 Manresa 325).

Art. 1257. In order that the consignation of the thing due may release
the obligor, it must first be announced to the persons interested in the
fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly
in consonance w/ the provisions w/c regulate payment.
Art. 1258. Consignation shall be made by depositing the things due at
the disposal of judicial authority, before whom the tender of payment
shall be proved, in a proper case, & the announcement of the
consignation in other cases.
The consignation having been made, the interested parties
shall also be notified thereof.

Consignation Defined:

Consignation is the act of depositing the thing due w/ the

court or judicial authorities whenever the creditor (1)
cannot accept or (2) refuses to accept payment, & it
generally requires a prior tender of payment.

[Tolentino]

Notice: The reqmt is fulfilled by the service of summons

upon the Def together w/ copy of complaint

Requisites of Valid Consignation:

In order that consignation may be effective, the debtor must first
comply with certain requirements prescribed by law. The debtor must
show

Art. 1259. The expenses of consignation, when properly made, shall be

charged against the creditor.
[Tolentino] Proper when
42

1. Cr accepts consignn after deposit w/o protest though

Db failed to comply w/ reqs. Or

amdcm
IMMACULATA V. NAVARRO [160 S 211] - We hereby grant
said alternative cause of action or prayer. While the sale was originally
executed in Dec. 1969, it was only on Feb. 3, 1974 when, as prayed for
by prvt. res, & as ordered by the court a quo, a deed of conveyance was
formally executed. Since the offer to redeem was made on 3/24/75,
this was clearly w/in the 5-yr. period of legal redemption allowed by
the Public Land Act.

2. Ct. declares consign as validly made

Art. 1260. Once the consignation has been duly made, the debtor may
ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly made, the
debtor may w/draw the thing or the sum deposited, allowing the
obligation to remain in force.

ISSUE: WON offer to redeem was insincere in the absence of

consignation of such amount in Court?
HELD: NO. The right to redeem is a RIGHT NOT AN , thus
no consignation is required.

[Tolentino]

Effects of Consignation:

SC:

1.

Db is released in the same manner as if he had performed the

oblig

2.

Accrual of INTEREST is suspended

3.

Deterioration or loss of thing or amt consigned w/o fault of

Db must be borne by Cr

4.

Any increment or increase in value of thing inures to the

benefit of Cr

When money is deposited in ct under the provs of the law on

consign, it is in custodia legis & therefore exempt fr.
Attachmt & execution (Manejero v. Lampa)

2. LOSS OF THE THING DUE OR IMPOSSIBILITY OF

PERFORMANCE
Art. 1262. An obligation w/c consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed w/o the fault
of the debtor, & before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous
events, the loss of the thing does not extinguish the obligation, & he
shall be responsible for damages. The same rule applies when the
nature of the obligation requires the assumption of risk.
Balane:

Art. 1261. If, the consignation having been made, the creditor should
authorize the debtor to w/draw the same, he shall lose every preference
w/c he may have over the thing. The co-debtors, guarantors & sureties
shall be released.

Art. 1262 is the same as fortuitous event in Art. 1174. The effect is
the same:
The is extinguished if the is to deliver a determinate thing. If
the is to deliver a generic thing, the is not extinguished.

[Baviera]

[GR] Genus nunquam perit ("Genus never perishes." )

Q: When is there a need to tender pmt?

A: (a) upon demand & (b) when debt is due
Q: There are 2 or more claims.
consignation?
A: File INTERPLEADER.

To preserve the right to redeem, consignation is not

required. But to actually redeem, there must of course
be payment or consignation (deposit) itself.

But what is not covered by this rule is an to deliver a limited generic

something in bet. specific & generic thing,
e.g., "For P3,000, I promise to deliver to you one of my watches." This
does not really fall under either Art. 1262 or Art. 1263. But this
really falls under Art. 1262. In this case, the may be extinguished
by the loss of all the thing through FE.

What will Db do after

Q: Why tender first?

A: Coz no need to consign if Cr accept pymt. We can only know this
through tender. (EXHAUSTION OF EXTRAJUDICIAL MEANS)

Art. 1263. In an obligation to deliver a generic thing, the loss or

destruction of anything of the same kind does not extinguish the
obligation.
Art. 1264.
The courts shall determine, whether, under the
circumstances, the partial loss of the object of the obligation is so
important as to extinguish the obligation.
Art. 1265. Whenever the thing is lost in the possession of the debtor, it
shall be presumed that the loss was due to his fault, unless there is
proof to the contrary, & w/o prejudice to the provisions of article 1165.
This presumption does not apply in case of earthquake, flood, storm, or
other natural calamity.
Art. 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may
compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied w/ at the expense of the debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same interest, he
shall be responsible for any fortuitous event until he has effected the
delivery.

Q: B4 & after consignn, there is a need to notify the Cr. Why is

this?
A: So that the Cr can get the money fr. the Clerk of ct & avoid costs of
litigation.
Q: Db consigns. HearingB4 the ct cld approve, the City Hall
burned + money. Shld Db pay again?
A: No. When money is consigned, it is no longer generic. It becomes
specific. Cr bears the loss bec. although it was due to a fortuitous
event, there was delay on his part when he refused to accept pymt.
Q: K of Sale w/ pacto de retro. The vendor tendered pmt w/in the
3-yr pd but vendee refused to accept. Axn for spec perf by Vr.
Accdg to Ve, since money was not consigned, Vr cannot claim rt of
repurchase. Tenable argument?
A: No. As long as there was tender, no need to consign.
But in one case of a co-owner wanting to redeem at reasonable price
(was exorbitant), the court held that reasonable price is det accdg to the
circums. So if you want to redeem, consign the full amt in ct & ask it to
fix the reasonable compensation.
43

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termination of the treaty. This principle of international law has spilled
over into Civil law.

Art. 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, & those who in any manner contravene
the tenor thereof are liable for damages.
Art. 1266. The debtor in obligations to do shall also be released when
the prestation becomes legally or physically impossible w/o the fault of
the obligor.

This doctrine is also called the doctrine of extreme difficulty &

frustration of commercial object.
It has four (4) requisites:
1.

[Balane]

2.

Objective & Subjective Impossibility:

In objective impossibility, the act cannot be done by anyone. The
effect of objective impossibility is to extinguish the .
In subjective impossibility, the becomes impossible only w/
respect to the obligor.

3.
4.

There are 3 views as to the effect of a subjective impossibility:

1. One view holds that the is not extinguished. The obligor
should ask another to do the .
2. Another view holds that the is extinguished.
3. A third view distinguishes one prestation w/c is very
personal & one w/c are not personal such that subjective
impossibility is a cause for extinguishes a very personal ,
but not an w/c is not very personal.

The event or change could not have been foreseen at the time
of the execution of the contract;
The event or change makes the performance extremely
difficult but not impossible;
The event must not be due to an act of either party;
The contract is for a future prestation. If the contract is of
immediate fulfillment, the gross inequality of the reciprocal
prestation may involve lesion or want of cause.

In the case of Naga, the court did not consider the 4th element as an
element.

PEOPLE V. FRANKLIN [39 S 363] -

The attitude of the courts on this doctrine is very strict. This

principle has always been strictly applied. To give it a liberal
application is to undermine the binding force of an
obligation. Every obligation is difficult. The performance
must be extremely difficult in order for rebus sic stantibus to
apply.

ISSUE: WON Surety shd be held liable?

LAGUNA V. MANABAT [59 S 650]

HELD: Art. 1266, NCC does not apply to a surety upon a bail bond

*** Performance is not excused by subsequent inability to perform,

by unforeseen difficulties, by unusual or unexpected expenses, by
danger, by inevitable accident, by the breaking of machinery, by
strikes, by sickness, by failure of a party to avail himself of the
benefits to be had under the contract, by weather conditions, by
financial stringency, or by stagnation of business. Neither is
performance excused by the fact that the contract turns out to be hard
& improvident, unprofitable or impracticable, ill-advised or even
foolish, or less profitable, or unexpectedly burdensome.

Art. 1266 does not apply to a surety upon a bail bond, as said Art.
speaks of a relation bet. a debtor & creditor, w/c does not exist in the
case of a surety upon a bail bond, on one hand, & the State, on the
other. For while sureties upon a bail bond (or recognizance) can
discharge themselves fr. liability by surrendering their principal,
sureties on ordinary bonds or commercial contracts, as a general rule,
can only be released by payment of the debt or performance of the
act stipulated.
NOTES:

Liability of Sureties on a bail bond is conditioned upon

appearance of accused t time set for arraignment or trial or
any other time as fixed by court, the bondsman being the
jailer of the accused and absolutey responsible for his
custody, w/duty at all times to keep him under surveillance.

Surety will be exonerated where the perf. of condi. Of bail

bond is rendered impossible by act of God (e.g. death of
accused), of the obligee (arrested by govt), or the law (law
punishing him is repealed). Or also under Rule 114, sec.
16.

OCCENA V. JABSON [73 S 637]

Art. 1267 does not grant the courts this authority to remake,
modify, or revise the contract or to fix the division of shares bet. the
parties as contractually stipulated w/ the force of law bet. the parties, so
as to substitute its own terms for those covenanted by the parties
themselves.
Balane: In this case the interpretation of the court is too literal.
According to the court, it can release a debtor fr. the obligation but it
cannot make the obligation lighter. But if you look at Art. 1267, partial
release is permitted.

Art. 1267. When the service has become so difficult as to be

manifestly beyond the contemplation of the parties, the obligor may
also be released therefr., in whole or in part.

NAGA TELEPHONE V. CA [230 S 351] - The term "service"

should be understood as referring to the "performance" of the
obligation.-- Art. 1267 speaks of "service" w/c has become so difficult.
Taking into consideration the rationale behind this provision, the term
"service" should be understood as referring to the "performance" of the
obligation. In the present case, the obligation of prvt. resp. consists in
allowing petitioners to use its posts in Naga City, w/c is the service
contemplated in said article. Furthermore, a bare reading of this article
reveals that it is not a requirement thereunder that the contract be for
future service w/ future unusual change. Accdg. to Tolentino, Art.
1267 states in our law the doctrine of unforeseen events. This is said to
be based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the light of
certain prevailing conditions, & once these conditions cease to exist the
contract also ceases to exist. Considering practical needs & the
demands of equity & good faith, the disappearance of the basis of a
contract gives rise to a right to relief in favor of the party prejudiced.

[Baviera] Ordinarily, on a K for a piece of work, an increase in prices

will not relieve the Kor bec. such circum. was already considered by
the parties when they entered into the K.
BAR Q: What if the prices rose so high as to be beyond the
contemplation of the parties due to the oil crisis?
Answer: Released.
Balane:
Rebus sic stantibus.-- Literally means "things as they stand."
It is short for clausula rebus sic stantibus ("agreement of things as they
stand.")

Balane: The Court went too far in this case. It even went to the extent
of stipulating for the parties in the name of equity.

This is a principle of international law w/c holds that when 2 countries

enter into a treaty, they enter taking into account the circumstances at
the time it was entered into & should the circumstances change as to
make the fulfillment of the treaty very difficult, one may ask for a
44

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Art. 1268. When the debt of a thing certain & determinate proceeds fr.
a criminal offense, the debtor shall not be exempted fr. the payment of
its price, whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should receive it, the
latter refused w/o justification to accept it.
Art. 1269. The obligation having been extinguished by the loss of the
thing, the creditor shall have all the rights of action w/c the debtor may
have against third persons by reason of the loss.

Art. 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event:
If he devotes the thing to any purpose different fr. that for w/c it has
been loaned;
If he keeps it longer than the period stipulated, or after the
accomplishment of the use for w/c the commodatum has been
constituted;
If the thing loaned has been delivered w/ appraisal of its value, unless
there is a stipulation exempting the bailee fr. responsibility in case of a
fortuitous event;
If he lends or leases the thing to a third person, who is not a member of
his household;
If, being able to save either the thing borrowed or his own thing, he
chooses to save the latter.
Art. 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing w/o the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been
authorized to use the same.

[Tolentino]
When Db tenders pmt & Cr refuses to accept w/o just cause, Db has 2
alternatives: (1) to consign or
(2) to just keep the thing in his possn, w/ the oblig to use due
diligence, subj to the gen rules of s, but no longer to the spec liab
under Article 1268.
ART. 1189, 1174, 1165, 1268, 1942, 1979, 2159:
Art. 1189. When the conditions have been imposed w/ the intention of
suspending the efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss or deterioration of
the thing during the pendency of the condition.
If the thing is lost w/o the fault of the debtor, the obligation shall be
extinguished;
If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes, or
goes out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered;
When the thing deteriorates w/o the fault of the debtor, the impairment
is to be borne by the creditor;
If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation & its fulfillment, w/ indemnity
for damages in either case:
If the thing is improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor;
If it is improved at the expense of the debtor, he shall have no other
right than that granted to the usufructuary.

Q: What if a depositor was in the premises of the bank & was

robbed of his money w/c he was about to deposit?
A: Bank cannot be held liable for fortuitous event (robbery) esp in
CAB where the money has not yet been actually deposited.

Art. 1979 provides for instances wherein depositary is still

liable even in cases of fortuitous event.

Q: What kind of diligence is required of a depositary?

A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a SDB was stolen, rules on
deposit will not apply bec. the contract governing the transaction is
LEASE of safety deposit box.

[Balane]
There are three requisites in order for Art. 1189 to apply-1. There is loss, deterioration or improvement before the
happening of the condition.
2. There is an obligation to deliver a determinate thing (on the
part of the debtor)
3. The condition happens.

In Negotiorum Gestio
Art. 2147. The officious manager shall be liable for any fortuitous
event:
(1) If he undertakes risky operations w/c the owner was not accustomed
to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the
owner;
(4) If he assumed the management in bad faith.

Art. 1174. Except in cases expressly specified by law, or when it

otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events w/c could not be foreseen, or w/c ,though foreseen, were
inevitable.
Art. 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may
compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied w/ at the expense of the debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same interest, he
shall be responsible for any fortuitous event until he has effected the
delivery.
Art. 1268. When the debt of a thing certain & determinate proceeds fr.
a criminal offense, the debtor shall not be exempted fr. the payment of
its price, whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should receive it, the
latter refused w/o justification to accept it.

Payee in Solutio Indebiti

Art. 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or w/c should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or
impairment of the thing fr. any cause, & for damages to the person who
delivered the thing, until it is recovered.
3. CONDONATION OF REMISSION OF THE DEBT
[Balane]

Condonation or remission is an act of liberality by virtue

of w/c, w/o receiving any equivalent, the creditor renounces
enforcement of an obligation w/c is extinguished in whole or
in part.
This has four (4) requisites:
45

amdcm
1.
2.

3.
4.

Debt that is existing. You can remit a debt even before

it is due.
Renunciation must be gratuitous. If renunciation is for
a consideration, the mode of extinguishment may be
something else. It may be novation, compromise of
dacion en pago.
Acceptance by the debtor
Capacity of the parties.

Art. 750. The donation may comprehend all the present property of the
donor, or part thereof, provided he reserves, in full ownership or in
usufruct, sufficient means for the support of himself, & of all relatives
who, at the time of the acceptance of the donation are by law entitled to
be supported by the donor. Without such reservation, the donation shall
be reduced on petition of any person affected.
Art. 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the
thing or of the document representing the right donated.
If the value of the personal property donated exceeds five
thousand pesos, the donation & the acceptance shall be made in
writing. Otherwise, the donation shall be void.

The form of donation must be observed. If the condonation involves

movables, apply Art. 748. If it involves immovables, apply Art.
749.
But note that the creditor may just refuse to collect (w/o observing any
form.) In this case, the will be extinguished not by virtue of
condonation but by waiver under Art. 6.
Art. 1270. Condonation or remission is essentially gratuitous, &
requires the acceptance by the obligor. It may be made expressly or
impliedly.
One & the other kind shall be subject to the rules w/c govern
inofficious donations. Express condonation shall, furthermore, comply
w/ the forms of donation.

Art. 749. In order that the donation of an immovable may be valid, it

must be made in a public document, specifying therein the property
donated & the value of the charges w/c the donee must satisfy.
The acceptance may be made in the same deed of donation or
in a separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor
shall be notified thereof in an authentic form, & this step shall be noted
in both instruments.

FORMS of Condonation:
a. By a Will

Presumption IN Condonation:

Art. 935. The legacy of a credit against a third person or of the

remission or release of a debt of the legatee shall be effective only as
regards that part of the credit or debt existing at the time of the death of
the testator.
In the first case, the estate shall comply w/ the legacy by
assigning to the legatee all rights of action it may have against the
debtor. In the second case, by giving the legatee an acquittance, should
he request one.
In both cases, the legacy shall comprise all interests on the
credit or debt w/c may be due the testator at the time of his death.
Art. 936. The legacy referred to in the preceding article shall lapse if
the testator, after having made it, should bring an action against the
debtor for payment of his debt, even if such payment should not have
been effected at the time of his death.
The legacy to the debtor of the thing pledged by him is
understood to discharge only the right of pledge.

Art. 1271. The delivery of a private document, evidencing a credit,

made voluntarily by the creditor to the debtor, implies the renunciation
of the action w/c the former had against the latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor & his heirs may uphold it by providing that the
delivery of the document was made in virtue of payment of the debt.
[Balane:] Articles 1271 & 1272 refer to a kind of implied
renunciation when the creditor divests himself of the proof credit.
According to De Diego, this provision is absurd & immoral in that it
authorizes the debtor & his heirs to prove that they paid the debt, when
the provision itself assumes that there has been a remission, w/c is
gratuitous. [Tolentino]
This is Limited to Private Document Art. 1271 has no application
to public documents bec. there is always a copy in the archives w/c can
be used to prove the credit.
Private document refers to the original in order for Art. 1271 to
apply. (Trans-Pacific. v. CA, supra.)

b. By Agreement
Art. 1270. Condonation or remission is essentially gratuitous, &
requires the acceptance by the obligor. It may be made expressly or
impliedly.
One & the other kind shall be subject to the rules w/c govern
inofficious donations. Express condonation shall, furthermore, comply
w/ the forms of donation.

TRANS-PACIFIC V. CA [234 S 494]

The rationale for allowing the presumption of renunciation in the
delivery of a private instrument is that, unlike that of a public
instrument, there could be just one copy of the evidence of credit.
Where several originals are made out of a private document, the
intendment of the law would thus be to refer to the delivery only of the
original rather than to the original duplicate of w/c the debtor would
normally retain a copy. It would thus be absurd if Art. 1271 were to be
applied differently.

Art. 746. Acceptance must be made during the lifetime of the donor &
of the donee.
Art. 752. The provision of article 750 notw/standing, no person may
give or receive, by way of donation, more than he may give or receive
by will.
The donation shall be inofficious in all that it may exceed this
limitation.

Art. 1272. Whenever the private document in w/c the debt appears is
found in the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily, unless the contrary is proved.
Rule 131, Sec. 5 (b), (j), (k), Rules of Court, Disputable presumptions.- The following presumptions are satisfactory if uncontradicted, but
may be contradicted & overcome by other evidence:
46

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xxx
(b) That an unlawful act was done w/ an unlawful intent;
xxx
(j) That a person found in possession of a thing taken in the doing of a
wrongful act is the taker & doer of the whole act; otherwise, that things
w/c a person possesses, or exercises acts of ownership over, are owned
by him;
(k) That a person in possession of an order on himself for the payment
of money, or the delivery of anything, has paid the money or delivered
the thing accordingly;
xxx

Art. 2080. The guarantors, even though they be solidary, are released
fr. their obligation whenever by some act of the creditor they cannot be
subrogated to the rights, mortgages, & preferences of the latter.
(Provisions Common to Pledge & Mortgage)
Art. 2085. The following requisites are essential to the contracts of
pledge & mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
xxx
Art. 1274. It is presumed that the accessory obligation of pledge has
been remitted when the thing pledged, after its delivery to the creditor,
is found in the possession of the debtor, or of a third person who owns
the thing.

Under the 1985 Rules of Court, as amended: Rule 131, Sec. 3.

Disputable presumptions.-- The following presumptions are
satisfactory if uncontradicted, but may be contradicted & overcome by
other evidence:
xxx
(c) That a person intends the ordinary consequences of his voluntary
act;
xxx
(f) That money paid by one to another was due to the latter;
(g) That a thing delivered by one to another belonged to the latter;
(h) That an obligation delivered up to the debtor has been paid;
(i) That prior rents or installments had been paid when a receipt for the
later ones is produced;
(k) That a person in possession of an order on himself for the payment
of they money, or the delivery of anything, has paid the money or
delivered the thing accordingly;
xxx

[Balane]
The accesory obligation of pledge is extinguished bec. pledge is a
possessory lien.

The presumption in this case is that the pledgee has

surrendered the thing pledged to the pledgor. This is not a
conclusive presumption according to Art. 2110, par. 2.
Art. 2093. In addition to the requisites prescribed in article 2085, it is
necessary, in order to constitute the contract of pledge, that the thing
pledged be placed in the possession of the creditor, or of a third person
by common agreement.
Art. 2105. The debtor cannot ask for the return of the thing pledged
against the will of the creditor, unless & until he has paid the debt & its
interest, w/ expenses in a proper case.
4. CONFUSION OR MERGER OF RIGHTS
Art. 1275. The obligation is extinguished fr. the time the characters of
creditor & debtor are merged in the same person.

VELASCO V. MASA
[Balane]

Confusion is the meeting in one person of the qualities of the

creditor & debtor w/ respect to the same obligation.

Facts: Velasco filed a complaint for the recovery of a sum of money

he gave to Masa as a loan, as contained in a private doc. V claims that
while he was imprisoned during the Jap occupation, M coerced &
tricked Vs wife into surrendering the doc to M. V filed a crim case b4
v. M w/c was dismissed for lack of juris. M contends that doc was
voluntarily delivered to him through Osmena. TC dismissed the axn.

There are two (2) requisites:

1. It must take place between the creditor & the
principle debtor (Art. 1276.)
2. The very same obligation must be involved.

Issue: WON there was condonation

Rationale You become your own creditor or you become your own
debtor. So how can you sue yourself.

Held: Yes. No satisfactory proof as to allegation of coercion & trickery

on Vs wife. It is an unquestionable fact that the instru proving the debt
now claimed passed to the possession of the Dr. For this reason,
unless the contrary is proven, it must be presumed that in accdance w/
the provisions of the law, that delivery was voluntarily made. This fact
implies a renunciation of the axn w/c Cr had for the recovery of his
credit. It shld be noted that the doc is of a private nature, the only case
subj to the provs of Articles 1187 to 1189 OCC, so that a tacit
renunciation of the debt may be presumed, in the absence of proof that
the doc was delivered for some other reason than the gratuitous waiver
of the debt & the complete extinction of the oblig to pay.

What may cause a merger or confusion?

(1) Succession, whether compulsory, testamentary or intestate;
(2) Donation;
(3) Negotiation of a negotiable instrument.

Because of its nature, confusion/ merger may overlap w/

other causes of extinguishment.

For example, I owe Ms. Olores P100,000. She bequeath to me that

credit. And then she died. In this case, there is extinguishment both by
merger. But in this case, merger could overlap w/ payment.

Effect of Partial Remission:

Art. 1276 ( below) is perfectly in consonance w/ Art. 1275.

Art. 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former
in force.
Art. 2076. The obligation of the guarantor is extinguished at the same
time as that of the debtor, & for the same causes as all other
obligations.

a. Principal Parties
Art. 1276. Merger w/c takes place in the person of the principal debtor
or creditor benefits the guarantors. Confusion w/c takes place in the
person of any of the latter does not extinguish the obligation.
[Tolentino]
47

amdcm
Extinguishment of the principal oblig through confusion
releases the guarantors, whose oblig is merely accessory
When merger takes place in the person of the guarantor,
oblig is NOT extinguished.

price of the thing or of the value of the service in w/c the obligation
consists.
5. COMPENSATION

b. Among guarantors
Art. 1278. Compensation shall take place when two persons, in their
own right, are creditors & debtors of each other.

(Effects of Guaranty as Between Co-Guarantors)

Art. 2073. When there are two or more guarantors of the same debtor
& for the same debt, the one among them who has paid may demand of
each of the others the share w/c is proportionally owing fr. him.
If any of the guarantors should be insolvent, his share shall
be borne by the others, including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless
the payment has been made in virtue of a judicial demand or unless the
principal debtor is insolvent.

[Balane]

Compensation is a mode of extinguishing, to the concurrent

amount, the obligations of those persons who in their own
right are reciprocally debtors & creditors of each other.
[Castan]

Perhaps, next to payment, compensation is the most common

mode of extinguishing an obligation.

Distinguished fr. Confusion In compensation, there are 2 parties &

2 debts, whereas in confusion, there are 2 debts & only 1 party.

c. Joint Obligations

CASES:
Art. 1277. Confusion does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the
two characters concur.

GAN TION vs. CA [28 S 235, 1969] Award of attys fees is proper
subject of legal compensation.
ISSUE: WON there was legal compensation bet. Pet Gan Tion and
resp. Ong Wan Sieng.

d. Solidary Obligations

HELD: Yes. The award of attys fees is in favor of litigant not of his
counsel, thus litigant is judgment Cr who may enforce judgment by
execution. Such is credit therefore whc can be proper subject of legal
compensation.

Art. 1215. Novation, compensation, confusion or remission of the

debt, made by any of the solidary creditors or w/ any of the solidary
debtors, shall extinguish the obligation, w/o prejudice to the provisions
of article 1219.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the others for the
share in the obligation corresponding to them.
Article 1219. The remission made by the creditor of the share w/c
affects one of the solidary debtors does not release the latter fr. his
responsibility towards the co-debtors, in case the debt had been totally
paid by anyone of them before the remission was effected.
Art. 1216. The creditor may proceed against any of one of the solidary
debtors or some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those w/c may
subsequently be directed against the others, so long as the debt has not
been fully collected.
Art. 1217. Payment made by one of the solidary debtors extinguishes
the obligation. If two or more solidary debtors offer to pay, the creditor
may choose w/c offer to accept.
He who made the payment may claim fr. his co-debtors only
the share w/c corresponds to each, w/ the interest for the payment
already made. If the payment is made before the debt is due, no interest
for the intervening period may be demanded.
When one of the solidary debtors cannot, bec. of his
insolvency, reimburse his share to the debtor paying the obligation,
such share shall be borne by all his co-debtors, in proportion to the debt
of each.

PNB V. ONG ACERO [148 S 166, 1987]

RATIO: There is no compensation where the parties are not
creditors & debtors of each other.
FRANCIA V. IAC [162 S 753]
RATIO: [T]here can be no off-setting of taxes against the claims that
the taxpayer may have against the govt.
The general rule based on grounds of public policy is well-settled
that no set-off admissible against demands for taxes levied for
general or local governmental purposes. The reason on w/c the
gen. rule is based, is that taxes are not in the nature of contracts bet.
the party & party but grow out of duty to, & are the positive acts
of the govt to the making & enforcing of w/c, the personal consent
of individual taxpayers is not required. xxx (Republic v. Mambulao
Lumber.)
In Cordero v. Gonda, we held that: "xxx internal revenue taxes can
not be the subject of compensation: Reason: govt & taxpayer 'are
not mutually creditors & debtors of each other under Art. 1278 &
a "claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Art. 1286. Compensation takes place by operation of law, even though
the debts may be payable at different places, but there shall be an
indemnity for expenses of exchange or transportation to the place of
payment.
A. Different Kinds of Compensation:

e. Indivisible Obligations

Legal Compensation (Articles 1279, 1290) w/c takes place

automatically by operation of law once all the requisites are
present.

Art. 1209. If the division is impossible, the right of the creditors may
be prejudiced only by their collective acts, & the debt can be enforced
only by proceeding against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
Art. 1224. A joint indivisible gives rise to indemnity for damages fr.
the time anyone of the debtors does no comply w/ his undertaking. The
debtors who may have been ready to fulfill their promises shall not
contribute to the indemnity beyond the corresponding portion of the

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, & that he be at
the same time a principal creditor of the other;

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(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, & also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated & demandable;
(5) That over neither of them there by any retention or controversy,
commenced by third persons & communicated in due time to the
debtor.

RATIO: Compensation cannot take place where one's claim against

the other is still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be certain &
liquidated.
Compensation cannot take place where one's claim against the
other is still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be certain &
liquidated.

[Balane]

SYCIP V . CA [134 S 317]

Requisites under Art. 1279:

1.

2.

3.
4.

RATIO: Compensation cannot take place where, w/ respect to the

money involved in the estafa case, the complainant was merely acting
as agent of another. In set-off the two persons must in their own
right be creditor & debtor of each other

Mutual Debtors & Creditors The parties must be

mutually debtors & creditors (1) in their own right, & (2) as
principals. There can be no compensation if 1 party occupies
only a representative capacity. Likewise, there can be no
compensation if in one obligation, a party is a principal
obligor & in another obligation, he is a guarantor.
Fungible Things Due The word consumable is wrong.
Under Art. 418, consumable things are those w/c cannot be
used in a manner appropriate to their nature w/o their being
consumed. In a reciprocal obligation to deliver horses, the
things due are not consumable; yet there can be
compensation. (Tolentino.) The proper terminology is
"fungible" w/c refers to things of the same kind w/c in
payment can be substituted for another.
Maturity of Debts Both debts must be due to permit
compensation.
Demandable & Liquidated Debts Tolentino:
Demandable means that the debts are enforceable in court,
there being no apparent defenses inherent in them. The
obligations must be civil obligations, excluding those that are
purely natural. xxx Before a judicial decree of rescission or
annulment, a rescissible or voidable debt is valid &
demandable; hence, it can be compensated.

COMPANIA MARITIMA v. CA [135 S 593]

RATIO: Compensation cannot take place where one of the debts is
not liquidated as when there is a running interest still to be paid
thereon.
INTERNATIONAL CORPORATE BANK V. IAC [163 S 296] Requisite of legal compensation under Art. 1279.-Art. 1279 requires among others, that in order that legal
compensation shall take place, 'the two debts be due' & 'they be
liquidated & demandable.' Compensation is not proper where the
claim of the person asserting the set-off against the other is not clear
nor liquidated; compensation cannot extend to unliquidated, disputed
claim arising fr. breach of contract.
There can be no doubt that petitioner is indebted to prvt resp. in the
amount of P1,062,063.83 representing the proceeds of her money
market investment. This is admitted. But whether prvt. resp is
indebted to petitioner in the amount of P6.81 million representing the
deficiency balance after the foreclosure of the mortgage executed to
secure the loan extended to her, is vigorously disputed. This
circumstance prevents legal compensation fr. taking place.

A debt is liquidated when its existence & amount are

determined. xxx And a debt is considered liquidated, not only
when it is expressed already in definite figures w/c do not require
verification, but also when the determination of the exact amount
depends only on a simple arithmetical operation. xxx

The debt must not have been garnished.

requirement)

Art. 1280. Notw/standing the provisions of the preceding article, the

guarantor may set up compensation as regards what the creditor may
owe the principal debtor.
Art. 1283. If one of the parties to a suit over an obligation has a claim
for damages against the other, the former may set it off by proving his
right to said damages & the amount thereof.

(additional

Compensation is not prohibited by any provision of law like Articles

1287, 1288 & 1794.
Art. 1287. Compensation shall not be proper when one of the debts
arises fr. a depositum or fr. the obligations of a depositary or of a bailee
in commodatum.
Neither can compensation be set up against a creditor who
has a claim for support due by gratuitous title, w/o prejudice to the
provisions of paragraph 2 of article 301.
Art. 1288. Neither shall there be compensation if one of the debts
consists in civil liability arising fr. a penal offense.
Art. 1794. Every partner is responsible to the partnership for damages
suffered by it through his fault, & he cannot compensate them w/ the
profits & benefits w/c he may have earned for the partnership by his
industry. However, the courts may equitably lessen this responsibility if
through the partner's extraordinary efforts in other activities of the
partnership, unusual profits have been realized.

Effect of Legal Compensation:

Art. 1289. If a person should have against him several debts w/c are
susceptible of compensation, the rules on the application of payments
shall apply to the order of the compensation.
Art. 1290. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, & extinguishes
both debts to the concurrent amount, even though the creditors &
debtors are not aware of the compensation.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, & that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, & also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated & demandable;

REPUBLIC V. DE LOS ANGELES [98 S 103]

RATIO: Compensation of debts arising even w/o proof of liquidation
of claim is allowable where the claim is undisputed.
SOLINAP V. DEL ROSARIO [123 S 640]
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(5) That over neither of them there by any retention or controversy,
commenced by third persons & communicated in due time to the
debtor.

Art. 1282. The parties may agree upon the compensation of debts w/c
are not yet due.
[Tolentino]
1. Voluntary Compensation is not limited to obligations w/c
are not yet due. The parties may compensate by agreement
any obligations, in w/c the objective requisites provided for
legal compensation are not present. xx

MINDANAO PORTLAND CEMENT V. CA [120 S 930]

Automatic compensation, requisites of, present Extinguishment
of two debts arising fr. final & executory judgments due to
compensation by operation of law.

2.

Facultative Compensation w/c takes place when compensation is

claimable by only one of the parties but not of the other, e.g.,
Articles 1287, 1288.

Judicial Compensation when decreed by the court in a case

where there is a counterclaim, such as that provided in Art.
1283. (Baviera OL: F. Comp 1. Kinds b. Judicial)

Art. 1283. If one of the parties to a suit over an obligation has a claim
for damages against the other, the former may set it off by proving his
right to said damages & the amount thereof.

Art. 1287. Compensation shall not be proper when one of the debts
arises fr. a depositum or fr. the obligations of a depositary or of a bailee
in commodatum.
Neither can compensation be set up against a creditor who
has a claim for support due by gratuitous title, w/o prejudice to the
provisions of paragraph 2 of article 301.
Art. 301. The right to receive support cannot be renounced; nor can it
be transmitted to a third person. Neither can it be compensated w/ what
the recipient owes the obligor.
However, support in arrears may be compensated &
renounced, & the right to demand the same may be transmitted by
onerous or gratuitous title.

[Baviera} What is the idea behind legal comp?

To facilitate collxn of money. For expediency.

Effect of Assignment of Credit:
Art. 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation w/c would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he
gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up the compensation
of debts previous to the cession, but not of subsequent ones.
If the assignment is made w/o the knowledge of the debtor,
he may set up the compensation of all credits prior to the same & also
later ones until he had knowledge of the assignment.

[Baviera] Note that Art. 301 of the NCC is not found in FC.

Future support cannot be compensated.

Thus, a father who paid damages for sons q-delict cannot claim comp
by not giving support to his son. However under 301, support IN
ARREARS may be compensated & renounced & the rt to demand the
same may be transmitted by onerous or gratuitous title.

[Balane]

[Balane]

The depositary cannot set up compensation w/ respect to the

things deposited to him.

But the depositor can set up the compensation.

There are 3 situations covered in this article:

1.
2.
3.

Art. 1288. Neither shall there be compensation if one of the debts

consists in civil liability arising fr. a penal offense.
[Baviera]

The oblig of the depositary to return a spec thing cannot be

compensated or substituted by delivery of a thing of the same
kind.

Assignment w/ the debtor's consent;

Assignment w/ the debtor's knowledge but w/o his consent;
&
Assignment w/o the debtor's knowledge (& obviously w/o
his consent.)

Rules:
Assignment w/ the debtor's consent Debtor cannot set up
compensation at all unless the right is reserved.
Assignment w/ the debtor's knowledge but w/o his consent
The debtor can set up compensation w/ a credit already
existing at the time of the assignment.

Q: If there is an oblig of the depositary to the depositor for

damages(already liquidated & demandable) in case of negligence
& if the depositor owes the depositary a sum of money, can there
be set-off?

Assignment w/o the debtor's knowledge Debtor can set up as

compensation any credit existing at the time he acquired
knowledge even if it arose after the actual assignment.

A: No since it arose out of a deposit. Not allowed by law. Cld be a way

of Cr to collect a bad debt.

Art. 1284. When one or both debts are rescissible or voidable, they
may be compensated against each other before they are judicially
rescinded or avoided.

Art. 1794. Every partner is responsible to the partnership for damaged

suffered by it through his fault, & he cannot compensate them w/ the
profits & benefits w/c he may have earned for the partnership by his
industry. However, the courts may equitably lessen this responsibility
if through the partners extraordinary efforts in other activities of the
partnership, unusual profits have been realized.

6. NOVATION
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.

Contractual/ Conventional compensation w/c takes place when parties

agree to set-off even if the requisites of legal compensation are not
present, e.g., Art. 1282. ( Baviera OL: F. Comp 1. Kinds a.
Voluntary)
50

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[TOLENTINO]

Novation is the extinguishment of an obligation by

the substitution or change of the obligation by a
subsequent one w/c extinguishes or modifies the
first, either by changing the object of principal
conditions, or by substituting the person of the
debtor, or by subrogating a third person in the
rights of the creditor. (Manresa.)

MILLAR VS. COURT OF APPEALS

HELD: Where the new obligation merely reiterates or ratifies the
old , although the former effects but minor alterations or slight
modifications w/ respect to the cause or object or conditions of the
latter, such changes do not effectuate any substantial
incompatibility bet. the 2 s.
Only those essential & principal changes introduced by the
new producing an alteration or modification of the essence of the old
result in implied novation.
In the case at bar, the mere reduction of the amount due in no
sense constitutes a sufficient indicium of incompatibility, especially in
the light of (a) the explanation by the petitioner that the reduced
indebtedness was the result of the partial payments made by the resp.
before the execution of the chattel mortgage agreement, & (b) the
latter's admissions bearing thereon.

It is the only mode whereby an obligation is extinguished & a new

obligation is created to take its place.
The other modes of extinguishing an obligation are absolute in the
sense that the extinguishment of the obligation is total (w/ the exception
of compromise.)
Novation, on the other hand, is a relative mode of extinguishing an
obligation.
Classification of Novation:
Subjective (Personal) or novation by a change of subject

2.

Active subjective or a change of creditor; also known as

subrogation.

3.

Passive subjective or a change of debtor

4.

Objective (Real) or novation by change in the object or in the

principal conditions.

Novation by a change in the principal conditions is

the most problematic kind of novation bec. you
have to determine whether or not the change in the
conditions is principal or merely incidental.

For example, a change fr. straight terms to

installment terms & a change fr. non-interest
bearing obligation to an interest bearing one are
changes in the principal conditions.

5.

INTEGRATED CONSTRUCTION VS. RELOVA, [146 SC 360]

Novation; While the tenor of the subsequent letter-agreement in a
sense novates the judgment award there being a shortening of the
period within which to pay, the failure of the party to comply w/d
suspensive & conditional nature of d agreement, remitted the
parties to their original rights under the judgment award.

COCHINGYAN VS. R & B SURETY [151 S 339]

Novation defined.

Mixed novation w/c is a combination of both subjective &

objective novation.

HELD: Novation is the extinguishment of an obligation by the

substitution or change of the obligation by a subsequent one w/c
terminates it, either by changing its object or principal conditions,
or by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.
Novation through a change of the object or principal
conditions of an existing obligation is referred to as objective (or real)
novation.
Novation by the change of either the person of the debtor or
of the creditor is described as subjective (or personal) novation.
Novation may also be both objective & subjective (mixed) at
the same time. In both objective & subjective novation, a dual purpose
is achieved an obligation is extinguished & a new one is created in
lieu thereof.

Requisites of Novation:
1.
2.
3.
4.
5.

A mere extension of the term of payment does not result in

novation, for the period affects only the performance, not the
creation of the obligation

CASES:

Novation is the most unusual mode of extinguishing an obligation.

1.

IMPLIED NOVATION There is no specific form required for an

implied novation. All that is required is INCOMPATIBILITY between
the original & the subsequent contracts.

There must be a previous valid obligation;

Agreement of the parties to create the new obligation;
Extinguishment of the old obligation. (I would consider this
an effect, rather than a requisite of novation-- Balane);
Validity of the new obligation. (Tiu Siuco v. Habana, 45 P
707.)
There must be CONSENT of all the parties to the
substitution, resulting in the extinction of the old obligation
& the creation of a valid one.

Art. 1292. In order that an obligation may be extinguished by another

w/c substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old & the new obligations be on every
point incompatible w/ each other.

Novation is never presumed.-- If objective novation is to

take place, it is imperative that the new obligation expressly declare
that the old obligation is thereby extinguished, or that the new
obligation be on every point incompatible w/ the old one. Novation is
never presumed; it must be established either by the discharge of the
old debt by the express terms of the new agreement, or by the acts of
the parties whose intention to dissolve the old obligation as a
consideration of the emergence of the new one must be clearly
discernible.

[TOLENTINO]

Novation is NEVER presumed.

It must be established that
1. the old & the new contracts are incompatible in all
points,
2. or that the will to novate appear by express
agreement of the parties
3. or in acts of equivalent import.

If old debtor is not released, no novation occurs & the third

person who assumed the obligation becomes a co-debtor or surety or
a co-surety. Again, if subjective novation by a change in the person
of the debtor is to occur, it is not enough that the juridical relation bet.
the parties to the original contract is extended to a third person. It is
51

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essential that the old debtor be released fr. the obligation, & the third
person or new debtor take the place in the new relation. IF the old
debtor is not released, no novation occurs & the third person who has
assumed the obligation of the debtor becomes merely a co-debtor or
surety or a co-surety.

PEOPLE'S BANK VS. SYVEL'S [164 S 247]

RATIO: When does novation take place; Novation is never
presumed.
Absence of existence of an explicit novation nor
incompatibility between the old & the new agreements.
Novation was not intended in the case at bar as the REM
was taken as additional security for the performance of the contract.
If objective novation is to take place, it is essential that the
new obligation expressly declare that the old obligation is to be
extinguished or that the new obligation be on every point incompatible
w/ the old one. xxx

Novation is not implied when the parties to the new

obligation expressly negated the lapsing of the old obligation.
Neither can the petitioners anchor their defense on implied
novation. Absent an unequivocal declaration of extinguishment of a
pre-existing obligation, a showing of complete incompatibility bet. the
old & the new obligation (& nothing else) would sustain a finding of
novation by implication. But where, as in this case, the parties to the
new obligation expressly recognize the continuing existence & validity
of the old one, where, in other words, the parties expressly negated the
lapsing of the old obligation, there can be no novation. The issue of
implied n ovation is not reached at all.

HELD: Novation takes place when the object or principal

condition of an obligation is changed or altered. It is elementary
that novation is never presumed; it must be explicitly stated or
there must be manifest incompatibility bet. the old & the new
obligations in every aspect.
In the case at bar, there is nothing in the REM w/c supports
appellants' submission. The contract on its face does not show the
existence of an explicit novation nor incompatibility on every point bet.
the old & the new agreements as the second contract evidently
indicates that the same was executed as new additional security to the
CM previously entered into by the parties.

FUA VS. YAP [74 P 287]

NOVATION BY SUBSEQUENT AGREEMENT
** Foreclosure of such new mortgage under the judgment in the old
was VOID.
SANDICO VS. PIGUING [42 S 322]
HELD: NO. CA was not in grave abuse of disc.
Novation results in 2 stipulations (1) to extinguish an existing
obligation, and (2) to substitute a new one in its place. Fundamental it
is that novation effects a substitution or modification of an obligation
by another or an extinguishment of one obligation by the creation of
another. In the case at hand, we fail to see what new or modified
obligation arose out of the payment by the resp. of the reduced amount
of P4,000 & substituted the monetary liability for P6,000 of the said
resp. under the appellate court's judgment.
Additionally, to sustain novation necessitates that the same
be so declared in unequivocal terms clearly & unmistakably
shown by the express agreement of the parties or by acts of equivalent
import or that there is complete & substantial incompatibility bet.
the 2 obligations.
Record showed that
def attempted to rebuild the irrigation canal but not in the original
dimensions, whc was not disputed by both parties. Such partial recons
does not constitute substantial compliance. Thus SC remanded d case
to TC for ocular on the job done & if def refuses to complete to ask
another to do the work at the expense of def.

Records show that in the real estate mortgage, appellants

agreed that the chattel mortgage "shall remain in full force and shall
not be impaired by this (real estate) mortgage."
It is clear, therefore, that a novation was not intended. The
real estate mortgage was evidently taken as additional security for the
performance of the contract
b. FORMS OF NOVATION:
Art. 1281. Compensation may be total or partial. When the two debts
are of the same amount, there is a total compensation. (Classmates, I
think there was a typo error in Maam Bubbles outline. I think this
should have been Art. 1291, reproduced below)
1. Substitution of debtor-Art. 1236. The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand fr. the debtor what he
has paid, except that if he paid w/o the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been
beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or
against the will of the latter, cannot compel the creditor to subrogate
him in his rights, such as those arising fr. a mortgage, guaranty, or
penalty.
Art. 1835 second paragraph
A partner is discharged fr. any existing liability upon dissolution of the
partnership by an agreement to that effect between himself, the
partnership creditor & the person or partnership continuing the
business; & such agreement may be inferred fr. the course of dealing
between the creditor having knowledge of the dissolution & the person
or partnership continuing the business.

NPC VS. DAYRIT [125 S 849]

RATIO: Novation is never presumed but must be explicitly stated;
No novation in the absence of explicit novation or incompatibility on
every point between the old & the new agreements of the parties.
HELD: It is elementary that novation is never presumed; it must
be explicitly stated or there must be manifest incompatibility between
the old and the new obligations in every aspect. Thus the Civil Code
provides:
Art. 1292. In order that an obligation may be extinguished
by another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations
be on every point incompatible with each other.
In the case at bar, there is nothing in the May 14, 1982
agreement w/c supports the petitioner's contention. There is neither
explicit novation nor incompatibility on every point bet. the "old" & the
"new" agreementssaid contract was executed precisely to
implement the compromise agreement for which reason there was no
novation.
BALILA V. IAC [155 S 262]
RATIO: Subsequent mutual agreements & actions of petitioners &
private respondents allowing the former extension of time to pay their
obligations & in installments novated & amended the period of
payment decreed by the trial court in its judgement by compromise.

PNB VS. MALLARI

HELD: The acceptance of PNB of the offer of G to pay under the
terms specified by him constituted not only a substitution of the debtor
but an alteration or modification of the terms & conditions of the
original K.

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those w/c are inherent in his person; they may also impugn the acts w/c
the debtor may have done to defraud them.
(Conventional Redemption)
Art. 1610. The creditors of the vendor cannot make use of the right of
redemption against the vendee, until after they have exhausted the
property of the vendor.
Art. 1729. Those who put their labor upon or furnish materials for a
piece of work undertaken by the contractor have an action against the
owner up to the amount owing fr. the latter to the contractor at the time
the claim is made. However, the following shall not prejudice the
laborers, employees & furnishers of materials:
(1) Payments made by the owner to the contractor before they are due;
(2) Renunciation by the contractor of any amount due him fr. the
owner.

Effect of insolvency of new debtor-Article 1294. If the substitution is w/o the knowledge or against the
will of the debtor, the debtors insolvency or non-fulfillment of the
obligation shall not give rise to any liability on the part of the original
debtor.
Art. 1295. The insolvency of the new debtor, who has been proposed
by the original debtor & accepted by the creditor, shall not revive the
action of the latter against the original obligor, except when said
insolvency was already existing & of public knowledge, or known to
the debtor, when he delegated his debt.
2. Change of Principal Condition or Object
3. Subrogation/Subjective Novation
a. In case of active subjective novation

This article is subject to the provisions of special laws:

(Assignment of Credits & Other Incorporeal Rights)
Art. 1629. In case the assignor in good faith should have made himself
responsible for the solvency of the debtor, & the contracting parties
should not have agreed upon the duration of the liability, it shall last for
one year only, fr. the time of the assignment if the period had already
expired.
If the credit should be payable w/in a term or period w/c has
not yet expired, the liability shall cease one year after the maturity.
Art. 2207. If the plaintiff's property has been insured, & he has
received indemnity fr. the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency fr. the person causing the loss or injury.

Art. 1300. Subrogation of a third person in the rights of the creditor is

either legal or conventional. The former is not presumed, except in
cases expressly mentioned in this Code; the latter must be clearly
established in or order that it may take effect.
Legal (Art. 1302) In all cases of Art. 1302, subrogation takes place
by operation of law.
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even w/o
the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays w/ the
express or tacit approval of the debtor;
(3) When, even w/o the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, w/o prejudice to the effects of
confusion as to the latter's share;
Conventional/ Contractual (Art. 1301) Consent of the 3 parties
(old creditor, debtor & new creditor) are required.

2. Effect:
Art. 1304. A creditor, to whom partial payment has been made, may
exercise his right for the remainder, & he shall be preferred to the
person who has been subrogated in his place in virtue of the partial
payment of the same credit.
Art. 1303. Subrogation transfers to the person subrogated the credit w/
all the rights thereto appertaining, either against the debtor or against
third persons, be they guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation.

Art. 1301. Conventional subrogation of a third person requires the

consent of the original parties & of the third person.
Q: Is it possible for a creditor to transfer his credit w/o consent of
the debtor?
A: Yes. But this is not novation but an assignment of rights under Art.
1624.

Assignment is also a novation but much simpler. But is not

subrogation.

b. Passive Subjective Novation

(Substitution of the debtor)

KINDS OF NOVATION:

Art. 1293. Novation w/c consists in substituting a new debtor in the

place of the original one, may be made even w/o the knowledge or
against the will of the latter, but not w/o the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in articles
1236 & 1237.
Art. 1236. The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand fr. the debtor what he
has paid, except that if he paid w/o the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been
beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or
against the will of the latter, cannot compel the creditor to subrogate
him in his rights, such as those arising fr. a mortgage, guaranty or
penalty.

a. Legal
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even w/o
the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays w/ the
express or tacit approval of the debtor;
(3) When, even w/o the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, w/o prejudice to the effects of
confusion as to the latter's share;
Art. 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the
rights & bring all the actions of the latter for the same purpose, save
53

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Exception: In an active subjective novation, the guarantors, pledgors,
mortgagors are not released.

RODRIGUEZ V. REYES

Look at Art. 1303, accessory obligations are not extinguished. So there

is a conflict.

HELD: By buying the property covered by TCT No. 48979 w/ notice

that it was mortgaged, resp. Dualan only undertook either to pay or else
allow the land's being sold if the mortgage creditor could not or did not
obtain payment fr. the principal debtor when the debt matured.
Nothing else. Certainly, the buyer did not obligated himself to replace
the debtor in the principal obligation, & he could not do so in law w/o
the creditor's consent. (Art. 1293)

How do you resolve? According to commentators, Art. 1303 is an

exception to Art. 1296.
Art. 1297. If the new obligation is void, the original one shall subsist,
unless the parties intended that the former relation should be
extinguished in any event.
Art. 1298. The novation is void if the original obligation was void,
except when annulment may be claimed only by the debtor, or when
ratification validates acts w/c are voidable.
Art. 1299. If the original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated.

The obligation to discharge the mortgage indebtedness therefore,

remained on the shoulders of the original debtors & their heirs,
petitioners herein, since the record is devoid of any evidence of
contrary intent. xxx
Art. 1835. xxx
A partnership is discharged fr. any existing liability upon dissolution of
the partnership by an agreement to that effect between himself, the
partnership creditor & the person or partnership continuing the
business; & such agreement may be inferred fr. the course of dealing
between the creditor having knowledge of the dissolution & the person
or partnership continuing the business.

II. CONTRACTS
(Read Arts. 1305-1422)
A. IN GENERAL

[Balane]
Passive Subjective Novation-- Articles 1293 & 1295

Art. 1293 talks of expromission (not upon the old debtor's

initiative. It could be upon the initiative of the creditor or of
the new debtor.)

Art. 1295 talks of delegacion (change at the old debtor's

initiative.)

1. DEFINITION
Article 1305. A contract is a meeting of minds between
two persons whereby one binds himself, with respect to
the other, to give something or to render some service.
Balane: thinks that the definition in Art. 1305 is inaccurate. The
term persons should be substituted by the term parties. Also,
contracts may be multilateral; there can be more than 2 parties
involved (i.e. partnership).

In expromission, the change in the person of the debtor is not

upon the initiative of the old debtor, whether or not he gave
his consent. As soon as a new debtor & creditor agree,
novation takes place.

SANCHEZ-ROMAN: a juridical convention manifested in legal

form, by virtue of whc one or more parties bind themselves in favor
of one another or others, or reciprocally, to d fulfillment of a
prestation to give, to do or not to do.

In both cases, the intent of the parties must be to release the

old debtor.

What is the difference in effect between expromission &

delegacion?

Tolentino: Contracts w/reciprocal s excluded by d def.

In expromission, the release of the old debtor is absolute

(even if it turns out that the new debtor is insolvent.)

Q: An agreement was made betw. A & B. Was a created?

A: NN. Agreement to go to church together is not a .

In delegacion, the release of the old debtor is not absolute.

He may be held liable (1) if the new debtor was already
insolvent at the time of the delegacion; & (2) such
insolvency was either known to the old debtor or of public
knowledge.

Q: May a be perfected as to an Agreement no to do? YES

EX: not to engage in business (provided not in perpetuity)
Q: MAYDeed of sale signed by only 1 party?
A: Yes, in auto

Cases of expromission are quite rare.

AUTO-CONTRACT:

Is a executed by one person only, but in such

execution he represents at least 2 parties;

Effect of Novation

Executed by one person, either:

1.
when a person in his capacity as rep, of himself,
or
2.
when as a rep of 2 diff persons he brings abt a
bet his principals by ing w/himself

Art. 1296.
When the principal obligation is extinguished in
consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
consent.
[Balane]

Effect of novation as to accessory obligations Accessory

obligations may subsist only insofar as they may benefit third
persons who did not give their consent, e.g., stipulation pour
atrui

GR: valid, exc. 1491.

EX: of AGENCY (Read art. 1890)
Article 1890. If the agent has been empowered to borrow money, he
may himself be the lender at the current rate of interest. If he has

General rule: In a novation, the accesory obligation is extinguished.

54

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been authorized to lend money at interest, he cannot borrow it
without the consent of the principal.

Agent can be lender but he may not be the

borrower.
& In Sales (art. 1491): one party can never validly give consent.

TOLENTINO:

All s under 1491 are void by reason of PP

In Code of commerce, (Art.267) a commission

agent w/o permission of principal cannot buy for himself
or for another, nor to sell what he ought to buy.

Article 1491. The following persons cannot acquire by purchase,

even at a public or judicial auction, either in person or through the
mediation of another: (CAPACITY TO BUY OR SELL)
(1) The guardian, the property of the person or persons
who may be under his guardianship;

(2) ELEMENTS OF CONTRACTS

a)
Essential
b)
Natural
c)
Accidental

(2) Agents, the property whose administration or sale may

have been intrusted to them, unless the consent of the
principal has been given;
(3) Executors and administrators, the property of the
estate under administration;

(a) ESSENTIAL ELEMENTS

The essential elements are those without which

there can be no contract. (indispensable rqmts.)

These elements are, in turn, subdivided into:

(4) Public officers and EEs, the property of the State or of

any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply
to judges and government experts who, in any manner
whatsoever, take part in the sale;

1.)
common (communes) those which are present
in all contracts, such as consent, object certain, and
cause;

(5) Justices, judges, prosecuting attorneys, clerks of

superior and inferior courts, and other officers and EEs
connected with the administration of justice, the property
and rights in litigation or levied upon an execution before
the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes
the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may
be the object of any litigation in which they may take part
by virtue of their profession;

2.)
special (especiales) are present only in certain
contracts, such as delivery in real contracts, or form in
solemn ones.
3.)
extraordinary (especialissimos) are those
which are peculiar to a specific contract (i.e. price in sales).
(b) NATURAL ELEMENTS

those which are derived from the nature of the

contract and ordinarily accompany the same.

They are presumed by law, although they can be

excluded by the contracting parties if they so desire.

(6) Any others specially disqualified by law.

Baviera:

to earn the said fee. thus, it is to the clients advantage. But

the court may reduce the fee is found to be unconscionable.
(ON LEASE OF RURAL AND URBAN LANDS)
Article 1646. The persons disqualified to buy referred to in articles
1490 and 1491, are also disqualified to become lessees of the things
mentioned therein

Nos. 1-3 are voidable contracts; Nos. 4-6 are void

contracts.

The reason why those enumerated under Art. 1491

have relative incapacity to enter into a contract of sale is that
they possess a fiduciary relationship w/ the owner of the
properties mentioned, such that the law prevents them fr.
being tempted to take advantage of their positions.

i. right to resolve (Art. 1191)

ii. warranties in sales contracts, implied
Q: Is warranty a natural of ? Not always
A: only implied warranty are natural, not express ones

The prohibition rests on the fact that greed might

get the better of loyalty. The law does not trust human nature
to resist the temptations likely to arise out of the antagonism
between the interest of the seller & the buyer.

(c) ACCIDENTAL ELEMENTS

The accidental elements are those which exist

only when the parties expressly provide for them for the
purpose of limiting or modifying the normal effects of the
contract (i.e. conditions, terms, modes)

An agent who has renounced the agency & is a

judgment creditor of his principal may acquire the latters
property in a public sale.

Q: Stipulation as to interest in a of Loan, what kind of ?

A: Accidental; Interest must always be expressed/written to be given
effect.

The prohibition against lawyers is intended to

curtail any undue influence the lawyer may have over his
client on account of their confidential association. Such sales
are void & cannot be ratified. Public interest & public policy
remain paramount & do not permit compromise &
ratification.

BATCHELDER vs CB 44 SCRA 45:

RATIO:
earner.

Q: When is a thing deemed to be the subject of litigation?

Not only if there is some contest or litigation in

court, but also fr. the moment it becomes subject to judicial
action.

Monetary Boards do not create s bet. CB & dollar

GOVERNING LAW / JURISDICTION:

1307 - innominate Cs governed by:
i. Stipulation of parties
ii. Law on ObliCon
iii. Analogous contracts

Contingent fee- not contrary to law as it will

encourage the lawyer to work harder to win the case in order
55

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RATIO: Freedom of parties to stipulate Parties can not be
coerced to enter into a contract where no agreement is had between
them as to the principal terms and conditions of the contract.
Freedom to stipulate such terms and conditions is of the essence of
our contractual system, and by express provision of the statute, a
contract may be annulled if tainted by violence, intimidation, or
undue influence (Articles 1306, 1336, 1337, CC).

iv. Customs
1370 intention of parties; based on contemporaneous & subseq.
Acts
Q: What may not be SM of of Sale?
A: service
Q: that is perfected at the negotiation stage?
A: Option a preal

CORPUS v. CA, 98 SCRA 424

RATIO:

B. CHARACTERISTICS / PRINCIPLES OF CONTRACTS:

(1)
(2)
(3)
(4)
(5)

An atty-client rel. can be created by implied agreement, as

when the atty. Actually rendered legal services for a person who is a
close friend. The of such a person to pay attys fees is based on
the law of s concept of facio ut des (I do and you give).

Consensuality;
Autonomy;
Mutuality;
Obligatory Force
Relativity

(2) AUTONOMY OF CONTRACTS:

(1) CONSENSUALITY OF CONTRACTS

Art. 1306.
The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.

Article 1305. A contract is a meeting of minds between

two persons whereby one binds himself, with respect to the
other, to give something or to render some service.

Ex: unconscionable/usurious interest (Jurado)

autonomy of will; Liberty of s/Freedom to

contract

CONSTI Non-impairment Clause, legisture

nor Courts may not prescribe the terms of a legal ,
\freedom to w/o prior restraint;

Parties may freely stipulate (as long as not

contrary to L/M/GC/PO/PP) but the juridical relations
created by their & the rts & s arising therefrom are det.
By Law; (Ex: a Pacto de Retro Sale may be construed by
court to be loan w/mortgage after looking at the substance
of d & not merely its form or name.

Freedom to limited by the common good

(Police Power)

EX: a PN whc constitute a gambling debt is

unenforceable

Compromise Agreement approved by court,

where a grantee of public land promised to sell to another,
within the 5-yr prohibitory period, even if sale was made
after such period and was approved by Sec. of Agric. is null
and VOID ab initio. (Zambales v. CA)

Article 1317. No one may contract in the name of another

without being authorized by the latter, or unless he has by
law a right to represent him.
A contract entered into in the name of another by
one who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable, unless
it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the
other contracting party.
Consent vitiated voidable
If by Rep authority is void unenforceable
Q: How is consent given?
A: by a mtg of the offer and acceptance, upon the thing
whc is to constitute the and as to the cause.
The following contracts are unenforceable unless they are ratified
(Art. 1403):
(a) those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his powers (r/t Art.1317)

Limitations in Freedom to Contract:

In Agency, a stipulation which excludes one or more partners from
any share in the profits or losses is void. (Article 1799)

CONTRACT OF ADHESION:

Where one party has already prepared the form of

a , containing stips. he desires, and he simply asks the
other party to agree to them if he wants to continue w/d ;

In Pledge/mortgage The creditor cannot appropriate the things

given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void. (Article 2088)

The party who adheres to the is in reality free

to reject it entirely, but if he does, he consents;

Article 2130. A stipulation forbidding the owner from alienating the

immovable mortgaged shall be void.

In case of doubt in interpretation of stip in ,

such will be construed vs. d party who prepared such stip.

Parties may not Agree on a ceiling price of

mortgaged prop.in execution b/c such shd be made to d
highest bidder (Warner v, Jaucian); nor stipulate that upon
non-payment, creditor may approp. Mortgaged prop. Upon
himself this is called pactum commisorium, contrary to
Art. 2088.

Q: of adhesion is being disputed on the ground of lack of consent

of the other party. Is this tenable?
A: SC held no, is valid. (Ong Yiu v. CA)
REPUBLIC v, PLDT, 26 SCRA 620

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There are certain matters where man, by

nature must have freedom of decision, thus may not
validly be bound by al , such as:
1. promise to marry or not, to secure legal sep, or to
adopt a child;
2. promise to change citizenship, professions,
religion or domicile;
3. promise not to hold public ofc, or limit perf or
ofc duties;
4. promise to join a poli.party or separate fr it.
5. not to engage in work, labor;
6. to vote for a candidate,
7. to do, at the risk of life,
8. to pay money for an immoral cause i.e. commit
a crime; bribe a public ofc; marry; testify in court.

The determination shall not be obligatory if it is evidently

inequitable. In such case, the courts shall decide what is equitable
under the circumstances (Art. 1310).

An example of a determination made by a 3 rd person (Art.

1309) is the fixing of the price by the 3rd person.

The contract may be revoked if there is mutual dissent.

The condition can never depend solely upon the will of the
debtor. If the condition depends solely on the will of the debtor, the
obligation is void (Art. 1182).

The obligation is void because there is no vinculum juris.

The creditor could never compel the debtor to perform the .
(potestative suspensive that depends on sole will of Db)

CUI V. ARELLANO [112 PHIL 135 (1961)]

Q: A stip. That may be terminated by 1 party, valid?

A: Yes, does not violate mutuality, b/c the latter pertains to
validity/performance, not termination (Philbanking v. Lui
She)

STIPULATION CONTRARY TO P.P.

RATIO:
STIPULATION WHEREBY STUDENT CANNOT
TRANSFER TO ANOTHER SCHOOL W/O REFUNDING
SCHOLARSHIP CASH, NULL AND VOID.

ACCELERATION CLAUSE
EX: In of Sale by Installment basis
Upon non-payment of amort., the whole balance will
automatically be due, or rescind.

Scholarships are awarded in recognition of merit & NOT

to keep students in school to bolster prestige. As for the Def.,
scholarship award is a business scheme designed to increase the
business potential of an educational institution.

ESCALATION CLAUSE

Advancing maturity under certain conditions

are valid (Insular Bank vs. Salazar)

It is provided by the parties, to adjust

compensation/consid. upon the happening of an event.

Limitation of CCs liability for loss of

passengers baggage that was under declared by the latter,
valid. (Ong Yiu v. CA)

Escalator clause
Valid if not potestative solely on the will of one of the
parties (violates mutuality)
EX: of Loan/ of WORK/service/project-independent
ing

SAURA v. SINDICO, 107 PH 336

STIPULATION CONTRARY TO P.P.
RATIO:
Among those that may not be the subject matter (object)
of contracts are certain rights of individuals, which the law and
public policy have deemed wise to exclude from the commerce of
man.

LEAL v. IAC, 155 SC 394

Q: w/o de-escalation clause, will still be valid?

A: yes; only the escalation clause will not be given
effect

RATIO:
Contracts are generally binding
between the parties, their assigns and heirs; however, under Art.
1255 of the Civil Code of Spain, which is applicable in this
instance, pacts, clauses, and conditions which are contrary to
public order are null and void, thus, without any binding effect.
Annotations on title: prohibition to sell property to third
parties whc is indefinite & unlimited as to time, whc shall continue
to be applicable beyond the lifetime of the original parties to the ,
is a nullity.
Redemption:
Right to redeem must be expressly
stipulated in the of sale to have legal existence.

BANCO FILIPINO SAVINGS VS NAVARRO, 152 SC 346 (87)

RATIO:
A contract which embodies an
Escalation Clause authorizing automatic increase in interest rates
in the event a law increasing the lawful rates of interest that may
be charged, does not incl. a CB Circular, whc, although having
the face & effect of law, is not strictly a statute or a law.
An Escalation Clause to be valid must include a deescalation clause. There can be an inc. in int. if incd. by law or
by the Monet.Board; in order for such stip. To be valid, it must
incl. a provision for the reduction of the stipd. interest in the
event that the applicable maximum rate of int. is reduced by law
or by the MB.

(3) MUTUALITY PRINCIPLE:

The contract must bind both contracting parties; its

validity or compliance cannot be left to the will of one of them (Art.
1308).

FLORENDO VS CA, 265 SC 678 (96)

RATIO:

The determination of the performance may be left to a 3 rd

person, whose decision shall not be binding until it has been made
known to both contracting parties (Art. 1309).

A contract containing a condition which makes its

fulfillment dependent exclusively upon the uncontrolled will of
one of the contracting parties, is void
The unilateral determination and imposition of
increased interest rates by the herein respondent bank is
57

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(3)
or by stip of parties i.e. pacto de retro sale where
only the party may redeem not anyone else

obviously violative of the principle of mutuality of contracts

ordained in Article 1308 of the Civil Code.

2nd par. permits a 3P to avail himself of a benefit extended to him by its

terms. Doctrine of stipulations pour autrui (SPA).

Escalation clauses are valid stipulations in commercial

contracts to maintain fiscal stability and to retain the value of
money in long term contracts.

Requisites of SPA:
(1)
stip. in favor of 3P
(2)
stip. shld. be a part, not the whole, of the
(3)
clearly & deliberately conferred by ing parties
(4)
not be conditioned or compensated by any kind of
whatever
(5)
3P must have communicated his acceptance to
obligor before revocation
(6)
neither of the ing parties bears the legal
representation or authorization of the 3P

4. OBLIGATORY FORCE OF CONTRACTS:

Obligations arising from contracts have the force of law between
the parties and should be complied with in good faith (Art. 1159)
Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law
(Art. 1315).

(SPA) Acceptance by 3P: no particular form.

Before acceptance, the ing parties, by mutual agreement, may
modify the or revoke it.
(SPA) Since 3Ps rt. is based directly on the , it is also subj. to all
defenses available v. the , such as those affecting its validity.

GEN RULE: Contracts are perfected by mere consent the

principle of consensuality (Art. 1315)

Bav: A consignee, though not strictly a party in the of transpo, can

sue, on the , the common carrier.
Reason: There is a stip. in his favor.

EXCEPTION: Real contracts, such as deposit, pledge, and

commodatum are not perfected until the delivery of the object of the
obligation (Art. 1316)

In Art. 1314, Any 3P who induces another to

violate his shall be liable to the other contracting party.
Tol:
Reqs. of axn under this article:

existence of a valid

knowledge by 3P of s existence

interference by 3P in the al relation w/o legal

justification

Whatever may be the char. of the liability w/c a

stranger to a may incur by advising or assisting one of the
parties to evade perf., such stranger cant become more
extensively liable in damages for non-perf. of the than the
party in whose behalf he intermeddles.

Q: Perfection of goes into what principle?

A: Obligatory force of , when parties became bound
Donation of immovables (Art. 749)

The donation must be in a public instrument.

The acceptance must either be in the same public

instrument or in a different public instrument.

Acceptance shall not take effect unless it is done during the

lifetime of the donor.

If the acceptance is made in a separate public instrument,

the donor shall be notified thereof in an authentic form, and this
step shall be noted in both instruments

To hold the stranger liable for damages in excess

of those that could. be recovered v. the immediate. party
would. lead to results grotesquely unjust.

3Ps liability. is solidary w/ non-perf.. party, bec.

he commits a tortuous act or a q-delict.

5. RELATIVITY OF CONTRACTS
GEN RULE: The contract is binding only upon the parties and their
successors (Art. 1311).

However, if the contract is purely personal

(intuitu personae), then the contract will not bind assigns
and heirs. (intransmissible rts.)

BAL:
EXCEPTION: 3 parties are affected by the contract in the
following instances and can take appropriate action:
(i) accion pauliana (Art. 1177)

A rescissory action involving a contract in fraud of

creditors.

Creditors are protected in cases of contracts intended to

defraud them (Art. 1313).

Tol: GR: Rts. & s under a are transmitted to the heirs of the
parties. Heirs cant be considered as 3P, bec. there is privity of
interest bet. them & their predecessor.
Q: Who are bound by s?
A: parties/successors-in-int/ heirs/assigns

(ii) accion discreta (Arts. 1652, 1729)

A
direct
(not
subrogatory) action by the creditor against his debtors debtor, a
remedy which gives the creditor the prerogative to act in his
own name, such as the actions of the lessor against the sublessee
(Art. 1652);

the laborer of an
independent contractor against the owner/principal ER (Art.
1729);

the
principal
against the subagent (Art. 1893); and

GR: Under the Principle of Privity of s, assigns & heirs are bound
EXC: intransmissible rts or s created by law/ nature / stip
Intransmissible s: those w/c are purely personal, either by
(1)
provision of law, such as in cases of partnership &
agency / usufructuary rts;
(2)
by the very nature of the s arising therefr., such
as those requiring special personal qualifications of the
obligor; of service, det;
58


the vendor-a-retro
against the transferee of the vendee (Art. 1608).

In contracts creating real rights, 3rd persons who come into

possession of the object of the contract are bound thereby,
subject to the provisions of the Mortgage Law and the Land
Registration Laws (Art. 1312) purchaser in good faith

amdcm
BANK OF AMERICA vs. IAC
RATIO: Contract between foreign bank & local bank asking the
latter to pay an amount to a beneficiary, is a SPA.

MARIMPERIO vs. CA
VELASCO VS CA, 95 SC 616
RATIO: A party who has not taken part in the cannot sue or be
sued for the performance or cancellation thereof, unless he has a real
interest affected thereby.

RATIO: In the Deed of Quitclaim in question wherein Laigo

Realty waived in favor of GSIS its rts in favor of the subdivision in
question arising out of its devt and assumed to pay the claims of
any contractor, material furnisher, lot buyer, etc. having
connection w/the said devt, the GSIS was not relieved of any
liability to pet. For cost of materials & labor the latter incurred in
bldg the subdv houses if Laigo is unable to pay them. (Solidary
liability of Principal ER, w/job contractor when EEs wages not
paid.)

In a of sublease, the personality of the lessee does not

disappear & the sublease generally does not have any direct action
against the owner of the premises as lessor.

DAYWALT VS CORP DE PP AGUSTINOS

RATIO: Whatever may be the character of the liability which a
stranger to a contract may incur by advising or assisting one of the
parties to evade performance, there is one proposition upon which all
must agree. This is, that the stranger cannot become more extensively
liable in damages for the nonperformance of the contract than the
party in whose behalf he intermeddles.

Kauffman v. National Bank, 42 Phil 182

RATIO: A stipulation in favor of a 3P cannot be revoked by the
obligated party alone, w/o the conformity of the other contracting
party.
BONIFACIO BROS. V. MORA, 20 SCRA 261

GILCHRIST vs. CUDDY

RATIO:
CONTRACTS TAKE EFFECT ONLY BET. THE
PARTIES THERETO.

RATIO: One who wrongfully interferes in a contract between

others, and, for the purpose of gain to himself induces one of the
parties to break it, is liable to the party injured thereby; and his
continued interference may be ground for an injunction where the
injuries resulting will be irreparable

FLORENTINO V. ENCARNACION
RATIO: A stipulation pour autrui is a stipulation in favor of a
third person conferring a clear and deliberate favor upon him, and
which stipulation is merely a part of a contract entered into by the
parties, neither of whom acted as agent of the third person, and
such third person and demand its fulfillment provoked that he
communicates his to the obligor before it is revoked

HELD:
Injunction is the proper remedy to prevent a wrongful
interference with contract by strangers to such contracts where the
legal remedy is insufficient and the resulting injury is irreparable.
EST. OF K.H. HEMADY vs. LUZON SURETY

The acceptance does not have to be in any particular form,

even when the stipulation is for the third person an act of liberality or
generosity on the part of the promisor or promise.

It need not be made expressly and formally. Notification of

acceptance, other than such as is involved in the making of demand,
is unnecessary.

RATIO: A party's contractual

transmissible to the successors.

rights

and

obligations

are

SO PING BUN vs. CA

RATIO: Where there was no malice in the interference of a contract,
and the impulse behind one's conduct lies in a proper business
interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially
interested, and such interest motivates his conduct, it cannot be said
that he is an officious or malicious intermeddler

The requisites are:

(1) that the stipulation in favor of a third person should be a part, not
the whole, of the contract;

C. CLASSIFICATION OF CONTRACTS

(2) that the favorable stipulation should not be conditioned or

compensated by any kind of obligation whatever; and

1. ACCORDING TO DEGREE OF DEPENDENCE

(3) neither of the contracting bears the legal represented or
authorization of third person.

a. preparatory

A preparatory contract is one which has for its

object the establishment of a condition in law which is
necessary as a preliminary step towards the
celebration of another subsequent contract (i.e.
partnership, agency).

While a stipulation in favor of a third person has no

binding effect in itself before its acceptance by the party favored,
the law does not provide when the third person must make his
acceptance. As a rule, there is no time at such third person has
after the time until the stipulation is revoked.

b. principal
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A principal contract is one which can subsist

independently from other contracts and whose purpose
can be fulfilled by themselves (i.e. sales, lease).

A commutative contract is one in which each of

the parties acquires an equivalent of his prestation and
such equivalent is pecuniarily appreciable and already
determined from the moment of the celebration of the
contract (i.e. lease).

c. accessory

An accessory contract is one which can exist

only as a consequence of, or in relation with, another
prior contract (i.e. pledge, mortgage).

b. aleatory

An aleatory contract is one in which each of the

parties has to his account the acquisition of an
equivalent prestation , but such equivalent, although
pecuniarily appreciable, is not yet determined, at the
moment of the celebration of the contract, since it
depends upon the happening of an uncertain event,
thus charging the parties with the risk of loss or gain
(i.e. insurance).

2. ACCORDING TO PERFECTION
a. consensual

A consensual contract is one which is perfected

by mere agreement of the parties (i.e. sales, lease).
b. real

A real contract is one which requires not only

the consent of the parties for their perfection, but also
the delivery of the object by 1 party to the other (i.e.
commodatum, deposit, pledge).

8) ACCORDING TO NAME
a. nominate

A nominate contract is one which has a name

and is regulated by special provisions of law (i.e. sale,
lease)

3) ACCORDING TO THEIR FORM OR SOLEMNITY:

a. Common or informal

An informal contract is one which does not

require some particular form (i.e. loan, lease).

b. innominate

An innominate contract is one does not have a

name and is not regulated by special provisions of law.

Innominate contracts shall be regulated by the

1) stipulations of the parties,
2) provisions of obligations and contracts,
3) rules governing the most analogous nominate
contracts, and
4) customs of the place (Art. 1307).

b. Special or formal

A formal contract is one which requires some

particular form (i.e. donation, chattel mortgage).
4) ACCORDING TO PURPOSE

a. transfer of ownership (i.e. sale)

4 Classes of Innominate Contracts

b. conveyance of use (i.e. commodatum)

i. I do, you do
ii. I do, you give
iii. I give, you do
iv. I give, you give

c. rendition of service (i.e. agency)

5) ACCORDING TO THE NATURE OF THE OBLIGATION

9) ACCORDING TO SUBJECT MATTER

a. bilateral

A bilateral contract is one which gives rise to

reciprocal obligations for both parties (i.e. sale, lease).

a. thing (i.e. sale, deposit, pledge)

b. unilateral

A unilateral contract is one which gives rise to an

obligation for only 1 of the parties (i.e. commodatum,
gratuitous deposit).

c. service (i.e. agency, lease of services)

b. right

D. STAGES OF CONTRACTS
1. NEGOTIATION

6) ACCORDING TO CAUSE

Preparation, conception, or generation, which is

the period of negotiation and bargaining, ending at the
moment of agreement of the parties

a. onerous

An onerous contract is one in which each of the

parties aspires to procure for himself a benefit through
the giving of an equivalent or compensation (i.e. sale).

CONTRACT OF OPTION:

b. gratuitous

A gratuitous contract is one in which one of the

parties proposes to give to the other a benefit without
any equivalent or compensation (i.e. commodatum).

Art. 1324: When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before acceptance
by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.

7) ACCORDING TO RISK

Art. 1479. A promise to buy & sell a determinate thing for a price
certain is reciprocally demandable.

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

Art. 1616. The vendor cannot avail himself of the right of repurchase
w/o returning to the vend the price of the sale , & in addition:
(1) The expenses of the contract, & any other legitimate payments
made by reason of the sale;
(2) The necessary & useful expenses made on the thing sold.

Article 1482. Whenever earnest money is given in a contract of sale, it

shall be considered as part of the price and as proof of the perfection of
the contract.

Baviera:
In an equitable mortgage, the property must still first be
foreclosed before ownership passes to the seller. Distinguished fr. a
pacto de retro sale, where ownership already passes to the buyer upon
perfection of the contract, but if the right to redeem is exercised, then
ownership reverts to the seller.

Bav:
The parties could stipulate otherwise & that the earnest
money will be forfeited, as in the CAB

When there is a right of first refusal, at the time the

offer is made, the owner still has not yet decided to sell, but
in case he does, the holder of the right has the priority to
accept it. Distinguished fr. an option to sell, where there is a
continuing offer to sell on the part of the owner.

Pacto de retro, or conventional redemption, is favored by

creditors, bec. it does away w/ the necessity of a foreclosure, in case
the debtor fails to pay the loan. All that the creditor has to do is to
execute an affidavit consolidating ownership in himself & register the
same in the Register of Deeds. The price in a pacto de retro sale is
naturally lesser than that in an absolute sale, bec. the sale is subject to a
resolutory condition, & also to facilitate redemption. Thus, the mere
fact that the price is not the true value of the property does not justify
the conclusion that the contract is one of mortgage.

SANCHEZ VS. RIGOS

As Justice Bengzon explained, an option is unilateral; a
promise to sell at the price fixed whenever the offeree should decide
to exercise his option w/in the specified time. After accepting the
promise & before he exercises his option, the holder of the option is not
bound to buy. He is free either to buy or not to buy later...however,
upon accepting herein petitioners offer, a bilateral promise to sell & to
buy ensued, & the resp. ipso facto assumed the obligation of a
purchaser. He did not just get the right subsequently to buy or not to
buy. It was not a mere option then; it was a bilateral of sale.

If the seller wants to redeem, he must give the

buyer the price the expenses of the contract any other
legitimate payments made by reason of the sale the
necessary expenses made on thing sold.
Equitable Mortgage
Art. 1602. The contract shall be presumed to be an equitable mortgage
in any of the following cases:
(1) When the price of the sale w/ right to repurchase is unusually
inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period
is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the payment
of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other
benefit to be received by the vendee as rent or otherwise shall be
considered as interest w/c shall be subject to usury laws.

If the option is given w/o a consideration, it is a mere offer of

a contract of sale, w/c is not binding until accepted. If however,
acceptance is made before a w/drawal, it constitutes a binding of
sale, even though the option was not supported by a sufficient
consideration.
BAVIERA:
Q: Distinguish between Art. 1479 & 1324?
1479
Applies if has NOT been
ACCEPTED
A consideration other than
the purchase price is
required to make the
unilateral promise binding

1324
This is the GENERAL
RULE on CONTRACTS: If
ACCEPTED, the agreement
becomes BINDING (WON
there is a consideration other
than the purchase price)

Art. 1603. In case of doubt, a contract purporting to be a sale w/ right

to repurchase shall be construed as an equitable mortgage.

In order that a unilateral promise may be

binding upon the promissor, Art. 1479 requires the
concurrence of the condition that the promise be
supported by a consideration distinct fr. the price.
Accordingly, the promisee cannot compel the promisor to
comply w/ the promise, unless the former establishes the
existence of said distinct consideration. The promisee has
the burden of proving such consideration. (Cronco v.
Tuazon)

Paras:

An equitable mortgage is one w/c, though lacking

in some formality or other requisites demanded by law,
reveal an intention of the parties to charge a real property as
security for a debt & constrains nothing impossible or
contrary to law.

Art 1606. The right referred to in Art. 1601, in the absence of an

express agreement, shall last four years fr. date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase w/in
thirty days fr. the time final judgment was rendered in a civil action on
the basis that the contract was a true sale w/ right to repurchase.

Conventional Redemption
Art. 1601. Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, w/ the obligation to
comply w/ the provisions of Art. 1616 & other stipulations w/c may
have been agreed upon.

Baviera:
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An agreement to repurchase becomes an option to buy when entered
into after the time to redeem stipulated in a pacto de retro sale had
already expired, bec. then the vendee a retro became absolute owner of
the thing sold, & the subsequent grant of the right to repurchase is a
new agreement. But where the period to repurchase has not expired, &
another agreement is entered into granting the vendor a retro the right
to repurchase the object of the contract at any time, the subsequent
agreement is not a promise to sell but is an extension of the period to
redeem, w/c cannot exceed 10 years.

No acceptance no concurrence of wills no consent no !

Contract to Sell is a bilateral , where there is merely an offer by
one party; w/o acceptance on the other party, no consent. (Salonga v.
Farrales, July 10, 1981);
An offer is a unilateral proposition which 1 party makes to the other
for the celebration of a contract.

Reason for the 10-year limitation: A pacto de retro is a suspension of

title, & it is against public interest to permit such uncertainty to
continue for a long time.

Requisites of Offer:
1.
definite
The offer must be definite, so that upon acceptance, an
agreement can be reached on the whole contract.
2.
complete
The offer must be complete, indicating with sufficient
clearness the kind of contract intended and definitely
stating the essential conditions of the proposed contract as
well as the non-essential ones desired by the offeror.
3.
intentional
An offer without seriousness, made in such manner that
the other party would not fail to notice such lack of
seriousness, is absolutely without juridical effects and
cannot give rise to a contract (i.e. must not be made in jest,
or a prank).

Counting of 4-year period: From the execution of the contract. But if

the right is suspended by agreement that it shall be exercised only after
a certain time or condition arises, then the period shall be counted only
fr. the time such right could be exercised, but not exceeding 10 years fr.
execution.
Not sufficient that a vendor a retro manifests his desire to redeem. This
must be accompanied by an actual or simultaneous tender of payment
of the redemption price. But if vendee refuses, then vendor may file a
suit against him & consign the amount in court.

Acceptance must be affirmatively and clearly made & must be

evidenced by some acts or conduct communicated to offeror, either in
formal or informal manner, & may be shown by conduct, acts, words,
by accepting party that clearly manifest the intention to buy or sell.
(Art. 1319; Adelfa Properties v. CA)

2. PERFECTION

Perfection or birth of the contract, which is the

moment when the parties come to agree on the terms of the
contract;

GEN RULE: Contracts are perfected by mere

consent the principle of consensuality (Art. 1315);

Requisites of Acceptance:

EXCEPTION: Real contracts, such as deposit,

pledge, and commodatum are not perfected until the
delivery of the object of the obligation (Art. 1316)

1. unequivocal
2. unconditional
o
If the acceptance is qualified, then that is a
counter-offer.
o
An amplified acceptance may or may not be an
acceptance of the original offer. It depends on the
circumstances.
o
For example, A is selling 1000 kgs. of cement. B
says he wants to buy 2000 kgs of cement. There is no
acceptance of the offer if B will only buy 2000 kgs and
nothing less.

3. PERFORMANCE
4. CONSUMMATION

Consummation or death, which is the fulfillment

or performance of the terms agreed upon
E. ESSENTIAL ELEMENTS OF CONTRACTS:
1.

CONSENT of the contracting parties:

Manifestation of Acceptance:
o
An acceptance may be express or implied (Art.
1320).
o
Silence is ambiguous. One must look at the
circumstances to determine if the silence is a form of
acceptance.
o
A
and B are own stalls which sell rice. C delivers 1000 kgs of
rice to A every Sunday. If A is not there, C just leaves it to
As assistant. C tries to do business with B. B is not there
though. C leaves rice with Bs assistant. B does not call C.
Both A and B are silent. A acceptance the rice because of
the arrangement. If A did not want to accept the rice, then
A should have called. Bs silence is not acceptance.

Consent is the manifested by the meeting of offer and acceptance

upon the thing and the cause which are to constitute the contract (Art.
1319, 1st par).
Elements of Consent:
a. plurality of subjects
b. capacity (legal)
c. intelligent and free will
d. express or tacit manifestation of the will
e. conformity of the internal will and its manifestation
CONSENT is the concurrence of wills of the offerer & the
acceptor as to the thing & the cause whc constitute a contract

Q: Could there be a perfected contract in a unilateral promise to

sell?
A: Yes, a perfected contract of option is an accepted unilateral
promise whc specifies the thing to be sold and the price to be paid,

OFFER manifestation of a willingness to enter into a bargain so

made as to justify another in understanding that his assent to that
bargain is invited & will conclude it.
Offer negotiation imperfect promise policitation
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in Sanchez v. Rigos, the SC said that even if there was no option
contract, B must still communicate the withdrawal of the offer to J.
If B does not communicate his withdrawal, that is tantamount to a
continuing offer. Prof. Balane does not agree with this. According to
him, if there is no valid option contract, there should be no continuing
offer. According to Prof. Balane, the SC should have explained that.

when coupled with a valuable consideration distinct and separate

from the price. (Art. 1324)
OPTION is a contract granting a privilege to buy or sell at a
determined price w/in an agreed time (Ang Yiu Asuncion v. CA, Dec.
2, 1994)

EX: B offers to sell a car to J for P300,000. J needs to think about it,
and so J asks for 30 days. J pays earnest money worth P5,000. J
decides to buy the car within 30 days. The car is not sold to anybody
else. B does not want to sell the car to J. J can sue B for specific
performance compel B to sell him the car.

COGNITION Theory
Acceptance made by letter of telegram does not bind the offer except
from the time it came to his knowledge (Art. 1319, 2nd par).

This is known as the Cognition Theory

If the parties are face to face, then there is no problem since

there is no time gap.

The problem arises when there is a time gap. Under Art.

1319, there is perfection of the contract when there is
knowledge of the other partys acceptance/. This has
serious consequences.

For example, the offer was made in Davao on Feb. 1. The

offer was sent through mail which is received in Manila on
Feb. 5. On the same day, the offer is accepted. Mail is sent
to Davao on Feb. 5 signifying acceptance. On Feb. 8, the
party in Manila becomes insane. On Feb.13 the mail
reaches Davao. According to Prof. Balane, under Art.
1323, there is no contract since there was no contractual
capacity.

EX: B offers to sell a car to J for P300,000. J needs to think about it,
and so J asks for 30 days. J pays earnest money worth P5,000. J
decides to buy the car within 30 days. Before J is able to buy the car,
B sells the car to X. J can sue B for damages. J cannot sue for
specific performance since the car has been sold to an innocent
purchaser.
A right of first refusal vs. option contract:
right of first refusal
right to have first opportunity to
purchase or the right to meet any
other offer
not covered by the Civil Code
In Equatorial v. Mayfair the
right of first refusal was violated
when the vendor sold the object
to another person - an action for
specific performance may be
filed.

Offers Through Agents

An offer made through an agent is accepted from the time

acceptance is communicated to him (Art. 1322).

Effect of Death, Insanity

An offer becomes ineffective upon the death, civil

interdiction, insanity or insolvency of either party before
acceptance is conveyed (Art. 1323).

When the offerer has allowed the offeree a cetain period to

accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon consideration, something
paid or promised (Art. 1324).
EX: A offers to B by mail on Feb.1 The offer reaches B
on Feb. 5. B accepts via mail. The mail reaches A on Feb.
8. On Feb. 8, A also decides to withdraw the offer. Which
will take effect? If the mail of B reaches A first, then A
cannot withdraw the offer.
The problem here is
evidentiary.

Art. 1324, CC
In Ang Yu v. CA, the SC said that
an
action
for
specific
performance will not lie against
the promissor.
However, a
complaint under Art. 19 for
damages may be filed if the
actions of the promissor are
whimsical.

RIGHT OF FIRST REFUSAL

Withdrawal of the Offer

option contact
limits the promissors power to
revoke an offer

The basis of the right of first refusal must be the current offer
to sell of the seller or offer to purchase of any prospective
buyer. Only after the optionee fails to exercise its right of
first priority under the SAME terms & w/in the period
contemplated, could the owner validly offer to sell the
property to a 3rd person, again, under the same terms as
offered to the optionee. (PARANAQUE KINGS
ENTERPRISES vs. CA)

SANCHEZ V. RIGOS
It should be noted that:
1. Art. 1324 applies to s in general, whereas the 2nd par of Art.
1479 refers to "sales" in particular, &, more specifically, to an
"accepted unilateral promise to buy or to sell." Art. 1479 is
controlling in the case at bar.

Art. 1324 is related to Art. 1479, par. 2. They actually say

the same thing.

2. In order that said unilateral promise may be binding upon the

promisor, Art. 1479 requires the concurrence of a condition, namely,
that the promise be "supported by a consideration distinct fr. the
price. In other words, the promise, even if accepted, may be w/drawn
if there is no consideration distinct fr. the price. (SW Sugar case)

EX: B offers to sell a car to J for P300,000. J needs to think about it,
and so J asks for 30 days. J pays B earnest money worth P5,000.
The payment of P5,000 is a distinct consideration from the price of
the car. This distinct consideration of P5,000 is payment for the 30
days. J is paying for time. The option contract is separate from the
contract of sale. B cannot sell the car to anybody else within that 30
day period.

In a right of first refusal, there is no definite offer since

the vendor has to option of deciding not to sell the object. Also, in a
right of first refusal, there is no need for a separate consideration. In
an option contract, there is a definite offer. According to Prof.
Balane, the right of first refusal is inferior to an option contract since
there is no definite offer. Prof. Balane does not understand why an

EX: B offers to sell a car to J for P300,000. J needs to think about it,
and so J asks for 30 days. J does not pay B for time, but B promises
to give J 30 days. In this case there is no option contract. However,
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action for specific performance is allowed in violations of rights of
first refusal but not in the case of option contracts when the object is
sold to another person. Why is the SC giving greater legal effect to a
right of first refusal which is more tentative? Also, where the SC get
these rules since the right of first refusal is not covered by the Civil
Code.

certain obligations, as when the latter arise from his acts or from
property relations, such as easements.
Article 39. The following circumstances, among others, modify or
limit capacity to act: age, insanity, imbecility, the state of being a
deaf-mute, penalty, prodigality, family relations, alienage,
absence, insolvency and trusteeship. The consequences of these
circumstances are governed in this Code, other codes, the Rules of
Court, and in special laws. Capacity to act is not limited on account
of religious belief or political opinion.

ADVERTISEMENTS:
Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to make an
offer (Art. 1325)

Article 739. The following donations shall be void:

(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;

Advertisements for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears (Art. 1326).

(2) Those made between persons found guilty of the same

criminal offense, in consideration thereof;

Most advertisements are simply invitations to make an

offer and are not offers in themselves since not all the necessary
terms can fit in the advertisement.

(3) Those made to a public officer or his wife, descendants

and ascendants, by reason of his office.

Even if the ad had all the necessary terms, its still an

invitation to make offer since there is no definite person to whom the
offer is being made (public offer).

In the case referred to in No. 1, the action for declaration of nullity

may be brought by the spouse of the donor or donee; and the guilt of
the donor and donee may be proved by preponderance of evidence in
the same action.

Simulated Contracts

Article 1476. In the case of a sale by auction:

xxx

a. Absolutely Simulated (contrato simulado)

(4) Where notice has not been given that a sale by auction
is subject to a right to bid on behalf of the seller, it shall not
be lawful for the seller to bid himself or to employ or
induce any person to bid at such sale on his behalf or for
the auctioneer, to employ or induce any person to bid at
such sale on behalf of the seller or knowingly to take any
bid from the seller or any person employed by him. Any
sale contravening this rule may be treated as fraudulent by
the buyer.

Absolute simulation of a contract takes place when the

parties do not intent to be bound at all (Art. 1345).
EX: X pretends to sell his car to avoid tax liability.
However X has no real intention to sell the car.
An absolutely simulated or fictitious contract is void (Art. 1346)
b. Relatively Simulated (contrato disimulado)

Article 1490. The husband and the wife cannot sell property to each
other, except:

Relative simulation of a contract takes place when the

parties conceal their true agreement (Art. 1345).

In a relatively simulated contract, the parties enter into a

contract but disguise it as another.

(1) When a separation of property was agreed upon in the

marriage settlements; or
(2) When there has been a judicial separation of property
under article 191.

EX: X has many creditors, and they are going after Xs car.
X cannot donate his car to Y since the creditors will just
resort to accion pauliana. So, X antedates a contract of
sale, selling his car to Y, except that Xs intention is to
donate his car to Y.

Article 1491. The following persons cannot acquire by purchase,

even at a public or judicial auction, either in person or through the
mediation of another:
(1) The guardian, the property of the person or persons who may be
under his guardianship;

A relatively simulated contract, when it does not prejudice

a 3rd person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the parties
to their real agreement (Art. 1346).

(2) Agents, the property whose administration or sale may have been
intrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;

The law will apply the rules of the true contract and not the
ostensible contract.

(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;

Article 37. Juridical capacity, which is the fitness to be the subject

of legal relations, is inherent in every natural person and is lost only
through death.
Capacity to act, which is the power to do acts with legal effect, is
acquired and may be lost.

(5) Justices, judges, prosecuting attorneys, clerks of superior and

inferior courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to

Article 38. Minority, insanity or imbecility, the state of being a

deaf-mute, prodigality and civil interdiction are mere restrictions
on capacity to act, and do not exempt the incapacitated person from
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lawyers, with respect to the property and rights which may be the
object of any litigation in which they may take part by virtue of their
profession;

[RA No. 6809]

Republic Act No. 6809, which reduced the age of

majority to eighteen (18) years was approved only on 13
December 1989 and became effective two weeks after
publication in two newspapers of general circulation.

(6) Any others specially disqualified by law

Art. 1533 (par.5). The seller is bound to exercise reasonable care
and judgment in making a resale, and subject to this requirement may
make a resale either by public or private sale. He cannot, however,
directly or indirectly buy the goods.

1987 CONSTITUTION: ARTICLE XII - NATIONAL

ECONOMY AND PATRIMONY
Section 7. Save in cases of hereditary succession, no private lands
shall be transferred or conveyed except to individuals, corporations,
or associations qualified to acquire or hold lands of the public
domain.

Article 1646. The persons disqualified to buy referred to in articles

1490 and 1491, are also disqualified to become lessees of the things
mentioned therein
Article 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership.

Section 8. Notwithstanding the provisions of Section 7 of this

Article, a natural-born citizen of the Philippines who has lost his
Philippine citizenship may be a transferee of private lands, subject to
limitations provided by law.

Article 1409. The following contracts are inexistent and void from
the beginning:
xxx

2. OBJECT certain which is SM of

(7) Those expressly prohibited or declared void by law.

The object of the contract is the prestation. Thus, it is

always the conduct which is to be observed. It is not a concrete
object like a car. In a contract of sale, the object is the delivery of the
object and not the object itself.

These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
Article 5. Acts executed against the provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes
their validity.

The provisions on object however blur the distinction

between the object of the contract, the prestation, and the object of
the prestation. According to Prof. Balane, these provisions are not
fatal though.

[FC: E.O. 209]

Art. 87. Every donation or grant of gratuitous advantage, direct or
indirect, between the spouses during the marriage shall be void,
except moderate gifts which the spouses may give each other on the
occasion of any family rejoicing. The prohibition shall also apply to
persons living together as husband and wife without a valid marriage.

Requisites of Object:
1.
the object must be within the commerce of man, either
already existing or in potency (Art. 1347)

Section 5. Administration of the Conjugal Partnership Property

Within the commerce of man means that the

object is capable of appropriation and transmission;

Art. 124. The administration and enjoyment of the conjugal

partnership shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to recourse
to the court by the wife for proper remedy, which must be availed of
within five years from the date of the contract implementing such
decision.

The term in potency means that the object will

come into existence in the future;

Generally, in reciprocal contracts particularly

sales, the sale of future things is allowed. For example, it is
possible to sell the future harvest of a farm.

In the event that one spouse is incapacitated or otherwise

unable to participate in the administration of the conjugal properties,
the other spouse may assume sole powers of administration. These
powers do not include disposition or encumbrance without authority
of the court or the written consent of the other spouse. In the absence
of such authority or consent, the disposition or encumbrance shall be
void. However, the transaction shall be construed as a continuing
offer on the part of the consenting spouse and the third person, and
may be perfected as a binding contract upon the acceptance by the
other spouse or authorization by the court before the offer is
withdrawn by either or both offerors.

The coming into being of the future thing is a

suspensive condition.

Emptio rei speratae is a conditional sale. There

is a suspensive condition. If the future thing does not come
into existence, then there is no contract of sale.

Emptio spei is the sale of a hope. Even if the

future thing does not materialize, the buyer must pay since
the buyer is taking a chance. (i.e. sale of lotto ticket).
Hope is a present thing.

EMANCIPATION AND AGE OF MAJORITY

Art. 234. Emancipation takes place by the attainment of majority.
Unless otherwise provided, majority commences at the age of twentyone years.

Some future things are not allowed to be objects

of the prestation. The law does not allow contracts on
future inheritance.

Emancipation also takes place:

(1) By the marriage of the minor; or

2.
the object must be LICIT, or not be contrary to law,
morals, good customs, public policy or public order (Art. 1347)

(2) By the recording in the Civil Register of an agreement

in a public instrument executed by the parent exercising
parental authority and the minor at least eighteen years of
age. Such emancipation shall be irrevocable.

3.
65

the object must be possible (Art. 1348)

amdcm

If the object is impossible, then the contract is

void for lack of cause;

[GR] Failure of motive as a general rule does not affect the

contract.

Art. 1348 does not talk of supervening

impossibility which is a mode of extinguishment;

[EXC] Motive affects the contract when:

1. the motive becomes a suspensive condition; or
2. the realization of the motive is the cause for the contract
and there is an intervening serious mistake of fact

Impossibility under Art. 1348 must be actual and

contemporaneous with the making of the contract.

4.
the object must be determinate as to its kind and
determinable as to its quantity (Art. 1349)

The object need not be individualized. It must be

determinate as to its kind or species;

5.

The quantity of the object may be indeterminate,

so long as the right of the creditor is not rendered illusory.

the object must be transmissible

This is actually a redundancy since this is already

in the requisite of being within the commerce of man.

In onerous contracts, the cause is the prestation or promise

of a thing or service by the other party.
It has been held that, as a mortgage is an accessory
contract, its cause or consideration is the very cause or
consideration of the principal contract, from which it
receives its life, and without which it cannot exist as an
independent contract (China Bank v. Lichauco).
In remuneratory contracts, the cause is the service or
benefit which is remunerated .
A remuneratory contract is one where a party gives
something to another because of some service or benefit
given or rendered by the latter to the former, where such
service or benefit was not due as a legal obligation.
In gratuitous contracts, the cause is the mere liberality of
the benefactor.

3. CAUSE of the :

The cause of a contract is the why of the contract;

the immediate and most proximate purpose of the contract;

the essential reason which impels the contracting parties to

enter into it and which explains and justifies the creation of
the obligation through such contract;

The cause is different from consideration.

Consideration in the Anglo-American sense must always
be valuable or capable of pecuniary estimation.
Cause, on the other hand, need not be material at all, and
may consist in a moral satisfaction for the promissor.

Article 1351. The particular motives of the parties in entering into a

contract are different from the cause thereof.
Article 1352. Contracts without cause, or with unlawful cause,
produce no effect whatever. The cause is unlawful if it is contrary to
law, morals, good customs, public order or public policy.
Article 1353. The statement of a false cause in contracts shall render
them void, if it should not be proved that they were founded upon
another cause which is true and lawful.
Article 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary.

Requisites of Cause:
1. it must exist
2. it must be true
3. it must be licit

Article 1355. Except in cases specified by law, lesion or inadequacy

of cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence.

Cause is different from motive.

Cause is the proximate why while motive is the ultimate
why;

4. DELIVERY FOR REAL CONTRACTS

5. FORM FOR FORMAL CONTRACTS

EX: A wants to sell his house for P60 M because A is

moving to Canada. B is willing to buy the house for P60
M. In this case, the cause for A is the P60 M while the
cause for B is the house. As motive is to dispose of the
house which he does not need since A is going to Canada.

Like failure of or lack of object, the failure of cause has an

effect on the contract. If there is no cause or the cause is
illegal, then the contract is void.

This is unlike the lack of consent. When consent is lacking,

the contract is not void. The contract is merely voidable.

Art. 1356. Contracts shall be obligatory, in whatever form they may

have been entered into, 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 or enforceable, or that a
contract be proved in a certain way, that requirement is absolute &
indispensable.
Tolentino
Art. 1356 provides for TWO CASES where form is absolute &
indispensable, namely:
(1)
When the form is essential to the validity of the ;
(2)
When the is unenforceable unless it is in a
certain form, such as those under the Statute of Frauds
(SOF)

Article 1350. In onerous contracts the cause is understood to be, for

each contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality
of the benefactor.
66

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GR: A having the essential requisites of Art. 1318 will be valid as
between the parties whatever the form it may have been entered into;

their validity are present. However, when the law requires that a
contract be in some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that requirement is
absolute and indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised. (1278a)

Requisites under Art. 1318

1. Consent of the contracting parties
2. Object certain w/c is the subject matter of
litigation
3. Cause of the obligation w/c is established

Article 1357. If the law requires a document or other special form, as

in the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form, once
the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract. (1279a)

The formalities required by law are classified into three groups:

(1) ad esentia, ad solemnitatem those w/c are required for the
validity of the ;

Article 1358. The following must appear in a public document:

(1) 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 are governed by articles 1403, No. 2, and 1405;

(2) those required to make the effective as against 3rd parties, such
as those mentioned in Arts. 1357 & 1358;
(3) formalities ad probationem those required for the purpose of
proving the existence of a , such as those provided in the SOF

(2) The cession, repudiation or renunciation of hereditary rights

or of those of the conjugal partnership of gains;

ONG YIU v CA

(3) 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;

Ong may not have signed the ticket nevertheless, he is bound

by such stipulation the same being part of the contract of carriage, valid
& binding upon the passenger regardless of lack of knowledge or
assent.
It is a contract of adhesion wherein one party imposes a
readymade contract for the other party, the place ticket in CAB. Such
contracts are not entirely prohibited. The one who adheres to the
contract is free to reject it entirely, if he adheres he give consent.

(4) The cession of actions or rights proceeding from an act

appearing in a public document.
All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by articles, 1403, No. 2 and
1405.

WELDON v CA
NOTE: Purpose of form in Art. 1358 is to prejudice or to affect third
persons.

RATIO: Only an absolute or unqualified acceptance of a definite

offer manifests the consent necessary to perfect a contract (Article
1319, New Civil Code).

1. GEN RULE: (any) There is no need for a specific form, but

there must still be some manifestation of consent

Once a contract is shown to have been consummated or

fully performed by the parties thereto, its existence and binding effect
can no longer be disputed.

EXCEPTION: When the written form is required

TANG v CA

2. SPECIAL FORM

RATIO: Art. 1332. When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.

a) for validity
If it not written, the same is void.
Examples are donations (Arts. 748, 749),
antichresis (Art. 2134),
interest in a loan (Art. 1956),
sale of land by an agent (Art. 1874),
contribution of immovables in a partnership (Art. 1773)

The obligation to show that the terms of the contract had

been fully explained to the party who is unable to read or understand
the language of the contract, when fraud or mistake is alleged,
devolves on the party seeking to enforce it.
CARIO v CA

Art. 749. In order that the donation of an immovable may be valid, it

must be made in a public document, specifying therein the property
donated & the value of the charges w/c the donee must satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is done
during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be
notified thereof in an authentic form, & this step shall be noted in both
instruments.

RATIO: Contracts whc are absolutely simulated or fictitious are

inexistent and null & void ab initio.

LAGUNZAD v GONZALES
RATIO: Duties must comply w/s entered into where provisions
thereof are not contrary to L/M/GC/PO/PP.
F. FORM OF CONTRACTS: 1356-1358

Tolentino:

If the donation of an immov was not made in a public

instrument, the donee cannot bring an action to compel the

Article 1356. Contracts shall be obligatory, in whatever form they

may have been entered into, provided all the essential requisites for
67

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donor to execute a public instrument of donation under Art.
1357.

Tolentino:

A donation of personal prop. exceeding P5 thou in value

must ALWAYS be made in writing, & accepted also in writing.

Art. 1357 applies only to s w/c validly exist, & cannot be

held applicable to a case where the form is required in order
to make it valid

The document of donation & the acceptance need not be

public instruments but may simply be private documents.

A public instrument is not necessary in cases of onerous

donations bec. they are governed by the rules on contracts.

When the value does not exceed P5 thou, a donation may be

made orally or in writing.

Title to immov prop. does not pass fr. the donor to the donee
until & unless:
1.

2.

If donation is made orally, there must be simultaneous

delivery.

it has been accepted in a public instrument---whether

in the deed of donation itself or on a separate public
instrument. Solemn words of acceptance are not
necessary.

If there is no simultaneous delivery, the donation is void

unless made in writing. BUT in this case, the law does not require that
that when the donation is made in writing, the acceptance should also
be in writing.

The donor was duly notified thereof--- Necessary that

formal notice is given to the donor & the fact that due
notice has been given must be noted in the instruments
containing the offer to donate & that showing the
acceptance. Then & only then is the donation perfected

3.

The acceptance must be made during the life of the

donor; if not made before the donors death, it is w/o
effect.

4.

In so far as the donor is concerned, the donation is not

accepted unless he/she is notified of such acceptance.

Instances when the law requires to be in a certain form to be

valid:
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, & attached to the public instrument.
Art. 1984. The depositary cannot demand that the depositor proves his
ownership of the thing deposited.
Nevertheless, should he discover that the thing has been
stolen & who its true owner is, he must advise the latter of the deposit.
If the owner, in spite of such information, does not claim it
w/in the period of one month, the depositary shall be
relieved
of all responsibility by returning the thing deposited
to
the
depositor.
If the depositary has reasonable grounds to believe that the
thing has not been lawfully acquired by the depositor, the former may
return the same.

Art. 748. x x x If the value of the personal property donated exceeds

five thousand pesos, the donation & the acceptance shall be made in
writing. Otherwise, the donation shall be void.
[Tolentino, RE 748]

A donation of personal prop. exceeding P5 thou in value

must ALWAYS be made in writing, & accepted also in
writing.

The document of donation & the acceptance need not be

public instruments but may simply be private documents.

When the value does not exceed P5 thou, a donation may be

mare orally or in writing.

Art. 2134. The amount of the principal & of the interest shall be
specified in writing; otherwise, the contract of antichresis shall be void.

If donation is made orally, there must be simultaneous

delivery.

If there is no simultaneous delivery, the donation is void

unless made in writing. BUT in this case, the law does not
require that that when the donation is made in writing, the
acceptance should also be in writing.

Art. 83---Family Code

These donations are governed by the rules on ordinary
donations established in Title III of Book III of the Civil Code, insofar
as they are not modified by the following articles.
(b) for enforceability

Tolentino

NOTE: *** This list is EXCLUSIVE (Art. 1403, below)

[BAVIERA]

When the law states in writing, this need not

be a public document.

It is sufficient that it was SIGNED by the party

sought to be charged

Art. 1356 provides for TWO CASES where form is absolute &
indispensable, namely:
1)
When the form is essential to the validity of the
2)
When the is unenforceable unless it is in a
certain form, such as those under the Statute of Frauds (SOF)

Instances when the law makes a contract unenforceable if it is

not written: (SOF)

GENERAL RULE: A having the essential requisites of Art. 1318

will be valid as between the parties whatever the form it may have been
entered into

(a) an agreement that by its terms is not to be performed within a

year from the making thereof (Art. 1403 (a))

Requisites under Art. 1318

1.
Consent of the contracting parties
2.
Object certain w/c is the subject matter of
litigation
3.
Cause of the obligation w/c is established

[BAVIERA] rationale of this: bec. of memory lapse

Tolentino: The time begins fr. the day the is entered into, & not fr.
the time that performance of it is entered upon;
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It must appear that the parties intended when they made the
that it should not be performed w/in a year.

Where no time is fixed by the parties for performance, &

there is nothing in the agreement itself to show that it cannot be
performed w/in a year according to its terms & the understanding of the
parties, the agreement is NOT w/in the SOF.

Neither will the SOF apply where there has

been part payment of the purchase price.

Evidence to prove an oral of sale of real

estate must be disregarded if timely objections are made
to its introduction.

(b) a special promise to answer for the debt, default or miscarriage

of another (Art. 1403 (b))
BAVIERA:
contracts

A consummated sale of real prop. is not covered

by the SOF.

Examples of this are guaranty & surety

(e) an agreement of lease for a period of more than 1 year, or the

sale of real property or of an interest therein (Art. 1403 (e))

Tolentino:
This has been defined as an undertaking by a
person, not before liable, for the purpose of securing or performing
the same duty for w/c the original debtor continues to be liable.

The test as to whether a promise is w/in the statute has

been said to lie in the answer to the question whether the promise is an
original or a collateral one:
PROMISE IS ORIGINAL
OR INDEPENDENT
If the promisor becomes
primarily liable for the
payment of a debt, the
promise is not w/in the statute

A for the sale of goods, chattels or things in

action is removed fr. the operation of the SOF where the
buyer ACCEPTS & RECEIVES part of such goods &
chattels.

(f) a representation as to the credit of a 3rd person (Art. 1403 (f))

Tolentino:

The representations are limited to those w/c

operate to induce the person to whom they are made to enter
into contractual relations w/ the third person, but not to those
representations tending to induce action for the benefit of the
person making them.

PROMISE IS COLLATERAL
If the promise is collateral to the
agreement of another & the promisor
becomes thereby merely a surety, the
promise falls w/in the SOF & hence, it
should be in writing

BAVIERA:Q: What is the ratio for the SOF?

A: To prevent fraud. The problem w/ oral contracts is that
they are easy to fabricate & perjure the witnesses.
Q: An oral contract for the lease of property for 2 years. What is the
status of the K?
A: Enforceable for the 1st year, unenforceable for the 2nd
year

(c) an agreement made in consideration of marriage, other than a

mutual promise to marry (Art. 1403 (c))
BAVIERA: Examples of this would be a marriage settlement,
donation propter nuptias

Q: An oral K for the sale of land. The buyer suffered damages when
the seller refused to comply w/ his promise even if the buyer offered
to pay. B consigned the payment. So whats up?
A: Acceptance of benefits (even if it was just an earnest
money) takes it away w/in the ambit of the Statute of Frauds.
To allow a K w/c has been partially performed to become
unenforceable would be to allow a party to perpetrate fraud.

A mutual promise to marry, whether or not in writing, is

unenforceable bec. it is a personal act.
Tolentino: When the marriage is a mere incident, & not the end to be
attained by the agreement, the contract is not in consideration of
marriage, & oral evidence can prove the agreement

Q: When is there a waiver of the SOF?

A: In the ff. instances:

When there has been acceptance of benefits

When there is failure to object to the introduction

of oral evidence

Even when marriage is a consideration, but in

addition thereto, there is some other consideration sufficient
to support the oral agreement, this may be proved by w/o a
writing.

Q: Seller has advertised a specific object for sale. A buyer comes to

buy (sus...eh ano pa nga bang ginagawa ng buyer?). Seller says
Bukas ka na lang bumalik, alas 7:00 na eh! To show good faith,
buyer deposits P500.00 as earnest money. Is the sale enforceable even
if theres no compliance w/ the SOF?
A: OO naman.

(d) an agreement for the sale of goods, chattels or things in action,

at a price not less than P500, unless the buyer accepts and receives
part of such goods and chattels, or the evidence, or some of them, of
such things in action, or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is made by the
auctioneer in his sales book, at the time of sale, of the amount and
kind of property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient
memorandum (Art. 1403 (d))

[Tolentino]
Rationale of the SOF: Oral contracts lead to fraud in the fulfillment
of obligations, or to false testimony.

SOF applies only to EXECUTORY & not to completed or

executed s.

BAVIERA: Choses in action refer to incorporeal property

A falling under the SOF cannot be proved w/o the writing

or a memorandum thereof.

Tolentino: The requirement of a written instrument or a memo for

sales of personal prop. for a price not less than P500, covers both
TANGIBLE & INTANGIBLE personal prop.

SOF simply provides for the manner in w/c s under it shall

be proved. It does not make such Ks invalid if not executed in writing,
but only makes ineffective the action for specific performance.

To bring a sales transaction w/in the operation

of the SOF, the price of the prop. sold must be at least
P500.
69


Where one party has entirely performed his under an oral
, equity would agree that all evidence be admitted to prove the
alleged agreement. Performance takes it out of the operation of the
statute.

amdcm
3.
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 3rd person
4.
the cession of actions or rights proceeding from an act
appearing in a public document

During trial, if the parties to the action make no objection to

the admissibility of oral evid to support the covered by the statute, &
thereby permits such to be proved orally, it will be just as binding
upon the parties as if it had been reduced to writing.

Contracts enumerated in Art. 1358 are valid as between the

contracting parties even when they have not been reduced to
public or private writings.

In order that a NOTE/MEMORANDUM shall meet the requirements

of the SOF, it must contain:

the names of the parties

the terms & conditions of the agreement

a description of the subject matter sufficient to render it

capable of identification

the date & place of the making of the agreement

signature of the party assuming the obligation

Except in certain cases where public instruments and

registration are required for the validity of the contract
itself, the legalization of a contract by means of a public
writing and its entry in the register are not essential
solemnities or requisites for the validity of the contract as
between the contracting parties, but are required for the
purposes of making it effective as against 3 rd person.

Art. 1357 gives the contracting parties the coercive power

to reciprocally compel the execution of the formalities
required by law, as soon as the requisites for the validity of
the contracts are present.

(g) no express trusts concerning an immovable or any interest

therein may be proved by parol evidence (Art. 1443)
BAVIERA:

This provision is not very clear as to the

meaning of parol. Strictly, parol evidence rule
presupposes a written agreement. It is much better to
make it unenforceable.

G. REFORMATION OF CONTRACTS

Pertinent Family Code Provisions

Art. 77. The marriage settlements & any modification thereof shall be
in writing, signed by the parties & executed before the celebration of
the marriage. They shall not prejudice third persons unless they are
registered in the local civil registry where the marriage contract is
recorded as well as in the proper registries of property.
Art. 83. These donations are governed by the rules on ordinary
donations established in Title III of Book III of the Civil Code, insofar
as they are not modified by the following articles.
LAO SOK v. SABAYSABAY, 138 SC 135
RATIO:
Perfected - where the ER offered the EEs payment of
separation pay whc offer was unconditionally accepted, a was
perfected; s tho orally made are binding on the parties.

Once the minds of the contracting parties meet, a valid

contract exists, whether the agreement is reduced to writing
or not. There are instances however, where in reducing their
agreements to writing, the true intention of the contracting
parties are not correctly expressed in the document, either by
reason of mistake, fraud, inequitable conduct or accident. It
is in such cases that reformation of instruments is proper.
The action for such relief rests on the theory that the parties
came to an understanding, but in reducing it to writing,
through mutual mistake, fraud or some other reason, some
provision was omitted or mistakenly inserted, and the action
to change the instrument so as to make it conform to the
contract agreed upon.

Reformation Distinguished from Annulment

Reformation
presupposes that there is a valid
existing contract between the
parties, and only the document or
instrument which was drawn up
and signed by them does not
correctly express the terms of
their agreement
gives life to it upon certain
corrections

GALLARDO v. IAC, 155 SC 134

RATIO:
Registration of a private deed of sale by the RD is
unauthorized and does not lend validity to the defective private doc
of sale; Rt of a vendee of regd prop in a private doc.

Annulment
if the minds of the parties did not
meet, or if the consent of either
one was vitiated by violence or
intimidation or mistake or fraud,
so that no real and valid contract
was made
involves a complete nullification
of the contract while reformation
gives life to it upon certain
corrections.

C. For Greater Efficacy or Convenience or for Registrability the

following must appear in a public instrument:
1.
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
governed by Arts. 1403 (2) and 1405

Operation and Effect of Reformation

2.
the cession, repudiation or renunciation of hereditary rights
or of those of the conjugal partnership of gains

Requisites of Reformation:

GR: Reformation relates back to, and takes effect from the time of its
original execution, especially as between the parties.

1. there must have been a meeting of the minds upon the

contract
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of the writing, unless it is alleged and proved that the
intention of the parties is otherwise.

2. the instrument or document evidencing the contract does not

express the true agreement between the parties

When the terms of the agreement are so clear and explicit

that they do not justify an attempt to read into it any alleged
intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.

When the true intent and agreement of the parties is

established, it must be given effect and prevail over the
bare words of the written agreement.

In order to judge the intention of the contracting parties,

their contemporaneous and subsequent acts shall be
principally considered.

When a general and a particular provision are inconsistent,

the particular provision will control.

Where the instrument is susceptible of 2 interpretations, 1

which will make it invalid and illegal, and another which
will make it valid and legal, the latter interpretation should
be adopted.

In the construction of an instrument where there are several

provisions or particulars, such a construction is, if possible,
to be adopted as will give effect to all.

When there is doubt as to the meaning of any particular

language, it should be determined by a consideration of the
general scope and purpose of the instrument in which it
occurs.

An instrument may be construed according to usage in

order to determine its true character.

The party who draws up a contract in which obscure terms

or clauses appear, is the one responsible for the obscurity or
ambiguity; they must therefore be construed against him.

When it is absolutely impossible to settle doubts by the

rules established in the preceding articles, and the doubts
refer to incidental circumstances of a gratuitous contract,
the least transmission of rights and interest shall prevail. If
the contract is onerous, the doubt shall be settled in favor of
the greatest reciprocity of interests.

If the doubts are cast upon the principal object of the

contract in such a way that it cannot be known what may
have been the intention or will of the parties, the contract
shall be null and void.

3. the failure of the instrument to express the agreement must be

due to mistake, fraud, inequitable conduct or accident
Requisites of Mistake:
a) that the mistake is one of fact
o
Whenever an instrument is drawn with the
intention of carrying an agreement previously made, but
which, due to mistake or inadvertence of the draftsman or
clerk, does not carry out the intention of the parties, but
violates it, there is a ground to correct the mistake by
reforming the instrument.
b) that it was common to both parties

A written instrument may be reformed where

there is a mistake on 1 side and fraud or inequitable
conduct on the other, as where 1 party to an instrument has
made a mistake and the other knows it and conceals the
truth from him.

The mistake of 1 party must refer to the contents

of the instrument and not the subject mater or the principal
conditions of the agreement. In the latter case, an action
for annulment is the proper remedy.

If 2 parties agree upon the mortgage or pledge of

real property or personal property, but the instrument states
that the property is sold absolutely or with a right of
repurchase, reformation is proper.
c) the proof of mutual mistake must be clear and convincing
Limitations of Reformation:
1. Reformation is not proper in the following cases:
a) simple donations inter vivos wherein no condition is
imposed;
b) wills
c) when the real agreement is void
2. Who may ask for reformation
a) If the mistake is mutual, reformation may be ordered at
the instance of either party or his successors in interest
b) If the mistake is not mutual, reformation may be
ordered upon petition of the injured party or his heirs and
assigns
3. Effect of enforcing an action

When one of the parties has brought an action to

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

I. KINDS OF CONTRACTS AS TO VALIDITY:

1. Valid and Binding
2. Valid but defective
a. rescissible
(1380-89; 1191)
b. voidable
(1390-1402; 1327-28; 1330)
c. unenforceable (1403-1408; 1317; 1878)

H. INTERPRETATION OF CONTRACTS: (1370-1379)

Where the parties have reduced their contract into writing,

the contents of the writing constitutes the sole repository of
the terms of the agreement between the parties. Whatever
is not found in the writing must be understood as waived
and abandoned. Generally, therefore, there can be no
evidence of the terms of the contract other than the contents

3. Void or inexistent (1409-1422; 1318; 1353; 1378; 1491; 1898)

DEFECTIVE CONTRACTS:
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1.

As a rule, when the legal representative of an absentee

enters into a contract involving the disposition of the
absentees property, he must secure the approval of the
court.

A legal representative is only authorized to manage the

estate of the absentee. He has no power to dispose of any
portion of the estate without approval of the court. If more
than acts of mere administration are involved, judicial
approval is necessary.
In case of sale, mortgage, or other encumbrance of any
portion of the estate which does not have judicial approval
is an unenforceable contract (Art. 1403 (1)).

Rescissible Contracts

A rescissible contract is a contract which is valid because

it contains all the essential requisites prescribed by law, but
which is defective because of injury or damage to either of
the contracting parties or to 3rd persons, as a consequence
of which it may be rescinded by means of a proper action
for rescission.

Rescission is a remedy granted by law to the contracting

parties, and even to 3rd persons, to secure the reparation of
damages caused to them by a contract, even if the same
should be valid, by means of the restoration of things to
their condition prior to the celebration of the contract.

Therefore, Art. 1381 (2) is limited to contracts which

constitute mere acts of administration (i.e. the purchase of
equipment for the cultivation of lands, purchase of
materials for repair of buildings, etc.).

Requisites of Rescission:
a) the contact must be a rescissible contract under Art. 1381 or Art.
1382:

iii. those undertaken in fraud of creditors when the creditors

cannot in any other manner collect the claims due them (Art. 1381
(3))

The following contracts are rescissible i.

those entered into by guardians whenever the whom they
represent suffer lesion by more than of the value of things which
are the object thereof (Art. 1381 (1))

Rescission shall not take place with respect to contracts

approved by the court (Art. 1386).

As a rule, when a guardian enters into a contract involving

the disposition of the wards property, the guardian must
secure the approval of the guardianship court. A guardian
is only authorized to manage the estate of the ward. A
guardian has no power to dispose of any portion of the
estate without approval of the court. If more than acts of
mere administration are involved, judicial approval is
necessary.

In case of sale, mortgage, or other encumbrance of any

portion of the estate which does not have judicial approval
is an unenforceable contract (Art. 1403 (1)).

Therefore, Art. 1381 (1) is limited to contracts which

constitute mere acts of administration (i.e. the purchase of
equipment for the cultivation of lands, purchase of
materials for repair of buildings, etc.).

This is an exception to the principle of relativity of

contracts.

Creditors, after having pursued the property in possession

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

Creditors are protected in cases of contracts intended to

defraud them (Art. 1313).

In determining whether or not a certain conveyance is

fraudulent, the question in every case is whether the
conveyance was a bona fide transaction or trick and
contrivance to defeat creditors, or whether it conserves to
the debtor a special right.
All contracts by virtue of which the debtor alienates
property by gratuitous tile are presumed to have been
entered into in order to defraud creditors, when the donor
did not reserve sufficient property to pay all debts
contracted before the donation (Art. 1387, 1st par).

Lesion is very difficult to apply in practice

Alienations by onerous title are also presumed fraudulent

when made by persons against whom some judgment has
been rendered in any instance or some writ of attachment
has been issued. The decision or attachment need not refer
to the property alienated, and need not have been obtained
by the party seeking the rescission (Art. 1387, 2 nd par).

For example, A is the agent of B. B owns land worth P10 M. A sells

the land for P7 M. From the facts, the lesion suffered by B is 30%.
In practice, are you sure that P10 M is the fair market value of the
land. What if the situation is urgent and that property must be
disposed of right away?

Badges of Fraud:
Another example, A is the agent of B. B owns land worth P10 M. C
wants to buy the land. C is willing to pay P 7 M lump sum
payment. D is willing to pay P 10 M but on installments.
ii. those agreed upon in representation of absentees, if the absentee
suffers lesion by more than of the value of things which are the
object thereof (Art. 1381 (2))

Rescission shall not take place with respect to contracts

approved by the court (Art. 1386).
72

1.

the fact that the consideration of the conveyance is

inadequate

2.

a transfer made by a debtor after suit has begun and while

it is pending against him

3.

a sale upon credit by an insolvent debtor

4.

evidence of large indebtedness or complete insolvency

amdcm
5.

the transfer of all or nearly all of his property by a debtor,

especially when he is insolvent or greatly embarrassed
financially

6.

the fact that the transfer is made between father and son
when there are present any of the above circumstances

7.

the failure of the vendee to take exclusive possession of

all the property

Art. 1191. The power to rescind obs. Is implied in reciprocal ones, in

case on of the obligors should not comply w/ what is incumbent upon
him.
The injured party may choose between the fulfillment & the rescission
of the ds., w/ the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The ct. shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be w/o prejudice to the rts of third persons who
have acquired the thing, in accordance w/ Arts. 1385 & 1388 & the
Mortgage Law.

iv. those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority (Art. 1381 (4))

Art. 1381 (4) refers to a contract executed by the

defendant in a suit involving the ownership or possession
of a thing, when such contract is made without the
knowledge and approval of the plaintiff or court.

Art. 1192. In case both parties have committed a breach of the

obligation, the liability of the 1st infractor shall be equally tempered bye
the cts. If it cannot be det. Which of the parties 1st violated the K, the
same shall be deemed extinguished, & each shall bear his own
damages.

As in the case of a contract in fraud of creditors,

the remedy of rescission in this case is given to a 3rd person
who is not a party to the contract. The purpose is to protect
the plaintiff.

[Tolentino]
Similarities between Rsn under Art. 1191 & Art. 1380+:

v. all other contracts specially declared by law to be the subject of

rescission (Art. 1381 (5))

(1) both presuppose s validly entered into & existing, &

(2) both require mutual restitution when declared proper.

The following provision in sales are examples of rescissible

contracts declared by law Arts 1526, 1534, 1538, 1539, 1540,
1556, 1560, 1567, 1659.

payments made in a state of insolvency for obligations to

whose fulfillment the debtor could not be compelled at the time
they were effected (Art. 1382)

Differences:
(1) Rsn under 1191 may be demanded only by party to the , under
1380+ by 3P prejudiced by the ;
(2) Rsn under 1191 may be denied when there is sufficient reason to
justify extension of time to perform, under 1380+ such reason does
NOT affect rt. To ask for Rsn;

(1)
the person asking for rescission must have no
other legal means to obtain reparation for the damages
suffered by him (Art. 1383);

(3) Non-perf. is the only grd. For Rsn under 1191, while there
are various reasons of equity as grds. under 1191 applies only to recip.
ds. where one party has not performed, while under 1380(+) ob. May
be unilateral or reciprocal & even when K has been fulfilled.

(2)
the person demanding rescission must be able
to return whatever he may be obliged to restore if
rescission is granted (Art. 1385, 1st par)

2. VOIDABLE Contracts

This requisite is only applicable if the one who

suffers the lesion is a party to the contract.

A voidable contract is a contract in which all of the essential

elements for validity are present, but the element of consent is
vitiated either by lack f legal capacity of 1 of the contracting
parties or by mistake, violence, intimidation, undue influence, or
fraud.

This requisite does not apply when a defrauded

creditor resorts to accion pauliana.
(3) the things which are the object of the contract must
not have passed legally to the possession of a 3 rd person
acting in good faith (Art. 1385, 2nd par)

Voidable contracts are binding unless they are annulled by a

proper action court. They are susceptible to confirmation.

Whoever acquires in bad faith the things

alienated in fraud of creditors, shall indemnify
the latter for damages suffered by them on
account of the alienation, whenever, due to any
cause, it should be impossible for him to return
them (Art. 1388,1st par).

There is a difference between confirmation and ratification:

Confirmation is the process of curing the defect of a

voidable contract.

If there are 2 or more alienations,the 1st acquirer

shall be liable 1st, and so on successively (Art.
1388, 2nd par).

The following contracts are voidable or annullable, even though

there may have been no damage to the contracting parties:

Ratification is the process of curing contracts which are

defective because they were entered into without authority.

a. those where one of the parties is incapable of giving consent to a

contract.

(4) the action for rescission must be brought within the

prescriptive period of 4 years (Art. 1389)

The following cannot give consent to a contract (Art. 1327):

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i. unemancipated minors

Where necessaries are sold and delivered to a minor or

other person without capacity to act, he must pay a
reasonable price therefore.

Necessaries include everything that is indispensable for

sustenance, dwelling, clothing, and medical attendance.

Contracts effected by minors who have already passed the

age of puberty and adolescence and are near the adult age,
when they pretend to have already reached the age of
majority, while in fact they have not, are valid, and cannot
be permitted afterwards to excuse themselves from
compliance with obligations assumed by them or seek their
annulment. This is in consonance with the rules of
estoppel. (Mercado v. Espiritu).

However in Braganza v, De Villa, the SC said that the

misrepresentation of an incapacitate person does not estop
him from denying that he was of age, or from asserting that
he was under age, at the time he entered into the contract.
According to Prof. Balane, this view is very logical. If the
minor is too young to enter into contracts, he is too young
to be estopped.

b) violence
There is violence when in order to wrest consent, serious or
irresistible force is employed (Art. 1335, 1st par).
Violence shall annul the obligation, although it may been employed
by a 3rd person who did not take part in the contract (Art. 1336).
Requisites of Violence:
i. irresistible physical force is employed
ii. the force is the determining cause for giving consent
c) intimidation
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent
and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his consent
(Art. 1335, 2nd par).
Requisites of Intimidation:

ii. insane or demented persons, and deaf mutes who do not know
how to write

i. the threat must be the determining cause for giving consent

ii. the threatened act is unjust and unlawful

A threat to enforce ones claim through competent

authority, if the claim is just or legal, does not vitiate
consent (Art. 1335, 4th par).

Contracts entered into during a lucid interval are valid.

Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable (Art. 1328).

iii. those where the consent is vitiated by mistake, violence,

intimidation, undue influence or fraud

The threat to enforce a right, should not be aimed at a result

which is contrary to law or morals, or which is unjust and
contrary to good faith. Although it is lawful to exercise
rights, it is not always lawful to use them for purposes
different from those for which they were created. Thus,
although it is lawful to report crimes, the threat to report it
may be illicit if the purpose is not to cooperate in the
discovery and prosecution of the crime, but to obtain some
prestation from the culprit which otherwise could not be
obtained and which does not constitute indemnity for
damages for the crime committed. Thus, the threat to
report a murderer if he does not agree to pay a certain sum
to one who saw the offense committed, would constitute
intimidation, because he is made to agree to something
which has no relation to his crime.

The rule regarding marriage is different. Where a man

marries under the threat to obstruct his admission to the bar
by filing charges against him for immorality committed by
him, he cannot avoid the marriage on the ground of duress.

A contract where consent is given through mistake,

violence, intimidation, undue influence or fraud is voidable
(Art. 1330).

a) mistake
In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter
into the contract (Art. 1331, 1st par).
Mistake as to the identity or qualification of one of the parties will
vitiate consent only when such identity or qualifications have been
the principal cause of the contract (Art. 1331, 2nd par).
A simple mistake of account shall give rise to its correction (Art.
1331, 3rd par).
When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have
been fully explained to the former (Art. 1332).

iii. the threat is real and serious

For example the threat must be to kill you or burn your
house and not merely to pinch you.

There is no mistake if the party alleging it knew the doubt,

contingency or risk affecting the object of the contract (Art. 1333)

iv. The threat produces a well-grounded fear that the person

making it can and will inflict harm

Mutual error as to the legal effect of an agreement when the real

purpose of the parties is frustrated, may vitiate consent (Art. 1334).

To determine the degree of intimidation, the age, sex, and condition

of the person shall be borne in mind (Art. 1335, 3rd par).
For example, a 75year old man who is bed ridden and says
that he will kill you does not produce a well-grounded fear.

Misrepresentation by a 3rd person does not vitiate consent, unless

such misrepresentation has created substantial mistake and the same
is mutual (Art. 1342).

Intimidation shall annul the obligation, although it may have been

employed by a 3rd person who did not take part in the contract (Art.
1336).

Misrepresentation made in good faith is not fraudulent but may

constitute error (Art. 1343).
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A mere expression of an opinion does not signify fraud, unless made
by an expert and the other party has relied on the formers special
knowledge (Art. 1341).

DURESS is that degree of constraint or danger sufficient to

overcome the mind and will of the person or ordinary firmness.
Violence
Duress actually inflicted
External
Serves to prevent an act from
being done
Physical force employed is
irresistible
Or of such degree as that victim
has no other choice but to submit

Such force is the determining

cause in giving consent

Misrepresentation by a 3rd person does not vitiate consent, unless

such misrepresentation has created substantial mistake and the same
is mutual (Art. 1342).

Intimidation
threatened or impending
Internal
operates upon the will, induces
performance of an act
Influences the mind to choose
bet. two evils
Influences the expression of the
will, inhibits the true intent and
making of manifest something
apparently as that of the person
who consents
intimidation caused the consent
to be given
Threatened act unjust or
unlawful
Threat must be real or serious
producing reasonable and wellgrounded fear

Misrepresentation made in good faith is not fraudulent but may

constitute error (Art. 1343).
In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties
(Art.1344, 1st par).
Incidental fraud only obliges the person employing it to pay
damages (Art. 1344, 2nd par).
If a 3rd person should commit violence or intimidation on 1 of the
contracting parties and this vitiates the contracting partys consent,
then the contract may be annulled (Art. 1336).
By analogy, if a 3rd person should exert undue influence on 1 of the
contracting parties and this vitiates the consent of the contracting
party, then the contract may be annulled. However, if the 3 rd party
commits fraud, damages is the only remedy unless the fraud
committed by the 3rd person has created a mutual substantial mistake
(Art. 1342).

d) undue influence
There is undue influence when a person takes improper advantage of
his power over the will of another, depriving the latter of a reasonable
freedom of choice. The following circumstances shall be considered:
the confidentiality, family, spiritual and other relations between the
parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in
financial distress (Art. 1337).

Rules Regarding Voidable Contracts:

a)

b)
The validity of a voidable contract can only be assailed in
a suit for that purpose (i.e. complaint or counterclaim).

e) Fraud

When one of the parties is unable to read, or if the contract is in a

language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have
been fully explained to the former (Art. 1332).
There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to (Art.
1338)

2.

the other party was induced to enter into the contract

(Art.1338)

3.

the fraud must be serious (Art. 1344)

4.

there is damage or injury caused

This

intimidation from the time the defect of the consent ceases;

violence from the time the defect of the consent ceases;
undue influence from the time the defect of the consent ceases;
mistake from the time of the discovery of the mistake
fraud from the time of the discovery of the fraud

Requisites of Fraud:
fraud is employed by 1 party on the other (Arts. 1342,
1344)

The action for annulment of contracts may be instituted by

all who are thereby obliged principally or subsidiarily.
However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor can
those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused ,mistake base their
action upon these flaws of the contract (Art. 1397).

The action for annulment shall be brought within 4 years.

period shall begin:

deceit or dolo causante.

1.

Voidable contracts are effective unless set aside.

Requisites of Consent
1. it shd be intelligent, with exact notion of
the matter to whc it refers
2. it shd be free

3. it shd be spontaneous

Failure to disclose facts, when there is a duty to reveal them, as when

the parties are bound by confidential relations, constitutes fraud (Art.
1339)

vitiated by
by error or mistake
violence,
intimidation,
or
undue influence
by fraud

The 4 year prescription period to annul contracts entered into by

minors or other incapacitated persons shall begin from the time the
guardianship ceases (Art. 1391, 4th par).

The usual exaggerations in trade, when the other party had an

opportunity to know the facts, are not in themselves fraudulent (Art.
1340).

An obligation having been annulled, the contracting parties shall

restore to each other the things which have been the subject matter of
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the contract, with their fruits, and the price with its interest, except in
cases provided by law (Art. 1398, 1st par).

Confirmation may be effected expressly or tacitly. It is understood

that there is tacit confirmation if, with knowledge of the reason which
renders the contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right (Art. 1393).

In obligations to render service, the value thereof shall be the basis

for damages (Art. 1398, 2nd par).
When the defect of the contract consists in the incapacity of 1 of the
parties, the incapacitated person is not obliged to make any restitution
except insofar as he has been benefited by the thing or price received
by him (Art. 1399);

Voidable contracts can be confirmed only by the party whose

consent was vitiated.

Confirmation does not require the conformity of the

contracting party who has no right to bring the action for
annulment (Art. 1395).

Confirmation may be effected by the guardian of the

incapacitated person (Art. 1394).

Q: What if the Thing to Be Returned is Lost?

a. Loss due to Fault of Defendant to pay the plaintiff value of the
thing loss, fruits if any, interest
b. Loss due to a Fortuitous Event or due to a 3 rd party
Defendant has to pay the plaintiff value of the thing
loss fruits if any

(3) Unenforceable Contracts

c. Loss due to Fault or Fraud of Plaintiff

The plaintiff loses the right to annul (Art. 1401).
There is fault on the part of the plaintiff once the plaintiff
regains capacity.

An unenforceable contract is a contract which cannot be enforced

by a proper action in court, unless they are ratified, because
either they are entered into without or in excess of authority or
they do not comply with the Statute of Frauds or both the
contracting parties do not possess the required legal capacity.

d. Loss without Fault on the Plaintiffs Part

[BAVIERA]
Q: Authority to sell oral but sale is in writing
A: Void.

Commentators have a difference of opinion the right to annul is extinguished unless the plaintiff offers
to pay the value of the object at the time of loss
the plaintiff is entitled to annul without having to pay
anything.

Q: Authority to sell in writing but sale of land is not

A: Unenforceable under Statute of Frauds.
Q: Why should loan be in writing for antichresis to be in writing?
A: Antichresis takes a long time. Loan is valid if not in
writing but antichresis not

As long as 1 of the contracting parties does not restore what in virtue

of the decree of annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him (Art. 1402).

Donation propter nuptias: rules on ordinary donations would apply.

The action for annulment will not prosper in the following:
Q: Buyer & seller orally agreed for Seller to sell land. Buyer sold
palay & w/ the money fr. this sale Buyer gave to Seller. Seller
refused.
A: Seller can refuse. He did not receive any benefit yet.

a) if the contract has been confirmed (Art. 1392)

b) if the action to annul has prescribed (Art. 1391)

Q: X saw an advertisement for the sale of a car for P200T. X

phoned Y & the latter noted the order. Y failed to deliver the car.
Can X enforce the obligation?
A: Sale of movable > P500 should be in writing under the
Statute of Frauds or else unenforceable.

c) when the thing which is the object of the contract is lost

through the fault or fraud of the person who has a right to
institute the proceedings (Art. 1401, 1st par)
d) estoppel

If person promises to lend money to another, then refuses to lend, no

cause of action. If a bank does it, enforceable.

Voidable contracts can be confirmed.

Confirmation extinguishes the action to annul a voidable

contract (Art. 1392).

Confirmation cleanses the contract from all its defects

from the moment it was constituted (Art. 1396).

Dilag vs. IAC Badges of fraud:

whether sale to children was paid

not registered until after decision in the quasidelict case

parents continued to exercise acts of ownership

over land

relationship between vendor & vendee.

Requisites of Confirmation:
i.

This does not fall squarely under the presumption of fraud bec. there
was a sale before judgment in 1974. If sale was after, presumed to be
fraudulent.

that the contract is a voidable or annullable contract

ii.
that the ratification is made with
cause for nullity

knowledge of the

Q: X proposed to buy Ys house & lot. X paid the P100T then

constituted a chattel mortgage on Ys house & lot for the unpaid
balance. Art. 1484 CC: law gives seller the choice of remedies.
A: Y cannot choose to rescind bec. alternative remedy of
foreclosure is available.

iii.
that at the time the ratification is made, the cause of
nullity has already ceased to exist
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Agreements made in consideration of marriage other
than the mutual promise to marry are within the
Statute of Frauds.

The following contracts are unenforceable unless they are ratified

(Art. 1403):
(a) those entered into in the name of another person by 1 who has
been given no authority or legal representation, or who has acted
beyond his powers

No one may contract in the name of another without being

authorized by the latter, or unless he has by law or right to
represent him (Art. 1317, 1st par).

A contract entered into in the name of another by one who

has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the
other contracting party. (Art. 1317, 2nd par).

When a person enters into a contract for and in the name of

another, without authority to do so, the contract does not
bind the latter, unless he ratifies the same.

The agent, who has entered into the contract in the name of
the purported principal, but without authority from him, is
liable to 3rd persons upon the contract.

In Cabague v. Auxilio, the father of the groom promised to improve

his daughter-in-laws fathers house in consideration of the marriage.
The father of the groom made improvements on the house. The
wedding did not take place. The SC said that the father of the groom
could not sue on the oral contract which as to him is not mutual
promise to marry. Prof. Balane disagrees with the SC. According
to Prof. Balane, the father of the groom should be able to sue since
there was partial performance.
iv. an agreement for the sale of goods, chattels or things in
action, at a price not less than P500, unless the buyer accepts and
receives part of such goods and chattels, or the evidence, or some
of them, of such things in action, or pay at the time some part of
the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of
sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is
made, it is a sufficient memorandum

The requirement of a written instrument or a memorandum for

sales of personal property for a price not less than P500, covers
both tangible and intangible personal property. It also covers
the assignment of choses in action.

Where a contract for the sale of goods at a price not less than
P500 is oral, and there is neither partial payment or delivery,
receipt, and acceptance of the goods, the contract is
unenforceable, and cannot be the basis of an action for the
recovery of the purchase price, or as the basis of an action for
damages for breach of the agreement.

Where there is a purchase of a number of articles which taken

separately does not have a price of P500 each, but taken
together, the price exceeds P500, the operation of the statute of
frauds depends upon whether there is a single inseparable
contract or a several one. If the contract is entire or inseparable,
and the total price exceeds P500, the statute applies. But if the
contract is separable, then each article is taken separately.

(b) those that do not comply with the Statute of Frauds

i. an agreement that by its terms is not to be performed
within a year from the making thereof
In Babao v. Perez, the SC interpreted the phrase not
be to performed within a year to mean that the
obligation cannot be finished within 1 year. Prof.
Balane does not agree with this interpretation.
According to Prof. Balane the phrase not to be
performed within a year should mean that the
obligation cannot begin within a year. For practical
reasons, the contract must be in writing since the
parties might forget. According to Prof. Balane, the
SCs interpretation is incorrect. If the obligation
cannot be finished within 1 year, the contract is not
within the Statute of Frauds because of partial
performance.

v. an agreement of lease for a period of more than 1 year, or the

sale of real property or of an interest therein

ii. a special promise to answer for the debt, default or

miscarriage of another
The test as to whether a promise is within the statute
has been said to lie in the answer to the question
whether the promise is an original or collateral one. If
the promise is an original one or an independent one,
that is, if the promisor becomes thereby primarily
liable for the payment of the debt, the promise is not
within the statute.

As long there is a sale of real property, the sale must be in

writing. There is no minimum.

An oral contract for a supplemental lease of real property

for longer period than 1 year is within the Statute of Frauds.
An agreement to enter into an agreement is also within the
Statute of Frauds.

vi. a representation as to the credit of a 3 rd person

If the promise is collateral to the agreement of another
and the promisor becomes merely a surety or
guarantor, the promise must be in writing.

A wants to borrow money from C. C does not know A. C

goes to B to ask about As credit standing. B says that As
credit standing is satisfactory even though B knows that A
is insolvent. Under Art. 1403, C can go after B if Bs
representation was in writing.

Prof. Balane thinks that this does not belong in the Statute
of Frauds. There is no contract between C and B. B did
not bind himself to pay C. What we have here is an
unenforceable tort.

iii. an agreement made in consideration of marriage,

other than a mutual promise to marry

A mutual promise to marry does not fall within

the Statute of Frauds since they are not made in
writing.
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According to Prof. Balane, a representation as to the credit

of a 3rd person should be replaced by Art. 1443. Art. 1443
provides that no express trusts concerning an immovable or
any interest therein may be proved by parol evidence.
When the express trust concerns an immovable or an
interest therein, a writing is necessary to prove it. This
writing is not required for the validity of the trust. It is
required only for purposes of proof. When the property
subject to the express trust, however is not real estate or an
interest therein, then it may be proved by any competent
evidence, including parol evidence.

neither applicable to actions w/c are neither for specific

performance of the contract nor for the violation thereof

partial performance must be duly proved

contract under SOF cannot be proved w/o the writing or a

memorandum thereof

note or memorandum
evidence of the agreement used to show the intention of the
parties

(c) those where both parties are incapable of giving consent to a

contract

Neither party or his representative can enforce the contract

unless it has been previously ratified.
The ratification by 1 party, however, converts the contract
into a voidable contract voidable at the option of the party
who has not ratified; the latter, therefore, can enforce the
contract against the party who has ratified.
Or, instead, of enforcing the contract, the party who has not
ratified it may ask for annulment on the ground of his
incapacity.

may consist of any kind of writing, fr. a solemn deed to a

mere hasty note or memorandum in books & papers, may be
in ink or in pencil, typed or printed

meets requirements of Statute of Frauds if it contains:

names of the parties

terms & conditions of the agreement

a description of the subject matter sufficient to render it

capable of identification

date & place of the making of the agreement

signature of the party assuming the obligation

Where there is a sale of a number of articles w/c separately do not

have a price of P500 each but w/c in their aggregate have a total price
exceeding P500, the operation of the SOF depends upon whether there
is a single inseparable contract or a several one. If the contract is entire
or inseparable, SOF applies. If separable, then each article is taken
separately, & the application of the SOF depends upon its price.

2 Principles in the Statute of Frauds

(a) Parol evidence is not admissible. However, there are 2 ways
of bringing it out.

oral evidence to prove a consummated sale of real property allowed by the Statute of Frauds

i. failure to object by the opposing lawyer when parol

evidence is used (Art. 1405)

representation as to credit of a third person - limited to those w/c

operate to induce the person to whom they are made to enter into
contractual relations w/ the 3rd person, but NOT to those
representations tending to induce action for the benefit of the person
making them.

If there is no objection, then parol evidence is

admitted.

An oral contract for a supplemental lease of property for a period

longer than 1 year - also w/in SOF. An agreement to enter into an
agreement is also w/in the SOF & the promise is not enforceable unless
the statute is satisfied.

ii. acceptance of benefits (Art. 1405)

if there has been performance on 1 side and the

other side accepts, then the Statute of Frauds is
not applicable.

Defense of the Statute of Frauds personal to the party to the

agreement like minority, fraud, mistake, & similar defenses w/c may be
asserted or waived by the party affected cannot be set up by strangers to
the agreement

(b) The Statute of Frauds applies only to executory contracts and

not to those which have been executed in whole or in part.
TOLENTINO:
Purpose of the Statute of Frauds: To prevent fraud & perjury in the
enforcement of obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain enumerated
contracts & transactions to be evidenced by a writing signed by the
party to be charged.

4. Void Contracts
A void contract is an absolute nullity and produces no effect, as if
it had never been executed or entered into.
The following contracts are inexistent and void from the
beginning (Art. 1409):

Statute Of Frauds
simply provides for the manner in w/c contracts under it
shall be proved

(a)
those whose cause, object or purpose is contrary to law,
morals. Good customs, public order or public policy

such contracts are valid but effect of noncompliance w/

the SOF is simply that no action can be proved unless the
requirement is complied w/

(b)

not applicable to contracts either totally or partially

performed but only to executory contracts

those which are absolutely simulated or fictitious

(c)
those whose cause or object did not exist at the time of the
transaction
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Balane: Art. 1409 (3) should not be did not exist. Rather, the
correct phrase should be could not come into existence because
there can be a contract over a future thing.

(d) those whose object is outside the commerce of men

2. If only 1 party is guilty

No action for specific performance can prosper

on either side.

(e) those which contemplate an impossible service

If the shabu dealer pays the shabu supplier but fails to

deliver the shabu, the shabu deliver cannot recover
what he has paid.

An action for restitution will be allowed only if

the innocent party demands.

(f) those where the intention of the parties relative to the principal
object of the contract cannot be ascertained
(g) those expressly prohibited or declared void by law

B. If it does not constitute a criminal offense

Characteristics of Void Contracts:

1. If both parties are in pari delicto

No action for specific performance can prosper
on either side (Art. 1411, 1st par).

1) the contract produces no effect whatsoever either against or in

favor of anyone

No action for restitution can prosper on either

side (Art. 1411, 1st par).

2) a judgment of nullity would be merely declaratory

2. If only 1 party is guilty

No action for specific performance can

prosper on either side.

Even when the contract is void or inexistent, an action is

necessary to declare its inexistence, when it has already
been fulfilled. Nobody can take the law into his own
hands.
The intervention of a competent court is necessary to
declare the absolute nullity of the contract and to decree the
restitution of what has been given under it.
The judgment of nullity will retroact to the very day when
the contract was entered into.

An action for restitution will be

allowed only if the innocent party demands.
Exceptions to Pari Delicto:
Interest paid in excess of the interest allowed by the usury laws may
be recovered by the debtor, with interest therefrom from the date of
payment (Art. 1413)

3) it cannot be confirmed or ratified

4) if it has been performed, the restoration of what has been given
is in order

When money is paid or property delivered for an illegal purpose, the

contract may be repudiated by 1 of the parties before the purpose has
been accomplished, or before any damage has been caused to a 3 rd
person. In such case, the courts may, if the public interest will thus
be subserved, allow the party repudiating the contract to recover the
money or property (Art. 1414).

5) the right to set the contracts nullity cannot be waived

6) the action for nullity is imprescriptible (Art. 1410)

As between the parties to a contract, validity cannot be

given to it by estoppel if it is prohibited by law or is against
public policy.

Where 1 of the parties to an illegal contract is incapable of giving

consent, the courts, may, if the interest of justice so demands, allow
recovery of money or property delivered by the incapacitated person
(Art. 1415).

7) any person can invoke the contracts nullity if its juridical

effects are felt as to him

The defense of illegality of contracts is not available to 3 rd

persons whose interests are not directly affected (Art.
1421).

Pari Delicto (in equal guilt)

When the agreement is not illegal per se but is merely prohibited, and
the prohibition by law is designed for the protection of the plaintiff,
he may, if public policy is enhanced, recover what he has paid or
delivered (Art. 1416).
When the price of any article or commodity is determined by statute,
or by authority of law, any person paying any amount in excess of the
maximum price allowed may recover such excess (Art. 1417).

A. If it constitutes a criminal offense

1. If both parties are in pari delicto

When the law fixes, or authorizes the fixing of the maximum number
of hours of labor, and a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus fixed, he may
demand additional compensation for service rendered beyond the
time limit (Art. 1418).

No action for specific performance can prosper on either

side (Art. 1411, 1st par).
No action for restitution can prosper on either side (Art.
1411, 1st par).
A shabu supplier supplies shabu to the shabu dealer.
If the shabu supplier does not deliver the shabu, the
dealer cannot file an action for specific performance.

When the law sets or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the deficiency (Art.
1419).

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