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OBLIGATIONS & CONTRACTS

Midterms

1. Art. 1156: Why is there not to give?


Ans. Already in the phrase not to do
2. What are the essential requisites of an obligation?
Ans. 1] Juridical or legal tie, 2] Active Subject or creditor, 3] Passive Subject or debtor, 4] Fact,
Prestation or Service
3. Are all obligations legally demandable and enforceable?
Ans. No, only civil obligations are legally demandable. Natural obligations are not legally
demandable.
4. How do civil obligations differ from natural obligations?
Ans. Civil obligation is one which has a binding force in lawwhile Natural obligationis one which
cannot be enforced
by action.
5. What are the sources of civil obligations?
Ans. (Art. 1157) Is it an exclusive enumeration?
1] Law, 2] Contracts, 3] Quasi-contracts, 4] Acts or omissions punished by law, 5] Quasi-delicts
6. If all civil obligations can be enforced by means of a court action then all civil obligations arise
from lawtrue or false?
Ans. False (Pg.8, Manresas differentiation.)
7. When do you say that the law itself is the source of the obligation and when do you say that it is
created from another source or how do you determine the source of the obligation? (Pg.8,
Manresas differentiation.)
8. What are quasi-contracts?
Ans. (Pg. 10) Are those juridical relations arising from: 1] lawful , 2] voluntary, and 3] unilateral
acts, by virtue of
Which the parties become bound to each other, based on the principle that no one shall be
unjustly enriched or benefited at the expense of another.
9. What is a quasi-delict?
Ans. (Pg. 20) The term quasi-delicts refers to all of those obligations which do not arise from
law, contracts, quasi-
contracts, or criminal offenses. It may be defined as the fault or negligence of a person, who, by
his act or ommission, connected or unconnected with, but independent from, any
contractual relation, causes damage to another person.
10. What is a contract?
Ans. (Pg. 8) A contract is a meeting of the minds between two persons whereby one binds
himself, with respect to
the othe, to give something or to render some service.
11. Can there be an obligation when there is only one party? NO

12. Macasaet vs. COA


Ans. (Doctrinal Case of Art. 1159) Supra demanded an escalation cost for the increase of
materialsMacasaet also demanded 7% of the additional because the 7% must be based on

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the final actual cost of the project (stipulated in the contract). Decision was in favor of
Macasaet.
13. Agcaoili vs. GSIS
Ans. Exception to Article 1159 The SC did not apply the rule of 1159 on obligations arising from
contract.

14. Barredo vs Garcia


Ans. The scope of quasi-delict was extended up to acts which are punishable by the Revised
Penal Code.
15. Elcano vs. Hill
Ans. The Supreme Court broadens the scope of quasi-delict up to acts which are voluntary etc.
16. Air France vs. Carrascoso
Ans. Mere breakage of contract can be classified as quasi-delict. A person, against his will,
forced to transfer from Economy class to Business class can also file a suit for breach of contract
17. What is meant of a diligence of a good father of a family?
Ans. standard of care in roman lawordinary diligence. Exercised in the absence incase of
absence of
stipulation in the contract or the law.
18. Would it apply to a generic object?
Ans. NO! because generic thing does not perish. There is no risk of loss from the genus of the
object.
19. 1163 is a guaranty that the debtor will comply with the obligation.
20. When is an object considered generic or determinate? Art. 1163-1166
Ans. (Page 44) It is determinate when the object is particularly designated or physically
segregated from all others of the same class. It is generic when the object is designated merely
by its class or genus without any particular designation or physical segregation fromm all
others of the same class.
21. In common carrier, the law requires an extra ordinary diligence in taking care of the thing.
22. From the time the obligation to deliver has arise, the creditor is entitled to the fruits and
accessories of the object.
23. When does the time to deliver arise? (it depends upon the nature of the contract)
24. What are the obligations of the debtor and what are the right of the creditor? (pg. 47-50)
25. What are accession and accessory? (Article 1166)
Ans. Accession anything that is produced by or incorporated or attached to the property either
naturally
o r artificially. Example: fruits of the land, three that is planted in the land
Accessory anything that is united with the principal thing as an ornament or for its use or
perfection.
Example: Head lights of a motor cycle. (Pg. 29 Aquino)
26. When is there a liability even if there is fortuitous event?
Ans. Art. 1165, 3rd paragraph
27. What is the philosophy behind the fortuitous even in 3rd Paragraph Art. 1165?
Ans. There would have been no losses if the debtor complied with the obligation to deliver the
object without delay.
28. What is the philosophy behind the debtor promising to deliver the object to 2 person with
different interest?

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Ans. It would be impossible to comply with both obligations therefore you already made
yourself liable for damages so a loss in fortuitous event should not free you from liability for
damages.
29. What are the rights of the creditor in a obligation to do if there has been a performance but in
contravention of the tenor?
Ans. (Page 54) 1] To have the obligation performed or executed at the expense of the obligor, 2]
to ask that what has been poorly done be undone, and 3] to recover damages because of breach
of the obligation
30. Can the creditor compel the debtor to comply in the obligation to do?
Ans. The remedy of compulsion is not available to personal obligation.
31. Asking another person to comply with the obligation at the expense of the debtor is not always
available.
32. Chaves vs. Gonzales
33. Tangguilig vs CA
34. Can the debtor deliver an object with an inferior quality or can the creditor demand the delivery
of a superior quality in an obligation to deliver an indeterminate/generic thing?
Ans. No because under Art. 1246 the law does not allow it.
But there is nothing in the law which does not allow the debtor to offer a more superior quality
nor the
creditor to demand a more inferior quality.
35. What are the rights of a creditor?
Ans. (Page 47-49) Two (2) rights of creditor in determinate obligations and three (3) rights in
generic.
36. Is the right of undoing always available?
Ans. No, it depends in the nature of the actsometimes you cannot undo what has been done.
37. Art. 1169 one of the more important provisions.

38. When does delay start?


Ans. Unless there is no demand there is no delay, that is the general rule pursuant to Art. 1169.
Exemptions: a. when time is of the essence
b. when there is express stipulation that demand is not necessary
c. when demand is not necessary because the obligation cannot be fulfilled.
39. For a contract to be included in exception number 1, that the parties must stipulate in the
contract that the debtor will incur delay without the need for demand otherwise there is a need
for a demand for the debtor to incur delay. The mere stipulation of a date, where the obligation is
due, does not impliedly include it in the exception.
40. In reciprocal obligation, the moment the other party complied with his obligation failure to
comply will cause you to be in delay. Therefore demand is not required. Exception, if there are
different dates for the performance of the obligation therefore there is need for demands.
41. Is it only the debtor can incur delay in cases where the party is only the creditor?
Ans. NO, when the creditor unjustly refuses the performance of the debtor in fulfillment of his
obligation in other words. mora accipiendi or delay of the creditor.
42. When there is delay on both parties?
Ans. That is compensatio morae.
43. General rule in 1169, in unilateral obligation demand is necessary. The mere fact that the parties
agreed on a date of performance does not make the debtor incur delay if not fulfilled on the

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agreed date. In bilateral obligations no demand is required, the moment one of the parties
comply with his obligation properly delay starts on the part of the other.
44. When will a demand be necessary before there will be delay on their part?
Ans. When there are different dates concerning the compliance of their obligation.
45. Tip: in 90% of the cases on of the exemptions is that if there is a contrary stipulation.
46. Article 1170 - Gives the way of committing a breachhow may be an obligation be breached?
47. When is there fraud or what is fraud as a mode of?
Ans. (Pg. 64 Jurado) Conscious deliberate non-fulfillment of the obligation. What is
contravention of tenor?
48. Telefast vs. Castro
Ans. There is contravention of tenor of the contract because of non-performance of the
obligation
49. When Is there negligence?
Ans. (Page 66) It is when there is absence of due care.
50. What is the test of negligence?
Ans. (Page 70) Did the defendant in doing the alleged negligent act using the reasonable care
and caution which an ordinarily prudent person would have used in the same situation?
51. RCPI vs. Rodriguez
52. If an obligation is breached and damages are to be awarded, what is the rate of interest? 6% &
12%
Ans. Eastern Shipping Case. If it is an obligation for loan etc you should follow the stipulated
interest rate. If there is no stipulation the 12% is the legal interest. If the damage is not loan or
forbearance of money the interest rate is 6% while the case is on going and becomes 12% when
the judgment becomes final and executor because after the judgment is final and executor y
the same would be like a loan or forbearance of money.
53. Under 1171, why is the waiver void?
Ans. Negligence in bad faith
54. How does the law defines negligence? (Art 1173)
55. Cangco vs. Manila Railroad Co.
56. What is the question to be asked in cases of negligence?
Ans. Would an ordinary person do the same act in ordinary circumstances?
57. Rakes vs. Atlantic, Gulf and Pacific Co.
Was there contributory negligence?
Ans. Yes, there was. He contributed to his own injury by disregarding the company order not to
walk along the rails.
58. What is proximate cause?
Ans. Proximate cause is that cause, which in natural and continuous sequence, unbroken by any
efficient and intervening cause, produces the injury, for without which, the result would have
not occued.
59. In negligence cases sometimes the courts apply what is called res ipsa loquitur doctrine. As
applied to the following cases what is this res ipsa loquitur doctrine?
Ans. Defined and applied in Republic vs. Luzon Stevedoring and Caltex vs. Africa.
60. Republic vs. Luzon Stevedoring & Caltex vs. Africa
61. Fabre vs. CA
62. 2 passenger vehicle collisionyou were riding on onecan they be held solidary liable?
63. Metro Manila Transit vs. CA

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There was no factual evidence that the rules and regulations were being followed by the
employees of the company.
64. Assume that typhoon hit the localitybecause of the strong wind a part of the roof of one of the
houses blown off and landed at your car. Can you recover damages from the owner of the car?
Ans. NO, there is fortuitous event.
65. Is a typhoon a caso fortuito? Yes
66. Vasquez vs. CA
There was negligence, for a caso fortuito to exempt the person, the caso fortuito must be the 1]
SOLE and
2] PROXIMATE CAUSE.
67. One basic requirement on caso fortuito is that there must be no negligence.
68. What are the requisites for caso fortuito?
Ans. Page 87 and Page 92
69. Necesito vs. Paras
70. If a passenger on a bus is injured because there was an accident due to a defect spare part,
manufacturer and they cannot be held liable, is that a good defense?
Ans. (Page 88 3rd paragraph) NO, the manufacturer, in law, is considered the agent of the
carrier.
The rationale of the carriers liability is the fact that the passenger has neither choice nor
control over
the carrier in the selection and use of the equipment and appliances is use by the carrier
71. Juntilla vs. Fontanar
No caso fortuito because the defendant is negligent because he was going at a fast speed and
overloaded
72. Austria vs. CA
All of the requisites for fortuitous event were, everything would have to be considered.
73. MIAA vs. ALA
You cannot invoke the Christmas holiday as caso fortuito for not complying with your obligation.
74. Bacolod-Murcia vs. CA
There was negligence on the part of BMMC because they new that it will not be able to use the
land for its railway system because the contract bet. The land owner and BMMC will not be
renewed anymore yet BMMC still contracted with the 3rd person.
75. What is the difference between the previous case and that of Philcom Sat vs. Globe Telecom?
Ans. In Philcom Sat vs. Globe Telecom, there was a stipulation in the contract Section 8 that
incase of non-ratification of the senate, it will be considered a fortuitous event.
76. Co vs. CA
77. Southeastern College vs. CA
Negligence on the part of the school was not properly made or introduced.
78. 1176 simply raises presumptions under payment.
1st presumption - Reason: logical presumption because the payment is usually deducted to the
interest first before to the principal otherwise it would be prejudicial to the creditor If the
payment would be deducted first to the principal;
2nd presumption - MTSC vs. Medina
79. Art. 1178 basic rule on transmissibility
80. The most fundamental classification of obligation are 1] Pure and 2] Conditional.
81. Pure (pg. 104) - if it is not subject to any condition and term or period. (demandable at once or
immediately but it must give a reasonable amount of time)
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82. Conditional (pg. 105) a future and uncertain eve upon which an obligation is subordinated or
made to depend. One whose effectivity is subordinated to the fulfillment or non-fulfillment of a
future and uncertain fact or event,
83. How can a past event constitute as a condition? (the proof or the ascertainment may constitute a
condition because it may satisfy the elements futurity and uncertainty) futurity and uncertainty
are elements of a condition.
84. The quality of uncertaintyis the difference of term or period and condition. A term will surely
pass or happen but not know when.condition may or may not pass or happen.
85. A term or period may either be Suspensive (give rise to a oblig) or Resulatory (extinguishment of
oblig).
86. Park vs. Province of Tarlac
The nature of the condition is if the condition is of such nature is such that the condition may
not be fulfilled without transmission of right, there for the condition is resulatory. why?
87. Take note of article 1180.
88. Art. 1182 very important provision.
Refers to the obligations which are potestative on the part of the debtor.
89. Why is the obligation void in 1182?
Ans. The law abhors illusory kinds of obligation because there is no actual obligation.
90. Simple potestative and Purely potestiative
What the law prohibits is the purely potestative conditions. But if simple potestative condition
we can recognize its validity.
91. Simple potestative is a condition that presupposes not only the will but the realization of an
external act. Example: right of 1st refusal in real estate(when I decide to sell my house I will ).
92. In connection with art if the oblig is made a suspensive and potestative on the part or the
creditor is validthere will be no illusonary kind of obligation because the creditor will certainly be
interested.
93. You do not apply art 1182 to a pre-existing obligation. (Important)
94. Hermosa vs. Longara
95. Smith, Bell and Co. vs. Sotelo Matti
The principle of substantial compliance article 1234
96. Lao lim Case
If there is a provision in the contract that the lessor can keep using the property as long as his
means can permit himit violates the rule on mutuality of a contract.
97. Rustan Mills Case
98. Security Bank vs. CA (Discussed in class)
mutual agreement that was stipulated in the contract for payment of additional costSC said
its potestative on the part of Security Bank.
99. Art. 1183 - Impossible conditions
When is the possibility or the impossibility determinedshould be determine at the time the
obligation is madeif at the time of the birth of the obligation the condition is impossible then
the obligation is void-because by agreeing in an impossible condition shows that there is no
seriousness or intent on the part of the debtor to be really bound. Different in testamentary
conditionsthese impossible conditions are disregarded or ignored.
100. Art. 1184-1185 Positive and Negative conditions
101. Positive condition if the condition has become indubitable that the event will not take place,
the obligation will be extinguished.
102. Negative the condition is that the event will not take place
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103. Art. 1186 - the rule on constructive fulfillment
The debtor voluntarily prevents the fulfillment of the condition
Requisites: (1) an intent to prevent the fulfillment (2) actual prevention of the condition.
(Example: Lauingco, Papio, Portrait, rape)
104. Art. 1187 effects of the fulfillment of a conditional obligation to givethere is a retroactivity to
the moment of the constitution of the obligation it is as if the obligation is fully effective from the
moment the obligation was perfected. (e.g. obligation was contracted 11/2/1995, condition
fulfilled 11/10/2001, it is as if the obligation was full effect from the time of the constitution of
the obligation-why does the law provide for retroactivity: because the condition is merely
accidental element in the obligation. But the law gives a rule of mutual compensation of fruits
and interest, in unilateral obligation the debtor will appropriate the fruits and interest)

105. Art. 1188 (1) rule to protect the creditor (2) deals with the debtor; In relation to the 2nd rule
where the debtor mistakenly pays the creditor, he is entitled for reimbursement from the creditor
along with fruits and interest because it would be absurd if the law will not allow the recovery of
fruits and interest in a obligation subject to a condition where the fulfillment of which is uncertain
when it allows the recovery of fruits and interest in an obligation subject to a period where the
occurring of such is very certain. (see article 1195)
106. What are the rules which should be observed when the object of the obligation is loss
deteriorates, or improved? (Article 1189 MEMORIZE!!!!!!)
107. What are the rights entitled to the debtor as usufructuary? The debtor will have the same right
as a usufructuary with respect to the introduction of improvements .
108. Necessary expenses are those which are expenses which are necessary for the preservation of
the thing.
(See other rights pg. 129 Jurado)
109. Useful improvements - This are improvements which increase the value or the utility of the
thing (fence around the property)
110. When is a thing considered lost?
Ans. Art 1189 When it 1] perishes, 2] goes out of commerce, or 3] disappears in such a way that
its existence is unknown or it cannot be recovered
111. When would a thing be considered to have gone out of commerce?
Ans. When it is impossible to legally transfer or acquire the thing
112. What is the basic pre-condition before

113. How can you be held liable when you in fact dont have the obligation to deliver the thing until
the condition is fulfilled?
Ans. Basic assumption in 1189: You cannot be held liable for damages until the condition is
fulfilled.
114. Article 1190 deals with resolutory condition. (Apply the same rules as in Article 1189.)
115. There is an obligation of mutual restitution under art. 1190 to return to each other what were
given. Are they obliged to return fruits and interest as well?
Ans. Yes, because every single trace of the obligation are obliterated because as a result of the
occurrence of the condition will render that it is as if there was no obligation at all.
116. Article 1191 - One of the more important provisions.

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117. Even if there is no express stipulation in the contract, the power to rescind is always implied
upon non-compliance of the obligation. (As long as the obligation is reciprocal in character the
power to rescind is implied.)
118. When are obligations considered reciprocal?
ANS: (1) Created or established at the same time, (2) out of the same cause, (3) resulted in
Mutual relationship of creditor and debtor between the parties.
119. Sungcuan vs. Alviars
The obligation would only be reciprocal if they dependent upon each other obligation. In the case
120. Can there be partial fulfillment or rescission under article 1191?
Ans. Yes, case in point,
Central Bank vs. CA there was rescission on the unreleased P63,000 part of the loan.
121. Ayson Simon vs. Adamus
Reiterates where an injured party can opt for the rescission of the obligation even if he already
chose the fulfillment in cases where the fulfillment would become impossible.
122. Basic rule in rescission of reciprocal obligation is that there must be breach on one of the
parties.
And the breach must be substantial in character. A casual or slight will not suffice a rescission.
123. Sung Fo and Co. Case
Mere slight or casual breach of contract or obligation will not suffice rescission of obligation
124. Roque vs. Lapuz
Why was the breach considered substantial?
Ans. Because the agreement of the parties was to pay in 120 installment payments but the
defendant only paid 4 installments so it was considered substantial.
125. Whether or not there is provision in the contract, can recission be made whether judicial or
extra-judicial if the breach is merely slight?
Ans. No, the breach must be substantial as to defeat the very object of the obligation.
126. If there is no provision in the contract the injured party must go to court but if there is provision
in the contract, the injured party can recind extra-judicially. The decision of recission of the
injured party can be questioned in court by the other party. (Notice is always required.)
There are two possibilities: 1. to accept the decision of the injured party; and 2. to question the
basis of the recission.
127. Angeles vs.Calasanz
The breach is merely slight in characterthe recission was not realy justified.
128. Barredo vs. Leanio
There was no basis for recission because the breach was merely slight in character because the
buyer already paid P200,000 to the seller.
129. Palay vs. Clave
There was no notice of the recision
130. Contract of adhesions - is one where the provisions come from only one of the party.
131. Damages can be recovered in either case (Page 137)
A entered in to a contract with b for the use of the property for a period of 5 years with a rent of
certain amount. For 6 months non payment by Acan B recover damages for the remaining
years? No, because only damages wich are compatible with the idea of recission may be awarded.
132. What is an obligation with a period?
Ans. (Page 140)Those whose demandability or extuingishment is subject to the expiration of a
term or period
133. When is a period suspensive? When is it resulotory?
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Ans. (Page 141)It is suspensive when the obligation becomes demandable only upon the arrival of
a day certain; It is resolutorywhen the obligation is demandable at once, although it is terminated
upon the arrival of a day certain.
134. I will pay you as soon as possible, is it subject to a condition or a period?
Ans. It is a Period under Art. 1197
135. What is an acceleration clause?
Ans. It is a clause where upon default of the debtor with one or more payment will make the
whole obligation demandable.
136. Victorias Planters vs. Victorias Milling Company
Caso fortuito excuses you in the fulfillment of obligation therefore you dont have to make up for
it.
137. Article 1194 in passing onlynot so important
138. Article 1196 general rule is that the period is established for the benefit of both.
139. Article 1197 The phrase Once fixed by the courts, the period cannot be changed by them
140. Prescription cannot be waived. In counting the prescription period , the first 10 years will not
be counted. The 10 year period will start after the first 10 year period.
141. Exemption from the general rule that the court will only fix the period and the courts will fix the
period and have a specific performance:
Ans. (1) When the evidence would be the same for the fixing of a period and specific performance.
(2) When the purpose of the fixing of the period is to simply delay.
142. Boromeo vs. Court of Appeals
143. When does the debtor lose the right of the benefit of the period?
Ans. Article 1198
144. A mere attempt to abscond will immediately lose the benefit of a term or a period.
145. In case of loss it doesnt matter whether the cause was caso fortuito or due to the fault of the
debtor.
146. Incase of impairment the debtor will lose the benefit of the term or period if it was caused at
his fault.
147. Gaite vs. Fonacier
148. When is a person insolvent?
Ans. (Page 159)
149. Central Philippine University vs. CA
150. When is an obligation considered alternative/facultative?
Ans. (Page 162)
151. What are the principal points of distinction?
Ans. (see memory aid)

152. Who has the right of choice in an alternative obligation?


Ans. In alternative obligations, the general rule is that the right of choice belongs or pertains to
the debtor
153. As long as the debtor selected one of the objects, the creditor cannot question the debtors
choice among the objects alternatively due.
154. From the moment the debtor made a notice of choice on which object he will deliver the
obligation ceases to be an alternative, therefore the obligation will be extinguished if the chosen
thing is lost due a fortuitous event. Therefore article 1205 does not apply. (Remember!!!!)
155. Remember Article 1203 House in Quezon City or Swimming pool in Angeles City
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Debtor was obliged to build the house or build a swimming pool. The creditor sold the property in
angeles before the notification of choice could be made. Debtor may rescind the contract with
indemnity for damages.
156. Remember Article 1205
157. Why is it that if the right of choice belongs to the debtor and all the alternative?
In alternative obligation as long as there is one remaining object, the debtor can still comply with
the obligation. That is the reason why the law uses the last object as the basis for the indemnity.
158. When the right of choice was given to the creditor.
If all objects are loss thru caso fortuito, the obligation is extinguished(as a general rule) because
no one can be held liable for a fortuitous event. When the object chosen by the creditor is lost
throught the fault of the debtor, the creditor can only recover damages if the creditor chose the
price of the thing that has been lost because the debtor cannot comply with his obligation
anymore. But if the creditor chooses the remaining objects he cannot recover damages because
the debtor can still comply with the obligation.
159. Facultative the moment the object is lost due to caso fortuito the obligation is extinguished
because there is only one object. Page 168: Distinguished from Alternative obligations
160. When is an obligation solidary/joint?
161. An obligation is considered joint as a general rule. Exceptions (Page 174)
The obligation is solidary when there is express stipulation, the law requires it, nature of the
obligation requires it.
162. The mere fact that the object is indivisible does not constitute a solidary obligation.
163. If one of the debtor is insolvent, in a joint obligation, the other debtors are not obliged to pay
for the share of the insolvent debtor.
164. Jointly and severaly it means solidary
165. Individualy and collectively means solidary
166. I promise to pay x and y (sgd. A B C) Solidary because of the word I
167. When do you consider an object indivisible?
Ans. If the thing or object cannot be divided or the division would render the object loss or
destroyed.
168. If the obligation is solidary there is MUTUAL AGENCY, in a joint obligation there is none. Thats
why in a joint indivisible obligation, all parties must act together to enforce the obligation.
169. Collective act of the creditor is only necessary when it is beneficial to all the creditor
It should not be sufficient even if beneficial, the act of all of them is still required because there is
no mutual agancy the better viewand view of Atty. Navarro.
170. Effects of breach Art. 1209 (pg. 181 Jurado)
When a debtor breach, the object will be convereted into monetary and the creditors can recover
from all the debtors for their contributionand creditors can recover damages from the debtor in
bad faith.
171. Reminder: in joint obligation there is no mutual representationall will have to act togetherin
solidary obligation there is mutual agency.
172. Is it possible to have solidarity only on one side? Yes!
173. Would it be possible for solidary exist even if the parties are bound in different periods?
Ans. Yes, see Inchausti and Co. vs. Yulo
174. Inchausti and Co. vs. Yulo
Partial remission of the debt is a defense available for all the solidary debtors and not only for the
debtors who obtained the remission. The 3/6th of the new amount is the only part that can be

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demanded from Gregorio Yulo because it is the only part that is due and demandable although the
other three siblings were the ones given extension in the period.
175. A solidary creditor who has no knowledge of the act of the other creditor will have a share in
the profit or benefit and not in the loss or damages.
176. If one of the solidary creditor condones the whole of the share of one of the solidary debtor,
the latter is completely released from the obligation as long as the creditors are concerned
(therefor anyone of the creditors can no longer demand payment from him), but his relationship
between his co-debtors is not released.
177. Art. 1215 - Compensation and Confusion is enitled for reimbursment while remission is not
allowed reimbursment.
178. What is Compensation/Confusion
Ans. Page 195
179. When a solidary debtor paid the whole amount the whole amount after the debt has
prescribed, he is not entitled for reimbursment.
180. Article 1217-1218 (Remember!!!!)
181. There is no right for reimbursment if the entire debt has not yet been paid.
182. Wilson vs. Berkenkotter
The debt contracted in 1938, 1944 the entire debt was paid by berkenkotter with Japanese War
notes. When one of the debtor pays the whole amount, he is not subrogated, he does not step in
the shoes of the creditor, in other words there is a new obligation that is entered into between the
debtors. This is because the solidary debtor who paid the whole amount does not acquire the
same right as the creditor.
183. Ballantyne Schedule is the schedule of value of the Japanese war notes in relation with the
Philippine Peso during a certain point in time.
184. Why does the law not allow the assignment of rights of the solidary creditor to a 3rd person?
Ans. Because of the theory of mutual agency where there is mutual trust between the co-
creditors. The
assignment can be ignored by the co-creditors and the guitly creditor is liable for any
damages incurred.
185. Art. 1214 is only binding to the debtor whom the demand was made.
186. What are the defenses available to a solidary debtor?
Ans. (Page 206)
187. Article 1219 any remission purpotedly done by the creditor after the debt is paid by one of
the co-debtors is immaterial and uselesstherefore the non-paying
188. When there is only one creditor and one debtor is the divisibility or indivisiblity of the obligation
relevant? No, because as a general rule, a creditor cannot be compeled to accept partial
fulfilment neither the debtor cannot make partial fulfilment. The entire and complete compliance
is required. Exceptions: a. if there is expressly stipulated b. when the debt is partly liquidated and
partly unliquidated c. when different prestations constituting the objects of the obligationare
subject to different terms and conditions. (Page 209)
189. When is an obligation liquidated?
Ans. When there is centainty of the exact amount of the obligation.
190. Do all obligation have penal clause? NO
191. Purpose of a penal clause?
Ans. (Page 213) To insure compliance, liquidate the amount of damages, to punish the obligor in
case of breach.
192. Funcion Liquidatoria
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It is a legal estimate of damages that might be incurred in monetary value; the parties agreed
beforehand on a specific amount in monetary value of damages one might incurr incase of breach
of contract.
193. Would it be advantagous to the parties to put a penal clause in an obligation?
194. Is the purpose of punishing the party in case of breach always present?
195. A agreed to constuct a 10 story bldg for 10m to B. Not later than Dec 1, 2008. Needed by that
date because to lease out. A agreed if failed to be completed by Dec 1, 2008, A will pay 10k/Day
of delay. Not able to complete the bldg by Dec. 1. B had evidence of actual damages of 100k/day.
Can B recover the 100k/day of damages?
Ans. No, because of the 10k/day penal clause. Under article 1226 the penalty shall substitute the
indemnity for damages. this is the general rule in penalty in case of breach. (see exceptions in
article 1226)

196. When can the court lower the penalty?


Ans. Article 1229. 1] if the principal obligation has been partly complied with, 2] if the principal
obligation has been irregularly complied with, and 3] if the penalty is iniquitous or unconscionable
even if there has been no performance
197. Makati Devt Corp vs. Empire Insurance
Example in 1229
198. Medel vs. CA in passing
199. Nullity of the Obligation follows the extinguishment of the penal clause but not the other way
around.
200. What are the modes of extinguishing an obligation? (see page 226)
201. Payment refers not only to delivery of money but also the performance of an obligation.
202. Does payment includes involuntary payment?
Ans. Yes (Page 227)
203. The basic principle of payment is? Article 1233
204. Exceptions to the basic principle? Articles 1234 1235
205. Who may pay?
Ans. Debtor and his Legal representatives, and third persons.
206. Can the creditor be compeled to accept payment by a third person who has no interest to the
obligation?
Ans. No. Because an obligation is based on trust and confidence, a person no interest in the
fulfillment of the obligation is not part of that trust.
207. Joint debtors are considered persons with interest in an obligation.
208. What are the rights of the parties in an obligation where a third person paid the debt without
consent of the debtor? (See Page 230 235)
209. Master pages 230 235 of Jurado!!!!! Rights of the Parties!
210. To whom payment maybe received?
Ans. (Page 236 1st paragraph Jurado)
211. Haw Pia vs. China Banking Corporation page 237
Authorization to receive payment need not come necessary come from the creditor, it can also
come from the law.
212. If payment was made to an incapacitated person would ordinarily a void payment under Article
1241
Exceptions: 1] if the person kept the payment; and 2] if the payment was used for his benefit.
213. Benficial must be rational, necessary, or usefulor reasonable.
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214. Article 1241 2nd paragraph: Memorize including the 3 instances!!!!
215. There is one other situation when payment is made valid: when payment is made in good faith
to the third person in possession of the credit shall release the debtor. (Article 1242)

216. When is a third person considered in possession of the credit?


Ans. If form all of the surrounding circumstances he legally entitled to accept the payment when
in reality he is not .
217. Article 1244 in passingalready discussed in the past
218. What is dation in payment?
Ans. Article 1245 - Dation and Pago is possible only when there is agreement between the
parties that the delivery of the thing is the equivalent of the fulfillment of the obligaiton.
219. Forget about the uniform currency act in the textbook because it has been repealed.
220. What should the payment constitute?
221. If the debt consists in the sum of money, how should it be paid?
Ans. 1] Currency stipulated in the contract; 2] If impossible, then the legal tender in the
Philippines.
222. What is a legal tender? (See Page 247 - Jurado)
Ans. According to Article 1249, refers to such currency which may be used for the payment of all
debts, whether
public or private
223. Sec 52 of RA 7653: coins 25c and above are legal tender only upto P50. 10c or less only upto
P20.
224. Central Bank Circular 537 Series of 2006: coins of P1, P5, P10 are legal tender upto P1000. 1c
upto 25c are legal tender only upto P100.
225. When is there extraordinary inflation? (See Page 258 - Jurado)

226. You can only have a currency stipulated when there is a contract
Therefore Article 1250 is only applicable to contracts and not on Quasi-Delict.
227. Where should payment be made?
Ans. Article 1251 Payment shall be made in the place designated in the obligation.

228. What is contemplated is the habitual place where the object(Car in Pangasinan)

13
OBLIGATIONS & CONTRACTS
Finals

1. What is application of payment? Article 1252


- May be defined as the designation of the debt to which the payment must be applied when the
debtor has several obligations of the same kind in favor of the same creditor.
- Debts must be of the same kind before invoking 1252.
2. Requisites of application of payment:
- First: there must be only one debtor and one creditor
- Second: there must be two or more debts of the same kind

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- Third: all of the debts must be due
- Fourth: the amount paid by the debtor must not be sufficient to cover the total amount of all the
debts
3. What is the importance of Application of Payment?
4. Why must the debts be of the same kind?
- Because there will be no uncertainty if the debt are not the same.
- In Application of Payment there is uncertainty on which of the obligation will the payment be
applied to.
5. If the debts are of the same kind and all of the same amount, if I pay you P1k and you accept the
P1k, is there a possibility of uncertainty? Yes.
6. Who has the right of choice? The Debtor
7. If the debtor does not make an AP during the payment, can the creditor make an initiative in
applying the payment? How?
- Yes. The creditor can make the application of payment with the approval of the debtor. The
debtor can impugn the application of payment made by the creditor.
8. Supposing they cannot agree, the application of payment will fall under the provision of article
1254. Where the payment will be applied to the debt which is more burdensome/onerous to the
debtor.
9. The creditor cannot be compelled to accept partial payment.
- The debtor cannot insist that his payment will be applied to the debt which is greater in value
than the payment. Then if the parties cannot still agree article 1254.
10. Understand 2nd Parapgraph of 1252. (page 268)
- Once the receipt is accepted, the application of payment made in such receipt can no longer be
impugned, unless there is a cause of mistake, force, intimidation, undue influence or fraud,
which will invalidate the application.
11. Paculdo vs Regalado (They entered into contract. Paculdo bought heavy equipments in one
contract and leased a wet market in another contract)
- The debtor has the right of choice of application of payment
- Mere silence in the acceptance of Paculdo does not constitute consent
- The Statement of Account is not a receipt
12. The mere silence of the debtor after receiving of statement of account is not the consent required
by law. There is no estoppel. The statement of account is not the receipt contemplated by law in
Article 1252. The rent was more onerous than the payment of the heavy equipment. (Paculdo vs
Regalado)
13. Are there any exeptions in the 1 creditor 1 debtor requisite?
- If the partnership is being represented by a managing partner. If the debtor owes the
partnership and the managing at the same time. If the managing partner issues a receipt for the
credit of his own, the payment will be applied in proportionate between the debt to the
partnership and the managing partner.
14. Is it possible to have more than one debtor?
- Yes. In case of a solidary obligation where one of the solidary debtor owes the creditor aswell.
15. Exceptions in the 3rd requisite.
- (1) when there is a stipulation to the contrary; and (2) the application of payment is made by the
party for whose benefit the term or period has been constituted.
16. The Supreme Court held that Article 1253 is merely a directory in character.
- If the debt produces interests, payment of the principal shall not be deemed to have been made
until the interests have been covered.
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17. Supposing the debtor decides to apply his payment to the less burdensome debt, can you do that?
Yes
18. Article 1254 (Legal Application of Payment when the debts are not of same burden; Most Onerous)
(1) The oldest debt
(2) Debt that bears interest. Debt with a higher rate of interest
(3) Debt that is secured
(4) When the debtor is bound as principal in one obligation compared to when as a guarantor
(5) When the debtor is a solidary debtor compared to when he is the sole debtor
(6) Within a solidary obligation, the share which corresponds to a solidary debtor
(7) An obligation for indemnity compared to the other by way of penalty
(8) One debt is liquidated and one is not
19. When debts are same burden it is applied pro rata
- Pro rata, in fixed proportion or proportionately
20. How do you determine the most burdensome?
- Apply Article 1254. See the given problem, page 270.
21. Solidary vs. Sole debtor
- Sole debtor is more onerous according to Tolentino.
22. What is Cession? Requisites?
- Cession or assignment may be defined as a special form of payment whereby the debtor
abandons all of his property for the benefit of his creditors in order that from the proceeds
thereof the latter may obtain payment of their credits
- (1) plurality of debts; (2) partial or relative insolvency of the debtor; and (3) acceptance of the
cession by the creditors
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1. Why does the law require a previous tender of payment?


- If the creditor accepts the tender of payment there would be
2. Consignation without a previous tender of payment is allowed in 1256 of the civil code.
3. Ordinarily, you cannot resort to consignation without previous tender of payment
- The law does not want to waste your time. For all you know, the creditor may accept your
payment.
4. Exceptions under Art. 1256:
- 3rd, how can you say a creditor will refuse to issue a receipt if you tender payment?
- 4th, let them fight it out
- 5th, refers to the written document
5. Problimatical: refuse to issue a receipt without a just cause
- By itself will mean that there would be a previous tenderone possible situation is even before
can make a tender of payment the creditor makes it clear that he will not issue a
receipt.(reasonable way of interpreting)
6. How do you make a tender of payment?
- Actual offering to the creditor the thing which is due.
- If money, offer legal tender. It must be the exact amount of the obligation otherwise it will not
be a valid legal tender
7. Roman Catholic vs Malolos
- There must be positive and clear evidence on the part of the debtor in the payment of his
existing obligation.
8. Special Requisites for a valid tender of payment and consignation memorize!!!!
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(1) there is a debt due;
(2) the consignation has been made either because the creditor:
- refused to accept the payment without just cause
- because any of the causes in Art. 1256 exists
(3) previous notice of consignation had been given
(4) the thing or amount due had been placed at the disposal of judicial authority
(5) the consignation had been notified
9. As a general rule, Notice before consignation. However, can be done simultaneously with tender of
payment.
10. Why does the law require previous notice before consignation?
- To give the creditor time to re-consider his decision.

11. How do you deposit the thing with the court?


- File a case againts the creditor (state the compliance of requisites for a tender of payment and
consignation.)
- At the same time, upon filing a case deposit the payment (in properties, deposit the title to the
court and have them appoint a receiver;
- Receiver person appointed by court to take care of the property.
12. Why does the law require a second notice?
- To give the creditor time or opportunity to re-consider.
13. Defense of the creditor?
- (1) is it due?; (2) was there tender of payment?
14. If the creditor in his Answer he prays that the thing be adjudicated in his favor it means there is
already acceptance on the part of the creditor.
15. Release under article 1261 means only in solidary co-debtors and they are only released only in
solidarity and not on their respective shares.
16. The requisites for payment and consignation must be strictly complied with, otherwise not valid.
17. Rural Bank of Caloocan vs CA (exception to #16)
- A departure on a strict compliance in the requisites in a valid
- no previous notice, no tender of payment
- Based on consideration of the facts of the case and based on equity
18. The requirements for a valid payment and special requirements must be complied with in order to
have a valid tender of payment and consignation.
19. When is a thing lost?
- When it perishes, goes out of commerce of man, or disappears in such a way that its existence is
unknown or it cannot be recovered.
- It means impossibility of compliance with the obligation through any cause.
20. Can generic object perish?
- No. Bases on the principle that the genus of a thing can never perish (genus nunquam peruit)
21. If the object of the obligation is lost the obligation is extinguished
22. When may the debtor be held liable?
23. A obliged to deliver to B a wrist watch, it was robbed. Is A liable?
- No, you are not liable because in robbery there is risk to ones life.
- In theft chances are you will be negligent, therefore you are liable.
24. What is reciprocal obligation?
25. What is the effect of loss in reciprocal obligation?
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26. A to render some service to B and B to A aswell. Without Bs fault his service has become
27. Tolentinos view: if one of the reciprocal obligation is extinguish the other must also be
extinguished. This is deducible from Article 1504 incase of the sale of personal property if prior to
delivery the thing is lost there is no obligation to deliver the price, Article 1655 in a contract of
lease if the object being lease is being lease the obligation is extinguished, a contract for a piece of
work if the thing is lost the contractor has no right to receive payment this is under Article 1770;
JBL Reyes view: even if one of the obligation is lost through caso fortuito the other remain, under
1191, exceptions the same 3 articles cited by tolentinoin the civil code.
Dean Navarro is inclined with the view of Tolentino.
28. What is the effect of partial loss (Article 1264)
- it depends upon the circumstances surrounding the obligation.
- (Fighting Cock one of whose legs is injured is considered equivalent)
29. Exception to Article 1265 (In cases of earthquake, flood, storm or other natural calamities)
30. Article 1266 (The prestation becomes legally or physically impossible without the fault of the
obligor)
31. Labayen vs. Talisay-Silay Miling Co.
- It is elemental that the law requires the parties to do what they have agreed to do. However, a
party cannot be held liable for breach where compliance with the prestation which constitutes
the object of the obligation will prove dangerous to life or property.
- A showing of mere inconvenience, unexpected impediments, or increased expenses is not
enough.
32. Article 1266 (by its very own terms refers to an obligation to do; it does not cover to give)

33. PNCC vs CA (Dummy corporation of Marcos)


- Cannot invoke 1266 because their obligation is to give, the article is for obligation to do,
- 1267 is invoked as well but you can only use 1267 in absolutely very exceptional circumstances
so that equity would demand that one of the parties would be released.
34. Article 1267 (Exceptional changes)
- Can only be used on cases which are very exceptional in nature.
35. NAGA tel co. vs CA (Rebus Sic stantibus)
- the court accepted article 1267 for the reformation of the contract and damages.
- When the basis of the parties to an agreement is the circumstances when they contracted the
obligation, the SC may allow the reformation.
- General Rule is good, only under exceptional circumstances that there may be recourse to the
equitable principle under 1267.
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1. What is Condonation or Remission? (page 295)


- Is an act of liberality by virtue of which the oblige, without receiving any price or equivalent,
renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety
or in that part or aspect of the same to which the remission refers.
2. What is gratuitous?
- An act by virtue of which without receiving any price or equivalent
3. What distinguish condonation from other modes?
- Condonation is actually a donation
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- The debtor receives the economic value of his obligation, which is actually his debt.
4. Are there any required formalities in condonation?
5. In express remission, what should be the form required?
- Express donation must comply with the forms of donations
- The remission or condonation of a debt is in reality a donation
6. What are the formalities? (Page 299)
- Article 748 and Article 749
7. Article 1270 Par. 2, shall be subject to the rules which govern inofficious donations?
8. What is inofficious donation?
- exceed the limit of what can be validly donated
9. System of Legitimes
- It is that part of the persons estate which the law reserves for certain heirs and/or compulsory
heirs
10. What is legitime?
- Property of the estate at the time of the death.
11. It is considered inofficious if it impairs the legitime.
12. What is Collation?
- All gratuitous donations are added to his estate
13. Condonation may also be implied
Example: A must deliver a car worth P500K. B condoned the car verbally. Is that valid? NO! It
must be in writing because it exceeded P5K
- Can a failed express donation become an implied donation? NO! It will defeat the purpose of the
2nd Paragraph of 1270, 748 and 749.
- Only 1271, 1272, 1273 and 1274 are implies condonation
14. Article 1271 (Refers only to a Private Document)
- The debtor has always a copy of the Public document
- A public document becomes a part of the National Archives, repository of National Memories.
15. Private Document evidencing a credit is the only copy, which is his only strong evidence.
16. Why only private document not public documents?
17. National archives where the public documents end up.
18. Article 1272 is collorary to Article 1271
- Voluntary delivery, but rebuttable presumption
19. Article 1271 Par. 2 (Implied Remissions) => MEMORIZE!
- Some commentators say that there is immorality

20. What is pledge? (Contract of Pledge)


- Personal property is given to the creditor; in Filipino, sangla
- The principal obligation is still enforced
21. What is confusion?
- The merger of the characters of creditor and debtor in one and the same person by virtue of
which the obligation is extinguished
- It is impossible for a person to compel specific performance to himself.
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1. What is compensation? (page 307)

19
- A mode of extinguishing in their concurrent amount those obligations of persons who in their
own right are creditors and debtors of each other.
2. What are different kind of compensation? (page 309)
(1) Legal when it takes effect by operation of law from the moment all of the requisites are
present
(2) Voluntary when the parties who are mutually creditors and debtors agree to compensate their
respective obligations, even though all of the requisites for compensation may not then be
present.
(3) Judicial when it takes effect by judicial decree
3. Can Legal compensation occur when one of the parties is incapacitated?
- (not sure of the answer) although it is seemed to be in the positive
4. Legal Compensation, takes place automatically when all requisites are present even though the
parties are unaware of it. Legal Compensation operates even against the will of the interested
parties even without their consent.
5. What are the requisites of Legal Compensation? (see Article 1279 page 309) Memorize!!!!!
(1) There must be two parties who are principal creditors and debtors of each other
(2) Both debts must consist in money, if fungibles (consumables), they must be of the same kind and
quality
(3) Bothe debts must be due
(4) Both debts must be liquidated and demandable.
(5) There must be no retention or controversy commenced by third persons over either of the debts
and communicated in due time to the debtor.
(6) The compensations must not be prohibited by law.
Note: if all requisites are present, Legal compensation takes place even without the consent of the
parties
6. When do you consider a thing consumable? Fungibles? (Page 314, last paragraph)
- Consumables are those movables which cannot be used in a manner appropriate to their nature
without being consumed.
- Fungibles are those which may be exchanged or compensated by another of the same kind and
quality.
7. What is meant by Controversy and Retention? (see page 315, last paragraph)
- Retention consists in the application of the credit of one of the parties to the satisfaction of the
claims of a third person.
- Controversy refers to a case in which a third person claims to be the creditor.
8. Can there be legal compensation if the objects due are non-consumable?
- Yes, as long as their fungible, even if the law says consumable, it meant to that of fungibles.
9. A owes B P100K. Under a different contract B owes A P100K. Both debts are due and demandable,
will there be legal compensation? Yes. Will it be total or partial? Total
10. Assume A owes the government P100k by way of taxes. Under a different contract the government
owes you P100k, can there be legal compensation?
- No, because taxes do not arise from contract therefore there is no debtor creditor relationship
bet. Taxpayer and Government.

20
11. Francia vs IAC
- A person cannot refuse to pay a tax on the ground that the govt owes him an amount equal to
or more greater than the tax being collected.
- No legal compensation can take place between the govt and a private individual or taxpayer in
a collection of taxes since they are not mutually creditors and debtors of each other as
contemplated under Article 1278.
- There can be no offsetting of taxes against the claims that the taxpayer may have against the
govt. They are not in the nature of contracts. Not such a debt, demand or judgment as is
allowed to be set-off.
12. Lets assume that A owes B P100K payable on demand. Under a different transaction B owes A
P100K which is due and demandable. Will there be legal compensation?
- No, if A did not make a demand the debt is not yet demandable.
- Article 1169, no demand, no delay
13. A is depositor of BPI of P5M. A borrowed P3M from the bank. The debt is due, can there be legal
compensation?
- Yes. Because in the contract where A deposited P5M to the bank there is a creditor and debtor
relationship because the contract with the bank is that of a simple contract of loan. Same is true
with the loan attained by A.
14. Gullas vs PNB (page 313)
- Defendant bank applied the deposit of plaintiff to the payment of the amount paid by the bank
for the warrant.
- The general rule is adopted for this jurisdiction that a bank has a right of set-off of the deposit in
its hands for the payment of any indebtedness to it on the part of the depositor.
15. Lets assume that A is a stock holder of SMC at P5M. Under a different Transaction A purchased
goods with SMC and owed them P3M. Can there be legal compensation?
- No, when you purchase stocks to a corporation you are not lending them money.
- Trust Fund Doctrine the capital stock of a corporation is a trust fund to be used more
particularly for the security of creditors of the corporation, who presumably deal with it on the
credit of its capital stock.
16. Garcia vs Lim Chiu Sing (page 311) Stocks are not credit
- Applied the Trust Fund Doctrine
- Defendant who is indebted to the bank contends that his debts must be compensated by his
shares of stock in the bank.
- A share of stock of certification is not an indebtedness and therefore not a credit.
- Defendant is not a creditor of the bank although the latter is a creditor of the former.
17. What are the compensations explicitly prohibited by law? (page 321 - 1st paragraph)
- Article 1287
(1) Debts arising from contracts of depositum
(2) Debts arising from contracts of commodatum
(3) Claims for support due by gratuitous title
(4) Obligations arising from criminal offenses
(5) Obligations in favor of the govt such as taxes, fess, duties and others of a similar nature.
18. What is a contract of commodatum?
- Is an act of lending by virtue of which the lender lends a non-consumable item to someone but
the latter binds himself to return it
- It is based on trust and confidence thats why it is prohibited.
21
- Is a common contract of good neighbors, when a person lends a fungible object to another
gratuitously.
19. When you lend something, which in nature, there is an element of trust and confidence that the
person will return the thing borrowed, law prohibits compensation because it will violate the trust
and confidence.
20. A entrusted to B a bicycle for safe keeping. B, under a different contract, is obligated to deliver a
same bike to A. Can B set up legal compensation?
- No, because it is a contract of depositum which protects the rights of A which Article 1287
prohibits.
21. In a contract of depositum, the depositor can set up compensation while the depository cannot
22. In a contract of commodatum, the lender can set up compensation while the borrower cannot set
up compensation.
23. In a contract arising from crime, the offender cannot setup compensation while the offended party
can. Therefore it is facultative in nature since only one of the parties can setup compensation.
Also, when one of the party can setup compensation.
24. If one of the parties has the benefit of the term or the period, it is also considered facultative in
nature.
25. When is a debt considered liquidated?
- Are those the amount of which may be determined by a simple arithmetical operation.
26. D owes C P12K. C owes E P12k. E owes D 12k. All of these debt are due and demandable. Will
there be legal compensation?
- No, because none of the parties are bound to be principally debtors and creditors of each other.
27. D owes C P12k. E is a guarantor of D. C owes E P8K. Can D set up legal compensation?
- No because D is not a creditor of C, G is the one who is owed by C.
28. D, who is incapacitated, owes C P12k. C owes E, guarantor of D, P8k. Can E setup legal
compensation?
- Yes, E can setup legal compensation
- Article 1280. The guarantor, in case the payment of the debt is demanded from him, may setup
compensation, not only for what such creditor owes him, but also for what such creditor owes
the principal debtor
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1. What would be the effect/consequence if the creditor assigns his rights to a third person? Article
1285
- A distinction must always be made between the effects of the assignment when compensation
has already taken place and the effects when compensation has not yet taken place
- When compensation has taken place:
The subsequent assignment of rights by a creditor to a third person cannot in any way
affect the debtor with respect to the compensation which has already taken place.
The assignee, on the other hand, can only demand indemnity for damages from the
assignor on the ground of fraud.
- When compensation has not taken place:
The effects of such assignment once all of the requisites for compensation are present
shall depend upon whether it was made with the consent, or with the knowledge but
without the consent, or without the knowledge of the debtor.
- With consent of the debtor:

22
The debtor cannot setup against the assignee the compensation which would have
pertained to him against the assignor
If the debtor notified the assignor, at the time he gave his consent, that he is reserving
his right to the compensation, he can still setup the defense.
- With knowledge, but without consent of the debtor:
The debtor may setup the defense of compensation of debts prior to the assignment,
but not of subsequent ones for the purpose of preventing fraud.
It is clear that the assignment cannot take effect as far as the debtor is concerned
unless he is properly notified. Hence, the rules may be stated as:
Notification then assignment, the effects of the assignment are produced from
the time it is made and not the time the notification is given. The debtor can
setup the defense of compensation of debts contracted prior to the
assignment.
If made simultaneously, there can be no question about the time when the
effects of the assignment are produced. The debtor can setup the defense of
compensation of debts contracted prior to the assignment.
Assignment then notification, it is evident that the assignment must have been
effected without the knowledge and consent of the debtor, the debtor may
setup the compensation of all credits prior to the same and also later ones
until he had knowledge of the assignment.
- Without knowledge of the debtor:
The debtor may setup the defense of compensation of all credits which he may have
against the assignor and which may have become demandable, before he was notified
of the assignment.
2. What is novation? (page 323)
- Is the substitution or change of an obligation by another, resulting in its extinguishment or
modification, either by changing its object or principal conditions, or by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor.
- One of the modes of extinguishing obligations through the creation of a new one effected by the
change or substitution of an obligatory relation by another with the intention of substantially
extinguishing or modifying the same.
3. How does novation differ from other modes of extinguishing an obligation?
- It extinguishes an obligation and at the same time gives birth to a new obligation.
4. What are the requisites of novation?
(1) A previous valid obligation
(2) Agreement of the parties to the new obligation
(3) Extinguishment of the old obligation
(4) Validity of the new obligation
5. Kinds of novation:
(1) As to its essence: Objective, Subjective or Mixed
(2) As to its form or constitution: Express or Tacit
(3) As to its extent or effect: Total or Partial
6. As to its essence, when is the novation:
(1) Objective change the object or subject;
May be effect by: 1] changing the cause of the obligation; 2] changing the object; 3]
changing the principal or essential conditions

23
(2) Subjective change/substitution of the person of the debtor or creditor.
(3) Mix combination of the two
7. When is it partial and when is it modificatory? (page 326)
8. When is it express, when is it implied? (page 325)
9. Reference to no. 6 the equivocal declaration is for the extinguishment of the old obligation.
(declaration in unequivocal terms)
10. The incompatibility must be real and on every point they must be incompatible to each other
otherwise both obligation must be complied with.
11. A owed B P1M. They agreed that B just pay P800k. Is there a novation?
- No, because there is partial remission/condonation
12. Same facts, but, instead of P800k its P1.2M. Is there novation?
- Yes, because it is increased.
13. In the case of obligations with a term or period:
- If there is increase of the term or period, there is no novation
- If there is decrease of the term or period, there is a novation
14. Sps. Bautista vs. Pilar Devt Corp. (Cancelled Promissory note)
- The extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first is a novation
- Novation may either be express, then the new obligation declares in unequivocal terms that the
old obligation is extinguished; or implied, when the new obligation is on every point
incompatible with the old one.
15. A shortening of the period would amount to a drastic change in the object in novation.
16. As a general rule, there will be no novation without the consent of the creditor.
17. When would there be novation even if without the consent of all the parties?
18. Expromision and Delegacion (The initiative of the substitution). And how do they differ? (page 336)
- Expromision is when the substitution of debtors is effected with the consent of the creditor at
the instance of the new debtor even without the knowledge or against the will of the old debtor.
Requisites: (1) the initiative for the substitution must emanate from the new debtor; (2)
consent of the creditor to the substitution.
- Delegacion is when the substitution of debtors is effected with the consent of the creditor at the
instance of the old debtor with the concurrence of the new debtor.
Requisites: (1) the initiative for the substitution must emanate from the old debtor; (2)
consent of the new debtor; (3) acceptance by the creditor.
19. There can never be substitution without the consent of the creditor.

20. A borrowed money from B and pay 6% interest per annum until the debt is fully paid. Later parties
agreed to increase the interest to 8%, is there an extinctive novation?
- SC held that agreement in payment of higher interest does not result in an extinctive novation, it
is merely modificatory in the absence of certain circumstances.
21. A entered into agreement of promissory note to B. A issued a check, is there novation?
- No because the check and promissory note can stand together.
22. Garcia vs Llamas (check issued)
- Issuance of a check by a co-debtor does not extinguish the old obligation unless specified.
- Novation; the creditor must expressly consent to the substitution.
23. A borrowed P5M from B with mortgage of House & Lot. Later, the chattel mortgage the car of A. Is
there novation?

24
- The mere giving of additional security does not give rise to novation since the two securities do
not contradict each other.
24. Mercantile Insurance Co., Inc. vs CA (M/V Jolo Lema, the Eagle Bond)
- The giving of additional security is not novation, only supplementary.
- The general rule is that novation is never presumed. It must always be clearly and unequivocally
shown.
- The fact that the subsequent to the execution of the Contract of Conditional Purchase and Sale,
Lopez posted another bond, the Eagle Bond, does not by itself suggest that there was a
novation of Mercantiles obligation through a substitution of the debtor.
25. A is defendant in a case which B filed. The court ordered A to pay B P1M. The judgment was final
and executory. A pleaded extension of time to B and agreed. Signed an agreement and mortgage
of land of A. Is there novation?
- No, because the two contracts can stand together.
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1. If there is merely an increase in the interest, extension time, additional security, change in the
signatory if the contract involves a construction of a building and there is slight alteration there is
no novation.
2. Reduction of time there is novation since there is substantial change in the principal condition of
the obligation.
3. Ajax Marketing and Devt Corp. vs CA (Ylang Ylang partnership to corporation)
- There was no novation, petitioner merely became a co-debtor or surety.
- Novation will not be allowed unless it is clearly shown by express agreement, or by acts of equal
import.
- The bare fact of petitioners conversion from a partnership to a corporation, without sufficient
evidence, either testimonial or documentary, that they were expressly released from their
obligation, did not make Ajax, with its new corporate personality, a third person or a new debtor
within the context of a subjective notion.
4. Differentiate the previous case with the spouses florante vs. bautista.
- There was a stipulation on the 2nd promissory note that it will cancel the previous promissory
note.
5. What are the requisites of novation stated in the previous case?
6. A borrowed P1M from B. The debt will be paid not later than Dec. 1 2007. Sometime in November
2007, C went to B and told that if B will agree C will pay As debt, is there substitution of debtors?
- No, because there is no indication that there is agreement for the release of the old or original
debtor.
- He becomes a co-debtor or depending upon the circumstances he becomes a surety.
7. A owes B P1M. C went to B and told him that let me be the one to pay the liability of A and release
the latter from his liability. Is there substitution of Debtor?
- Yes, expromission.
- Supposing that when the debt becomes due C did not pay because insolvent, can B proceed
against A?
No, because there is already expromission. (Article 1294)
8. Article 1294 MEMORIZE!
- Take note when: (1) without knowledge and (2) with knowledge

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9. Article 1295
- Only insolvency
- Exceptions: When insolvency was already existing and of public knowledge, or known to the
debtor when he delegated his debt.
- When all the parties knew the insolvency of the new debtor, the creditor cannot proceed against
the old debtor. The creditor must suffer his own act.
10. Assume this time the initiative still came from C but it was done with the knowledge of A. In the
presence of A, C told B that let me be the one to pay the liability of A and release the latter from
his liability when the debt became due C could not pay? Can B proceed to A?
- Yes, even if it was done through expromission but if done with the knowledge of the old debtor
the insolvency will revive the old obligation of the old debtor. (page 342, last part of 3rd
paragraph)
11. Assume that what happen was delegacion. A with C went to B and offered substitution of debtor
and B agreed. When the debt became due and demandable C was insolvent only after substitution
but before the debt become demandable, can B proceed against A?
- No, because the insolvency must have occurred during the time the substitution occurred and it
must be of public knowledge or known to the original debtor.
12. Supposing C was already insolvent at the time and was public knowledge and known to A and B,
and B accepted, can there be revival of the obligation of A?
- No, he is estopped from doing so by his acceptance.
13. Same problem, still delegacion, when the time for payment came this time there was no insolvency,
C simply refuses to pay. Can B proceed against A?
- No, because only insolvency existing at the time of the delegation (when it is of public
knowledge or known to the debtor at the time of delegation) is the ground for revival of
obligation.
14. Article 1294 (Expromision),
- if the substitution is with knowledge and consent of the original debtor, the correct and logical
interpretation is as long as the substitution was done thru expromision upon the initiative of the
debtor whether or not it was done with the consent of the old debtor(reconcile notes of fhortz
and joeyhindi ko nakuha eh)
15. Article 1296. What is the general rule?
- Accessory obligation will not subsist.
- When the obligation is extinguished, the accessory obligation will also be extinguished
- Exception: last part of article 1296. What is the reason for this provision (1296)?
16. D borrowed P100k from C, G agreed to be a guarantor for the debt. Before the maturity of the debt
D proposed to C that X will take his place as debtor. X and C agreed, delegacion, will G remain
liable?
- If he G not give his consent, he should not be liable or he should be released.
17. Article 1297
- simply reiterates the requisites for a valid novation where there must be a valid old and new
obligation.
18. Article 1298
- Deals where the old obligation is void.
19. Only a valid obligation can be novated.
20. A gambled with B. A lost P10k to B and issued a promissory note. Later on, A entered into an
agreement, instead of paying P10k will just deliver a ring. Will there be a valid novation?
- No, because the old obligation is void there can be no novation.
26
- Gambling losses is not a valid obligation.
21. Supposing that this time A entered in to a contract whereby A obligated to deliver to B a particular
car. However, your consent is vitiated. Later the 2nd contract instead of delivering the car, A will
deliver a particular diamond ring. Is there a valid novation?
- Yes, because the old contract is voidable, by entering into the new contract the old contract is
cured by the implied waiver of right of A to declare the nullity of the old contract.
22. Assume the original obligation is subject to a condition and the new condition is also subject to a
different kind of condition. Supposing the condition attached to the old obligation is fulfilled, is
there a valid novation? -
No, because the 2nd contract is not valid since the condition Is not fulfilled.

23. Assume this time that the condition of the new condition is fulfilled and not the old obligation, will
there be novation?
- No, because the old obligation cease to exist with the non fulfillment of the condition.
24. Supposing the conditions are incompatible, which should be fulfilled, which will be fulfilled?
- The condition of the new obligation must be fulfilled.
25. If the original obligation is subject to a condition and the new obligation does not say anything
about any condition. Is the new condition subject to the same condition?
- Yes, article 1299 because if the condition is not fulfilled you dont even have a valid novation.
26. Article 1299
- Both obligations must be valid.
- Requisites of Novation: (1) Valid old obligation; (4) Valid new obligation.
27. Novation by Suboragation (page 346)
- The second method whereby personal novation may be effected is by subrogating a third person
in the rights of the creditor.
- Conventional is that which takes place by the agreement of the original creditor, the third
person substituting the original creditor, and the debtor
- Legal is that which takes place by operation of law.
28. Distinction of Conventional subrogation and Assignment of rights (page 347)
(1) As to rules which govern
(2) As to necessity of debtors consent
(3) As to effect upon obligation
(4) As to effect upon vices
(5) As to time of effectivity
29. Payment of a third person
- D owes C P100k which is secured by a mortgage. D also owes E P50k.
E will be subrogated to the rights of C if E will pay the P100k
- Same facts. Both debts are due. D only paid P100k. Can E foreclose the mortgage? (Notebook)
- D owes C P100k. D owes E P100k. E paid P80k to C. How much can E collect from D?
E can collect the whole P100k because he acquired the rights of C.

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1. What is a contract? Article 1305. (page 351)
- 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.
2. Can there be a contract if there is only one party? Why?
27
- No, because there must be always at least two person/parties.
- There can be more than two.
3. What about this autocontracts, are they not exceptions with respects to the number of parties
required? (page 354, 1st paragraph)
- In reality there are still two parties involved in the contract.
4. Marriage is a special contract, how does it differ from an ordinary contract? (page 352)
5. What are the stages in the life of an ordinary contract?
(1) Generation the preliminary of preparation, conception or generation, which is the period
of negotiation and bargaining, ending at the moment of agreement of the parties
(2) Perfection the perfection or the birth of the contract, which is the moment when the
parties come to agree on the terms of the contract.
(3) Consummation the consummation or death, which is the fulfillment or performance of the
terms agreed upon in the contract.
6. What is the contract implied in fact?
- A contract implied in fact is one implied from facts and circumstances showing a mutual
intention to contract.
- It arises where the intention of the parties is not expressed, but an agreement in fact creating an
obligation.
- The existence of a contract is deducible from the facts and circumstances
- An implied-in-fact contract will not arise unless the meeting of minds is indicated by some
intelligent conduct, act or sign.

7. UP vs. Philab (what were the peculiar facts and circumstances that evidenced that there is actually
contract implied in fact in this case?)
- The respondent failed to prove that the petitioner ever obliged itself to pay for the lab furniture,
hence, the respondent is not entitled to its claim against the petitioner
- Contracts take effect only between the parties and their assigns
- A contract cannot be binding upon and cannot be enforced against one who is not a party to it.
Even if he is aware of such contract and has acted with knowledge thereof.
8. What are the fundamental characteristics of contracts? (page 354)
(1) Obligatory once the contract is perfected, it shall be obligatory force upon the contracting
parties
(2) Mutuality refers to the position of essential equality that is occupied by both contracting
parties in the relation to the contract.
(3) Autonomy the contracting parties may establish such agreements provided they are not
contrary to law, morals, good customs, public order, or public policy
(4) Relativity it takes effect only between the contracting parties, their assigns and heirs
9. Autonomy of contracts, generally, under article 1306, the parties can stipulate anything
providedsee the article
10. When is a stipulation or a contract contrary to morals? (page 359)
- The most difficult to ascertain because in subjecting obligations to moral precepts we must be
careful not to erase the distinction between the moral and the juridical order
11. Supposing A borrowed 1M to B, instead of paying interest A agreed to cohabit with B. Is it contrary
to public morals? Yes
12. When is an agreement contrary to good customs? How does morals differ form good customs?
(page 360)

28
- The spheres of morals and good customs frequently overlap each other but sometimes they do
not.
- If a moral precept or customs is not recognized universally, but is sanctioned by the practice of a
certain community, then it shall be included within the scope or sphere of good customs
13. What is a custom?
14. What is contrary to public policy?
- A principle of law which holds that no person can lawfully do that which has a tendency to be
injurious to the public or against the public good.
15. When is a contract considered contrary to public policy? (page 361)
16. Is actual to injury necessary for a contract to be considered contrary to public policy?
- No, mere tendency is enough

17. Ysmael and Co. vs. Barretto (page 362) Cases of silk were lost, but the carrier stipulated it cannot
be held liable for more than P300 for any single package
- How can that agreement possibly injure the common good? it would allow the shipping
company to take whatever they want and show that it is lost and the shipper will just be
compensated to a much lower price.
- Such a limitation of value is unconscionable and void against public policy because P300 for
each case is less than 1/8 of its actual value

18. Sy Suan vs. Regala (page 365)


- What did the SC say was the possible injury could there be?
the employment of intermediaries will cause graft and corruption, it is sufficient that the
mere tendency exist for the contract to be struck down for being contrary to public
policy.
- It is sufficient that the contract can show by itself to be injurious to.

19. Cui vs. Arellano University (page 366)


- Scholarships are not supposed to be as business gimmicks to attract brilliant students and keep
them in the said school.
- Scholarships should be granted solely on the basis of merit.
20. Leal vs. IAC
- What was the provision which was contrary to public policy?
That if the buyer would want to sell the property he would have to sell the property to
the seller and for the same price.
- One condition which is contrary to public policy is the prohibition to sel to third parties, because
the same virtually amounts to a perpetual restriction on the right of ownership, specifically the
owners right to freely dispose of his properties
21. Ferrazzini vs. Gsell (page 363) Dont go or else dont work case
- A contract that is clearly one in undue or unreasonable trade is against public policy, moreso if it
is not necessary for the protection of the parties.
- In this case, such would cause the plaintiff to leave the Philippines in order to have a livelihood.
22. Del Castillo vs. Richmond (page 364) Before World War II
- What is the difference between the Ferrazzini case?
29
At that time Legaspi was just a municipality and has a little population which is
insufficient to for more drug stores. there must be a limitation as to time and place,
thus, considered reasonable.
23. Ortigas and Co. Limited Partnership vs. Feati Bank (Residential purposes only; Industrial zone)
- The police power is superior to contractual stipulations between parties on the use of lands sold
by subdivisions even if said conditions are annotated on the Torrens Title. While non-
impairment is guaranteed by the Constitution it is not absolute. Since it has to be reconciled
with the legitimate exercise of police power.
24. Trias vs. Grogorio Araneta (No factories will be permitted)
- The sellers of subdivision lots may validly insert in their contracts of sale a prohibition against
the establishment of factories in the district where the lots are located.
- Effect of Zoning ordinance: The existence of a zoning ordinance prohibiting factories in the area
is immaterial. The ordinance might be repealed anytime; and if so repealed, this prohibition
would not be enforceable against new purchasers of the land, who may be ignorant thereof.
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1. When is a contract considered nominate/innominate? (page 367)


- Nominate are those which have their own distinctive individuality and are regulated by special
provisions of law
- Innominate are those which lack individuality and are not regulated by special provisions of
law.
2. Four (4) kinds of innominate contracts:
(1) Do ut des I give that you give
(2) Do ut facias I give that you do
(3) Facio ut des I do that you give
(4) Facio ut facias I do that you do
3. Perez vs. Pomar (page 368) Rendered service as interpreter
- Facio ut des
- The tacit agreement and consent of both parties with respect to the services rendered by the
plaintiff and the reciprocal benefits accruing to each are the best evidence of the fact that there
was an implied contract sufficient to create a legal bond.
- In contracts, the will of the contracting parties is the law. It is but just that he should pay a
reasonable remuneration because it is a well-known principle of law that no one should be
permitted to enrich himself to the damage/expense of another.
4. What is mutuality of contract?
- Equality between the contracting parties
5. Can the determination of validity or performance of a contract be left to the will of a third person as
long as it is not inequitable.
- Article 1309, cannot be left to the sole will of one of the contracting parties.
6. Rustans Paper vs. IAC

7. Assuming A is renting an apartment owned by B, under the contract A can continue renting as long
as A can pay the rent. Would that be a valid provision?
- No, it is a violation of the mutuality of contract.
8. In some contract of loan there is usually an Escalation Clause regarding interest, will that not be
violative in the mutuality of contracts?
- That is valid provided that the increase in rate is based on the law and monetary board
30
9. PNB vs CA
- an escalation clause providing for the rate of interest provided that the increase in rate is based
on an increase in interest rate provided by law or the monetary board, and there must be a de-
escalation clause.
10. Florendo vs. CA (Landbank Employee)
- May a bank unilaterally increase an interest on a housing loan of an employee based on the
reason that the said employee already resigned?
In the contract between the employee and Land Bank, there was no stipulation that
resignation will be a basis for increasing the rate of interest. If there was an agreement
then it would have been valid. Therefore it cannot be done unilaterally by the bank.

- The contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them

11. There are some contractual type of agreement that render the mutuality of contracts illusory but
none the less valid. What are this type of contracts? (page 370 last paragraph 371 1st paragraph)
12. Liebnow vs. Phil. Vegetable Company (page 371) Bonus promised to an employee
- This is an example where a contractual agreement referred to in # 11.
- The defendants discretion on the amount of bonus is not nugatory on 1308.
- There are certain agreements which will in effect render the mutuality of contracts illusory
because one of the contracting parties is placed in a position of superiority with regard to the
determination of their validity or fulfillment of the contract
13. Taylor vs. Uy Tieng Piao (page 372)
- This is an example where a contractual agreement referred to in # 11.
- Article 1308 creates no impediment to the insertion of a resolutory condition.
- The resolute ry condition in the contract was agreed upon by both parties.
- It is entrirely licit to leave the fulfillment to the will of either of the parties in the negative form
of recission since they remain with the same faculties in respect to fulfillment.
14. What is the rule or principle of relativity of contracts?
- Article 1311. As a general rule the contract is only binding upon the parties, their heirs, and
assigns.

15. Uy vs. CA (8 parcel of lands; loss of commissions)


- Article 1311 regarding 3rd persons bound in a contract
- Principle of Relativity
- They are not parties in interest.

16. Exceptions to the theory of relativity (page 377)


(1) Where the contract contains a stipulation in favor of a third person
(2) There the third person comes into possession of the object of a contract creating a real right.
(3) Where the contract is entered into in order to defraud a third person
(4) Where the third person induces a contracting party to violate his contract
17. What is the basis of the obligation of the third person in article 1314?
- Obligation arising from tort/quasi-delict.
18. A owns a land, borrowed money to B with the land mortgaged, mortgage was registered. Later on,
A sold the land to C. Is C bound?
- Yes, he has come into a possession of a contract creating a real right under article 1312.
31
- If a contract creates a status, a 3rd person is bound, collective contracts or group contracts, (such
as CBAs)
19. One of the most important exceptions to the rule relativity is the 2nd paragraph of article 1311.
(Memorize Article 1311!!!!)
20. Stipulation pour autrui
- A stipulation in a contract, clearly and deliberately conferred by the contracting parties as a
favor upon a third person, who must have accepted it before it be revoked.

21. Requisites of stipulation pour autrui


(1) There must be a stipulation in favor of a third person
(2) The stipulation must be a part, not the whole of the contract
(3) The contracting parties must have clearly and deliberately conferred by the contracting parties
as a favor upon a third person, not a mere incidental benefit or interest.
(4) The third person must have communicated his acceptance to the obligor before its revocation
(5) Neither of the contracting parties bears the legal representative or authorization of the third
party.
22. A and B entered into a contract where A will construct a 10-storey building and B will pay P10M. A
ask if they could include a stipulation whereby B will pay 1M out of the 10M to C because A owed C
P1M. Is that a stipulation pour autrui?
- Yes, it satisfy all the requisites;
23. Assume that A did not owe anything to C, would there still be stipulation pour autrui?
- A stipulation pour atrui may be involved where a contracting party owes a 3rd person and
agreed that he benefited, or where it is purely gratuitous.
24. Who can ask for the revocation of the stipulation? All the parties. Can one party revoke the
stipulation? No, there would be no mutuality.
25. Kauffman vs. PNB
- Stated who can revoke the stipulationthat would be both parties or the party who caused the
stipulation.
- It is undeniable that the banks promise to cause a definite sum of money to be paid to the
plaintiff in New York is a Stipulation pour autrui
- It will be noted in the provision (1311 par.2) that a person seeking to enforce compliance with a
stipulation in his favor must signify his acceptance to the bank by demanding payment. The
revoked as there used, must be understood to imply revocation by the mutual consent of the
contracting parties or at least by direction of the party purchasing the exchange.
26. Coquia vs. Fieldmans Insurance Company (page 381) Deceased drivers insurance
- The Coquias who admittedly are the sole heirs of the deceased have a direct cause of action
against the company based on pour autrui
- Although in general, only parties to a contract may bring action based thereon, this rule is
subject to exceptions, Article 1311 (2).
- Thus, the enforcement of a contract may be demanded by a third party for whose benefit it was
made, although not a party to the contract, before the stipulation in his favor has been revoked
by the contracting parties
27. Concepcion vs. Sta. Ana
- A forced heir who is entitled to a legitime may sue for the annulment of the contract if it was to
defraud him, the heir is in the same chair as a defrauded creditor.
28. Uy vs. Leonard,
- there is merely an incidental benefit and not a stipulation pour autrui.
32
- There was no deliberate confermentread carefullyvery scholarly
- Why were the material name mentioned if there was no deliberate conferment to the
materialmen?
Because was only by way of extreme caution because there were certain provision of
the civil code which makes the owner of the land liable to the material men. But there
was no deliberate conferment of benefit
29. Article 1314. Requisites for liability
(1) The existence of a valid contract
(2) Knowledge on the part of the third person of the existence of the contract
(3) Interference by the third person without legal justification or excuse
30. As far as the third requisite is concerned:
- malice in the sense of ill-will is not required but malice in the sense of no legal justification is
required
31. Rule of consensuality of contracts
Exceptions:
(1) Real contract Loan
(2) Formal fill up form

32. Article 1317 = Unforceable


- Distinguish Unenforceable and Voidable
- You dont apply 1317 if the contract was not entered into in the name of another.
Example: A owned a car and B sold it to C without As consent. 1317 would not apply
because B entered into a contract in his own name.
33. Heirs of William Sevilla vs Leopold Sevilla (Parcel of lot; donation; sisters)
- Fraud and undue influence that vitiated a partys consent must be established by full, clear and
convincing evidence, otherwise, the latters presumed consent to the contract prevails.
- Not valid because there is no Consent. Thus, the contract is void.

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1. Article 1318. Requisites of a valid contract:


(1) Consent of the contracting parties
(2) Object certain which is the subject matter of the contract
(3) Cause of the obligation which is established
2. OFFER defined as the proposal to make a contract. It must be certain or definite.
ACCEPTANCE it must be certain or definite. It must also be absolute, meaning, plain and
unconditional.
3. The law specifies that the offer must be certain and absolute. If it is not absolute or varies in any
degree or it does not fit exactly with the offer it would constitute a counter-offer.
4. Counter-offer is a qualified acceptance.
- Subject to certain modifications with regard to the terms of payment
- There is a counter-offer if the
5. To convert an offer into a contract, the acceptance must be absolute and must not qualify the
terms of the offer.
6. The acceptance must be a mirror image of the offer.

33
7. Limketkai Sons Milling, Inc. vs. CA (perfection of contract-case reversed by the SC)
- Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract.
- The offer must be certain and the acceptance absolute.
- The contract of sale is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price.

8. A wrote a letter to B offering to sell to the latter 100 bottles of Red wine and A replied agreeing to
the price but he would like to buy 400 bottles.
- Amplified acceptance
There will be a perfected contract with respect to the original offer and perfected to the
increased.
9. Can there be a perfected offer made to a public at large, like in a newspaper?
- Yes, if a seller published the offer.
What is the source of the obligation?
- the better view of the obligation is a contract, because that member of the general
public and did the act generated from the offer accepted the offer.
10. Article 1319 (2). Sometimes the acceptance maybe made to letter or telegram. When is it
perfected?
- Cognition Theory (page 398)
- From the moment the acceptance comes into the knowledge of the offeror.
11. Expedition theory, Reception theory, cognition theory, manifestation theory
- It is the cognition theory which we follow in contracts.
12. Even under the cognition theory, the rule of constructive knowledge is applicable, even if the
offeror has no knowledge the contract could
13. A wrote a letter to B offering to sell his lot for P5M. B decided to accept the lot and wrote a letter.
Delivered on Dec. 1, A was having 2nd thoughts. When the letter was delivered, A did not open the
letter. Instead, he wrote a letter of withdrawal. Applying the rule of constructive knowledge there
is a perfected contract.
14. Assume A was in Manila and B in Angeles City, A wrote a letter (same offer as in previous #). B
decided to accept and sent a letter of acceptance. The letter was delivered on Dec. 1 but A was in
Cebu at that time. While in Cebu, A wrote a letter of withdrawal received by B on Dec. 4, Dec.
- no perfected contract because when the acceptance letter was read by A he already made a
withdrawal letter previous to that.
15. Laudicio vs. Arias (page 401)
- An acceptance does not have any effect until it comes to the knowledge of the offeror.
- Though both the offer and the acceptance existed, they did not meet to give birth to a contract.
- A withdrawal of acceptance is effective immediately.
16. Ang Yu Asuncion vs CA (Mr. Rights of First refusal vs. Ms. Contract of Option
- A withdrawal of acceptance is effective immediately.
17. An acceptance made by letter or telegram which has been mailed, it still may be withdrawn
- Manresa if acceptance can, the moment the offeree makes his acceptance he is the first to
become aware that there is a meeting of minds therefore he is not permitted to withdraw
- Tolentino there is only one moment of a contract, in the moment when the acceptance comes
to the knowledge of the offeror therefore he still can withdraw.
18. Article 1320. An acceptance maybe express or implied.
19. Article 1321. Case fortuito is immaterial
34
20. Article 1322. A messenger is not an agent contemplated by the law.
21. If you are interested in accepting the offer your acceptance must reach me not later than Jan. 1,
2008
- The messenger had accident and the letter reached only on January 2, no perfected contract, it
does not matter whether the delay of acceptance was because of fortuitous event.
22. Article 1323 (Memorize)
- An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either
party before acceptance is conveyed.
23. What is the effect of civil interdiction?
- Cannot manage your own property or dispose it by contract inter vivos.
- Restricts the capacity to act of a person under civil interdiction)
24. A wrote a letter to B offering to sell his House & Lot in Manila for P5M cash. B accepted and wrote
a letter of acceptance and mailed it to A. Before A could receive the acceptance B became insane.
- There is no perfected contract.
25. Conveyance of acceptance (conveyed refers to that moment the offeror has knowledge of the
acceptance)
- Requires a proper form of acceptance
e.g. Assume A wrote a letter to B donating his lot in QC attached with the deed of
donation already signed. B receive the donation and accepted called B and said the
same and signed the acceptance, mailed it back to A, before A could receive the
acceptance B became insane,
no perfected donation, calling A informing him of the acceptance is not
sufficient, there is no proper conveyance.
26. Article 1324. Important!!!
- If the option is without any consideration, the offeror may withdraw his offer by communicating
such withdrawal to the offeree at anytime before the acceptance
- If it is founded upon a consideration, the offeror cannot withdraw his offer
27. Exception: When can the offeror just not withdraw?
- A preparatory contract option founded upon a consideration.
28. OPTION => must be with option money in order to be an option supported with a consideration
29. Sanchez vs. Rigos (page 407)
- Remember; very logical as compared to the Natino case
- The SC ruled that in unilateral offers to buy or to sell, since there may be no valid contract
without a cause or consideration, the promisor is not bound by his promise and may, accordingly
withdraw it. Pending notice of his withdrawal, his promise partakes of the nature of an offer so
sell which, if accepted, results in a perfected contract of sale.
- Stated in another way, if the option is without a consideration, it is a mere offer to sell which is
not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes
a binding contract sale
- There is already a concurrence of both offer and acceptance.
30. Right of first refusal a.k.a. Right of first priority
- Is this a valid provision?
YES! It s common to some contract of lease
- What if theres a violation of the right of first refusal?
You can recover damage in so far as Human Relation is concerned.
31. A lease a lot to B where in the contract there is a stipulation of right to first refusal.
- It is a valid provision, it is binding,
35
- What consideration will support?
Same consideration that supports the lease contract.
- Supposing there is a breach, B decided to sell the property to X without giving the option to A, it
is a violation of the right of A, what is the right of A?
A right of first refusal is an innovative contract. Right to recover damages based on
human relation.
According to other decisions, if violated, the injured party has certain substantial
remedies. He can ask for the rescission of the deed of sale, and can compel to sell the
property at the same price sold to Mr. X and recover damages.)
If Mr. X is in good faith, he will be protected by the law and no rescission.
32. Equatorial Realty Devt Inc. vs Mayfair Theater (Maxim and Miramar Theater)
- An option is contract granting a privilege to buy or to sell within an agreed time and at a
determined price. It is a separate and distinct contract from that which the parties may enter
into upon the consummation of the option.
- Other decisions damages, rescission, or compel to sell the property to A.
- Justice Vitugs dissenting opinion only damages based on Human Relations;
Xxxxxxxxxxxxxxxxxxx

1. Mere advertisement of things for sale is not an offer but merely invitation to make an offer.
- even a mere advertisement may constitute; A cause to advertise in the newspaper, subdivision
lots, reasonable, call etcmerely an invitation.
2. Same in the case of advertisement for bidders
- The advertiser is not bound to accept the highest bid or the lowest
- They have the right not to accept. simply an invitation for the public to make a bid.
3. Article 1327. Important provision!
- remove emancipated minors
4. Certain situations/exceptions where a minor may actually be bound by the contract: (page 412)
(1) When it is entered into by a minor who misrepresents his age.
it is necessary that the minor should have at least passed the age of puberty otherwise
it is not possible for him to misrepresent his age and mislead the other party.
(2) When it involves the sale and delivery of necessaries to the minor
(3) When it involves a natural obligation and such obligation is fulfilled voluntarily by the minor,
provided that such minor is between eighteen and twenty-one years of age
(4) When it is a marriage settlement or donation propter nuptias, provided that the minor is
between twenty and twenty-one years of age, if male, and between eighteen and twenty-one
years of age, if female
(5) When it is a life, health or accident insurance taken on the life of the minor, provided that the
minor is eighteen years old or more and the beneficiary appointed is the minors estate, or the
minors father, mother, husband, wife, child, or brother, or sister.
5. Active & Constructive Misrepresentation
Mercado, et al. vs Espiritu (Active)
- When the minors pretended to be of legal age, when in fact they were not, they will not late on
be permitted to excuse themselves from the fulfillment of the obligation contracted by them, or
to have it annulled.
- The minors are guilty of Active Misrepresenation. Hence, they are liable.
Braganza vs. Villa Abrille (Constructive) (page 415)
36
- Mere silence when making a contract as to his age does not constitute a fraud which can be
made the basis of an action for deceit.
- In order to hold the infant liable, the fraud must be actual and not constructive.
- Therefore, the minors are not legally bound by their signatures in the promissory note.
6. Sy Suan vs Alcantara
- Dissenting opinion of Justice Padilla
even if the minor has misrepresented his age, he should not be held liable because the
reason for a minor is prevented from entering into contract is to protect the said minor.
Why then should you punish such?
7. P.D. 734 allowing minors to open savings account; at least 7yrs and can read and write.
8. Lunatic may pagasa ka pa. There is lucid interval,
Imbecility walang kapagapagasa. A case of perpetual eclipse. Thus, can never enter into
contracts.
9. There are certain situations where certain indi take note of article 1490 of the civil code,
10. Disqualification to Contract (page 419)
- It as apparent that the persons specially disqualified mentioned in Art. 1329 refer to those who
are prohibited from entering into a contract with certain persons with regard to certain property
under certain circumstances and not to those who are incapacitated to give their consent to a
contract.
11. Distinction between incapacity to contract and disqualification to contract: (page 421)

Incapacity Disqualification/Prohibition
Restrains the exercise of the right to Restrains the very right it self
contract
Based upon subjective circumstances of Based upon public policy and morality
certain persons which compel the law to
suspend for a definite or indefinite period
their right to contract
A contract entered into by an incapacitated A contract entered into by a person
person is merely voidable prohibited is void.

12. Article 1330. Vices of Consent. (page 422)


- MVIUF = VOIDABLE
- (1) mistake; (2) violence; (3) intimidation; (4) undue influence; or (5) fraud
13. Article 1331. MISTAKE (Take note)
14. Mistake as to the identity ordinarily will not make the contract voidable unless it was the principal
moving force were the other party entered into the contract for that reason
- Simple mistake in the identity is not a ground for the cancellation of the contract, it can be
corrected.
15. Accidental Element
- Assume A bought from B a pocket book because A thought it was a thrilling story. A cannot sue
for the contracts annulment for the reason that the book was boring
- A bought from B a House & Lot because he thought that the neighbor was Kristine Hermosa.
16. Assume that A bought an engagement ring from B then nabusted lang. Can A sue for annulment,?
- No, mistake with respect to motives is not a vice.
17. A bought 100 sacks of cement from B intending to re-sell them. He discovered that the price
where he will re-sell the cements was lower. He cannot sue for annulment of contract.
37
18. Only mistake of fact can possibly serve as a basis and not mistake of law.
19. Article 1332. Social Justice provision (Take Note!).
20. Article 1334. (Take Note!)
- Must be mutual error; if only one party is in error, not ground.

21. Asiain vs. Jalandoni (A hacienda alleged to produce 2,000 piculs of sugar case) (page 425)
- The mistake with reference to the subject matter of the contract is such that, at the option of
the purchaser, the contract is rescissible (voidable).
- Without such mistake the agreement would not have made and since this is true, the agreement
is inoperative
- It is not deception but is more nearly akin to bilateral mistake for which relief should be granted.
- Specific performance of the contract can therefore not be allowed at the instance of the vendor.

22. Article 1335 and 1336. VIOLENCE & INTIMIDATION MEMORIZE!

23. Distinction of Violence and Intimidation:

Violence Itimidation
External Internal
Prevents the expression of the Influences the operation of the
will substituting it with a will, inhibiting it is such a way
material act dictated by another that the expression thereof is
apparently that of a person who
has freely given his consent

24. Regardless of the form and source of the intimidation or violence it will still vitiate consent
resulting in a voidable contract.
25. A Threat to rightfully enforce someone to the claims of his client is valid.
- Example: A lawyer sending a letter to someone
26. Relative conditions must be considered in determining violence or intimidation age,
strengthect.
27. One who consents although reluctantly gives his consent just the same. It is not vitiated. Hence,
there is no basis for the annulment of the contract.
28. Martinez vs. Hongkong and Shanghai Bank (page 434)
- Husband went to Macao to escape civil and criminal liability.
- Vitiated consent vs Reluctant consent
- A contract is valid even though one of the parties entered into it against his wishes and desires
or even against his better judgment, or if entered into without hope of advantage or profit
- A contract whereby reparation is made by one party for injuries that he has willfully inflicted
upon another is one, which from its inherent nature is entered into reluctantly. He makes such
only by the compelling force of the punishment threatened. Nevertheless, it is still binding and
enforceable.
29. Article 1335. Grave peril upon the person are not used in their technical sense under RPC but in
generic sense refers to the threat against the persons integral.
30. Article 1337. UNDUE INFLUENCE
- takes improper advantage over the will of the other
38
- there is a substitution of will.
31. Consider everything; Relation between the parties, financial distress, etc. it is always difficult to
create a case under the basis of undue influence
- The law does not prohibit any form of influence but only undue ones.
32. Article 1338. FRAUD
- it is which might be present at the time of the contract
- different from the one in 1170 which is fraud in the performance in the performance
conscious intentional evasion of obligation
33. Fraud => which will render a contract voidable refers to those insidious words or machinations by
one of the contracting parties in order to induce the other to enter into a contract, which, without
them, he would not have agreed to
34. Fraud which is present or employed at the time of the contract may be subdivided into: (page 439)
(1) dolo causente or casual fraud use of insidious words or machinations
refers to those deceptions or misrepresentations of a serious character
it is the principal moving fraud which induces the party to enter into contract.
(2) dolo incidente or incidental fraud
refers to those deceptions or misrepresentations of a serious character employed by one
party
not the principal inducement in the contract
the party would have still entered into conract even if he have knowledge of the fraud.

35. Woodhouse vs. Halili (Mission Softdrinks) (page 446)


- In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo incidente) inducement to the making of the contract.
- There was only incidental fraud because Halili would still have entered into the contract.

36. Eguaras vs Great Eastern Life Assurance Co. (Medical examination for insurance made not by the
applicant) (page 440)
- the fraud and the deceit practiced in the said contract is of a serious nature
- it is also essential that such insidious words/machinations must be prior to or
contemporaneous with the birth of perfection of the contract.
- There was dolo causante which principally moved the party to enter into the contract; if
present in the birth of the contract, it will be vitiated
37. Article 1339. Will the mere silence of a party constitute fraud? (Take Note!)
- if you have a duty to reveal facts and do not disclose the same, then there is fraud.
38. A and B are partners in a Real Estate Co. They own one large land in a remote area in Cavite
P20/sq.mtr. A learned from a source that SM will be constructed. A bought the shares of B
without telling him about the SM
- There is fraud because partners are duty bound to by trust and confidence therefore there is
duty to disclose.
39. Article 1340. Exaggerations in trade
- Not necessarily fraudulent specially when the party has the capacity to verify the facts.
40. Article 1341. Mere expressions of opinion as a general rule are not considered fraudulent except
when made by an expert and the other party relied on it.
41. If guilty of mistake there can be no indemnity for damagesfraud can

39
42. Article 3142. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual
43. Difference in article 1342 and 1346
44. Rural Bank of Caloocan City vs. CA (Invalid because of misrepresentation) (page 444)
- The old woman cannot be held liable for the obligation of Mr. X.
- It is crystal clear that the old womans participation in Mr. Xs obligation both as co-maker and
as mortgagor is voidable not on the ground of fraud because the Bank was not a participant in
the fraud committed by Mr. X, but on the ground of mistake.
45. If the fraud employed by the party is dolo causente in character the contract is voidableif the void
is incidental it will merely entitle the offended party for damage.
46. Article 1345 & 1346. Simulation of contracts (page 448)
- Absolute simulation there is no intent to be bound at all.- this is the essential requisite of an
absolute simulation. (Usually done by people to run away from creditors)
- Relative simulations usually happens in Filipino families. Make it appear that something has
been sold but it was in reality a donation.
valid as long as it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy.
xxxxxxxxxxxxxxxxx

1. As a general rule, all things or services may be the object of contracts. Requisites: (page 450)
(1) The object should be within the commerce of men
(2) The object should be real or possible
(3) The object should be licit
(4) The object should be determinate
2. The following cannot be the object of contracts:
(1) Things which are outside the commerce of men
(2) Intransmissible rights
(3) Future inheritance, except in cases expressly authorized by law
(4) Services which are contrary to law, morals, good customs, public order or public policy
(5) Impossible things or services
(6) Objects which are not possible of determination as to their kind
3. Can there be contract involving future inheritance? No
4. Can there be contract involving future things? Yes, as long as it can exist subsequently or in the
future.
5. Assume A and B entered into a contract whereby A will pay P100k for the future mango fruits of the
land of B in 2010. Is there is a valid contract?
- Yes.
- Supposing the there are no mangoes produced, is there liability to pay 100k?
No, because there is no object.
6. Who bears the risk in the future things?
- If a contract has for its object a future thing, the contract is considered conditional if its efficacy
should depend upon the future existence of the thing.
- The contracting parties can agree to the contract to become aleatory where the other party will
bear the risk.
7. A will pay P100k to B and the latter will deliver to A a strand of hair of Bernardo Carpio. Is there a
valid contract?
- No, because the object is impossible to obtain.
40
8. Can there be a contract between A and B whereby for the amount of P5M B will not run as
governor?
- No, because the object of the contract is beyond the commerce of man. (page 451)
9. Can personal right be the object of the contract?
- No, because such rights are purely personal in character.
10. A agreed to pay B P50k where by B will deliver to A something. Is there a valid contract?
- No, because the object is indeterminate.
11. A greed to pay B P5M and B will deliver to A all the cattle in his ranch in Masbate. Valid?
- Yes, even if the exact number is specified.
12. Blas vs. Santos (Madrasta) (page 453)
- The attacks:
(1) No consideration or cause => to prevent his heirs by his first marriage from contesting his
will and demanding liquidation
(2) Future inheritance => no liquidation of the first conjugal properties
- What is prohibited under Art 1347 is a contract which deals with any property or right not in
existence or capable of determination at the time of the contract, that a person may in the
future acquire by succession. Here the subject matters of the contract are well-defined
properties existing at the time of the agreement.
- No liquidation of properties on the first marriage
- When Maxima and Simeon got married, Simeon declared, the unliquidated properties as the
conjugal properties of Maxima and Simeon
- Therefore, no future inheritance.
13. What is the cause of a contract? (page 457)
- In general, the case is the why of the contract or the essential reason which moves the
contracting parties to enter the contract.
- It is the immediate, direct or most proximate reason which explains and justifies the creation of
an obligation through the will of the contracting parties
14. Distinction of cause motive? (page 459)

Cause Motives
The direct or most proximate reason The indirect or remote reasons
of a contract.
Is the objective or juridical reason of a The psychological or purely personal
contract reasons
Always the same Differ for each contracting party
The legality or illegality of the cause The legality or illegality of the motives
will affect the existence or validity of will not affect the existence of the
the contract contract

15. A own a pen and sold one to B for P500 and sold another to C for P500 and another to D for P500.
Are there same cause?
- Yes, the cause of all the contract of sale is the acquisition the purchase price although the
motives maybe different. Even if the prices are not the same.
16. Will the illegality of the motive render the contract invalid?
- No, the motive does not affect the validity of the contract except when the motive will pre-
determine or the contract is to the attainment of the motive of the contracting party.

41
17. Liguez vs. CA (Parcel for paramour) (page 460
- Here the motive of the contracting party is the moving reason of the cause of the contract.
(Remember!!!)
- It is scarcely disputable that Lopez would not have conveyed the property in question had he
known that appellant would refuse to cohabit with him, so that the cohabitation was an implied
condition to the donation and being unlawful, necessary tainted the donation itself.
18. What is the cause or consideration in a contract of donation?
- The pure act of liberality.
- Donation is a contract of pure beneficence.
19. A sold his car to B, the object is the car.
- dispute among civilist.
- See the view of Tolentino (page 458)
20. In a contract of barter there are two objects.
21. Phil. Banking Corp vs. Lui She (Land Mark Case in Philippine case) (page 460)
- Applied one of the exceptions to the rule of pare delicto.
- It is clear that the motive or purpose of the arrangement, which has resulted in the virtual
transfer of ownership to the lessee, is the to circumvent the Constitutional prohibition to
transfer of lands to aliens.
- If the attainment of the contract is conditioned upon the attainment of motive or the motive
pre-determined the attainment of the contract.
22. Assume that A and B entered into a contract on Oct 2007 where A sold his car to B for P500K and
will be paid not later that Dec 1 2007. Up to know B has not paid. Can A have the contract
inexistent due to absence or lack of cause or consideration?
- No, the contract will become merely a voidable one. (page 467 1st paragraph)
- the only remedy is to rescind the contract or ask for specific performance with indemnity for
damages.
23. Real Contracts are not perfected until delivery.
24. What is the cause in an Onerous Contract?
- The prestation or promise of a thing or service by the other.
25. Is a mere promise a sufficient consideration even if the promise is not fulfilled? Yes
26. What is the remedy if a person did not comply with his promise?
- Rescission or specific performance, both with moral damages.
xxxxxxxxxxxxxxxxxxxxx

1. Cause is the why, legal or juridical reason and not a personal why.
2. Personal why is the motive.
3. A mere promise is a sufficient cause for a contract.
4. The contract simply makes it appear that the money has been paid and there is no real promise to
pay were in fact there is no payment, the contract is invalid or void.
5. In accessory contracts, the cause is the same as the principal.
- They are supported with the same cause which supports the principal contract.

42
6. Assume A borrowed money from X without security. B agreed to mortgage a property to secure the
loan of A. Later on A was not able to pay the loan. B cannot make a defense that there is no cause in
the accessory obligation. There is a cause, it is the same cause of the principal contract.

7. Villaroel vs. Estrada (Mothers debt 8 years ago undertaken by son) (page 464)
- Here, the cause was based upon the previous civil obligation. While the previous obligation
prescribed, the promise was based upon a previous valid civil obligation.
- If the obligation is purely moral obligation, that cannot serve as sufficient cause. If it is a real
cause derived from a pre-existing contract, there can be a valid cause.
- Where the moral obligation is based upon a previous civil obligation which has already been
barred by the statue of limitations at the time when the contract is entered into constitutes a
sufficient cause or consideration in support the said contract.

8. Fisher vs. Robb (Dog racing gone bankrupt) (page 463)


- It was purely moral obligation. There was never a valid civil obligation.
- Moral obligation arises wholly from ethical considerations unconnected with any civil obligation
and as such is not demandable in law but only on conscience, it cannot constitute a sufficient
cause or consideration to support an onerous contract.
- Purely moral is not demandable in law but only in human conscience over which human judges
have no jurisdiction.

9. If there is no licit cause there is no valid contract.


10. Ladanga vs. CA (Adopted son)
- A contract of sale is void and produces no effect whatsoever where the price, which appears
therein as paid, has in fact never been paid by the purchaser to the vendor
- Adopted son has the legal personality to bring suit to annul sale made by the adopting parents.
11. TOTAL ABSENCE of cause will nullify the contract. Merely inadequacy will not suffice to invalidate
the contract. (Case in point: Carantes vs. CA => P1.00 consideration)
12. Carantes vs. CA discussed by sir.
13. Generally, contracts are valid regardless of their forms except in those specified by law. (page 473)
14. BF Corp. vs CA
- The contract need not be contained in a single document, the contract may contain in several
document which taken together will give you the entire.
15. Formalities of Validity (page 474)
- Contract which must appear in writing:
(1) Donations of personal property whose value exceed five thousand pesos
(2) Sale of a piece of land or any interest therein through an agent
(3) Agreements regarding payment of interest in contracts of loan
(4) Antichresis => the principal and interest must be specified in writing
- Contracts which must appear in a public document as follows:
(1) Donations of immovable property
(2) Partnerships where immovable property or real rights are contributed to the common fund
- Contracts which must be registered are as follows:
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(1) Chattel mortgages
(2) Sales or transfers of large cattle
16. Article 1358 (page 477) MEMORIZE
- Does not affect the validity or enforceability of contracts. (page 477)
17. Consider the contract as a whole. Context is everything. Interpret the provision to each other.
18. Dauden-Hernaez vs De los Angeles (Movie actress) (page 479)
- In general, contracts are valid and binding from their protection regardless of form whether they
be oral or written.
- Article 1357 clearly indicated that contracts covered by Article 1358 are binding and enforceable
by action despite the absence of writing.
19. Grounds for Reformation:
- FAMI (Fraud, Accident, Mistake, Inequitable conduct)
20. Article 1366. Grounds for the denial of reformation: (page 484)
- (1) simple donations inter vivos; (2) wills; (3) when the real agreement is void

21. Interpretation of Contracts (page 488)


- When it is clear, apply
- When it is unclear, consider the intention
22. Tanguilig vs CA
23. Article 1376
24. Do not interpret a contract in isolation with each other
25. Article 1377 => the ambiguity of a contract shall be resolved against the party who caused the
obscurity

26. Article 1378


- Onerous contract - there should be reciprocity
- Gratuitous contract- least transmission of rights & interests shall prevail (Central Phil.
University vs CA)
Rescissible Voidable Unenforceable Void or Inexistent
There is damage or There is vitiation of The contract is One or more or
As to defect injury either to one consent or legal entered into in some of the
of the contracting incapacity of one of excess or without essential requisites
parties or to third the contracting authority, or does of a valid contract
persons. parties. not comply with the are lacking either in
Statute of Frauds, fact or in law.
or both contracting
parties are legally
incapacitated.
As to effect Considered valid Considered valid Cannot be enforced Does not, as a
and enforceable and enforceable by a proper action general rule,
until they are until they are in court. produce any legal
rescinded by a annulled by a effect.
competent court. competent court.
The action for The action for The corresponding The action for
rescission may annulment or the action for recovery, declaration of
As to prescriptibility prescribe. defense of if there was total or nullity or
of action or defense annulability may partial performance inexistence or the
prescribe. of the defense of nullity or

44
unenforceable inexistence does
contract under No.1 not prescribe.
or No.3 of Art.
1403, may
prescribe.
As to susceptibility Not susceptible Susceptible Susceptible Not susceptible
of ratification
Maybe assailed not May be assailed May be assailed Maybe assailed not
only by a only by a only by a only by a
As to who may contracting party contracting party. contracting party. contracting party
assail contracts but even by a third but even by a third
person who is person whose
prejudiced or interest is directly
damaged by the affected.
contract.
As to how contracts May be assailed Maybe assailed Maybe assailed Maybe assailed
may be assailed directly only, and directly or directly or directly or
not collaterally collaterally collaterally collaterally

1. Rescissible contracts are type of defective contracts, what are the defects? It defective because of
the injury caused to the other party or 3rd party.
2. The fundamental bases of the defects have been criticized by some civilist.
3. The amount of the damage must be more than of the amount of the things.
4. Do things have fix absolute value?
- No, because they change from time to time. When the law fixes a certain amount of damage the
civilists say that the basis for the rescission is not stable because there is constant change in the
value of things.
5. Article 1381. Five basic types of contracts that are rescissible. (page 497)
6. In scattered provisions of the civil code there are rescissible contractssuch as article 1289.
7. With respect to a contract entered into by a guardian or representative of an absentee.
- He sold the car for P200k; the actual value of the car is 500k.
The contract is unenforceable since the representative or guardian did not ask for the
approval of the court to sell the property.
He only has administration power and not ownership
8. The matter of lesion is only thru contracts entered into by the representative or guardian in the
administration of the property of the absentee or ward.
9. Contracts in fraud of creditors
- The credit should be existing when one party sells his last property
10. A sold his House & Lot to X for P5M on Jan 1, in May of the same year he borrowed money from B
and promise to pay on Dec. 2007. Can B sue for the rescission of the sale?
- No, because the credit must be a pre-existing credit at the time of the alienation.
11. Assume that A had other properties (same as no. 10), can B sue for rescission?
- Rescission must be the last resort.
- Rescission is a subsidiary remedy, it is a remedy when there is no other legal means to recover.
12. This time A and B are litigants of a parcel of land. A is currently in possession. During the pendency
of the case, A sold the House & Lot to Mr. X and Mr. X is in Bad faith. B won the case against A. X
and A went to B and ask not to rescind the sale. Can B insist on the rescission? Does the rule on
rescission as a subsidiary means apply?
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- Yes, B can insist on the rescission since there is a writ of execution.
- Article 1383 should not apply if involves thing under litigation.
13. What is the purpose why the law makes that contract of an object under litigation rescissible
- It is to protect the possible effectivity of a real right.
14. Contracts entered into in fraud of creditors
- A owes P10M to B and A donated the only property to C. Was the act fraudulent?
Yes, if the alienation is gratuitous there is a presumption of fraud if there is no reservation

- Assume that C is a donee in good faith, can B ask for the rescission of the donation?
Yes, if the transfer of the title is by gratuitous the good faith of the transferee is not
protected.
Why? because the transferee did not even lose anything so the creditor should be
protected over the done.
15. Innocent Purchaser for Value
- In the same case assuming it was sold and not donated and the buyer was in good faith, the
right of the buyer is protected.
16. The moment the property has passed to the hands of an innocent purchaser for value you cannot
ask for the rescission of subsequent sale of it even if they were in bad faith.
17. Article 1388. Why is the debtor no included in the order of liable buyers in bad faith for liability for
damages?
- Because since rescission can only be availed of if there is no other legal remedies the creditor
can avail of, thus it means that the debtor is already insolvent therefore he has no more means
to pay for damages.
- What more can you get to a debtor with nothing
18. What are the badges of fraud? (page 519) Memorize!!
(1) The fact that the cause or consideration of the conveyance is inadequate
(2) A transfer made by a debtor after suit has been begun and while it is pending against him
(3) A sale on credit by an insolvent
(4) Evidence of large indebtedness or complete insolvency
(5) The transfer of all or nearly all of is 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 others of the
above circumstances
(7) The failure of the vendee to take exclusive possession of all the property
19. Cabaliw vs. Sadorra (page 511)
- Purchasers of land, under notice of lis pendens are not innocent purchasers for value
20. Sikatuna vs. Guevarra (Land registration act) (page 507)
- Rescission shall not take place when the thing which constitutes the object of the contract is
legally in the possession of a third person who did not act in bad.
21. How does rescission of contracts under this provision differ form that of 1191? (page 495)
- In 1191, there is mutual restitution depending on their agreement.
- But the recent renouncement of SC is there will still mutual restitution
22. What is the prescription? 4 years
23. Article 1385. Mutual Restitution
24. Article 1388. Caso Fortuito
- Whoever acquires in bad faith will be liable in bad faith when ever due to any cost the property
is impossible to be returned.
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- What about in caso fortuito are they liable for damages?
yes since the provision stipulates that due to any cause and since under 552 of the civil
code states that a possessor in bad faith should be liable for the loss of the thing no
matter what the cause maybe. This is the view of Atty. Navarro.
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1. Voidable Contracts (page 523)
- either because of (1) lack of capacity or (2) vitiated consent due to MVIUF
2. Can a voidable contract be enforced?
- Yes, it is valid and binding until annulled by competent court.
3. Article 1391. When can voidable contract be annulled? (page 531) MEMORIZE!
4. If a property is registered, the prescription must be counted from the time it was registered.
- Because registration is notice to the whole world

5. Carantes vs CA (page 532)


- Constitutes constructive notice

6. Prescriptive Period in the case of minority.


- Does the prescriptive period apply only to the defense or to action?
Justice Jurado is of the view that the prescriptive period should only apply to the action.
There are views that the 4 yr prescriptive period should be considered to operate both
ways. If you want to annul the contract you cannot invoke the defense of minority.
- Must be applied in the action & the defense
7. Article 1392-1396. Ratification (page 538)
8. Forms of Ratification. When is there tacit or implied ratification? (page 541)
9. Who may institute ratification? (page 542)
- From Article 1397 of the code it can be inferred that two different requisites are required to
confer the necessary capacity for the exercise of the action for annulment
- Requisites:
(1) Is that the plaintiff must have an interest in the contract
(2) Is that the victim and not the party responsible for the vice or defect must be the person
who must assert the same
10. A and B entered into a contract and As consent was vitiated. Can B sue for annulment?
- No because only the incapacitated person or the party whose consent was vitiated can ask for
annulment.
11. Several months after the contract, A wrote a letter demanding specific performance. Can A still sue
for annulment?
- No, because there is express ratification.
12. Only those who are oblige principally or subsidiarily may sue for annulment. 3rd person cannot sue.
13. Tevez vs. PHHC
- The court said that generally a 3rd person cannot sue to annul a contract but if he can prove that
he has a right violated with respect to another party, he may sue for the annulment even if he is
not a party thereto. Remember the rule and exemption!!!!!
14. Mutual Restitution
- The annulment of the contract should restore the contracting parties to their original position
- Once a contract is annulled there would be an obligation of mutual restitution or return to each
other what they have received from each other. That general rule considered modified insofar
as incapacitated person is concerned. (in 1399 where the restitution will be )
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15. If the incapacitated person has the thing is he obliged to return it? Yes
16. Example of Dean Navarro (Caso Fortuito)
- Last paragraph of page 549
- Second to the last paragraph page 549
- First paragraph page 548
The loss of the thing extinguishes the action for annulment
17. If the party who is supposed to return the thing is no longer in the position to return the thing
supposing the thing was lost due to his fault or fraud he can no longer sue.
18. If due to caso fortuito, the innocent party can still sue for annulment since the lost was not due to
his fault or fraud
19. Supposing that the one who is unable to return is the defendant. Will the action for annulment
prosper?
- Yes, if it was due to his fault he is obliged to return the value of the thing plus interest.
- Supposing the lost was cause by caso fortuito, he is still obliged to pay the value of the thing but
without interest.
20. Supposing A sold the car to B who is incapacitated (baliw), what if the thing can no longer be
returned can he still sue for annulment?
- No, what ever maybe the cause of the voidablility of the contract the same rule would apply
article 1401. paragraph 2 would have been made to have as an
exception.dawcommentators say that if there was loss of the thing after he has regained
capacity. sabi ni sir, an incapacitated person cannot be guilty of fraud or fault
xxxxxxxxxxxxxxxxxxxxxxxx

1. Which is more defective, rescissible or unenforceable?


- Unenforceable, because rescissible are considered valid and enforceable until they are
rescinded.
2. Between voidable and unenforceable?
- Unenforceable, because voidable are considered valid and enforceable until they are annulled.
3. Article 1403. The three types of enforceable contracts. (page 552)
4. Supposing that the legal representative of the other incapacitated party ratifies the contract, the
contract becomes a voidable one. If both of the legal representatives ratify the contract, the
contract becomes valid.
5. In many cases decided by SC, if the contract was entered into by a person in the name of another
without the authority of the latter, the contract is void because of the lack of consent.
6. What is the Statute of Frauds?
- Descriptive of statues which require certain classes of contracts to be in writing.
- It regulates the formalities of the contract necessary to render it enforceable.
7. Purpose of Statute of frauds?
- To prevent frauds, and so as to have an evidence
8. It is not necessary that the details of the contract be in a single document. There may be several
documents.

9. What are the acts or agreements covered by the statute of frauds? (page 555)
(1) An agreement that by its terms is not to be performed within a year from the making thereof.
(2) A special promise to answer for the debt, default or miscarriage of another.
(3) An agreement made in consideration of marriage, other than a mutual promise to marry.

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(4) An agreement for the sale of goods, chattels or things in action, at a price not less than Five
hundred pesos
(5) An agreement for the leasing of real property for a longer period than one year, or for the sale
of real property or an interest therein.
(6) A representation as to the credit of a third person.

10. Why does the law include the kind of agreement mentioned in Article 1403(2)(a).
- The law assumes that the maximum limit of human memory is only for a year
- It is used to aid the memory of the contracting parties.
11. Supposing that 2 years from today, A will sell a pen to B for P350. Will the agreement be covered
by statute of frauds?
- Yes.
- What if the 350 was already paid upon agreeing on the contract?
the contract will not be covered by the statutes of frauds.
12. Statue of frauds Applies only to purely executory contracts and not to those which have been
consummated either totally or partially.
13. The moment that one of the parties claims that he has performed his part of the evidence, he is
allowed to prove his compliance thru oral evidence or parol evidence.
14. Mutual promise to marry is not covered by the statute of frauds...why?
15. Supposing A and B promised to marry each other 4 years from todayis it covered?
- There was a court decision which said it was, but there was a strong dissent.

16. Special promise to answer the debt-


- The promise must be collateral.

17. Loan is not covered by statute of fraud


18. Guarantee made shall be in writing
19. Price exactly P500 is covered.
20. Supposing A and B entered into a contract and it covered 2 items. One was a pen worth 250 and a
bracelet worth 400. Would the agreement be covered by the statute of frauds?
- If the agreement covers several items and the total price is more than P500, it is covered.
- Check if the contract is intended that the items should be as one, then, statute of fraud will
apply.
- If intended to be considered separately, it will not be covered.

21. A thing in action, example is assignment of credit.

22. Supposing that A and B own the ajoining parcel of land. And entered into an agreement on where is
the boundary, is it covered?
- No, because it is not sale of a real property.

23. Statute of frauds only applies to sale of real property and lease of over one year.

24. A representation as to the credit of a third personexample

25. If a contract is unenforceable because of statute of frauds, the defect maybe ratified (page 563)
(1) by either failure to object to the presentation of oral evidence to prove the same, or
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(2) by the acceptance of benefits under them.
xxxxxxxxxxxxxxxxxxxxxx

Void or inexistent contract (page 566)

Void all of the requisites are present but the cause, object, purpose is contrary to law, morals, good
customs, public order or public policy, or contract itself is prohibited or declared void by law.

Inexistent one or more of the common elements are absolutely lacking, such as those which are
absolutely simulated or fictitious, or those where the cause or object did not exist at the time of
transaction.

Distinction:
(1) The principle of pari delicto is applicable to void contracts but not to inexistent
(2) Void contracts may produce legal effects but inexistent contracts cannot produce any effect

Article 1409. MEMORIZE!!

The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by law.

These expressly cannot be ratified. Neither can the right to setup up the defense of illegality be
waived.

Paragraph 3 with regards to Art 1347 (Future thing)


- Those whose object would not have come to existence during the transaction
- example are fruits, etc;
- How to reconcile:
JBL Reyes- be more logical if those whose object could have not come in existence at
the time of transaction

Paragraph 6 (Totally malabo)

The enumeration is not exclusive:


1. Direct result of previous illegal contracts;
2. Formal contracts which do not comply with the formality;
3. No concurrence between the offer & the acceptance with regard to the object & the cause.

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Consequences if the contract is void or inexistent:

1. Generally produce no legal effect


Rule of In Pari Delicto Article 1411 & 1412
the guilt party is barred from recovering what he has delivered

Rodriguez v. Rodriguez (legal obstacle) (page 584)


Spouses cannot donate to each other thru giving it to her daughter, then the daughter selling
it back to the spouses

Claim: she was merely subjected to duress

Supreme Court held:


- this is not a tenable ground, because the objection was commenced after 9 years (death)
- there is no absolute simulation, because here the parties intended for the contract to have an
effect
- there is a causa; In this case, a mere promise is a sufficient causa
- there is estoppel by laches; The parties let 28 years to passed before she asserted her rights
- the contract is partly void because of the illegal causa
due to the motive that practically became the causa of the contract, while this is true
the pari delicto rule will apply both parties are guilty the law will leave them were they
are

NOTE: The principle of in pari delicto applies only to cases of existing contracts with an illegal
cause or object and not to simulated or fictitious contracts nor to those which are inexistent for
lack of an essential requisite such as cause or consideration.

Liguez v. CA

- strictly no pari delicto


- minors occupy a privilege position in the law

2. It is not susceptible of ratification

3. A party cannot waive his right

4. The action of defense of nullity does not prescribe

Article 1410 (page 575)


- the principle of laches which bars recovery despite the nullity of the contract

Aznar Bros Realty vs. Heirs of Aniceto Augusto

- the sale was void because of the total absence of the consent of the true owners of the property
- the case was filed 30 years after
- they became aware only after 29 years when they were evicted from the property by the owners

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Castillo v. Galvan (page 576)
Distinction:
Voidable Void or Inexistent
Fraud in securing the Fraud in securing the
consent signature

- 2 marriages; his children by first marriage made them sign a document sell the half of the land
for P500 (actual value is P22,500)
- More than 5 years after the execution they sought to nullify the contract
- The defense is prescription; more than 4 years have lapse

Supreme Court held:


- the contract here is not voidable, but void
because there is no absolutely no consent (thru fraud)
- Same when asked to sign a blank document, then used the same to write a contract

Rongavilla vs. CA

Exception to the pari delicto rule (Generally, both parties cannot recover) (page 593)

1. Payment of usurious interest


Note: The usury law is suspended no ceiling as to interest

Angel Jose Warehouse Co. vs. Chelda (page 595)


- Recovery of the interest paid; entire interest paid, with interest from the date of payment
- This case resolved all doubts with respect to the question as to whether or not the creditor will
be allowed to recover the amount loaned

Briones v Cammayo (Usurer or lender; hotly debated)


- The principal can be recovered & the legal interest of the principal from the time of demand &
legal interest of the legal interest from the time of the judicial demand, & attorney fees.
- Reason of the majority
in a contract of usury, separate the legal & illegal provisions
there is nothing illegal about recovering the principal (based: disregard the illegal
provisions, unless the parties intended them to be together)
- Dissenting opinion
In usurious contract, beyond the area of debate, the usurer lends money not because he
is a philanthropist but the motive is to gain interest
since the contract is predicated upon the motive & it becomes the causa
they oppose the recovery even of the principal
2. if the agreement is not illegal per se but only prohibited

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Phil Banking Corp. vs. Lui Shei (page 613)
- The Supreme Court did not apply the in pari delicto rule

Frenzel vs. Catito


- Article 1416 will not apply to contract ab initio such as the sale of land to alien
- because if he will be permitted to do so will not serve the ends of public policy

Angeles vs CA (page 612)


- sale of homestead;
- to provide land the Filipinos even if recovery is permitted more beneficial on them

3. Overtime; The laborer may demand for overtime pay


4. Below minimum wage; The laborer may demand for the deficiency

Natural Obligations (page 625)


- that once there is voluntary fulfillment on the part of the debtor, he cannot then change his
mind to recover
- somewhere in between purely moral obligations & civil obligation
Purely Moral obligations = no cause of action based on them
Civil obligations = with cause of action

Article 1424. (page 627)


- one cannot recover when he voluntarily paid an obligation or debt
- prescribed debt was paid the debtor cannot recover (page 628)
- A borrowed money from B court rendered judgment in favor of A but paid; cannot recover
Estoppel (page 629)
- Cannot take inconsistent position especially if the other party relied on ones representation
- Example Cannot say white today then black tom
By the NCC:
1. It may be in pais thru the conduct
2. By deed with documents the party sign
3. By laches

Estoppel by Laches (page 631)


- Laches, in general sense, is failure or neglect, for an unreasonable and unexplained length of
time, to do that which, by exercising due diligence, could or should have been done earlier

Requisites of Laches: (page 632)


1. conduct on the part of the defendant giving rise to the situation of which complaint is made and
for which the complaint seeks a remedy;
2. there must be delay in asserting the claim having the opportunity to assert such right
3. no knowledge or notice that the complaint will still assert such right
4. damage to the defendant if the relief prayed for will be

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Distinction:

LACHES PRESCRIPTION
Concerned with the effect of delay Concerned with the fact of delay
Principally a question of inequity of A question or matter of time
permitting a claim to be enforced
Not statutory Statutory
Applies equity Applies at law
Not based on fixed time Based on fixed time
Laches
- no definite time fram
- depending on the circumstances, whether all the elements are present

Miguel vs. Catalino (page 632)


- sale of land without the approval of the registry but it took 34 years before the suit
- even if the contract is void already with laches
- even granting the plaintiffs proposition that no prescription lies against their fathers recorded
title, their passivity and inaction for more than thirty-four years justifies the defendant in
setting up the defense of laches.
- the suit is barred

Heirs of Lacamen vs. Heirs of Laruan


- 2 igorots tct was never transferred to the name of the buyers but they are the ones in
possession
- after 30 years already with laches, were all along the buyers are in possession- it will be
inequitable if laches will not be sought

Prescription
- definite period
Article 1434. Important!
- when a person sell at the time of sell is not the owner of the property but later the seller or
grantor acquires title, such title passes by operation of law to the buyer or grantee

Bucton vs. Gabar


- was able to pay the value of of the property they occupied the said land
- the villarin transfer the title to the Gabars
- CA: prescribed already after 10 years
- SC: not prescribed because Art 1434 is the one which is the one that is applicable
- The bucton are actually the owner there is delivery *possession not an action for
reconveyance but a quieting of title
- An action for the quieting of title does not prescribe

Article 1436
- the lessee or bailee is estopped from asserting title to the thing leased or received, as against
the lessor or bailor
- basis of estoppel you cannot take inconsistent position
Example: Renting then later assert as the owner
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