CIVIL LAW

REVIEW II -
OBLIGATIONS
&
CONTRACTS
Atty. Crisostomo Uribe - Course Outline (Dec. 2009)

Donnell R. Agaton | Recoletos de Manila - College of Law

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A filed an action to compel B to fulfill the
latter’s obligation to the former, will the action
prosper?
Not necessarily because in natural actions no court
action can compel performance because it is an
action based on equity, conscience and natural
justice.
Natural obligations are midway between civil
obligations and the purely moral obligations.
In order that there may be a natural obligation,
there must exist a juridical tie (vinculum juris) which
is not prohibited by law and which in itself could
give a cause of action, but because of some
special circumstances is actually without such legal
sanction or means of enforcing compliance by
invoking the intervention of the court.
Basis: Art. 1423 Obligations are civil or natural. Civil
obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in
the following articles.
What are the conditions necessary for the
existence of natural obligation?
1. That there be a juridical tie between two
persons.
2. This tie is not given effect by law.
What is the distinction between a moral
obligation and a natural obligation?
Moral Obligation Natural Obligation
There is no juridical tie. There is a juridical tie.
It is an act of pure liberality It is a legal fulfillment of an
which springs from blood, obligation.
affection, or benevolence.
It is within the domain of It is within the domain of
morals. law.
X died, his heirs are ABC, ABC paid to Y 10
million 2 days after X’s death, after 6 months
thereafter the heirs are trying to recover the
excess because the estate is only 3 million. Can
the heirs recover the excess of 7 million from
Y?
The heirs can recover the excess from Y. This is
because the payment is not voluntary.
In natural obligation, if the payer voluntarily paid,
the creditor has the right to retain what he has paid.
The test on whether an act is voluntary is whether
the person knew that they cannot be compelled to
pay but nonetheless they pay.
In this case, it could not be said that the payment is
voluntary because when the heirs paid the amount
of 10 million, it was only 2 days after the death of X,
and by that time normally, the heirs still don’t know
the estate of the decedent and that they would
receive less.
When is an act voluntary with respect to
performance of a natural obligation?
It is voluntary when the payer paid without fraud,
threat, or any vitiation being employed.
Most importantly, the payer knew that he is not
compelled to pay but the payer nonetheless paid.
The reason why a person who is not legally
obligated to pay, voluntary pays because of
CONSCIENCE.
A executed a promissory note date Feb. 1, 1994
stating that “I promise to pay X the amount of 1
million, and signed by him”. To this day
December 6, 2009, more than 10 years had
lapsed, may X still recover from A?
It may be inferred that the obligation is a pure
obligation demandable at once, and as such it is
due and demandable on Feb. 1 1994. Therefore
the action had already prescribed because more
than 10 years had lapsed from Feb. 2, 1994. This
scenario may be applicable in a contract of sale.
When if ever A paid to X the amount of 1 million to
Y despite its prescription, A cannot recover from X
because such is his natural obligation, provided it
has been made voluntarily which means he knew
that he is not compelled to pay but nonetheless
paid it.
However, when the contract is one of loan as an
example. The period of prescription cannot set in
because a contract of loan is intended to be paid at
some future time, and not demandable at once. In
this instance, resort to what is intended by the
parties to be the due date is controlling to
determine whether or not the action had
prescribed, and any payment thereafter converts it
from civil obligation to a natural obligation.
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For a natural obligation to arise does it require
that that there is an agreement?
Not necessarily. It may either be a with or without
an agreement. Why? go figure.
When shall natural obligation be converted into
civil obligation?
The signing of a document has generally the effect
of converting a natural obligation to a civil
obligation. The signer renounces the defense which
prevents enforcement of the obligation, which can
thereafter be the basis of a judicial action.
The promise to perform a natural obligation is as
effective as performance itself, and converts the
obligation into a civil obligation.
A prescribed debt of the deceased mother of the
debtor was held to be a sufficient consideration to
make a valid and effective the promise of the son
to pay the same ( Villaroel vs. Estrada 71 Phil 140)
Note however, that promise to perform must be
voluntary. Therefore, payment by mistake is not
voluntary and may be recovered.
One who pays a natural obligation believing it to be
civil, does not thereby recognize the natural
obligation; and there being no civil obligation either,
he can recover what he has paid.
Note: Partial payment of an obligation does not
generally convert such into a civil obligation, the
part paid cannot be recovered but, the part not paid
cannot be enforced, except when such natural
obligation is one that is subject to ratification or
confirmation, the partial payment converts it into a
civil obligation (novation or natural obligation by
prescription), except when the same is contrary to
law, morals or public order.
Guaranty of natural obligation; when considered a
civil obligation:
Generally, in principle, a natural obligation cannot
be guaranteed because the liability of the guarantor
presupposes that there must be a prior exhaustion
of the property of the principal debtor, and that the
debtor after paying can recover from the principal
debtor- and both of this cannot legally be done
when the obligation is natural.
However, because of Art. 2052 A natural obligation
may be guaranteed. What really happens is that
the guaranty of the natural obligation changes its
character. When the debtor offers a guarantor for
his natural obligation, he impliedly accepts the
coercive remedies to enforce the guaranty, and
therefore, the transformation of the natural
obligation into a civil obligation.
Illicit obligations:
Obligations which are contrary to morals and good
customs do not constitute natural obligations, as
such any payment can be recovered except when
both are in pari delicto, or when one was at fault
(see arts. 1411 and 1412).
Art. 1424 When a right to sue upon a civil obligation
has lapsed by extinctive prescription, the obligor
who voluntarily performs the contract cannot
recover what he has delivered or the value of the
service he has rendered.
Art. 1425 When without the knowledge or against
the will of the debtor, a third person pays a debt
which the obligor is not legally bound to pay
because the action thereon has prescribed, but the
debtor later voluntarily reimburses the third person,
the obligor cannot recover what he has paid.
Art. 1426 When a minor between (18 and 21) years
of age who has entered into a contract without the
consent of the parent or guardian, after the
annulment of the contract voluntarily returns the
whole thing or price received, notwithstanding the
fact that he has not been benefited thereby there is
no right to demand the thing or price thus returned.
Note: When a contract is annulled the parties are
bound to make mutual restitution. However, when
the ground of annulment is the incapacity of a
person to enter into contract, such as minority, he is
not bound to make restitution except to the extent
that he was benefited. If there is no benefit he
likewise not bound to make restitution. However, he
has a natural obligation to do so, and he make a
restitution (voluntarily) he cannot recover what he
has delivered.
Note: The minor cannot recover what he has
voluntarily returned whether or not the other party
still has it in his possession.
Art. 1427 When a minor (between 18 and 21 years
of age), who has entered into a contract (annulable
but not yet annulled) without the consent of the
parent or guardian, voluntarily pays a sum of
money or delivers a fungible thing (means
consumable) in fulfillment of the obligation, there
shall be no right to recover the same from the
obligee who has spent or consumed it in good faith.
Generally when a contract is annulled, there will be
mutual restitution, except when the party who
enters into a contract is a minor, he is not bound to
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make restitution of the thing received by him except
to the extent he was benefited. If he is not obliged
to make restitution, but he nevertheless returns the
same, he can no longer recover because such is a
natural obligation.
Under this article however, there is no natural
obligation contemplated but a case of a civil
obligation under an annullable contract. Compared
to Art. 1426 the contract was already annulled, but
Art. 1427, the contract is not yet annulled. Hence,
the same is valid and is enforceable unless it is set
aside by competent court in an action for that
purpose. Any return made by the minor can be
recovered, except when the creditor or obligee has
spent or consumed it in good faith.
How good faith of creditor established:
Belief of the creditor that the debtor has capacity to
deliver the object of the contract.
Note: If the thing delivered is non-consumable, the
debtor cannot recover if the thing delivered is no
longer in the possession of the creditor who has
acted in good faith, either because he has
alienated it or it has been lost.
Art. 1428 When, after an action to enforce a civil
obligation has failed, the defendant voluntarily
performs the obligation, he cannot demand the
return of what he has delivered or the payment of
the value of the service he has rendered.
Art. 1429 When a testate or intestate heir
voluntarily pays a debt of the decedent exceeding
the value of the property which he received by will
or by the law of intestacy from the estate of the
deceased, the payment shall be valid and cannot
be rescinded by the payer.
Art. 1430 When a will is declared void because it
has not been executed, but one of the intestate
heirs, after the settlement of the debts of the
deceased, pays a legacy in compliance with a
clause in the defective will, the payment is effective
and irrevocable.
PRESCRIPTION OF ACTIONS
Art. 1139. Actions prescribe by the mere lapse
of time fixed by law. (1961)
Note: The mere delay in the enforcement of a claim
does not result in any reduction or loss of right,
unless the period required by law for prescription
has expired.
Prescription is only a defense and not a basis of
right of action. It must be defensively pleaded
otherwise it is deemed waived if not timely raised or
pleaded before or during the hearing of the case.
Art. 1140. Actions to recover movables shall
prescribe eight years from the time the possession
thereof is lost, unless the possessor has acquired
the ownership by prescription for a less period,
according to Articles 1132, and without prejudice to
the provisions of Articles 559, 1505, and 1133.
(1962a)
Art. 1132. The ownership of movables prescribes through
uninterrupted possession for four years in good faith.
The ownership of personal property also prescribes
through uninterrupted possession for eight years, without
need of any other condition.
With regard to the right of the owner to recover personal
property lost or of which he has been illegally deprived,
as well as with respect to movables acquired in a public
sale, fair, or market, or from a merchant's store the
provisions of Articles 559 and 1505 of this Code shall be
observed. (1955a)
Art. 559. The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived
thereof may recover it from the person in possession of
the same.
If the possessor of a movable lost or which the owner
has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its return
without reimbursing the price paid therefor. (464a)
Art. 1595. Where, under a contract of sale, the ownership
of the goods has passed to the buyer and he wrongfully
neglects or refuses to pay for the goods according to the
terms of the contract of sale, the seller may maintain an
action against him for the price of the goods.
Where, under a contract of sale, the price is payable on a
certain day, irrespective of delivery or of transfer of title
and the buyer wrongfully neglects or refuses to pay such
price, the seller may maintain an action for the price
although the ownership in the goods has not passed. But
it shall be a defense to such an action that the seller at
any time before the judgment in such action has
manifested an inability to perform the contract of sale on
his part or an intention not to perform it.
Although the ownership in the goods has not passed, if
they cannot readily be resold for a reasonable price, and
if the provisions of article 1596, fourth paragraph, are not
applicable, the seller may offer to deliver the goods to the
buyer, and, if the buyer refuses to receive them, may
notify the buyer that the goods are thereafter held by the
seller as bailee for the buyer. Thereafter the seller may
treat the goods as the buyer's and may maintain an
action for the price. (n)
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Art. 1133. Movables possessed through a crime can
never be acquired through prescription by the offender.
(1956a)
Art. 1141. Real actions over immovables prescribe
after thirty years.
This provision is without prejudice to what is
established for the acquisition of ownership and
other real rights by prescription. (1963)
Art. 1142. A mortgage action prescribes after ten
years. (1964a)
If the action to recover the mortgage debt itself has
prescribed, the action to recover the interest must
also prescribed.
Art. 1143. The following rights, among others
specified elsewhere in this Code, are not
extinguished by prescription:
(1) To demand a right of way, regulated in Article
649;
(2) To bring an action to abate a public or private
nuisance. (n)
No prescription shall run in favor of a co-owner or
co heir against his co-owners or co-heirs so long as
he expressly or impliedly recognize the co-
ownership, otherwise acquisitive prescription may
set in.
Art. 1144. The following actions must be
brought within ten years from the time the right
of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
When property is registered in another’s name, an
implied or constructive trust is created by law in
favor of the true owner. The action for
reconveyance of the title to the rightful owner
prescribes in ten years from the issuance of the
title. But if fraud has been committed, and this is
the basis of action, not implied trust, the action will
be barred after 4 years.
Art. 1145. The following actions must be
commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)
Art. 1146. The following actions must be instituted
within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any
act, activity, or conduct of any public officer
involving the exercise of powers or authority arising
from Martial Law including the arrest, detention
and/or trial of the plaintiff, the same must be
brought within one (1) year. (As amended by PD
No. 1755, Dec. 24, 1980.)
Note: A petition for quo warranto prescribes in 1
year from the date of ouster but when the plaintiff
was separated from his employment for
unjustifiable cause it prescribes in 4 years due to
an injury to the rights of the plaintiff.
An action base on fraud prescribe in 4 years from
discovery of the fraud.
Art. 1147. The following actions must be filed within
one year:
(1) For forcible entry and detainer;
(2) For defamation. (n)
Art. 1148. The limitations of action mentioned in
Articles 1140 to 1142, and 1144 to 1147 are without
prejudice to those specified in other parts of this
Code, in the Code of Commerce, and in special
laws. (n)
Art. 1149. All other actions whose periods are not
fixed in this Code or in other laws must be brought
within five years from the time the right of action
accrues. (n)
Note: Limitations upon the right of the government
to assess and collect taxes will not be presumed in
the absence of clear legislation to the contrary, and
where the government has not by express statutory
provision provided a limitation upon its right to
assess unpaid taxes, such right is imprescriptible.
Art. 1150. The time for prescription for all kinds of
actions, when there is no special provision which
ordains otherwise, shall be counted from the day
they may be brought. (1969)
The moment the right or duty occurs, then the right
of action accrues, and the action can be legally
instituted; from that moment, therefore, the period
of prescription of action begins to run.
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When an obligation is subject to a suspensive
condition, prescription runs only from the
happening of the condition.
Where the obligation is without date of maturity, or
a note is payable on demand, prescription begins
to run from the date the note or obligation and not
from demand, except when the liability for the
unpaid balance of a subscription to shares of a
corporation, here the liability of the subscriber does
not arise until call or demand for payment by the
board of directors, and therefore, prescription
would run only from such demand.
Art. 1151. The time for the prescription of actions
which have for their object the enforcement of
obligations to pay principal with interest or annuity
runs from the last payment of the annuity or of the
interest. (1970a)
Note: The period of prescription in obligations with
interest runs only from the last payment of interest,
is applicable only to cases where the principal debt
is already due.
When principal obligation is not yet due, payment
of interest at stipulated intervals does not cause the
running of period of prescription, which will
commence only after the maturity of debt.
Art. 1152. The period for prescription of actions to
demand the fulfillment of obligation declared by a
judgment commences from the time the judgment
became final. (1971)
Art. 1153. The period for prescription of actions to
demand accounting runs from the day the persons
who should render the same cease in their
functions.
The period for the action arising from the result of
the accounting runs from the date when said result
was recognized by agreement of the interested
parties. (1972)
Art. 1154. The period during which the obligee was
prevented by a fortuitous event from enforcing his
right is not reckoned against him. (n)
Art. 1155. The prescription of actions is interrupted
when they are filed before the court, when there is
a written extrajudicial demand by the creditors, and
when there is any written acknowledgment of the
debt by the debtor.
Note: The extinctive prescription is interrupted
when the creditor made a demand before the lapse
of the period fixed by law. A verbal demand upon
the debtor is not sufficient to interrupt or renew the
prescriptive period.
What is an obligation?
Obligation is a juridical necessity to give, to do, or
not to do (Art. 1156).
Is it correct to say that the definition is not
accurate, in the sense that there must be
another prestation which is not to give aside
from to give, to do or not to do?
The definition is accurate. The obligation not to give
includes not to do.
Is the definition defective because it only
pertains to the debtor side and it lacks the
juridical relation in its entirety?
The definition is not defective. The word obligation
itself pertains to the debtor side, hence it is proper.
The obligation pertains to the debtor and right
pertains to the creditor. A person who has a right
can compel the other, but he cannot be compelled
to perform his right. An obligation may not be
waived; but a right may be exercised or not. Rights
and obligations are different matters.
What is the determining factor that the
definition under Art. 1156 is a civil obligation?
Because of the phrase “juridical necessity”
What are the essential elements of obligation?
1. Active subject
2. Passive subject
3. Juridical tie (vinculum juris)
4. Prestation
Who are the subjects of an obligation?
1. Active subject (creditor)
2. Passive subject (debtor)
In a contract of lease, who is the active subject;
the passive subject?
Since it is considered a reciprocal obligation
(bilateral contract), both the lessee and the lessor
may be considered the passive or active subjects,
depending on the aspects of delivery of the
property or payment of rent.
In the delivery of the property to the lessor is the
passive subject and the lessee is the active
subject. The former is obliged to deliver the
property subject of the lease to the lessee.
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In the case of payment, the lessee is the passive
subject, and the lessor is the active subject. The
lessee is obliged to pay the amount of rent to the
lessor.
In a contract of sale, who is the active and the
passive subject?
In a contract of sale, since it is a reciprocal
obligation (bilateral contract) both the seller and the
buyer may be considered the passive and the
active subject depending on whether it is for
payment of the amount of the thing sold, and on the
obligation to deliver the thing subject of the sale.
What is the reason why a debtor considered a
passive subject?
He is considered a passive subject because in the
absence of demand from the creditor the debtor
could just wait, and let the prescription run in favor
of the debtor. If the creditor does not demand for
the performance of the obligation, there will be no
compulsion.
There must be proof of demand in writing.
Is there an instance in case of consignation a
right may be exercised?
None. Consignation is a legal obligation. An
obligation and a right are two different concepts.
Should an obligation and a right co-exist?
Yes. If someone has an obligation somebody is
going to have a right.
Is there an instance where a right and an
obligation pertain to the same person?
Yes there are is an instance where an obligation
and a right pertain to the same person, such that
the person acquired such right as in the case of
confusion.
What is the object (prestation) of an obligation?
The object of an obligation is nothing but a
particular conduct of the debtor. The thing is not the
object of the obligation; it is his conduct necessary
to produce the effects of the obligation whether it is
an obligation to give, to do or not to do.
It may involve a thing in an obligation to give.
What are the requisites of prestation or object?
1. It must be possible, physically and juridically
2. It must be determinate, or at least determinable
according to pre-established elements or criteria;
and
3. it must have a possible equivalent in money.
Note: The prestation need not actually be of
pecuniary value. The criterion to determine whether
an obligation has a pecuniary value is not limited to
the object or prestation thereof, but extends to the
sanction which corresponds to the juridical duty.
Therefore, the creditor’s interest need not be
economic or patrimonial; it may be sentimental,
moral or ideal. But the object of prestation must
have an economic value or in case of
nonfulfillment, be susceptible of substitution in
money or something of patrimonial value.
What is a juridical tie or vinculum juris?
It is the efficient cause, juridical tie, or legal tie
which binds the parties established either by (any
source of an obligation):
a. law
b. bilateral acts
c. unilateral acts (crimes or quasi-delicts)
What obligation has no juridical tie?
Moral obligations has no juridical tie because it is
an act of pure liberality which springs from blood,
affection or benevolence. It is within the domain of
morals.
What are the sources of obligations which
binds the parties?
1. Law
2. Contracts
3. Quasi-Contracts
4. Delicts
5. Quasi Delicts (Art. 1157)
Unilateral Promises; a source of obligation
Generally a unilateral promise before acceptance is
not binding, except by a unilateral declaration of the
will with intent to be bound to a particular person.
Is the enumeration exclusive?
Yes. The enumeration is exclusive as provided in
the case of Sagrada Orden vs. Nacoco where the
SC rationalized that (not in the express manner)
Give an instance where 2 or more sources of
obligation exist at the same time?
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In the case Saludaga v. FEU, April 30, 2008 the
court ruled that the school shall be held liable for
damages for breach of contract in the school’s
obligation to provide students with a safe and
secure learning atmosphere.
FEU breached the school-student contract for
negligence on its obligation to ensure and take
adequate steps to maintain peace and order within
the campus. It found that FEU had failed to
undertake measures to ascertain and confirm that
the security guards assigned in the campus
possess the qualifications required in the Security
Service Agreement between FEU and Galaxy
(Security agency).
The Court also ordered Galaxy and its president,
Mariano D. Imperial, to jointly and severally pay
FEU damages equivalent to the amount awarded to
Saludaga for acts of negligence that resulted to
FEU’s breach of obligation to its student. Galaxy
wa s f o u nd n egl i g en t i n th e sel ec ti o n a n d
supervision of its employees, as supported by the
lack of administrative sanction against Alejandro
Rosete, the security guard who shot Saludaga.
Rosete, who was instead allowed to go on leave
after the shooting incident, eventually disappeared.
Hence, contract and quasi delict was applied at the
same incident to hold the above named parties
liable.
CU: The security guard shot a movie goer because
the latter tried to hack the former with a bolo.
Because of this incident the heirs of the deceased
filed a criminal case against the security guard. The
case was dismissed, as a result of which the guard
incurred expenses for the payment of his attorney
and demands reimbursement from his employer. In
this case, the employer is not liable to reimburse
his employee to reimburse the expenses incurred
by the employee in defending himself primarily
because there is no law requiring such employer to
reimburse.
The fact that the direct and proximate cause of the
expenses incurred in defending himself was
derived from the performance of his function does
not make the employer liable because there is an
efficient intervening cause which is the filing of the
cases based on malicious prosecution.
1. Law
Art. 1158 Obligations derived from law are not
presumed. Only those expressly determined in this
Code or in special laws are demandable, and shall
be regulated by the precepts of law which
establishes them; and as to what has not been
foreseen, by the provisions of this book.
E.g. The giving of legal assistance to the employee
is not a legal obligation. While it might and possibly
be regarded as a moral obligation, it does not at
present count with the legal sanction of any man
made law. If the employer is not legally obliged to
give legal assistance to its employee to provide him
with a lawyer, said employee cannot recover from
the employer the amount he paid a lawyer hired by
him.
In obligations arising from law, who has the
burden of proving the same?
Generally, the person who alleges a fact has the
burden of proving the same. However, there are
certain facts which need not be proven. There is no
need to allege such facts because the law
presumes the existence of a right and presumes
the existence of a fact.
Who has the burden of proof in obligations
arising from contracts?
The obligee has the burden of proof because in Art.
1158, as expressly provided, obligations arising
from law are not presumed. This is one instance
where there is no presumption not to allege facts.
The princess of stars:
One of the deceased caused by the sinking of the
ship were buried by a third person and asking later
on for reimbursement from the decedent’s aunt on
the expenses for the burial.
Here there is an obligation arising from such act
base on quasi contract under Art. 2164 (other quasi
contracts) and under such provision only persons
obliged to give support can be compelled to
reimburse. In this case, since the aunt is not one of
those persons obliged to give support cannot be
compelled to reimburse the expenses for burial.
2. Contracts
Art. 1159 Obligations arising from contracts have
the force of law between the contracting parties
and should be complied with in good faith.
Note: This provision presupposes that the contract
is valid and enforceable. The same should not be
contrary to law, morals, good customs, public policy
or public order.
E.g. A contract stipulating that non payment of the
loan considers the house and lot sold. This is a
case of contract of loan and a promise of sale of a
house and lot. Such contracts are perfectly legal,
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the agreement is the law between them, and must
be enforced.
E.g. The validity of restraints upon trade or
employment is to be determined by the intrinsic
reasonableness of the restriction in each case,
rather than by any fixed rule, and such restriction
may be upheld when not contrary to public welfare
and not greater than is necessary to afford a fair
and reasonable protection to the party in whose
favor it is imposed. The contract in question is not
obnoxious to the rule of reasonableness. While
such restraint, if imposed as a condition of the
employment of a day laborer, would at once be
rejected as merely arbitrary and wholly
unnecessary to the protection of the employer, it
does not seem so with respect to an employee
whose duties are such of necessity to give him an
insight into the general scope and details of his
employer’s business. The contract in this case,
considering the circumstances, is not
unreasonable. It must therefore be enforced. The
rule in this jurisdiction have the force of law
between the contracting parties.
Pre-Contractual Obligations; when binding; gives
rise to liability
If the offer by one party is clear and definite,
leading the offeree in good faith to incur expenses
in the expectation of entering into the contract; and
the withdrawal of the offer is without any legitimate
cause.
3. Quasi Contracts
Kinds of Quasi Contracts
1. Solution Indebiti
2. Negotorium Gestio
3. Other Quasi Contracts
1. Negotiorum gestio (officious management) Art
2144 Whoever voluntarily takes charge of the
agency or management of the business or
property of another, without any power from the
latter, is obliged to continue the same until
the termination of the affair and its incidents, or
to require the person concerned to substitute
him, if the owner is in a position to do so. This
juridical relation DOES NOT arise in either of
these instances:
1) When the property or business
is not neglected or abandoned
2) If in fact the manager has been
tacitly authorized by the owner
2. Solutio indebiti (payment not due)
Art 2154 If something is received when there is
no right to demand it, and it was unduly
delivered through mistake, the obligation to
return it arises.
3. Other quasi-contracts (support given by
strangers and other “Good Samaritans”)
Art When, without the knowledge of the person obliged to
216 give support, it is given by a stranger, the latter shall
4 have a right to claim the same from the former,
UNLESS it appears that he gave it out of piety and
without intention of being repaid.
Art When funeral expenses are borne by a third person,
216 without the knowledge of those relatives who were
obliged to give support to the deceased, said relatives
5
shall reimburse the third person, should the latter claim
reimbursement.
Art When the person obliged to support an orphan, or an
216 insane or other indigent person unjustly refuses to give
6 support to the latter, any third person may furnish
support to the needy individual, with right of
reimb ursement from the person obliged to give
support. The provisions of this article apply when the
father or mother of a child under eighteen years of age
unjustly refuses to support him.
Art When through an accident or other cause a person is
216 injured or becomes seriously ill, and he is treated or
7 helped while he is not in a condition to give consent to
a contract, he shall be liable to pay for the services of
the physician or other person aiding him, UNLESS the
service has been rendered out of pure generosity.
Art When during a fire, flood, storm, or other calamity,
216 property is saved from destruction by another person
8 without the knowledge of the owner, the latter is bound
to pay the former just compensation.
Art When the government, upon the failure of any person
216 to comply with health or safety regulations concerning
9 property, undertakes to do the necessary work, even
over his objection, he shall be liable to pay the
expenses.
Art When by accident or other fortuitous event, movables
217 separately pertaining to two or more persons are
0 commingled or confused, the rules on co-ownership
shall be applicable.
Art The rights and obligations of the finder of lost personal
217 property shall be governed by Articles 719 and 720.
1
Art The right of every possessor in good faith to
217 reimbursement for necessary and useful expenses is
2 governed by Article 546.
Art When a third person, without the knowledge of the
217 debtor, pays the debt, the rights of the former are
3 governed by Articles 1236 (recover what has been
beneficial to debtor) and 1237 (cannot compel creditor
to subrogate payor in his rights).
9
 Art When in a small community a nationality of the
217 inhabitants of age decide upon a measure for
4 protection against lawlessness, fire, flood, storm or
other calamity, any one who objects to the plan and
refuses to contribute to the expenses but is benefited
by the project as executed shall be liable to pay his
share of said expenses.
Art Any person who is constrained to pay the taxes of
217 another shall be entitled to reimbursement from the
5 latter.
4. Acts or omissions punished by law (Delicts)
Under Art. 100 of the RPC provides that every
person criminally liable is also civilly liable.
This however is not absolutely true because there
are certain felonies where no civil liability will arise
even if convicted of a crime. This is because there
is no private offended party in some crimes.
Under Art. 104 of the RPC in addition to civil
liability, restitution, reparation of damage caused,
indemnification of consequential damages.

Note: It is not correct to say that every time a

Basis of Quasi Contracts:
person is held criminally liable under this source of
obligation all these kinds of liability (restitution,
Art. 2142 Certain lawful, voluntary and unilateral
reparation of damage caused, and indemnification
acts give rise to the juridical relation of quasi
of consequential damages) would arise.
contract to the end that no one shall be unjustly
enriched at the expense of another.
Note: In justifying and exempting circumstances
though a person is not held criminally liable does
The enumeration of the provisions for quasi
not necessarily mean that he is not civilly liable.
contracts, not exclusive:
In justifying circumstances, generally there would
Art. 2143 The provisions for quasi contracts in this
be no civil liability, except in paragraph 4 where it
Chapter do not exclude other quasi contracts which
provides that Any person who, in order to avoid an
may come within the purview of the preceding
evil or injury, does not act which causes damage to
article.
another, provided that the following requisites are
present: First. That the evil sought to be avoided
Note: Even if not so provided by law it may be
actually exists; Second. That the injury feared be
considered as falling within the purview of quasi
greater than that done to avoid it;
contract when it is lawful, unilateral and voluntary,
Third. That there be no other practical and less
and the underlying principle is that no one shall be
harmful means of preventing it.
unjustly enriched at the expense of another.
In exempting circumstances, generally there is civil
Will there be any liability even if no one has
liability except paragraph 4 where it provides that:
been unjustly enriched?
Any person who, while performing a lawful act with
due care, causes an injury by mere accident
In case of negotorium gestio, the owner has the
without fault or intention of causing it.
obligation to reimburse the gestor even if the latter
has not been unjustly enriched.
Note: If there is no criminal conviction, this source
of obligation will not arise but may arise from other
Therefore it would appear that the principles behind
source of obligation or quasi delict.
quasi contracts does not really fall under the
principle of unjust enrichment. The principle behind
4. Culpa Aquiliana (Quasi Delict)
this obligation is implied contracts, which is the
consent given by the obligor.
Is culpa extra contractual an appropriate name
for quasi delict? No.
The owner left his house for a short vacation,
the very night they lefts, their house was
In the case of Gangco vs. MRR (38 Phil 768)
burned, the neighbors saved some of their
obligations can be classified either from contractual
appliances. Is there negotorium gestio in this
obligations and extra contractual obligations. As to
case?
obligations where the source is not a contract, it
can called extra contractual obligations.
The appliances are not under the management of
the gestor and that there must be abandonment
Therefore culpa extra contractual means
and neglect of the property.
negligence outside of a contract.
This case therefore falls under other quasi
contracts.
10
If there is negligence outside of a contract does it
mean that it would fall under quasi delict? Not
necessarily because there are 4 other sources of
obligations outside of a contract like negligence
arising from law, but the source would be the law.
In quasi contracts, under negotorium gestio, the
negligence of the gestor does not necessarily mean
that it would fall under quasi delict because it would
fall under quasi contracts.
Note: The use of the word culpa extra-contractual
nowadays are no longer used by the Supreme
Court. Commonly what is used is the word torts.
Is torts an appropriate term for quasi delict?
Torts as a name is not appropriate because it is
more encompassing as it would include acts which
could not be the basis of an action under quasi
delict.
Torts would include malicious act, intentional act,
wrongful, acts punished by law. In these names, it
cannot be the basis of an action for quasi delict. An
action for quasi delict can only arise based on a
negligent act or omission.
But the Supreme Court is of the view that malicious
acts, intentional acts, acts punished by law can be
the basis of an action for quasi delict. It is well
supported by the history of the law and the present
provisions of the law.
Particularly Under Art. 2176 where it provides that
whoever by act or omission causes damage to
another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual
relation between the parties, is called quasi delict
and is governed by the provisions of this chapter
(chapter on quasi-delicts).
Under the old civil code, in order for one to be held
liable under quasi delict, the act must not be
punished by law. This phrase no longer appear
under the new civil code, therefore even if the act is
not punished by law it cannot be the basis of an
action for quasi delict.
Is Fault the same as negligence?
No. Because fault would cover intentional and
unintentional acts.
Compliance with Obligations:
How should these sources of obligations be
complied with? The manner of complying with
this sources of obligations.
Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
Art. 1163. Every person obliged to give something is also
obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation
of the parties requires another standard of care. (1094a)
Art. 1164. The creditor has a right to the fruits of the thing
from the time the obligation to deliver it arises. However,
he shall acquire no real right over it until the same has
been delivered to him. (1095)
Art. 1165. When what is to be delivered is a determinate
thing, the creditor, in addition to the right granted him by
Article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Art. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned. (1097a)
Art. 1244. The debtor of a thing cannot compel the
creditor to receive a different one, although the latter may
be of the same value as, or more valuable than that
which is due.
In obligations to do or not to do, an act or forbearance
cannot be substituted by another act or forbearance
against the obligee's will. (1166a)
Art. 1246. When the obligation consists in the delivery of
an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken
into consideration. (1167a)
Art. 1460. A thing is determinate when it is particularly
designated or physical segregated from all other of the
same class.
The requisite that a thing be determinate is satisfied if at
the time the contract is entered into, the thing is capable
of being made determinate without the necessity of a
new or further agreement between the parties. (n)
Art. 442. Natural fruits are the spontaneous products of
the soil, and the young and other products of animals.
11
Industrial fruits are those produced by lands of any kind
through cultivation or labor.
Civil fruits are the rents of buildings, the price of leases of
lands and other property and the amount of perpetual or
life annuities or other similar income. (355a)
Art. 443. He who receives the fruits has the obligation to
pay the expenses made by a third person in their
production, gathering, and preservation. (356)
If the sources of the obligations is the law, then the
provisions of the law would provide how this source
of obligation can be complied with.
If it is a contract then the stipulation provide how
the contract shall be complied with.
If it is an obligation to give, what is the manner
of compliance?
It depends on what is to be given, whether it is a
determinate thing or an indeterminate thing.
Can there be a valid obligation to deliver a
generic thing?
Yes. This may arise from law and not from a
contract of sale. Sale of a car or of a horse cannot
be considered a valid sale. But a testamentary
provision in a will which is a generic thing is valid
disposition. The law expressly allows this.
A testamentary provision giving an heir a car, is
the testamentary provision allow the heir to
reject the disposition?
He may validly reject or wrongfully reject the
disposition. For obligations to deliver a generic
thing, the debtor cannot deliver a thing which is of
inferior kind, but neither can the creditor demand a
thing which is of superior quality.
However, what is superior or inferior is a very
subjective determination. What may be superior to
me may be inferior to most of you.
Therefore if the purpose of the testator is to give his
car is to allow the grandson to use the car in
competitions, then a car insufficient to perform in
race tracks is improper. Moreover, aside from the
purpose is the value of the estate which should not
impair the legitime of the estate.
In obligations to give a determinate thing, what
is the manner of compliance?
The primary obligation of a debtor is to give the
very same thing which he promised to deliver.
In an obligation to deliver a Kia Pride, the
debtor offered to deliver a BMW, can the
obligation be validly extinguished?
Yes, though the creditor cannot be compelled to
accept, he may however want to accept. Thus, the
obligation will be extinguished.
Is there an exception where a debtor is obliged
to deliver a thing requires a different kind of
diligence in taking care of the thing other than a
good father of a family?
Yes, if the law requires a higher degree of diligence
such as what is required of common carriers. Other
than the law, is the stipulation of the parties would
require a higher degree of diligence. In the absence
of a law or a stipulation to that effect, the diligence
of a god father of a family should be observed.
Kinds of Obligations:
When would an obligation become due?
It depends on what kind of obligation is involved.
It is wrong to say that an obligation becomes due
upon demand. Since there can be no valid demand
when the obligation is not yet due. Therefor
demand has got nothing to with an obligation
becoming due.
What kind of obligations become due and
demandable at once?
1. In pure obligations
2. In conditional obligations if the condition is
resolutory but will be extinguished at the
happening of the event.
3. In obligation with a term or period if resolutory in
character but it will be extinguished at the
happening of the term.
Is there such a thing as suspensive obligation?
None. It only exists in suspensive term or condition.
Is there such a thing as void condition?
There is no such thing as void condition. A
condition is merely an event which may or may not
happen. There is nothing valid or void about
conditions.
Void and Valid pertain to obligations.
Suspensive, potestative, etc pertains to conditions.
A pure obligation whose performance does not
depend upon a future and uncertain event or
12
upon a past event unknown to the parties. Is
this statement valid?
This is not valid. To be pure it must not be
conditional and not with a term. In the above
statement both the future and uncertain must both
concur and this would only exclude a condition. A
term can never be uncertain. It is just a space of
time. An event is certain to happen. Therefore it
should be or. If “and” is used, it would only exclude
a condition with a condition and not those with a
term. If or is used it would exclude obligations with
a conditions and also those with a term.
If in a promissory note, on its face it does not say or
it cannot be determined whether it is conditional or
pure obligation. But there is a provision in the note
that upon receipt from the estate there is no
assurance that the creditor will receive in the
estate, which presupposes a conditional obligation.
Note however, the court treated it as a pure
obligation because...... (Pay vs. Palanca)
What is the consequence of a pure obligation or
a conditional obligation but resolutory in
character?
It is demandable at once, and necessarily the
prescriptive period starts to run from the time the
cause of action accrues. It is wrong to say that a
cause of action accrues from the time the demand
was made. If such be the case no action shall
prescribe.
What are the kinds of conditions?
1. Suspensive
2. Resolutory
3. Potestative -
4. Casual
5. Mixed
6. Possible
7. Impossible
8. Negative - requires the omission of an act.
9. Positive - requires the performance of an act.
What is the effect of an impossible condition?
If the obligation is with an impossible condition, it
shall annul the obligation. The phraseology is
defective, instead of annulled it should have been
void. Annullable presupposes a valid obligation
which is valid until annulled. This instance is an
impossible condition with a suspensive condition.
May there be a valid obligation with an
impossible condition?
Yes. If the condition though impossible is in the
negative, like i will give you 1 million if you don’t kill
my wife. Negative impossible conditions are
deemed not written, as such it is considered as a
pure obligation unless there are other words and
phrases which would not make it a pure obligation.
What are the kinds of impossible conditions?
Legal impossibility and physical impossibility.
Is it proper to say unlawful conditions?
Yes. What is improper is void conditions.
In unlawful or impossible conditions in
testamentary dispositions, what is the effect?
It does not result in a void testamentary disposition.
Under the law in succession, such unlawful or
impossible condition is deemed not written.
The debtor promises to pay if his son does not
die of cancer within 1 year. State the status of
the obligation whether it is valid or not, and if
valid state whether the obligation is due and
demandable?
The condition is suspensive negative
possible(mixed)condition. This is a valid obligation.
It is due and demandable depending on what
happened to the son.
If the son dies of cancer within 1 year, the
obligation does not arise. But even if the son did
not die of cancer within 1 year the debtor can be
compelled to pay, because in that moment it is
already certain that the son will not die of cancer
within 1 year such as when the son died of a car
accident.
In a condition that B should marry C within 1
year but after 2 weeks he entered the seminary?
Is it certain that the condition is not longer
possible?
No. B may go out of the seminary before the 1 year
period lapsed.
However, if C married D is it possible that the
condition mentioned above is no longer
possible?
No. because D may die and B can marry C within
the time mentioned in the condition.
What is a potestative conditon?
Under 1182, it is a condition that is dependent upon
the sole will of the debtor.
13
When the condition depends upon the sole will
of the debtor and it is a suspensive condition?
Will such be valid?
It is void. This is because a debtor who can impose
a condition upon his sole will, he will make sure
that the suspensive condition will not happen so
that the obligation will not arise.
A promise to give B his car if A will go to
Baguio within 5 days? Is it potestative?
Yes, such is potestative that is dependent upon the
sole will of the debtor. It is because whether or not
A will go to Baguio solely depend upon his will.
Is passing the Bar exam a potestative
condition? Casual or dependent upon chance?
It is neither a potestative nor a casual condition.
The grandfather promises to give his grandson
a car upon the latter’s passing the bar exam.
The grandson passed the bar and demanded
the delivery of the car. But the grandfather
refused to deliver the car and argued that he
cannot be compelled to deliver the same
because it is a potestative condition.
It is not a potestative condition but rather a
suspensive condition. Therefore the grandfather
can be compelled to deliver.
Assuming for the sake of argument that such
condition is a potestative condition, can the
grandfather be compelled to deliver because
the condition is void?
The grandfather still cannot be compelled because
under 1182, it provides that a condition is made by
the sole will of the debtor. In this case it is not the
grandson who is the debtor but rather the
grandfather. It is not dependent upon the sole will
of the grandfather. Hence not a potesative
condition. Therefore the obligation is a valid one.
A obliged herself in 2001 to sell to B a house
and lot upon his passing the bar exam. B
passed the bar exam in 2005. However in 2003
A sold the house and lot to C and this house
from 2001 was being rented by D. B upon
passing the bar exam demanded upon A to
deliver to him the house and lot pursuant to the
2001 obligation made by A. Who has a better
right over this house and lot? B or C?
As a rule, it is B who has a better right because
under Art. 1187 the effect of the happening of the
condition retroacts to the time of the constitution of
the obligation as if the condition already happened
as early as 2001.
However, as an exception, C may have a better
right if C can prove that he is a buyer in good faith
and for value, he would have a better right. But it
must be noted that in order to be a purchaser in
good faith and for value, such should be registered.
As such, C would not be bound by the agreement
made by A and B.
Assuming that B has a better right, B
demanded all the proceeds of the rentals from
2001 until 2005, is he entitled to the rentals?
Since, under Art. 1187 the effect of the happening
of the condition retroacts to the constitution of the
obligation, would presuppose that B may be
entitled to the proceeds of the rents as if he was
the owner of the property from 2001.
However, it is submitted that B is not entitled to the
rentals because fruits received in reciprocal
obligation (since this is a contract of sale) it is
deemed mutually compensated. B is obliged to pay
the price and Ahas the obligation to transfer
ownership. Under the law it is deemed mutually
compensated because, A is entitled to interests on
the price while B is entitled to the rentals, under the
law fruits received are deemed mutually
compensated.
Is the view that the retroactive effect of Art.
1187 does not cover fruits?
No. That is why there is a provision that in
reciprocal obligations, the fruits received are
deemed mutually compensated. There is therefore
a retroactive effect. In the above case, B is entitled
to the fruits but due to the provision on mutual
compensation, he shall no longer receive the fruits.
In conditional obligations, if the condition is
suspensive in character, the happening of the
condition shall give rise to the obligation.
Ordinarily if the condition did not happen, the
obligation will not arise. When shall the
obligation even if the condition did not happen,
it shall give rise to the obligation?
When it was the debtor who voluntarily prevented
the happening of the condition.
However, is there an instance where the debtor
who voluntarily prevented the happening of the
condition in order to give rise to the obligation,
still not be compelled to perform?
Yes, when though he prevented the happening of
the condition, such prevention was made when he
was exercising his right.
14
In obligation is an obligation with a suspensive
term , the obligation arise because the term is
certain to arrive, it will only give rise to the
demandability of the obligation.
- nature and the circumstances it can be inferred
In suspensive condition, the creditor filed an
action, will the action prosper?
It may prosper for as long as it is not an action for
specific performance because the condition being
suspensive, there is yet no obligation that arise.
But, the creditor may file an action for the
preservation of his rights, like if the action is to
compel the other party to have the agreement
registered with the appropriate registry of property.
In suspensive conditions imposed on an
obligation, what is the effect of any
improvement or deterioration on the thing to be
delivered?
In improvements, if the cause of the improvement
is through nature, such improvements shall pertain
to the creditor.
If in improving the property the debtor spent a sum
of money, the creditor is entitled to the
improvements. Under the law the creditor in this
case only has the rights of a usufructuary. The
debtors rights is limited to the removal of the
improvement as long as it will not cause damage to
the thing to be delivered.
In obligations with a term or period, may be
definite if there is a day certain. Indefinite
periods will arrive, but dependent on certain
events which is certain to happen but the
specific date is not certain.
Another classifications of periods is the source
of the period on whether it is by conventional or
voluntary period (by agreement of the parties),
fixed by law, or fixed by the court.
Is a 1 year period of redemption, a period in
relation to obligations?
No. It is a period in the exercise of a right, because
who has a right is not compelled to redeem.
Give examples of period fixed by law?
1. Non payment of taxes
2. In a lease contract, even when the parties did
not fix a period but it provides that the payment
of rents be paid annually, it is presumed that the
period of rent is for 1 year.
Under Art. 1197 it was provided that if the
obligation does not fix a period, but from its
that a period was intended, the courts may fix
the duration thereof. What is the guidelines
wherein the court in this instance may fix the
period?
The court having power to fix the period
presupposes that there is a perfected contract. If
there is no perfected contract, the court has no
power to fix the period.
What is the procedure for the court to fix a
period?
To determine whether there is a period or no period
stated in the contract. If there is, the fixing of the
period is not proper under Art. 1197.
Secondly, to determine whether the parties
intended that there be a period, if none, such as
when the parties intended that it be a pure
obligation, then the fixing of a period is not proper
under Art. 1197.
Thirdly, even if there is a period intended by the
parties, the court must also determine whether
such period had already prescribed or not. Such
that an action for specific performance on an
obligation which does not yet arise, the action
cannot prosper because the action is premature. Or
if a period had already lapsed and the obligation
involves an obligation to do, an action for specific
performance can no longer prosper, but the action
for damages shall prosper.
In a contract between the parties it was
provided, that debtor must remit the proceeds
upon the sale of the tobacco. Is a period
contemplated by the parties?
The argument by the debtor that the estafa case is
premature because the remedy of the creditor if to
go to court for the latter to fix the period is not
proper because the agreement by the parties is
one with a period.
The argument by the debtor that there was no
period fixed by the parties, which would render the
provisions of Art. 1197 not to apply, will not prosper.
The provisions of the agreement clearly provides
for a period which is upon the sale of the tobacco.
Therefore, upon the sale the debtor can be
compelled to remit. There is no need for the court
to fix the period (Lim vs. People).
15
Under Art. 1180 which provides that when the
debtor binds himself to pay when his means
permit him to do so, the obligation shall be
deemed to be one with a period subject to the
provisions of Art. 1197, and as such the court
shall fix the period. In this case, when will the
obligation become due, so that an action for the
court to fix the period may prosper?
The creditor should only go to the court if he knew
that the debtor already has the means to pay. If the
debtor already has the means to pay, go to court to
fix the period and upon the lapse of the period, the
obligation become due and demandable.
When the period is solely dependent upon the
will of the debtor, such is also a judicial period.
Under Art. 1191 The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing the period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in
accordance, with Articles 1385 and 1388 and the
Mortgage Law.
Can the debtor be compelled to perform the
obligation before the arrival of the period, or
can the creditor be compelled to accept the
obligation even before the arrival of the period?
In the second scenario the creditor cannot be
compelled to accept the obligation even before the
arrival of the period because the creditor may not
want to accept because he had not place to store
the goods which is the subject of the obligation.
Is a period for the benefit of both the creditor
and the debtor?
No. It is merely a disputable presumption that the
period is both for the benefit of the creditor and the
debtor.
If the phrase provided for in the obligation is
payable on or before December 31, and no
other factor has been provided for, is it both for
the benefit of the creditor and the debtor?
No such phrase is clearly for the benefit of the
debtor. This is because the debtor cannot be
compelled to perform the obligation before the
arrival of the period.
On the other hand, however, the debtor can compel
the creditor to accept the performance of the
obligation even before the expiration of the period.
Is there contracts solely for the benefit solely of
the creditor?
Yes, when there are stipulations that the debtor
cannot pay within 3 months or 2 years. This could
be said to be for the benefit of the creditor because
of a scenario where the creditor has the right to the
fruits of the thing subject of the obligation. This is
probably because the creditor would want to
harvest first before the returns the thing.
However, the creditor may return it at any time
because the provision is solely for the benefit of the
creditor.
A borrowed money from B in January payable
at the end of the year. To secure the fulfillment
of the obligation A delivered his car to B and it
was stipulated that B can use the car. After a
few months, come August of the same year, the
debtor offered to pay the entire amount to the
creditor and also demanded for the return of
his car. Can the creditor be compelled to accept
the payment? Can he be compelled to return
the car?
While the debtor cannot be compelled to pay before
the arrival of the period, the creditor cannot also be
compelled to accept the performance of the
obligation because of the principle that a period is
both for the benefit of both the debtor and the
creditor.
Base on the facts the above principle finds
application in the present case because the debtor
cannot be compelled pay before the arrival of the
period which is the end of the year. However, the
creditor has an interest in the period because it was
stipulated that he can use the car before the arrival
of the period. Therefore under the facts, the period
is both for the benefit of the debtor and the creditor.
Even assuming that the period is solely for the
benefit of the debtor, before the arrival of the
term, is it possible that the creditor validly
demand for the performance of the obligation?
Yes. That can happen if the debtor lost his right to
make use of the period. Under Art. 1198, a debtor
may lose his right to make use of the period.
Art. 1198. The debtor shall lose every right to make use
of the period:
16
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond.
A borrowed a sum of money from B. To secure
the fulfillment of his obligation he mortgaged
his house and lot. Before the arrival of the
period (before the obligation became due), the
house was burned due to a fortuitous event.
The day after the creditor demanded the
payment of the debt.
Was there a valid demand?
Yes.
Can the debtor be compelled to pay?
He lost his right to make use of the period even if
the lost was due to a fortuitous event, unless of
course he gives another security for the debt.
Why would the debtor lost his right to make use
of the period when the lost was due to a
fortuitous event and the same is not imputable
to the fault of the debtor?
This is because the creditor would not have left him
money if not for the security.
In number of Art. 1198, how can the debtor give
another security if the debtor is already
insolvent?
If the debtor still has other properties even if he is
still insolvent. Or he may not have any properties,
but he can provide for a guarantor or a secure a
mortgage to secure the fulfillment of the obligation.
Kinds of obligations as to multiple prestations:
In multiple prestations where one of the
prestation is impossible to perform even if the
other prestation still are possible to perform,
may the obligation be considered to have been
extinguished?
It depends on the kind of obligation involved. It may
be a conjunctive obligation, alternative obligation,
facultative obligation.
In conjunctive obligations, the impossibility of
performance of one will not result in the
extinguishment of the obligation because there is
another or two or more other obligations to be
performed.
In facultative obligations, it depends on whether
there is already substitution at the time of the
impossibility of the performance of one of the
prestation. If before substitution the impossibility of
one of the obligation becomes impossible to
perform due to a fortuitous event, the obligation is
extinguished. But if one of the obligation become
impossible to perform due to the fault of the debtor,
the obligation is not extinguished (debatable on the
second scenario).
If in facultative obligation what was lost or became
impossible to perform was the substitute prestation
and there was no substitution yet at the time of the
loss, the obligation is not extinguished because the
due prestation was the principal prestation.
Conjunctive- and; alternative-or; facultative-debtor
has the right to make a substitution or to perform
instead a substitute prestation.
In alternative obligations, if there was already a
communication of a choice. By then the obligation
is converted into a simple obligation and the one
chosen was the one impossible to perform
especially if it is due to a fortuitous event. As such,
the obligation is extinguished. If there was already
a communication of a choice but what become
impossible was the other prestation which was not
chosen, the obligation is not extinguished.
B’s car was lost due to the fault of the debtor,
what are the remedies of the creditor?
It depends on who has the right to choose. If it
shows that the choice is not expressly granted to
the creditor, the right of choice pertains to the
debtor. Under the law it was provided that the
choice is with the debtor, unless otherwise
expressly granted to the creditor.
If the choice is with the debtor, even if it was due to
his fault, he has other prestations to choose from
without being held liable for damages. Anyway,
there is yet no due prestation because the debtor
has not yet able to make a choice.
If however in alternative obligations, the first
two prestations become impossible to perform
due to the fault of the debtor, and the remaining
17
prestation becomes impossible to perform due
to a fortuitous event. Can the debtor be held
liable for damages?
The debtor can be held liable if this is the choice of
the creditor. However, if the choice is with the
debtor, he cannot be held liable for damages even
if the loss of the last remaining prestation was due
to a fortuitous event. This is because the debtor
diminished the possibility of the performance of the
obligation and secondly he was at fault therefore he
can be held liable for damages under Art. 1170.
However, the provisions in Art. 1170 presupposes a
simple obligation, and thus not applicable in the
present case to make the debtor liable. Secondly,
even if the obligation has diminished the
performance of the obligation imputable to the
debtor, he cannot be held liable because it can be
considered as his choosing to make the first two
prestations impossible to perform, and the last
prestation be considered as his choice. The last
though lost due to fortuitous event, cannot make
the debtor liable.
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor
thereof, are liable for damages. (1101)
The horse died due to the fault of the debtor,
this time the creditor has the right to choose.
What are the rights of the creditor?
He can choose from one of the remaining
prestations or choose the prestatation which was
lost due to the fault of the debtor.
If the creditor choose to demand for the value of
the obligation which was lost due to the fault of the
debtor, the debtor can be held liable for damages.
If the creditor chose to compel performance
through the remaining prestations, the debtor
cannot be held liable for damages.
The horse was lost due to the fault of the
debtor, then after the second prestation was
also lost due to the fault of the debtor, and
thirdly a book was lost due to the fault of the
debtor. What is the extent of the liability of the
debtor under the foregoing circumstances?
Can the creditor choose for the value for any of
the three prestations?
It depends on who has the right to choose. If the
creditor has the right of choice, he can choose on
the value of any of the three prestations.
But if the choice is with the debtor, the liability will
be based on the value of the prestation which was
lost last due to his fault.
Qualification in Alternative Obligation: If one of
the prestations become impossible to perform
due to the fault of the debtor, and the choice is
with the creditor:
The creditor can either demand for the value of
the prestation with damages or he can demand
for the performance of one of the remaining
prestations without damages.
Second view: If the creditor can demand for the
performance of one of the remaining
prestations, the creditor may opt to demand for
the value of the thing which was lost due to the
fault of the debtor. In this instance under
alternative obligations, it is possible that the
debtor is not the owner of the horse. In
alternative obligations the debtor is not sure
whether he can deliver the horse or not. if the
horse was owned by the creditor, as such he
can seek damages. If the thing lost was owned
by the debtor as a valid premise, the debtor
cannot be held liable for damages. In alternative
obligations it must be remembered that the
prestation may either be owned by the debtor
or not.
Facultative obligations
In facultative obligations it is improper to say that
there is only one prestation. For how could it be
considered to fall in obligations with multiple
prestations if there is only one prestation involved.
Rather it is better to say that there is only one
prestation due in a facultative obligation. At any
given point in time there can only be one prestation
due unlike the other prestations.
Whe n wil l th e obli gation i n fac ul t ative
obligation become due?
If there is already a communication of the
substitution.
If the principal prestation before substitution
became impossible to perform due to the fault
of the debtor , can the creditor demand to
perform the substitute prestation?
No. This is because in facultative obligation, the
choice is always with the debtor.
The remedy of the creditor is to demand for
damages.
18
If before substitution became impossible to
perform due to the fault of the debtor, can the
debtor be held liable for damages by the
creditor?
The debtor cannot be held liable for damages
because that was not the due prestation. The
debtor will bear the lost, but he cannot be held
liable for damages.
--
When can the debtor make the substitution?
The debtor can make the substitution at any time.
Can the debtor make the substitution if the
debtor is already in delay?
No. Why should the law allow the debtor to make
substitution is he is already in delay. If he is already
in delay he can already be liable for damages.
There is no sense to give him a right if he is already
liable for damages.
If the obligation is already impossible, can the
debtor make a substitution?
No. For how can the debtor make a substitution if
the obligation is already impossible, unless it was
really the agreement or the intention of the parties.
Otherwise, it is considered simply as an obligation
with a penal clause. Upon non compliance with the
obligation, the debtor can be compelled to perform
the other prestation or the accessory undertaking.
Is the substitute prestation had already been
agreed upon by the parties?
Yes. There can never be a valid facultative
obligation when the substitute prestation has not
been agreed upon. Otherwise if the debtor has the
right to make a substitution without the substitute
prestation having been agreed upon, it may be
prejudicial to the creditor because such will give the
right to the debtor to deliver an inferior prestation.
JOINT AND SOLIDARY OBLIGATIONS
A filed an action against B for the recovery of a
sum of money. Would it matter if it is a joint or
solidary obligation?
Yes. There will be an issue because A may file an
action against A as a joint debtor or a solidary
debtor. There is a difference on an action filed
against one defendant or an action filed against a
debtor. A defendant may either be a joint debtor or
a solidary debtor. The creditor need not sue
everyone.
Assuming there is an issue whether the
obligation is a joint or a solidary obligation,
who would claim that it is a joint obligation?
It would be B who would claim that the obligation is
joint. The plaintiff A on the other hand who
demanded payment from only one of the debtors
would definitely claim that the obligation is a
solidary obligation.
What would be an indication in a case which
will warn the examinee on whether the
obligation is joint or solidary?
The extent of the liability is the determining factor
that the obligation is joint or solidary. The question
is whether one of the debtors can be compelled the
entire amount.
A and B sold 1000 sacks of rice to X and Y. X
demanded delivery of 1000 sacks of rice from A
and B. A and B delivered the 1000 sacks of rice
to X. Y did not receive anything out of the 1000
sacks of rice. Can Y still compel A and B to
deliver a portion of the 1000 sacks of rice. If he
can, how many can Y demand?
It is a joint obligation unless from the stipulation of
the parties or in the nature, or the law it shows
solidarity. Under the facts, when A and B delivered
the 1000 sacks to X it did not actually extinguished
the obligation to Y because he did not receive
anything from the 1000 sacks of rice, therefore it
did not extinguish the obligation.
What obligations are considered solidary?
Art. 927. If two or more heirs take possession of the
estate, they shall be solidarily liable for the loss or
destruction of a thing devised or bequeathed, even
though only one of them should have been
negligent. (n)
Art. 1824. All partners are liable solidarily with the
partnership for everything chargeable to the
partnership under Articles 1822 and 1823. (n)
Art. 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of
the partnership or with the authority of co-partners, loss
or injury is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the
partner so acting or omitting to act. (n)
Art. 1823. The partnership is bound to make good the
loss:
19
1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and the
money or property so received is misapplied by any
partner while it is in the custody of the partnership. (n)
Art. 1911. Even when the agent has exceeded his
authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as
though he had full powers. (n)
Art. 1915. If two or more persons have appointed
an agent for a common transaction or undertaking,
they shall be solidarily liable to the agent for all the
consequences of the agency. (1731)
Art. 1945. When there are two or more bailees to
whom a thing is loaned in the same contract, they
are liable solidarily. (1748a)
Art. 2157. The responsibility of two or more payees,
when there has been payment of what is not due, is
solidary. (n)
Art. 2194. The responsibility of two or more
persons who are liable for quasi-delict is solidary.
(n)
Art. 2146. If the officious manager delegates to
another person all or some of his duties, he shall
be liable for the acts of the delegate, without
prejudice to the direct obligation of the latter toward
the owner of the business.
The responsibility of two or more officious
m a n a g e r s s h a l l b e s o l i d a r y, u n l e s s t h e
management was assumed to save the thing or
business from imminent danger. (1890a)
Art. 94. (FC) The absolute community of property
shall be liable for:
(1) The support of the spouses, their common
children, and legitimate children of either
spouse; however, the support of illegitimate
children shall be governed by the provisions of
this Code on Support;
(2) All debts and obligations contracted during the
marriage by the designated administrator-
spouse for the benefit of the community, or by
both spouses, or by one spouse with the
consent of the other;
(3)
(3) Debts and obligations contracted by either
spouse without the consent of the other to the
extent that the family may have been benefited;
(4) All taxes, liens, charges and expenses,
including major or minor repairs, upon the
community property;
(5) All taxes and expenses for mere preservation
made during marriage upon the separate
property of either spouse used by the family;
(6) E x p e n s e s t o e n a b l e e i t h e r s p o u s e t o
commence or complete a professional or
vocational course, or other activity for self-
improvement;
(7) Ante-nuptial debts of either spouse insofar as
they have redounded to the benefit of the
family;
(8) The value of what is donated or promised by
both spouses in favor of their common
legitimate children for the exclusive purpose of
commencing or completing a professional or
vocational course or other activity for self-
improvement;
(9) Ante-nuptial debts of either spouse other than
those falling under paragraph (7) of this Article,
the support of illegitimate children of either
spouse, and liabilities incurred by either
spouse by reason of a crime or a quasi-delict,
in case of absence or insufficiency of the
exclusive property of the debtor-spouse, the
payment of which shall be considered as
advances to be deducted from the share of the
d eb tor -sp ou se up on liqu id atio n of th e
community; and
(10) Expenses of litigation between the spouses
unless the suit is found to be groundless.
If the community property is insufficient to cover the
foregoing liabilities, except those falling under
paragraph (9), the spouses shall be solidarily liable
for the unpaid balance with their separate
properties.
Art. 121. (FC) The conjugal partnership shall be
liable for:
(1) The support of the spouse, their common
children, and the legitimate children of either
spouse; however, the support of illegitimate
children shall be governed by the provisions of
this Code on Support;
(2) All debts and obligations contracted during the
marriage by the designated administrator-
spouse for the benefit of the conjugal
partnership of gains, or by both spouses or by
one of them with the consent of the other;
20
(3) Debts and obligations contracted by either
spouse without the consent of the other to the
extent that the family may have benefited;
(4) All taxes, liens, charges, and expenses,
including major or minor repairs upon the
conjugal partnership property;
(5) All taxes and expenses for mere preservation
made during the marriage upon the separate
property of either spouse;
(6) E x p e n s e s t o e n a b l e e i t h e r s p o u s e t o
commence or complete a professional,
vocational, or other activity f or self-
improvement;
(7) Ante-nuptial debts of either spouse insofar as
they have redounded to the benefit of the
family;
(8) The value of what is donated or promised by
both spouses in favor of their common
legitimate children for the exclusive purpose of
commencing or completing a professional or
vocational course or other activity for self-
improvement; and
(9) Expenses of litigation between the spouses
unless the suit is found to groundless.
If the conjugal partnership is insufficient to cover
the foregoing liabilities, the spouses shall be
solidarily liable for the unpaid balance with their
separate properties.
Give an example of an obligation which is
solidary by nature?
The liability of those who figured in vehicular
mishaps where a person is a passenger of one at
the time of the mishap, such passenger hold the
owner of the vehicle under breach of contract
together with the driver under the contract. The
owner of the vehicle as well as the driver may be
held liable under quasi delict. There is no basis
under the law which would make them solidarily
liable the case being based on different causes of
action. There is no law which provides for solidarity,
but by the nature of the obligation they are held
solidarily liable.
For contractual obligations, may the partners
be held solidarily liable?
No. because as a rule joint without prejudice that
the partners binding themselves solidarily.
May an insurance company of a vehicle be held
solidarily liable with the owner of the vehicle ,
the driver, and the employer of the driver?
No. It is only the owner of the vehicle (Sio Choy)
and the the employer of the driver (San Leon Rice
Mill) should be held solidarily liable and not the
insurance company.
The basis of the liability of the owner of the vehicle
is Art. 2184 which provides that in motor vehicle
mishaps, the owner is solidarily liable with his
driver, if the former, who was in the vehicle, could
have, by the use of due diligence, prevented the
misfortune it is disputably presumed that a driver
was negligent, if he had been found guilty of
reckless driving or violating traffic regulations at
least twice within the next preceding two months.
Since the owner was not in the vehicle Art. 2184 is
not applicable. If the owner was not in the motor
vehicle, the provisions of article 2180 may be
applicable.
Secondly the basis of the liability of the employer is
in Art. 2180 which provides: The obligation
imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of
persons for whom one is responsible.
xxx xxx xxx
Employers shall be liable for the damages caused
by their employees and household helpers acting
within the scope of their assigned tasks, even
though the former are not engaged ill any business
or industry. But the owner of the vehicle is not the
employer so Art. 2180 is likewise not applicable.
xxx xxx xxx
The responsibility treated in this article shall cease
when the persons herein mentioned proved that
they observed all the diligence of a good father of a
family to prevent damage.
Under the foregoing, the employer and the owner
of the vehicle are solidarily liable as joint
tortfeasors. Under the law: The responsibility of two
or more persons who are liable for a quasi-delict is
solidarily.
The basis of the liability of the insurer is the
insurance contract while the employer and the
owner is torts which could not make the insurer be
solidarily liable (Malayan Insurance vs. CA)
For contractual obligations may the partners in
a partnership be hold solidarily liable?
21
No. As a rule joint unless of course if the partners
bind themselves solidarily and under certain
specific scenarios or exceptional circumstances
under the civil code which make them solidarily
liable. (See provisions above)
Note: In these scenarios the examinee must be
a b l e t o d e t e r m i n e u n d e r w h a t s p e c i fi c
circumstances that the debtor may be held
solidarily liable.
Other word or phrase for solidary?
Joint and collective, joint and several, jointly and
individually.
Ronquillo vs. CA
Clearly then, by the express term of the
compromise agreement and the decision based
upon it, the defendants obligated themselves to pay
their obligation "individually and jointly".
The term "individually" has the same meaning as
" c o l l e c ti v e l y " , " s e p a r a t e l y " , " d i s t i n c t iv e l y " ,
respectively or "severally". An agreement to be
"individually liable" undoubtedly creates a several
obligation, 14 and a "several obligation is one by
which one individual binds himself to perform the
whole obligation. 15
In the case of Parot vs. Gemora 16 We therein
ruled that "the phrase juntos or separadamente or
in the promissory note is an express statement
making each of the persons who signed it
individually liable for the payment of the fun amount
of the obligation contained therein." Likewise in Un
Pak Leung vs. Negorra 17 We held that "in the
absence of a finding of facts that the defendants
made themselves individually liable for the debt
incurred they are each liable only for one-half of
said amount
The obligation in the case at bar being described
as "individually and jointly", the same is therefore
enforceable against one of the numerous obligors.
A and B, debtors X and Y creditors. X filed an
action against A, the action was dismissed,
thereafter X filed an action against B, may the
action be dismissed?
It would depend on what kind of obligation is
involved, whether it is joint or solidary.
If the obligation is solidary, there is more reason
that the action against B should likewise be
dismissed since it joint obligation is solidary.
However, even if A and B are solidarily liable and
the action against A is dismissed, a subsequent
action against B may prosper if the defenses is
purely personal to A, like when A is a minor.
Therefore it would depend on the defense raised
which is the basis of the dismissal.
If the obligation is joint, the dismissal of the first
case shall not affect the action against the other
debtor, because their obligations are separate and
distinct from each other.
What kind of defense is minority? Is it a
defense? If it is a defense, Is it partial or total
defense?
It depends, if it is a joint or solidary obligation.
If the obligation is joint, it is a defense as to the
minor but not as to B. Their obligation is separate
and distinct from each other.
The same is likewise a defense in solidary
obligation. It is a total if it is the minor is raising the
defense. If the one claiming the defense is a co-
debtor, it is only partial as to the share of the minor.
Is there a total defense in any kind of obligation
whether joint or solidary and can be invoked by
any of the debtors?
If the obligation is void it it a total defense.
A and B are solidary debtors, A paid the
creditors 1 million last year, today A demanded
money from B, how much can A recover from
B? Can A recover interest?
A may recover 50% of the debt paid. A may recover
interest from the date the obligation became due
and not on the date when he paid the obligation
before it was due.
A obliged himself to pay X or Y, X demanded
payment from A, thereafter Y demanded
payment from A, A paid Y. May X able to hold A
liable?
It depends on the intention of the parties who has
the right to choose.
X may still able to hold A liable despite the fact that
X has already paid Y if it is under an agreement
between X and Y that X had the right to choose.
Then the payment by A to Y is a payment to a
wrong party.
22
If in their agreement A had the right to choose,
then it does not matter who made the demand
because A clearly can choose to pay the obligation.
Then in this case payment to Y extinguishes the
obligation.
If the intention of the parties is not clear as to
who has the right to choose, May X still hold A
liable?
X may still hold A liable under the rules on solidary
obligation because if one of the solidary creditors
was the first one to make a demand he shall be the
one who has the right to choose. Since under the
facts, X was the first to make the demand, X may
still hold A liable. This rule is applied because this
would be conducive to the fulfillment of the
obligation (Tolentino)
Uribe: If the rules on solidary obligations is to be
applied then there is no reason to make provisions
on other kinds of obligations. The law should have
made all obligations solidary because the same
shall be conducive to the fulfillment of the
obligation. Therefore, the view of Tolentino is
incorrect.
The rules on alternative obligations should be
applied, and under this rule, the right to choose is
with the debtor. If the intention is not clear, it is the
debtor should be given the right to choose.
An obligation to pay 1 million pesos is a
divisible obligation?
Not necessarily, because it would depend on the
intention or agreement of the parties.
Without any express agreement on how the
obligation is to be performed, is it a divisible or
an indivisible obligation?
If there is no agreement it would be an indivisible
obligation. Under the law, no creditor can be
compelled to accept partial performance, unless
there is a stipulation to the contrary.
Is there an obligation which is considered
divisible by nature even if there is no
stipulation?
If the obligation is to be performed for a number of
days like the construction of a building.
Is there an obligation which is considered by
law an indivisible obligation?
If the obligation consists in delivering a finite thing.
A, B and C obliged to deliver a handy-dandy
amazing thing-a-ma-jig, not your everyday
complicated multi use tool worth 30,000 pesos
to X. When the obligation to deliver the thing to
X is due the handy dandy amazing thing-a-ma-
jig exploded due to the fault of A, X filed an
action against B, may the action proper?
Since this is a joint and indivisible obligation
because a finite thing is involved, an action to
deliver cannot prosper since it is a finite thing. But
the action for money claims will prosper as to the
share of B which is 10,000 with respect to his
share, since the stipulation is silent as to the
debtors share, they shall share equally. B cannot
be liable for damages, it is only A who can be
liable .
When the obligation is a joint and indivisible
obligation, and the obligation has become
impossible of performance, the obligation is
converted into a monetary obligation, and each of
the debtor shall each be responsible for his share
in the absence of designation of his share and the
one at fault shall be liable for damages.
With respect to A, he shall be liable for his share
plus damages.
Robes- Francisco vs. CFI
In this case there was a stipulation that in case
the developer fail to issue a certificate of title
after the amount is paid by the buyers, the
developer be liable to the amount of 4%
interest. May the developer be held liable for
damages? Or s hould the 4 % int erest
compensate to the damages as a form of a
penal clause?
Art. 1226. In obligations with a penal clause, the
penalty shall substitute the indemnity for damages
and the pay ment of i nterests i n ca se of
noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of
this Code.
No it is not a penal clause because even without
such stipulation of interests the developer may still
be held for interests at the legal rate of 6% per
annum. It is therefore inconceivable that the subject
clause in the certificate of title be considered as a
penal clause which would relieve the developer of
liability.
23
Besides the legal interest is 6%, the interest is only
charged at 4% which means it is lower. How can a
lower interest be a penal clause. Penalty should
charge a bigger amount, which is the purpose of a
penalty.
Assuming that a penal clause is contained in a
contract, in case of violation may the debtor be
still liable for damages in addition to the penal
clause?
As a general rule, the penal clause is considered
as a substitute to the damages that may be
suffered, however, when the debtor failed to comply
with the provisions of the penal clause he may still
be liable aside from the penalty.
Another ground is if there was fraud and if there is
stipulation.
If the penal clause agreed upon is 100,000 but
the damages sustained is 200.000, even
assuming there was fraud, how much shall the
creditor be entitled?
The creditor shall be entitled to 100,000 plus actual
damage of 200,000 as decided by the Supreme
Court.
May the court reduce the amount of the penalty
agreed upon in the penal clause?
The court may reduce the penalty if there was
already a compliance of the obligation.
In an obligation with a penal clause, can the
debtor compel the creditor to accept the
penalty instead the debtor performing the
obligation?
As a rule the debtor cannot compel the creditor to
accept the penalty instead of performing the
obligation, the creditor can compel the debtor to
perform the obligation.
As an exception, the debtor can compel the
creditor where this right has been expressly
reserved for him as provided in art. 1227 of the civil
code.
C a n t h e c r ed ito r b o t h d em a nd f or t h e
performance of the obligation and the payment
of the penalty agreed upon?
Generally the creditor cannot demand both the
performance and at the same time compel to
demand for the penalty, except: if such right is
clearly granted to him. This may not be expressly
granted or stipulated because it may be inferred by
the acts of the parties.
If the obligation is void and there is a penal
clause, may a party be held liable under the
penal clause?
Ordinarily no, because a penal clause is an
accessory undertaking. If the obligation is void any
accessory undertaking is likewise void. As an
exception if the nullity of the obligation would give
rise to the enforcement of the penal clause, then
party thereto can be held liable under the penal
clause.
For instance, if one of the parties is a filipino, if that
contract will be governed by Philippine law, the
alien has every right to rely on the Philippine law
as to the validity of the contract. Therefore if this
contract is declared null and void, the Filipino shall
be liable for indemnity. Such will be a valid penal
clause.
Breach of Obligations: Specific circumstances
affecting obligations
If there is an obligation, one of the parties may be
held liable or even a third person may be held liable
for damages incurred by one of the parties or a
third person.
Under 1170 those who in the performance of the
obligation are guilty of fraud, negligence or delay
can be held liable for damages.
Note that even if there is no negligence, fraud or
delay those who in any manner contravene the
tenor of the obligation shall also be liable for
damages.
Generally, non performance or contravention of the
tenor can be the basis of liability.
If both parties have faithfully complied with their
respective obligations, no one may be held liable.
The law says “those who in the performance”
because it is not only the debtor who may be held
liable for damages. Creditors likewise may be held
liable like if they commit fraud or in delay may be
held liable for damages.
Fraud
Fraud here means fraud in the performance of the
obligation. Under Art. 1170 and Art. 1171, there is
an existing obligation.
24
 Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)
Art. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void. (1102a)
Unlike the other kind of fraud which are in the law
on contracts, there is fraud in obtaining consent. A
person may enter into a contract because of the
fraud employed upon him Without such fraud he
would not have entered into such contract. This is
called causal fraud or dolo causante.
However there is another kind of fraud in obtaining
consent which are not causal in character. It is
merely incidental, and this would be under Art.
1344. However, this will not affect the validity of a
contract, unlike causal fraud which will make the
contract voidable. In incidental fraud will only make
a person liable for damages in employing such
fraud.
Art. 1344. In order that fraud may make a
contract voidable, it should be serious and should not
have been employed by both contracting parties.
Incidental fraud only obliges the person
employing it to pay damages.
However, in Art. 1170, the performance of an
obligation can be the basis of liability for damages.
Art. 1170 should be called malice or bad faith. The
term “Dolo” cannot be used under Art. 1170
because dolo really is deceit as used in Art. 1388
known as dolo causante, and while fraud in Art
1344 above is known as dolo incidente.
Art. 1388. Whoever acquires in bad faith the
things alienated in fraud of creditors, shall indemnify
the latter for damages suffered by them on account of
the alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first
a c q u i r e r s h a l l b e l i a b l e fi r s t , a n d s o o n
successively.
If fraud was committed which can be the basis of
liability, the other party can actually waive his right
to go after the party committing the fraud. This can
be done through a waiver. However if the waiver is
executed before the fraudulent act was committed
(waiver of future fraud) the waiver is void. As such,
the other party can hold the person employing
fraud liable for damages. Therefore, one thing that
should be considered in problems involving waivers
is, when was the waiver executed in relation to the
fraudulent act.
Negligence
Negligence, otherwise known as quasi delict is fault
under Art. 2176 which provides:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties,
is called a quasi-delict and is governed by the provisions
of this Chapter.
Is negligence synonymous to fault?
No. Negligence is just an omission of the diligence
required whereas fault may actually be intentional
in character.
One word which would cover both fault and
negligence is Culpa.
How do u know that an act is negligent or not?
Under Art. 1173, this is the best definition of
n e gl i g e nc e wh i c h c oul d b e t h e ba si s o n
determining whether an act is a negligent act or
not.
Art. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which
is required by the nature of the obligation and
corresponds with the circumstances of the
persons, of the time and of the place. When negligence
shows bad faith, the provisions of Articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the
d i l ig e nce wh ic h i s to b e obs e rve d in t h e
performance, that which is expected of a good
father of a family shall be required.
Here the the law defines negligence which is the
omission of the diligence required by the nature of
the obligation. Say if a person slept only for two
seconds, it would depend on his job on whether to
make him negligent or not. If he was a driver, if he
slept for two seconds, then is negligence, his
omission would cause the death of so many
people.
The most important thing to determine whether a
person is negligent or not is to consider the nature
of the obligation. After considering the nature of the
obligation, other things which must be considered
is the time, the person and the place.
In the case of Gangco vs. MRR, the Supreme court
ruled that the act of alighting from the train was not
25
a negligent act because of the circumstances
surrounding the event. Primarily it was because of
the circumstances surrounding the person of
Cangco because the Supreme Court discussed the
circumstance that he was at his prime. he would
ride the train everyday, and the train was about to
stop when he was about to alight from the train. It is
an important factor in determining negligence,
because if is about to alight when the train was still
running at 180 km/hr and he alighted from such
train, obviously that would be considered a
negligent act.
However, in the case of Telefast vs. Castro, the
respondent Sophia Castro asked telefast to send a
fax message in the United States to tell her
relatives that her mother already died, telefast was
not able to send the message, allegedly because of
atmospheric pressure. When the relatives knew of
what happened, the deceased was already buried
so they filed an action against Telefast. Telefast
was willing to return the money that was paid by
Sophia but moral damages was awarded by the
court. Telefast questioned the validity of the award
for moral damages because they said that in
contracts, the award for moral damages can only
be awarded if there was bad faith or there was
wanton disregard of the obligation of a party in the
contract. But when they failed to send the message
due to atmospheric pressure, apparently there was
no bad faith. However, the Supreme Court
nonetheless held Telefast liable for damages
because they failed to inform Sophia if the fact that
they failed to send the message.
As such, the Supreme Court considered the act of
Te l e f a s t a s a g r o s s l y n e g l i g e n t a c t , a n d
jurisprudence will tell you that Gross negligence
amounts to fraud. Therefore it appears to be bad
faith, which can be the basis of liability for moral
damages.
Therefore, there is a need to determine whether the
act is simple negligence or a gross negligence.
Note: Negligence under this topic is a negligence in
the performance of an obligation and not the
negligence as a separate source of obligation. If
the negligent act is an act punished by law, such as
those under the Revised Penal Code, that would be
criminal negligence which can be the basis of
liability under delict. However, the same negligent
act under delict can be the basis of liability under
quasi delict.
Delay
Delay is almost synonymous this time to default, or
mora. Mora Accipiendi which is default on the part
of the creditor. Mora Solvendi or default on the part
of the debtor.
If a party to an obligation was able to comply
with his obligation, nonetheless may he be
considered in delay?
Yes. This is default or delay with respect to time.
Can there be a delay in obligations not to do?
No, because as long as one is not doing what he is
not supposed to do, he is actually fulfilling his
obligation.
For delay to set in the law requires demand, and for
demand to be a valid one the obligation must
already be due. Demand here is not necessary for
the obligation to be due, rather demand here is
necessary in order to hold the other part liable
because he is already in delay.
The demand here need not be in writing, it need
not be in any particular form. A demand letter need
not be notarized, a private document would suffice.
Note however, that in order for delay to set in the
law requires demand, such is only a general rule. A
person may still be held liable even if there is no
demand, like:
a. By Stipulation
b. By law such as in the law on partnership, where
it provide that when a partner fails to make his
contribution on the date agreed upon, even
without need of demand from the non defaulting
partners, he is deemed by law to be in delay. He
will be held liable for interests but also for
damages.
Under the below quoted provision particularly
the last paragraph of 1169 is one good
provision on an obligation with reciprocal
obligation such as that of sale. If a party to that
contract had already complied with his
obligation and the other has not, under the law
he shall already be considered in delay, even if
no demand was made. However, Art. 1169 as
interpreted by the Supreme Court should be
read or interpreted to mean that there was no
agreement as to the when the other party is to
perform his obligation. In other words, this
provision is subject to the stipulation of the
parties. When there is a stipulation to the effect
that the other party must comply with the
obligation, 30 days from delivery, then the other
party cannot be considered in delay even if one
of the parties has performed his obligation.
26
Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare;
or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to
be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay
by the other begins. (1100a)
Art. 1786. Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction
with regard to specific and determinate things which he
may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound
with respect to the vendee. He shall also be liable for the
fruits thereof from the time they should have been
delivered, without the need of any demand. (1681a)
Art. 1788. A partner who has undertaken to contribute a
sum of money and fails to do so becomes a debtor for
the interest and damages from the time he should have
complied with his obligation.
The same rule applies to any amount he may have taken
from the partnership coffers, and his liability shall begin
from the time he converted the amount to his own use.
Art. 1896. The agent owes interest on the sums he has
applied to his own use from the day on which he did so,
and on those which he still owes after the extinguishment
of the agency. (1724a)
Art. 1942. The bailee is liable for the loss of the thing,
even if it should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from
that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or
after the accomplishment of the use for which the
commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal
of its value, unless there is a stipulation exemption
the bailee from responsibility in case of a fortuitous
event;
(4) If he lends or leases the thing to a third person, who
is not a member of his household;
(5) If, being able to save either the thing borrowed or his
own thing, he chose to save the latter. (1744a and
1745)
c. When period is the controlling motive. Here the
time is of the essence in this contract.
d. When demand becomes useless. This
presupposed that demand becomes useless
because of the fault of the debtor. If the demand
becomes useless due to the fault of the creditor,
then of course the creditor cannot hold the
debtor liable for damages.
When the demand becomes useless due to
fortuitous event, obviously the obligation shall be
extinguished.
Agcaoili vs. GSIS
If both parties are in delay, what will be its effect?
Under the law, when both are in delay, no one is
considered to be in delay, hence, no one can be
held liable for damages, or no one can have a
cause of action by and between the parties.
In this case, Agcaoili suspended the payment of
the monthly amortizations. GSIS cancelled the
contract. Was GSIS correct in cancelling the
contract?
No.Because both are in delay. Agcaolili failed to pay
his month amortization while GSIS is also in delay
in not delivering a habitable house. The GSIS only
delivered a structure with a roof.
Kristine went to a jewelry shop to have her
jewelry cleaned and it should be returned to her
after a week, when she returned after a week
the jewelry shop told her that the jewelry had
not yet been cleaned, so she has to return
again after another week. When she returned
back after another week. She was informed that
the ring was lost because of an alleged robbery
that took place. Claiming that robbery is
fortuitous event, then the jewelry shop cannot
be held liable. Is such contention tenable?
No. Under the facts Art. 1165 would apply. In an
obligation to deliver a determinate thing, and the
thing was lost even if due to a fortuitous event, the
obligor would be held liable for damages if he was
already in delay.
27
Clearly, the jewelry shop was already in delay.
Even for the fact, that the jewelry was lost due to a
fortuitous event, the shop shall be liable because
there was already a delay when the creditor failed
to deliver the same after as week time as promised.
A leased a machine of B because he opened his
own car repair shop. They agreed that the lease
would only be for 1 month, and the lease was
entered only in February 15 of 1985, in March 15
the next month, the lessor demanded for the
return of the machine. However, the lessee was
not able to return the machine because A’s
truck had a mechanical problem. On MArch 16
which was still in the lessee A was destroyed in
a fire that started in a neighboring house, which
apparently is a fortuitous event. Can the lessee
be held liable for the lost of the machine?
A cannot be held liable because even if there was a
demand made and the loss happened after the
demand was made, the lessee was not yet in delay
because at the time of the demand, the obligation
was not yet due. This is because February was
only 28 days. From February 15 to March 15, that
was only 28 days. The delivery must be made only
after a month, and a month under the law is 30
days. Then B should have made the demand only
on March 17, because 1985 is not a leap year. If a
leap year, of course March 16 should be the
demand date, because if a leap year a month is 29
days.
If a party to an obligation was not able to
comply or it was not completely fulfilled or
irregularly complied, does it mean that he will
be liable for damages?
Not necessarily. There are excuses to non
performance, incomplete performance or irregular
performance. E.g. Fault of the creditor or fortuitous
event.
Note: Not every time that there was a fortuitous
event or force majeure can be an excused to non
performance. Under Art. 1174 a party thereto can
be held liable even if there was a fortuitous event if
there was an express stipulation, if the law so
provides, or because the nature of the obligation
requires the assumption of risk.
....by stipulation
Art. 1174. Except in cases expressly specified by the law,
or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
which could not be foreseen, or which, though foreseen,
were inevitable. (1105a)
.....law so provides
If the debtor promises to deliver the same thing to
two persons who do not have the same interest,
thereafter the thing was lost due to a fortuitous
event, he will still be responsible for the loss of the
thing.
Note however, there should be no concurring
negligence on the part of the person invoking the
defense “that liability attaches even if non
compliance was due to a fortuitous event if the law
so provides”.
Art. 1165. When what is to be delivered is a determinate
thing, the creditor, in addition to the right granted him by
Article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Art. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned.
NPC vs. CA
NAPOCOR was liable because it released the water
when the dam was full. It should have released the water
when the dam was not yet full so that the pressure would
that be not much as would result to so much damage.
Hence, to invoke fortuitous event which transpired in the
case due to heavy rainfall, there should be no concurring
negligence on the part of the defendant NAPOCOR.
In another case, in the event that NAPOCOR would
release the water of a dam, in order not to be held liable
a proper notification to the proper authorities is required.
Notice to persons not authorized such as a P01 officer is
not a proper notification which would relieve NAPOCOR
of liability.
Remedies for Breach of Obligations
Note: The first thing to consider in a problem with respect
to the remedies for breach of obligations is the plaintiff,
because if the plaintiff is not the aggrieved party, he will
not have any remedy under the law. Actions by such
persons who is not the aggrieved party will not prosper.
Remedies are available only by the aggrieved parties.
Classification of Remedies:
1. Judicial
28
2. Extra-judicial
3. Remedies provided by law
4. Remedies which a party can invoke when there are no
other available remedies (subsidiary remedy)
An action for rescission was filed, the defense raised
was the action had already prescribed because the
action had already prescribed 1 year from the date of
the contract, was this a valid defense?
It depends on the nature of the action. This is
because there are 2 kinds of rescission. The
rescission under Art. 1191 and Art. 1380 and 1381
under rescissible contracts.
Rescission under Art. 1191 should have been
called resolution. This is not the right rescission,
because rescission in the proper sense is under
rescissible contracts. Thus if this action for
rescission was filed under Art. 1380 and 1381 the
defense may have been correct because it should
have been filed within 4 years from the date of the
contract. The defense should have been correct,
however, the rescission was filed because of
breach of the contract, and if there is breach or
failure to comply, the action would fall under Art.
1191.
Of course under Art. 1191, it is not any kind of
breach that may be the subject of rescission but
substantial breach or fundamental breach. Slight
breach or casual breach cannot be the basis of an
action for rescission under Art. 1191.
Furthermore, under Art. 1191 it is a substantial
remedy. Whereas in Art. 1381, it is merely a
subsidiary remedy which means that it may be
invoked when the adverse party had no other legal
remedy. Hence, Art. 1381 is merely a last resort.
Under Art. 1381, is there a need for a breach for
rescission to be invoked?
No. The reason why rescission is a remedy under
Art. 1381 is because of omission or economic
prejudice (UFC vs. CA). Therefore, under Art. 1381
the action of rescission may prosper even if there is
no breach in the obligation because of omission or
economic prejudice for example the act was in
fraud of creditors.
Universal Food Corp. vs. CA
In this case, one of the defenses raised was that
Magdalo Francisco has not exhausted his available
remedies, therefore the action should be
dismissed. Is this a valid defense?
In the concurring opinion of JBL Reyes in this case
provided in substance that this defense of non
exhaustion is a result of the confusion to rescission
under Art. 1191 and Art. 1381. That defense can
validly be invoked only if the action for rescission is
based on Art. 1381. But if the action was based on
Art. 1191, that is not a valid defense because under
this provision, the remedy is a principal remedy. A
party is not required to exhaust his other remedy
before he can invoke rescission under Art. 1191.
Another issue raised or defense raised was that
Magdalo Franciso has not complied with his
obligation in the contract, therefore he should have
no right to rescind. For rescission to be a remedy,
or any remedy to be invoked, the party claiming the
remedy must himself have complied with his
obligation. Otherwise, he could not claim to be the
aggrieved party. How could he be the injured party
if he did not comply with his obligation. Since both
have not complied, both are already in delay, and
therefore, no one would be in delay, and rescission
and cancellation would not be a valid defense or
remedy.
Therefore, the Supreme Court has to determine
whether or not Magdalo Francisco has already
complied with his obligation. In this case, Magdalo
Francisco had the obligation to deliver the formula
in the Catsup to UFC. However, MF claimed that
his obligation to deliver is only to allow UFC the use
of the formula and not of ownership. In order for MF
to retain control over the formula he is both the
chemist and at the same time he was the only one
inside the laboratory for the purpose of making the
catsup. This was the core issue on whether or not
MF had the obligation to deliver or transfer
ownership over the formula. Upon closer scrutiny of
the deed of assignment it was provided that “MF
was supposed to transfer all his rights” but the SC
ruled that what is transferred is only the use of the
catsup, hence there was no obligation to deliver
ownership. However, my professor is of the view
that considering the words used in the deed, is that
MF is supposed to transfer all his rights, therefore it
includes transfer of ownership. What could be a
better right than the right to ownership. Then it
should be ruled that MF has the obligation to
transfer ownership.
However, aside from that issue, the Supreme Court
is impeccable on the issue that when MF has no
obligation to transfer ownership, the non delivery of
the formula to UFC does not make MF not being
able to comply with his obligation, in fact he has no
obligation to deliver ownership. Hence, he is able to
comply with what is incumbent upon him which is to
29
allow UFC to use the formula. In this case, he may
rightfully rescind the contract as he is not in delay,
and it is only UFC is in delay.
In the case of (Zhong ) rescission was
invoked here because the buyer of molasses
failed to pay the price agreed upon. However
the buyer offered to pay the seller 20 days
thereafter. However, the seller did not accept
the payment and told the buyer that the
contract had already been rescinded. Was the
rescission valid?
No. Under the circumstances the delay of 30 days
was not a fundamental breach or a substantial
breach and therefore cannot be the basis of an
action for rescission.
However, it must be noted that depending on the
circumstances, 20 days may already be considered
a substantial breach if the goods is a perishable
goods. And as decided in one case, the delivery of
padlocks to the COMELEC to be used in the
election, but delivered after the election, it is
considered a substantial breach.
xx
2 remedies under Art. 1191:
Under Art. 1191 it provides for two remedies,
namely: 1) rescission and 2)fulfillment.
Rescission
Rescission here is a principal remedy and is
expressly granted by law. In the case of UP vs. de
Los Angeles, this remedy can be invoked extra-
judicially.
In judicial rescission, when the party invokes the
same, and it has been the subject of appeal to the
Supreme Court 3 years after, the effect of
rescission is reckoned from the time of invocation
of the rescission and not on a later date.
In what instance where judicial rescission is
required?
It is required when a person invoking rescission
wanted the defendant to do something, or to
compel him to do something. This is so because a
person cannot take the law into his own hands.
If however, the person invoking rescission in order
for him to grant the contract to another person, then
extrajudicial rescission would suffice.
Is rescission available in unilateral obligations?
No, it is only available in reciprocal obligations. In
Rescission the party invoking the same is for the
purpose of making the person not to comply with
his own obligation. It is not available to another
party who refuses to comply with his obligation.
The effect of rescission therefore is for the person
who invokes the same not to comply with his own
obligation.
Fulfillment or Specific Performance
The issue here is that if the aggrieved party to a
contract involving reciprocal obligations, for
example has already invoked fulfillment, may
he thereafter be able to rescind the obligation?
Or if a person invokes rescission, can he
thereafter demand fulfillment?
A person invoking fulfillment may later on rescind if
the fulfillment of the obligation has become
impossible. This if expressly granted under the law.
Note however, the impossibility of performance was
to be due to the fault of the debtor. If the
impossibility of performance was due to the fault of
the creditor, of course he will not have the right to
rescind, or if was due to a fortuitous event, then he
would not be an aggrieved party, therefore he
would not have the right to rescind.
In the second scenario where the law was silent as
when an aggrieved party who exercised his right to
rescind, there is no more obligation to be fulfilled
since the effect of rescission is to extinguish the
obligation. Hence, there is nothing more to be
fulfilled. This is the ruling of the Supreme Court in
the case of Magdalena Estate vs. Myrick.
The effect of rescission with respect to reciprocal
obligation is mutual restitution which means that
the relationship will be reverted back to their status
prior to the time where the parties agreed to their
obligations.
May the court after an action for rescission was
filed allow the other party to perform the
obligation?
Yes. The court may grant the debtor to perform his
obligation. This is known as the judicial period.
xx
A obliged himself to deliver to B a refrigerator
with motor number wxy123, and a brand new
sony bravia 40” LCD TV. A obliged himself to
repair the piano of B. None of these were
performed by A. Can the court compel A to
30
perform these obligations? If not, what are the
remedies of B?
The remedies here would depend on the nature of
the obligation. The first two are obligations to give,
the first is a determinate thing, while the other is an
indeterminate or generic thing. The last one is an
obligation to do.
With respect to the refrigerator, a determinate thing
which is particularly designated from all other of its
kind, the creditor can compel him through an action
for specific performance. However, this action is no
longer available when the very object is already
owned by another person who bought it in good
faith and for value, or when the object was already
destroyed.
With respect to the LCD TV the creditor may
compel the debtor to deliver the TV even if lost or
destroyed or such object has been owned by
another person because it is a generic thing. The
debtor may be compelled to deliver a 40” LCD TV
of the same kind and quality, at the expense of the
debtor.
With respect to the repair of the piano, the court
cannot compel A to perform the obligation because
it would violate his right against involuntary
servitude. The remedy of B therefore, under the law
with respect to obligations to do is that the creditor
may have that task performed by another person at
the expense of the debtor. This is called an action
for substitute performance. But note that not all
obligations to do, substitute performance is
available, because there are obligations to do that
only the debtor can perform, because of the
personal qualifications of the debtor has been
considered, and will only entitle the creditor for
damages.
In all these remedies, damages can be claimed.
Under Art. 1177 there are two remedies which
are both subsidiary, what are those?
a. To impugn the acts which the debtor would have
done to defraud them is actually rescission under
Art. 1381. These are contracts in fraud of
creditors.
b. Accion Subrogatoria which is to exercise all the
rights and bring all the actions of the debtor as
against third persons. Therefore the persons
involved here are the debtors who would be
subrogated in the rights of the creditor as against
third person. The third person is the debtor of the
debtor.
However, not all the rights of a debtor as against
third person shall be the subject of subrogatory
action Because there are other rights which are
purely personal in nature.
Generally, property rights may be the subject of
subrogation, except government pensions because
it goes into the existence of a person, hence cannot
be a subrogatory action.
Can the creditors have all the properties of the
debtor levied upon and sold in an execution
sale?
Not all the present properties may be levied upon.
Because there are certain properties are
considered by law and the rules of court to be
exempt from execution.
May future properties of the debtor be levied
upon by the creditor in an execution sale?
As a rule, yes. Insolvency of a debtor as a fact
does not extinguish a debtors obligation. However,
if there is a judicial declaration of such insolvency
and the court absolved him from this obligation
then his obligations are extinguished. Under the
latter scenario, the creditors can no longer reach
the debtors future properties.
Thus, the enumeration provided in Art. 1231 is not
exclusive, because a judicial declaration of
insolvency and the court absolved the debtor of his
obligation, the obligation is also extinguished.
Aside from those mentioned in Art. 1231, which
provides for 10 modes of extinguishment of
obligation, judicial declaration which are not among
those mentioned may also be a mode of
extinguishing the obligation, the arrival of a
resolutory period, and mutuum dicencio or mutual
desistance.
Art. 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the
right granted him by Article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Art. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
31
accessories, even though they may not have been
mentioned. (1097a)
Art. 1167. If a person obliged to do something fails to do
it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore,
it may be decreed that what has been poorly done be
undone. (1098)
Art. 1168. When the obligation consists in not doing, and
the obligor does what has been forbidden him, it shall
also be undone at his expense. (1099a)
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages. (1101)
Art. 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn
the acts which the debtor may have done to defraud
them. (1111)
Art. 1178. Subject to the laws, all rights acquired in virtue
of an obligation are transmissible, if there has been no
stipulation to the contrary. (1112)
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
(1124)
Art. 1192. In case both parties have committed a breach
of the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract,
the same shall be deemed extinguished, and each shall
bear his own damages. (n)
Art. 2236. The debtor is liable with all his property,
present and future, for the fulfillment of his obligations,
subject to the exemptions provided by law. (1911a)
Art. 302. Neither the right to receive legal support nor any
money or property obtained as such support or any
pension or gratuity from the government is subject to
attachment or execution. (n)
Art. 1708. The laborer's wages shall not be subject to
execution or attachment, except for debts incurred for
food, shelter, clothing and medical attendance.
Art. 153 (FC). The family home is deemed constituted on
a house and lot from the time it is occupied as a family
residence. From the time of its constitution and so long
as any of its beneficiaries actually resides therein, the
family home continues to be such and is exempt from
execution, forced sale or attachment except as
hereinafter provided and to the extent of the value
allowed by law. (223a)
Art. 155 (FC). The family home shall be exempt from
execution, forced sale or attachment except:
(1) For nonpayment of taxes;(2) For debts incurred prior
to the constitution of the family home;
(3) For debts secured by mortgages on the premises
before or after such constitution; and
(4) For debts due to laborers, mechanics, architects,
builders, materialmen and others who have
rendered service or furnished material for the
construction of the building. (243a)
Rule 39 Sec 13, Civil Procedure - Property exempt from
execution.
Except as otherwise expressly provided by law, the
following property, and no other, shall be exempt from
execution:
(a) The judgment obligor's family home as provided by
law, or the homestead in which he resides, and land
necessarily used in connection therewith;
(b) Ordinary tools and implements personally used by
him in his trade, employment, or livelihood;
(c) Three horses, or three cows, or three carabaos, or
other beasts of burden such as the judgment obligor
may select necessarily used by him in his ordinary
occupation;
(d) His necessary clothing and articles for ordinary
personal use, excluding jewelry;
(e) Household furniture and utensils necessary for
housekeeping, and used for that purpose by the
judgment obligor and his family, such as the judgment
obligor may select, of a value not exceeding one
hundred thousand pesos;
(f) Provisions for individual or family use sufficient for four
months;
(g) The professional libraries and equipment of judges,
lawyers, physicians, pharmacists, dentists, engineers,
surveyors, clergymen, teachers, and ot her
professionals, not exceeding three hundred thousand
pesos in value;
(h) One fishing boat and accessories not exceeding the
total value of one hundred thousand pesos owned by
32
 a fisherman and by the lawful use of which he earns
his livelihood;
(i) So much of the salaries, wages, or earnings of the
judgment obligor of his personal services within the
four months preceding the levy as are necessary for
the support of his family;
(j) Lettered gravestones;
(k) Monies benefits, privileges, or annuities accruing or in
any manner growing out of any life insurance;
(l) The right to receive legal support, or money or
property obtained as such support, or any pension or
gratuity from the Government;
(m) Properties specially exempt by law.
But no article or species of property mentioned in his
section shall be exempt from execution issued upon a
judgment recovered for its price or upon a judgment of
foreclosure of a mortgage thereon.
Modes of Extinguishment of Obligations
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor
and debtor;
(5) By compensation;
(6) By novation.
Aside from those mentioned in Art. 1031, death of
one of the party may also extinguished an
obligation as viewed by some authors. But
Professor Tolentino is of the view that obligation is
not extinguished by the death of one of the parties.
But CU believed that the statement of Prof.
Tolentino apply only to contracts, because as an
example for obligations arising from law, it is the
law which would determine if the death of one of
the parties will extinguish the obligation.
As to contracts, as a rule death of a party does not
extinguish the obligation arising from contracts
because under Art. 1311 obligations arising from
contracts, rights and obligation are transmissible to
the heirs or to the estate, and therefore they are not
extinguished.
On the other hand, it was said that renunciation by
a creditor is a mode of extinguishment. This is
considered as other causes. If it is considered as
other causes it is implied that it is not covered by
those mention in Art. 1231. The civil code honors
renunciation as a gratuitous or an onerous act. If
renunciation is a gratuitous act, clearly it would fall
under condonation. If renunciation is for a
consideration, then this would rightfully fall under
novation. By then, he would waive his right, but he
will be demanding for another for the performance
of another obligation. Hence, there is novation
when there is a change in the object of the
obligation. Hence from the foregoing, this would not
be considered a separate and distinct mode.
One other which is allegedly may be considered to
be a mode of extinguishment of obligation would be
compromise. This would appear to be another
mode of extinguishment separate and distinct than
that mentioned in Art. 1031. It is another mode of
extinguishment because the effect of a compromise
agreement. Ordinarily it would only decrease the
liability of the debtor. As in the case of Ronquillo vs.
CA, the liability was decreased from 170 to 110.
Thus, a compromise agreement is only a partial
extinguishment. Is this not a separate and distinct
mode? No because it would fall under condonation
or remission. However, can there be a compromise
where the object of the obligation can be changed?
Yes, such as when the obligation to deliver a horse
was changed to a laptop. Would it be considered a
separate and distinct obligation other than those
mentioned? No, because it would fall under
novation.
May the unilateral act of one of the parties
extinguish the obligation?
Yes it may, however in contracts, as a rule it
cannot. The unilateral act of one of the parties will
not extinguish the obligation arising from contracts,
because it would violate the fundamental principle
in contracts known as the mutuality of contracts,
except on those contracts which are based on trust
and confidence such as when the law grant a party
to a contract the right to terminate the obligation
arising therefrom. For example, a contract of
agency. Under the law the principal can terminate
the authority of the agent and thus extinguish the
contract, and thereby the obligations arising from it
by revocation which is the act of the principal. And
the agent may also terminate the obligation by
withdrawal.
Is a happening of a fortuitous event a mode of
extinguishment?
No. The Supreme Court has consistently ruled that
a happening of a fortuitous event is not a mode of
extinguishment. Rather it is the effect of the
happening of the fortuitous event which is the
impossibility of performance, if it would have such
effect, or the loss of the thing due which is a mode
of extinguishment.
Likewise, if there is an obligation to deliver a
generic thing or pay a sum of money, the same
would not likewise extinguish the obligation even if
33
the thing is lost because the genus does not perish.
This is of course as a rule.
If there is an obligation to deliver a determinate
t h i n g wo u l d no t n e c e s s a ri l y r e s ul t to t h e
extinguishment of the obligation if the same is lost
through a fortuitous event. If the fortuitous event
does not affect the thing which is to be delivered.
However if the fortuitous even caused the
impossibility of the performance, then it will
extinguished the obligation. It is the impossibility of
performance which is the mode of extinguishment
and not the fortuitous event. This impossibility of
performance is considered by Prof. Tolentino as
nullity of contracts. But CU is of the view that it
cannot be considered as a mode of extinguishment
because when a contract is null and void there is
nothing to extinguish.
If there is a change in civil status there may be an
obligation which may be extinguished which is the
obligation to give support. If the marriage is
declared null and void or if there is legal separation,
a spouse may no longer have the obligation to give
support. Note however, the court may order the
guilty spouse to continue with the support.
Payment or Performance
Payment is synonymous to performance that even
an obligation to do may be extinguished by
payment. Although there is a view that when the
code was being drafted payment is only limited only
to monetary obligations but those who advocated
t h i s vi e w d i d n o t su c c e e d . T h i s mo d e o f
extinguishing an obligation is applicable to any kind
of obligation, even obligations not to do, as long he
is not doing what he is supposed to do he is
actually fulfilling his obligation. Payment does not
necessarily pertain to a monetary obligation.
To determine whether an obligation is extinguished
by payment, or to determine whether payment is a
valid payment or not, it would be good to classify
the rules of payment into 4,
1. There are rules which pertain to the person who
pays.
2. There are rules which pertain to the person to
whom payment is made.
3. There are rules which pertain to the prestation to
be performed, or to the thing to be delivered.
4. There are rules which pertain to the date, time,
place and manner of payment.
All these rules will have to be complied in order that
payment may extinguish the obligation.
To the person who pays need not be the debtor,
such as third party payment. Also the person to
whom the payment is made need not be the
creditor. He is called the payee.
As to the person who pays, the requirements of the
law to extinguish the obligation
Payment by a minor may extinguish the obligation
especially in obligation arising from quasi delict.
However payment by a minor may likewise not
extinguish the obligation because there are
payments which may only be made by the person
who has the capacity to alienate his properties.
Payment may be made by the minors guardian, or
if there is none to court may appoint a guardian ad
litem.
If the minor wanted to pay or extinguish his
obligation, who may question his capacity to make
payment? The other creditors.
Secondly, a person who who pays must also have
the free disposal of his property. Hence, a person
suffering from civil interdiction cannot validly fulfill
or pay his debts because he has no free disposal of
his property.
If A is indebted to B and X offered to pay B. May
this extinguish the obligation?
The obligation may be extinguished if B accepts.
Though he may not be compelled, he may want to
accept. A creditor as a rule may not accept
performance from a third person, except:
a. by stipulation
b. if the third person has an interest in the
fulfillment of the obligation.
Why can’t a creditor be compelled to accept
payment or performance?
In an obligation to do, a creditor may not want to
accept performance from a person with whom the
creditor does not want to make the performance,
probably by taking into consideration the personal
circumstances of the debtor.
In an obligations to give, the creditor may not
likewise be compelled to accept payment from a
person other than the original debtor, probably
because the money coming from another person
may probably come from drugs or the money is
counterfeit.
Who are these persons who have an interest in
the fulfillment of the obligation other than the
debtor?
34

Persons with Interest in the payment are those who
are subsidiarily liable like, guarantors, mortgagors,
or pledgors. They have an interest because if the
obligaiton is not complied their property may be
lost.
If there are 5 debtors in an obligation to pay
100,000 can any one of the debtors compel
acceptance from the creditors the payment of
the entire of the obligation?
There should be no debate in solidary obligations
because in a solidary obligations, any one of the
debtors can be compelled to perform the fulfillment
of the entire obligation.
As to co-joint debtors can also compel the creditor
to accept payment of the entire obligation, if the co-
joint debtors has an interest in the fulfillment of the
obligation. Even he cannot be compelled to pay the
entire, he has an interest in the performance of the
obligation.
What if a person who has no interest in the
fulfillment of the obligation, yet he paid the
creditor voluntarily the payment of the entire
obligation, can the creditor be compelled to
accept payment of the entire obligation? Can
the person who paid, validly d emand
reimbursement from one of the principal
debtors? Third if the one who paid cannot
validly make the demand from the debtors, can
X go after the guarantors?
The creditor cannot be compelled because the one
paying does not have an interest, but he may
accept. Assuming he accepts, the one who paid
claims reimbursement the following observations
are seen:
As to the demand for reimbursement, the answer
would depend on whether the payment was made
with or without the knowledge or against the
will(therefore without consent) of the principal
debtors, then in such instance when there is no
knowledge, the one who paid may or may not
validly demand reimbursement. If there is
knowledge or consent, the person who paid may
validly demand without issue. With respect with the
instance where there is no knowledge, under the
law, the one who paid may only demand
reimbursement from one of the principal debtors
only to the extent that he may be benefited. Here,
one of the principal debtor may have previously
paid a part of the debt, hence to be asked for
reimbursement of the amount paid by such third
person may work to the prejudice of one of the
principal debtors demanded of reimbursement, as
he can only reimburse the amount from which he
was benefited.
X demanded for reimbursement under the same
scenario (has no interest), and he cannot
demand reimbursement, may X foreclose the
mortgage?
No. When X paid the creditor, the obligation is
extinguished. It does not matter whether the debtor
consented payment or not. The fact that the
creditor accepted payment, the obligation is
extinguished. If the obligation is extinguished,
which is the principal contract, and the mortgage
was only an accessory contract, therefore the
mortgage follows the principal, therefore the
mortgage may likewise be extinguished. It is also
argued that X cannot foreclose the mortgage
because X is not a party to the mortgage. The
parties to the mortgage is the mortgagor and the
creditor. It was constituted to secure the debtor’s
obligation and not X’s obligation. (WRONG)
Assuming that this payment was with the consent
of the debtor, and X cannot claim reimbursement
from the former. X can foreclose the mortgage even
when the obligation was already extinguished. This
is because in this payment with the creditor, X will
be subrogated to the rights of the principal debtor.
Even when this obligation was extinguished which
apparently result with the extinguishment of the
mortgage, that will not prejudice X right to go over
the principal debtors or guarantors under the
principle of subrogation.
However, when this payment is without the
knowledge of the debtor or against the will, there
will be no right of subrogation, hence he cannot go
to the mortgagors and guarantors.
If X and B (creditor) entered into an agreement
without the knowledge of A (principal debtor)
that if X pays B as to his obligation, X will be
subrogated in the rights of B. X paid B. Can X
now foreclose the mortgage if A fails to
reimburse?
No X cannot foreclose the mortgage even when
there is an agreement. Although the answered
would be yes as implied by the provision. The
provision says that if payment was without the
knowledge or against the will of the debtor,l X
cannot compel B for him to be reimbursed, but they
can come to an agreement. But such is not the
intention of the law. The intention of the law is that
when there is no knowledge or it is against the will,
X cannot be subrogated. Such is for the protection
of the debtor.
35
If X paid B, without the intention of being
reimbursed by A, after two weeks he demanded
what he paid to B claiming that A did not give
consent to this payment. Since it is a form of an
indirect donation, A did not give consent, which
is a requirement in donations where the donee
must accept. Here, there is no acceptance,
hence the payment is void. Is the contention
correct?
No. Even if the payment was without the
knowledge of A and did not intend to be
reimbursed, as far as the creditor is concerned, he
would no have the right to reclaim what was paid.
To whom payment should be made in order for
the obligation is to be extinguished?
Payment should me made to:
a. To the person in whose favor the obligation is
constituted.
Note: The person in whose favor the obligation is
constituted need not necessarily be the person
who entered into a contract, it may be another
person.
For example if A and B entered into a contract
and A paid B, does it necessarily extinguished
the obligation? No. Maybe it is not B who is the
person in whose favor the obligation is
constituted.
b. Succesors in interests, or assigns.
c. To the person who has the authority to receive
payment.
Note: To the person who has the authority from
the creditor to receive payment is not accurate
because a person may have the authority to
receive payment when the same is authorized or
granted by law (sheriff, guardian, liquidators,
receivers, conservators, etc. ).
When the debtor paid the sheriff, does it
e x t i n g u i s h t h e o b l i g a t i o n w h e n t h e s h e r i ff
pocketed the money? Yes. because he has the
authority of the law to receive payment.
If payment was made to a person who is not one
of those persons mentioned in Art. 1240, what
will be the effect of such payment? It will not
extinguish the obligation. As a rule, payment to a
wrong party is not a proper payment and
therefore does not extinguish an obligation.
Art. 1240. Payment shall be made to the person
in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it. (1162a).
What is the remedy of a person to whom he
wrongfully paid? To recover from the person
with whom he pays under solution indebiti
because that person will not have the right to
demand for payment. By way of exception,
payment to a wrong party may also extinguish
the obligation, when: When the payment
redounded to the benefit of the creditor, but only
up to the extent that the creditor was benefited.
Payment to the child of the creditor, would that
extinguish the obligation? As a rule no, because
the child is not the creditor. It is a payment to a
wrong party. Who will have the burden in proving
that the payment redounded to the benefit of the
creditor? Obviously, the payer or debtor will have
this burden. As an exception where the payer or
debtor would not have the burden of proving that
the payment redounded to the benefit of the
creditor when: 1. When there is ratification of the
creditor, as such it is deemed redounded to the
creditors benefit. Why would he ratify if it did not
redound to his benefit; 2. through the acts of the
creditor, the debtor was lead to believe that the
person or payee has authority to receive payment,
this is under the principle of the estoppel; 3. when
the payee acquired the rights of the creditor after
the payment. Note: The payee should acquire the
right of the creditor after the payment and not
before the payment, this is because when the
payee acquired the rights of the creditor before the
payment, this would not be a payment to a wrong
party, as this would be a payment to a successor in
interest or an assignee, and such would be a valid
payment.
A executed a promissory note and delivered the
same to B the creditor. But few weeks
thereafter, the promissory note was already in
the possession of C. In the hands of C the
promissory note matured and C demanded
payment from A. A paid C. Would payment to C
by A extinguished the obligation to B?
Yes.
Not just because C was in possession of the
promissory note does not make him a proper party
to receive payment. There are two requirements
which are required in order for it to be considered
a valid payment: 1. This person (C) must be in
possession of the credit. Note that possession of a
promissory note does not necessarily mean that he
was in possession of the credit. The latter is merely
an evidence of credit. To be in possession of a
credit is that such person must appear to have
possession of the credit. For example, the
promissory note provides that “payment to Jose
Reyes” It could not be considered as a person
36
appearing to have possession of the credit, the
same not being a negotiable instrument. It would
be different if the promissory note is a negotiable
and a bearer promissory note and in possession of
C. Therefore under this circumstance it can be
inferred that C negotatiated the note by mere
delivery. He therefore is in possession of the credit.
But note that payment to him does not necessarily
extinguish the obligation because the other
requirement is, 2: payment must be in good faith.
meaning that when A paid C he must have no
knowledge of the defect of title C.
These two requirement must concur in order that
the payment to a wrong party to extinguish the
obligation of A to B.
Since under the foregoing circumstance, the
obligation of A is extinguished, B therefore has the
remedy against C.
A is the debtor of B, thereafter B assigned his
credit to C. It was after the assignment that A
paid B. That is a payment to a wrong party
because C is not supposed to be the new
creditor through assignment. May the payment
of A to B, extinguish his obligation to C?
Yes, when A paid B without knowledge of the
assignment.
May a creditor be compelled to partial
performance?
As a rule, no, unless there is a stipulation to the
contrary or if the obligation is partly liquidated or
partly unliquidated to the extent of the portion which
is liquidated, the creditor may compel the debtor to
perform, likewise the debtor may compel the
creditor to accept.
If the obligation is to deliver a determinate
thing, the creditor may not be compelled to
accept the delivery of another thing even if
such other thing is more valuable than the thing
supposed to be delivered.
In Art. 1234 what is the effect of substantial
performance?
Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee. (n)
The premise of substantial performance is that the
creditor accepted. Whether or not he can be
compelled to accept does not matter, what matters
is he accepted the partial performance.
For example when the debtor is indebted to a sum
of money payable in 10 years in monthly
installments. When the debtor has already paid for
8 years, the creditor can no longer rescind the
contract because there is payment which is
considered partial performance.
If there is substantial performance in relation to Art.
1181 there is no more substantial breach.
What would constitute substantial
performance?
8 out of 10 installments is substantial performance.
95 installments out of 120 is also substantial
performance.
6 5 % o f the obli g a tio n i s n o t su b sta n ti al
performance.
74% is not a substantial performance.
What are the rights of the parties when there is
an obligation to pay or deliver 100 sacks of rice.
85 sacks has been delivered, the other 15 can
no longer be delivered despite good faith. How
much can the seller recover from the buyer?
Under the law the seller may recover only the value
of the 85 sacks less damage that may be suffered
by the creditor. The buyer not having been able to
receive 100 sacks of rice, he may have suffered
because if the 100 sacks of rice has been all
delivered, he may have sold it for a higher prize.
This is called unrealized profit where the the value
of the 85 sacks of rice shall be lessened because
of the unrealized profits which the buyer may have
received were it not for the incomplete delivery
When there is an irregular or incomplete
fulfillment, there is an instance under the law
that the obligation is fully complied with.
However the following requisites must be
complied with, namely:
1. There must be acceptance by the creditor
2. The acceptance must be with full knowledge of
the incompleteness or irregularity.
3. He must not have made an objection.
Art. 1235. When the obligee accepts the performance,
knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is
deemed fully complied with.
In the case of Azcona vs. Amandre where the
Supreme Court ruled that the payment
extinguished the obligation where the actual
37
amount due was 7,200 but only paid 7,000 when
the seller issued a receipt 7000 as per contract, it is
as if there was faithful compliance.
In monetary obligations, can there be a valid
obligation in money which is not in Philippine
currency?
Yes. with or without RA 529, as amended it will be a
valid obligation.
REPUBLIC ACT NO. 8183
. What are those which are considered legal
. tenders?
AN ACT REPEALING REPUBLIC ACT NUMBERED
FIVE HUNDRED TWENTY-NINE AS AMENDED,
ENTITLED "AN ACT TO ASSURE THE UNIFORM
VALUE OF PHILIPPINE COIN AND CURRENCY."
Section 1. All monetary obligations shall be settled in the
Philippine currency which is legal tender in the
Philippines. However, the parties may agree that the
obligation or transaction shall be settled in any other
currency at the time of payment.
Sec. 2. Republic Act Numbered Five Hundred Twenty-
Nine (R.A. No. 529), as amended entitled "An Act to
Assume the Uniform Value of Philippine Coin and
Currency," is hereby repealed.
Sec. 3. This Act shall take effect fifteen (15) days after
its publication in the Official Gazette or in two (2) national
newspapers of general circulation. The Bangko Sentral
ng Pilipinas and the Department of Finance shall conduct
an intensive information campaign on the effect of this
Act.
If the currency agreed upon is not in Philippine
pesos, can the creditor demand fulfillment in the
currency agreed upon and not in Philippine
currency?
Under R.A. 529 it is not allowed. Even if the parties agree
to a currency expressly stipulated, under RA 529, such is
a void stipulation.
The obligation is not void, it is the stipulation of payment
in the currency offered which is void.
However in RA 8183 amending RA 529 a creditor can
demand fulfillment other than Philippine currency if such
was the stipulation is valid.
Can the creditor be compelled to accept
payment by checks?
No. whatever kind of check is not allowed, they are
not legal tenders.
When creditor accepted the check and the
same became stale, is the obligation
extinguished?
No. It is only that it cannot be be encashed.
When creditor accepted the check and the
same became stale, can the creditor demand
for the issuance of another check?
No.
When the creditor was in possession of a check,
there is a disputable presumption that the debt has
not yet been paid. It may be rebutted when the
debtor had already paid, and the creditor was still in
possession of the check.
a. notes (cash)
b. coins
Note: Even when the money is considered legal
tenders the same has been withdrawn from
circulation or has been demonitized.
An action was filed under quasi delict and
thereafter a judgment was rendered in favor of
the plaintiff on a contract entered into 10 years
ago, today A filed a motion to have his
judgment adjusted claiming that there is an
extraordinary inflation. May the judge award A’s
motion?
Under Art. 1250 In case an extraordinary inflation
or deflation of the currency stipulated should
supervene, the value of the currency at the time of
the establishment of the obligation shall be the
basis of payment, unless there is an agreement to
the contrary.
Under the facts, for Art 1250 to apply, the same
must be based on a contract and not quasi delict
because the law as worded “currency stipulated”.
Hence, Art 1250 will not apply and therefore
adjustment cannot be allowed.
If the action was filed based on contract, the judge
should not grant the motion for adjustment if the
same is not an extraordinary inflation. Because the
adjustment should be granted if there is only an
extraordinary inflation that occur, otherwise not
granted.
Note: Art. 1250 means that there must be an
adjustment at the time of the constitution of the
obligation if there is an extraordinary inflation or
deflation based on a contract.
If the due date for the performance of the
obligation is a sunday and demand was made
on that day however the debtor only performed
it the next day, may he be considered in delay?
38
Yes. Even if sunday or holiday, if the debtor
promised to perform the obligation on such day and
he did not perform, he is considered in delay. As an
exception, even if the date agreed upon is a
sunday the debtor may not be considered in delay
when there is an impossibility of performance of the
obligation, or when the debtor gave the creditor a
check and the check’s due date is a holiday or a
non banking day, in the latter case it is allowed for
as long as it is the next banking day.
In an obligation to give or deliver a determinate
thing and the thing was delivered at the place of
business of the creditor, and the creditor
refused to accept. Is the creditor already in
delay?
Not necessarily, because there may be a stipulation
that delivery be made in another place.
If there is no stipulation as to the place where
the thing is to be delivered, where should such
thing be delivered?
It depends on whether the thing is determinate or
generic.
If it is a determinate thing, then payment shall be
made at the placer wherever the thing might be at
the moment the obligation was constituted.
In any other case (such as when the thing is
indeterminate) then the debtors domicile shall be
the place of payment.
What are the special forms of payment?
1. Dation in payment
2. Application of payment
3. payment by cession or assignment
4. tender of payment and consignation
Is payment by a third party a special form of
payment?
No. It is a payment by a person not a party to a
contract.
In these special forms of payment, do they
require the consent of the parties in order that
the obligation be extinguished?
As to debtors, their consent is required because he
is the one offering to pay.
As to the creditor, as a rule the creditor’s consent is
not required because the debtor under the law has
the right to designate to which the payment is to be
applied.
Is the consent of the creditor required in order
that obligation be extinguished by way of
consignation?
No. Consignation does no require the creditors
consent if the creditor refuses to accept, then the
court shall determine whether the consignation is
valid or not. The creditor cannot do anything if the
consignation is a valid consignation. Hence, the
obligation is to be extinguished. It may either by
acceptance or by declaration of the court.
In these special forms of payment, when the
debtor delivers a thing to the creditor, there is
transfer of ownership?
Not necessarily. In case of cession. This is
because when the thing is delivered to the creditor
in order for him to sell. The creditor does not
acquire ownership because this thing is to be sold
to third persons who will be the one to acquire
ownership.
When can consignation to the court pass
ownership to the creditor?
In case of valid consignation, ownership is
transferred to the creditor at the time of delivery.
In case of invalid consignation, and the creditor did
not accept, ownership is not transferred to the
creditor.
If there is dation in payment, the obligation of
the debtor is totally extinguished?
Not necessarily. This is because when the thing
alienated is less than the value the indebtedness,
the obligation is not extinguished totally. It is merely
a partial performance.
Note: Different view under 1235
In dation in payment if the thing is alienated by
the debtor in satisfaction of his debt and the
value of such thing is less than the
indebtedness, is the obligation extinguished to
the extent of the value unless otherwise
stipulated? Or in dation in payment, it totally
extinguishes the obligation, unless there is a
stipulation to the contrary?
It only extinguishes to the extent of the value of the
thing unless agreed upon by the parties. It is a
proper position because no creditor would accept
less than than what is the value of the thing. This
position would appear to be just.
However, there is a view to the effect that it may
totally extinguish the obligation under 1235, as
when the obligee accepts the performance,
39
knowing its incompleteness or irregularity, and
without expressing any protest or objection, the
obligation is deemed fully complied with.
Dation in payment shall be governed in the law
on sales?
Not necessarily. It will be governed in the law on
sales when property is alienated to the creditor in
satisfaction of a debt in money, otherwise it will be
governed by the law of novation because there is a
change in the object.
Is it correct to say that when a property is
alienated to the creditor in satisfaction of a debt
in money, it can be governed by the law on
novation, since there is a change in the object?
It may be said that since there is a change in the
object, the law on novation is proper. However,
there is a law on the matter which is Art. 1245
which provides that when property is alienated to
the creditor in satisfaction of a debt in money, shall
be governed in the law on sales.
There is wisdom in the latter view (Art. 1245)
because If a person is indebted to another person,
and in this pre-existing debt the debtor paid the
creditor a watch, in a way it will have to be
governed by the law on sales because it may be
said that the debtor paid in cash and the creditor
used this cash to buy the watch of the debtor.
For the rules of application of payment to be
invoked, there should only be one creditor?
Not necessarily. There may be 2 or more creditors
since the law does not specify that the debtor
should only have 1 creditor.
In application of payments therefore, is there a
scenario where there will be total
extinguishment of obligation?
No. For application of payments to be applied, the
debtor paid partially. If the debtor paid in a sum
which is sufficient to cover all the debts, there will
no longer a question to which debt is payment is to
be applied. This happens when the debtor paid less
than the amount of the debt.
A has an obligation of 30,000, 50,000, and
500000 to X. A paid the 30,000 to satisfy the
500,000 debt? Is that allowed? Why would A
apply the payment to the 500,000?
It is allowed to apply the payment to 500,0000. A
would apply the payment to the 500,000 because it
would be more burdensome to the 500,000
because the latter is interest bearing.
To which the debt the payment is to be applied?
It is a debtor as a rule, has the choice to which the
payment is to be applied. Under the above
scenario, if 2 of the debts is not yet due and the
first one is due the debtor may apply the payment
to the first debt if the debtor is the person to whom
the period is fixed, otherwise, even if one is due but
the period was fixed in the creditors favor, then the
debtor may not apply the payment in the first debt.
If all the debts is already due, the debtor cannot
compel the creditor to apply the payment to the first
debt by choice, under the principle that the creditor
cannot be compelled to accept partial performance
or by stipulation of the parties the first debt is the
last to be paid or 2nd.
What are the limitations to the right of the
debtor for which the payment is to be applied?
1. Partial payment
2. due and demandability
3. If there is an agreement that the debtor cannot
make the choice of application without the
consent of the creditor.
4. When the debt produces interests
All the debts are due and demandable, and one
of the debt produces interests, may the debtor
apply the payment to the debt which does not
incur interests?
If one of the demandable debt produces interest,
payment of the principal shall not be deemed to
have been made until the interests have been
covered.
What if the debtor failed to designate to which
the payment is to be applied, to which the
payment is to be applied?
The debt designated by the creditor and such
designation is to be accepted by the debtor.
If the debtor and the creditor failed to designate
to which the payment is to be applied, to which
the payment is to be applied?
It depends if the debts are of the same nature and
burden, payment shall be applied to all of them
proportionately under Art. 1254.
However, if the debts are not of the same nature or
burden, meaning one of them is more onerous,
apply the payment to the most onerous obligation.
If the amount of the debt is bigger does it mean
that it is the most onerous?
40

Not necessarily. The smaller amount may incur
bigger interests. There is no hard and fast rule to
determine which of the debt is more onerous. A 6%
interest in fact may be more onerous than a 12%
interest when the amounts involved are different.
If in one of the debt, A is a principal debtor, and
in another debt, he is merely a guarantor, which
is more onerous?
The more onerous is the debt in which the debtor is
principally bound because the guarantor can
demand from reimbursement from the creditor.
Payment by Cession
If the client is the debtor, and he is willing to
abandon his properties to his creditor, what if
the creditors refused to adhere to this offer,
what advice would you give to your client?
Under Art. 1255. The debtor may cede or assign
his property to his creditors in payment of his debts.
This cession, unless there is stipulation to the
contrary, shall only release the debtor from
responsibility for the net proceeds of the thing
assigned. The agreements which, on the effect of
the cession, are made between the debtor and his
creditors shall be governed by special laws.
(1175a)
So it means that when the value of the thing to be
ceded to the creditor is less than the debt, such will
be a partial payment and shall release the debtor
only to the extent of the net proceeds of the thing
assigned or ceded.
Is insolvency a requirement that the debtor is
insolvent in order for him to assign or cede his
property?
Not payment by cession is by agreement of the
parties and therefore as long as the debtor cedes
and the creditor accepts for the latter to sell,
insolvency is not required.
Tender of payment and consignation
Is tender of payment a mode of
extinguishment?
Tender of payment is not a mode of
extinguishment. No obligation is extinguished by
mere tender of payment.
Tender of payment, as a rule, required in order
to extinguish an obligation by way of
consignation?
As a rule, it is not required that tender of payment
be made to extinguish an obligation by way of
consignation, except when the creditor to whom
tender of payment has been made refuses without
just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thin or
sum due (Art. 1256).
Under the law, tender of payment is not required as
provided by law, which are:
a. When the creditor is absent or unknown, or does
not appear at the place of payment;
b. When he is incapacitated to receive the payment
at the time at the time it is due;
c. When, without just cause, he refuses to give a
receipt;
d. When two or more persons claim the same right
to collect;
e. When the title of the obligation has been lost
(Art. 1256).
Tender of payment may be extrajudicial?
No, it is always extrajudicial and can never be
judicial. It is not required to involve the court to
make a tender of payment. By its nature it is
extrajudicial.
However, in a case where the SC held that tender
of payment may be judicial when the tender of
payment was made during the pendency of the
action. But note by its nature tender of payment is
extrajudicial.
A has a right to redeem within the period within
which A has a right to redeem, he offered the
money to the other party for the redemption of
a property. However, the other party refused to
accept without just cause, after the lapse of the
period to redeem, the redemptioner filed an
action to sell the property and deliver the same
to him. One of the defenses raised by the other
party was the tender was not in good faith
because the redemptioner did not deliver the
money to the court by way of consignation,
when he refused to accept the money? IS it a
valid defense?
In the case of Immaculata vs. Navarro, the defense
is not tenable. It is not required that when the other
party refused to accept by way of consignation, the
redemptioner should deliver the money to the court
by way of consignation before the lapse of the
redemption period. The reason is that consignation
is only required when there is an obligation to be
extinguished. Here there was no obligation to be
extinguished but only a right to be exercised.
41
One of the requisite in order to have a valid
consignation is that there must be a debt which is
due.
If the creditor refuses to issue a receipt, is it a
ground to make a delivery to the court by way
of consignation?
Yes because a receipt is an evidence of payment,
non issuance of a receipt the creditor may again
demand for the payment.
A law which provides that a payment is only
considered as such upon issuance of the
receipt, is it advantageous?
Yes. It is advantageous because it would involve
less litigations, secondly the debtor can compel the
creditor to issue a receipt.
But of course, payment is the one which
extinguishes the obligation and not a receipt.
In an obligation to deliver a horse, 3 persons
are claiming to have a right over this horse,
therefore the creditor has the right to deliver
the horse to the court by way of consignation?
Not necessarily because one person may have a
better right than the others such as when one has a
certificate of title over the horse
Is the two notice requirement under
consignation mandatory? Would these two
notices both come from the creditor?
Yes it is required as held in the case Soco vs.
Militante. In order that consignation may be
effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must
show (1) that there was a debt due; (2) that the
consignation of the obligation had been made
because the creditor to whom tender payment was
made refused to accept it, or because he was
absent or incapacitated, or because several
persons claimed to be entitled to receive the
amount due (Art. 1176, Civil Code); (3) that
previous notice of the consignation had been given
to the person interested in the performance of the
obligation (Art. 1177, Civil Code); (4) that the
amount due was placed at the disposal of the court
(Art. 1178, Civil Code); and (5) that after the
consignation had been made the person interested
was notified thereof (Art. 1178, Civil Code). Failure
in any of these requirements is enough ground to
render a consignation ineffective.
Do these notice both come from the debtor?
No. The first notice (prior consignation) must come
from the debtor but the second one (after
consignation) may come from the creditor.
A sum of money was delivered to the court by
way of consignation, however he was able to
withdraw the sum of money, thereafter he paid
the debt. If the obligation of the debtor is
secured by a mortgage because of failure of the
debtor to pay the debt, may the creditor
foreclose the mortgage even if the debtor
withdraw the payment by way of consignation?
It depends whether the withdrawal was a matter of
right, the creditor may foreclose the mortgage. It
would be a matter of right where the consent of the
creditor is irrelevant when it is done before
acceptance and there or no declaration by the court
that there is a valid consignation (Art 1260).
The authority of the creditor is required when the
withdrawal is a matter of right, since the consent of
the creditor is required, there can no longer be a
foreclosure because the creditor gave his/her
consent and the obligation is already extinguished.
The due date was 1-1-01, tender of payment
was made 1-1-02 and consignation was made
1-1-05, on 1-22-10 the court rendered judgment
in relation to this consignation, would the
debtor be held liable for interest from the tender
of payment on 1-1-01?
If there was demand made, he is liable for interest
because with such he is considered in delay,
without demand no liability to pay interest.
The debtor may be held liable to pay interest
(assuming debtor is in delay) from 1-1-01 to
1-22-01 if the court considered to consignation to
be void.
Assuming the court declared the consignation to be
valid (there is also delay), the interest shall be
counted only upto the time the debtor delivered the
payment in court. But justice and equity serves that
payment of interest should only be counted up to
the time tender of payment is made or the principle
where both the debtor and creditor is in delay, such
when the debtor refuses to accept, as such the
debtor can no longer be held liable for interest.
when property is alienated to the creditor in
satisfaction of a debt in money, it will be governed
on the law on sales pursuant to Art. 1245, unless
there is a stipulation to the contrary, further
Loss of the Thing Due or impossibility of
performance
42
Can loss of the thing be invoked in all kinds of
obligations?
No. because there are obligations to do or not to do
which does not include a thing.In the former cases
it would be proper to call it impossibility of
performance.
In an obligation to deliver a generic thing, is
loss of the thing extinguish an obligation?
Impossibility pertains to physical and legal. A law
which prohibits the performance of an obligation to
give even if it pertains to a generic thing, in which
the law became effective during the pendency of
the obligation, by law it is considered legally
impossible to perform. If prior the
constitution of the obligation it is considered as void
being contrary to law, hence there is nothing to be
extinguished.
Loss of the thing may be extinguished even if the
thing is a generic thing, by mutual agreement of the
parties, it is not because of the loss of thing.
Another scenario is when the generic thing is the
last of its kind, as when it goes out of commerce.
In an obligation to deliver a determinate thing,
when would this obligation be extinguished
under the Code?
If the loss of the thing is due to the fault of the
debtor, it is not extinguished, but if the debtor was
not at fault the obligation is extinguished.
If the obligation was not extinguished and the
thing was lost (a determinate thing), what is the
effect?
The thing itself can no longer be delivered
extinguishes his obligation to deliver the thing, but
would entitle the creditor to damages.
Any person who in the performance of their
obligations are guilty of fraud, negligence or delay
and those who in any manner contravene the tenor
thereof shall be liable for damages (Art 1170).
If there was a lost of the thing due to the fault of
the debtor, which makes him liable, who has the
burden of proving that the loss was due to the
fault of the debtor?
The creditor absolutely has the burden of proving
that it was lost if the same was lost due to the fault
of the debtor.
However, there when the thing lost was in the
possession of the debtor, a presumption will arise
that is was due to his fault, unless there is proof to
the contrary. This presumption take place only
when there is no allegation that the thing was lost
was not due to the fault of the debtor. However, this
presumption will not apply in case of earthquake,
flood, storm, or other natural calamity.
When the lost of the thing was due to a
fortuitous event, may the debtor shall be held
liable due to the loss of the thing?
Not necessarily. He may be liable when he was in
delay. If he was not in delay, he will likewise be
liable if there is a stipulation to the contrary. Aside
from stipulation, if the law so provides.
Note: When the nature of the obligation requires
the assumption of risks as a defense cannot apply
to determinate things.
If the performance of the obligations becomes
so difficult, the obligation is extinguished?
Not necessarily. It may be extinguished when it
became so difficult, so difficult that it is beyond the
contemplation of the parties. The court may release
the debtor partially or wholly from this obligation.
An action was filed for the court to adjust the
agreement of the parties as to their share in the
profits in relation to the sale of a house and lot.
Defendant was the owner of the land and the
plaintiff was the owner of the materials used in
the construction, the proceeds to be divided
between them 60/40. The plaintiff went to court
to adjust the shares due to difficulty of
performance as the prices of the materials
increased. The court did adjust the terms and
conditions of the agreement. A motion to
dismiss was filed on the adjustment. Is the
motion granted? adjustment proper?
The. The court has no power to change the terms
and conditions of the agreement. The only power
given by law to the court is to release the debtor in
whole or in part . Even if the reason for the difficulty
is because of an unforeseen event still the court
has not power to change the terms and conditions
of the contract. The court may however, release the
debtor in whole or in part. That is the only power
granted to the court under this provision provided in
Art. 1267 which provides that when the service has
become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also
be released therefrom, in whole or in part.
A has a cellphone, and it had a casing, and if
someone would forcibly take his cellphone he
would request that the cellphone alone should
be taken. If there is an obligation to deliver a
43
cellphone with its case, and the cellphone was
lost or destroyed due to a fortuitous event, the
obligation therefore is extinguished?
It depends on the intention of the parties as to the
importance of the thing which was lost in relation to
the entire obligation. In other words, when the
creditor would not have entered into the contract
without the other thing which was lost, the
obligation would therefore be extinguished. The
casing would be considered be more important
when the casing was jewel encrusted.
Condonation or Remission of the debt
Condonation is also know as?
Donation of credit or remission of the debt.
Is renunciation also a good name for
condonation?
No because renunciation may not be a gratuitous
act. The civil code would recognize an onerous
renunciation. If the renunciation is a gratuitous act it
will amount to condonation.
Son A is indebted to his father B in the amount
of 500,000. Through a check A paid his father B
300,000. B, his father died. The executor of the
father of the decedent demanded payment from
A 200,000. However the son raised that his
obligation was totally extinguished because as
shown in the annotation at the back of the
check, it provides that “it was in full payment of
the obligation”. Is it condoned?
It will depend on who wrote the annotation. If the
father who made the annotation, it depends on
whether it is express or implied. If the obligation is
express there must be an acceptance by the son
because it is a form of donation, which requires
acceptance. Hence the son is still compelled to
pay.
A borrowed money from B, 100,000. A executed
a promissory note which he delivers to B was
already in the possession of A. Was the
obligation of A was extinguished by
condonation?
Not necessarily. There is a presumption that the
obligation is extinguished when the promissory
note is a private instrument. If the promissory note
is contained in a public instrument the presumption
will not arise.
When the promissory note was a private
instrument and it was already in the possession
of the debtor, does it raise the presumption that
the obligation was extinguished by
condonation?
What the law provides under Art 1272, when the
private document was in the possession of the
debtor, there is a presumption that the creditor
delivered it voluntarily, then it presupposes that
there is payment when there is a receipt (evidence
of payment) given. If there is none, a disputable
presumption is given that there is condonation.
A borrowed 100,000 from B. To secure
fulfillment of his obligation a watch was
delivered to B. Thereafter, the watch was
already in the possession of X. Therefore, the
obligation of A to B was extinguished?
The thing that was delivered to secure was
obviously a form of pledge. When the thing was
found no longer in the possession of the creditor,
pledgee. There is no presumption that the
obligation is extinguished. What is presumed is that
the pledge is extinguished.
Under the facts, there would be a presumption that
the obligation is extinguished if X was the owner. If
X was the pledgor, then there is no presumption
that such will arise.
Confusion or merger of rights
Confusion is also known as?
Merger of rights.
Can there be confusion by operation of law?
Yes. If a person inherits the credit, then there will
be confusion as when the son who has a debt to
his father, the son may inherit from his father the
credit thereby extinguishing the obligation by
merger of rights, assuming he is the only heir.
If it was the debtor child who died in the above
scenario, will there be confusion?
Not necessarily. Ordinarily there will be no
confusion because the father will not accept. For
transmission of successional rights the heir must
accept. If he accepts then there will confusion.
Normally, as to obligations or debts, no one would
accept.
By agreement of the parties the most common
agreement which would result in confusion is
known as?
Merger agreement or contracts.
44
Can there be a partial extinguishment of an
obligation by confusion?
Yes. If there are two debtors.
Can there be partial confusion?
No. There is no partial confusion.
A debt of A to B became due in 1995, a merger
agreement was entered into in 2002, just like
any agreement there can be a rescission, as in
this case were rescission was made in 2008,
today 2010 an action was filed by B against A
on the debt, may the action still prosper?
Observation: In the exam when CU uses the word
STILL prosper, it talks of prescription. When CU
uses May the action prosper, it doesn’t talk about
prescription but on some other grounds.
The action may still prosper. The obligation is
extinguished in 2002 by merger. The merger up to
the time of rescission should not be included in the
computation of the prescriptive period of 10 years.
During the merger period, B cannot sue A, their
personality being one and the same. The effect of
rescission revives the status of the parties prior to
the merger, it is if A again has an obligation to B
again. Therefore from 1995 to 2002 and from 2008
to 2010 the time lapsed is only 9 years, hence well
within the prescriptive period.
Compensation
Art. 1278. Compensation shall take place when two
persons, in their own right, are creditors and
debtors of each other. (1195)
Art. 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention
or controversy, commenced by third persons and
communicated in due time to the debtor. (1196)
Art. 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up
compensation as regards what the creditor may
owe the principal debtor. (1197)
Art. 1281. Compensation may be total or partial.
When the two debts are of the same amount, there
is a total compensation. (n)
Art. 1282. The parties may agree upon the
compensation of debts which are not yet due. (n)
Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the
other, the former may set it off by proving his right
to said damages and the amount thereof. (n)
Art. 1284. When one or both debts are rescissible
or voidable, they may be compensated against
each other before they are judicially rescinded or
avoided. (n)
Art. 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor of
a third person, cannot set up against the assignee
the compensation which would pertain to him
against the assignor, unless the assignor was
notified by the debtor at the time he gave his
consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him but
the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made without the knowledge of
the debtor, he may set up the compensation of all
credits prior to the same and also later ones until
he had knowledge of the assignment. (1198a)
Art. 1286. Compensation takes place by operation
of law, even though the debts may be payable at
different places, but there shall be an indemnity for
expenses of exchange or transportation to the
place of payment. (1199a)
Art. 1287. Compensation shall not be proper when
one of the debts arises from a depositum or from
the obligations of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a
creditor who has a claim for support due by
gratuitous title, without prejudice to the provisions
of paragraph 2 of Article 301. (1200a)
Art. 1288. Neither shall there be compensation if
one of the debts consists in civil liability arising from
a penal offense. (n)
45
Art. 1289. If a person should have against him
several debts wh ich are suscept ib le of
compensation, the rules on the application of
payments shall apply to the order of the
compensation. (1201)
Art. 1290. When all the requisites mentioned in
Article 1279 are present, compensation takes effect
by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors
and debtors are not aware of the compensation.
(1202a)
Art. 1243. Payment made to the creditor by the
debtor after the latter has been judicially ordered to
retain the debt shall not be valid. (1165)
Art. 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the
provisions of Article 1219.
The creditor who may have executed any of these
acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation
corresponding to them. (1143)
What is compensation?
It is a mode of extinguishing to the concurrent
amount, the obligations of those person who in
their own right are reciprocally debtors and
creditors of each other.
What are the kinds of compensation?
1. Facultative - Deposit, Commodatum, Gratuitous
support and civil liability from crime
Requires consent of one of the parties
2. Legal - By operation of law
3. Conventional/Voluntary - by agreement of the
parties.
In compensation is required that the parties
have capacity to receive and capacity to
dispose of their properties?
Not necessary. Compensation operates by
operation of law.
Can there be partial compensation?
Yes. There may be partial extinguishment of an
obligation. As long as the debts of one are not
equal to the debts of the other, the compensation
will only be to the concurrent amount and there will
be no total extinguishment.
When can total extinguishment take place?
When the debts of one are totally equal with the
other.
A owes B 100,000, but B has several debts to A 1k,
2k, 5k and 20k, 80k in total, with compensation, all
the debts will be totally extinguished, because the
extinguishment is for the concurrent amount, but A
will still owe B 20k.
A has an obligation to B, and B has an
obligation to A. A’s obligation is interest
bearing, after compensation can B still collect
interest from A?
It depends on whether the debt of B is larger than
the debt of A. If the debt of B is larger than A, then
A will not be liable for interest as there will be total
extinguishment of the debt of A.
What if the debt of A is secured by a mortgage,
and compensation took place, may B foreclose
the mortgage?
Yes. because there will still be a balance of 50k. A
mortgage is an indivisible contract, until the
obligation is extinguished the mortgage will remain
in force. If A failed to pay the 50k then B can
foreclose on the mortgage.
A opened a savings account with Y Bank in the
amount of 1 M, thereafter A borrowed money
from the same bank 800k, thereafter A wanted
to withdraw the 1M, the bank refused to allow A
to withdraw the 1M as A can only withdraw up
to the extent of 200k and invo king
compensation. Can the bank deposits be a
subject of compensation with the debt?
No. Under Art. 1287 it was provided that there can
be no compensation when one of the debts arises
from a deposit. But a bank deposit is not a contract
of deposit which is prohibited. The opening of a
savings account is a contract of loan. Since both
are simple loan there can be compensation.
What if A delivered a thing to the bank as a
depositary for safekeeping, can this be a
subject of compensation?
46
Yes it can be a subject of compensation, but only
the depositor can invoke compensation.
What is A promised to give B a specific kind of
bike, in the meantime A already had a bike. B
borrowed the bike. Can the borrowed bike be a
subject of compensation?
Yes. But only the bailor A can invoke compensation
and not the bailee B. This is commodatum.
Can support be a subject of compensation?
It depends, if it is legal support it cannot because it
is needed for a person’s survival. It should be
gratuitous support and not contractual support. If
gratuitous compensation can take place.
A is indebted to B 100k, when B tried to collect
the debt from A, A refused to pay, so B stabbed
A and hold B criminally liable. Can there be
compensation?
Yes, but only the aggrieved party A (offended
party)can invoke compensation and not B (convict)
If A and B are indebted to each other and the
debts are not yet due, can compensation take
place?
Yes, by voluntary compensation.
If A is indebted to B of a carabao while B is
indebted to A of a car, can compensation take
place?
Yes, by voluntary compensation.
A owes B a sum of money due in 1992, B owes
A a sum of money due 1999, both debts valued
at 1 million. A filed an action against B and
invoke compensation, A however said that B
cannot invoke compensation because B’s credit
had already prescribed. Is A correct?
No. In 1999 even without the parties knowledge,
when the debts become due and demandable,
compensation took place by operation of law.
What are the requirements of legal
compensation?
1. They must be mutual creditors and debtors
2. Both debts must be in sums of money or if they
pertain to goods, they must be of the same kind
and quality.
3. Both parties must be principally bound.
4. They must be creditors and debtors of each
other in their own right.
Is it correct to say reciprocal creditors?
No, this is because this would pertain to reciprocal
obligations, which would necessarily require that
the same arose from the same transaction.
Therefore in reciprocal obligations, there can no no
legal compensation even if they are said to be
mutual creditors and debtors of each other.
Francia's property was expropriated by the
Republic of the Philippines. Since 1963 up to
1977 inclusive, Francia failed to pay his real
estate taxes. Thus, on December 5, 1977, his
property was sold at public auction by the City
Treasurer of Pasay City pursuant to Section 73
of Presidential Decree No. 464 known as the
Real Property Tax Code in order to satisfy a tax
delinquency of P2,400.00. May compensation
take place?
No. There can be no off-setting of taxes against the
claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax
on the ground that the government owes him an
amount equal to or greater than the tax being
collected. The collection of a tax cannot await the
results of a lawsuit against the government.
A claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the
state or municipality to one who is liable to the state
or municipality for taxes.
Government and taxpayer are not mutually
creditors and debtors of each other under Article
1278 of the Civil Code and a claim for taxes is not
such a debt, demand, contract or judgment as is
allowed to be set-off.
By legal compensation, obligations of persons, who
in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278,
Civil Code). The circumstances of the case do not
satisfy the requirements provided by Article 1279,
to wit: “(1) that each one of the obligors be bound
principally and that he be at the same time a
47
principal creditor of the other; xxx (3) that the two
debts be due.
PNB's main thesis is that when it opened a
savings account for ISABELA on March 9, 1979
in the amount of P 2M, it (PNB) became
indebted to ISABELA in that amount. 11 So that
when ISABELA itself subsequently came to be
indebted to it on account of ISABELA's breach
of the terms of the Credit Agreement of October
13, 1977, and therefore ISABELA and PNB
became at the same time creditors and debtors
of each other, compensation automatically took
place between them, in accordance with Article
1278 of the Civil Code. The amounts due from
each other were, in its view, applied by
operation of law to satisfy and extinguish their
respective credits. More specifically, the P2M
owed by PNB to ISABELA was automatically
applied in payment and extinguishment of
PNB's own credit against ISABELA. This having
taken place, that amount of P2M could no
longer be levied on by any other creditor of
ISABELA, as the ACEROS attempted to do in
the case at bar, in order to satisfy their
judgme nt agai nst ISABEL A. Is t he re
compensation by operation of law between PNB
and ISABELA?
No. The court ruled in PNB vs. Acero, that even
though that PNB was a debtor of ISABELA under
the latter’s savings deposit in the bank, which is
considered a simple loan, there was no proof
shown by PNB in the case that ISABELA was also
indebted to PNB, the only evidence present by
PNB towards this end consists of two (2)
documents marked in its behalf as Exhibits 1 and 2,
But as the IAC has cogently observed, these
documents do not prove any indebtedness of
ISABELA to PNB. All they do prove is that a letter
of credit might have been opened for ISABELA by
PNB, but not that the credit was ever availed of.
May there be obligations both in sums of
money in reciprocal obligations?
It cannot happen. In reciprocal obligation there are
different prestations, one is delivery of a thing and
the other is monetary.
Will there be legal compensation only if the
debt in money arose from contract?
No, there are cases where compensation by
operation of law took place when there was award
of attorney’s fees and the court ruled that legal
compensation may take place.
May all monetary obligation be the subject of
legal compensation?
No. Legal compensation cannot take place in
certain monetary obligations such as taxes,
customs duties, tariff etc.
Where A is indebted to B and this obligation is
secured by a guarantor G, on the other hand B
is also a debtor of G, if G demands payment
from B, can B claim that since G is a guarantor
on A’s debt to be, compensation may take place
on A’s debt and B’s debt to G?
No because the guarantor is not principally bound,
but the moment A defaults and his properties are
already exhausted, the guarantor will not be
p r i ma r i l y l i a b l e t o B , a n d f r o m t h e n o n
compensation may take place.
The owner of a share of stock authorized L to sell
the same, L on the other hand authorized S to sell
it, the latter was able to sell the share of stock,
however, despite demand of A from S to remit the
proceeds of the sale he refused to do so. S was
charged for estafa and was convicted, on appeal S
claimed that L owed him also, so compensation
took place, therefore he cannot be liable for estafa.
Is S’s contention correct?
No, even assuming that L is indebted to S, the
latter is really not indebted to L in his own right. The
real creditor of L is the buyer of the shares. L and S
should be debtors and creditors of each other.
Is it required that when both debts are due and
demandable means that they are due at the
same time?
No. What is required is that both debts are due. So
if one of the debts became due 3 years ago, and
the debt became due today, compensation will only
take place today because it is only today that both
debts became due.
A borrowed from B, B bought a car from A on
credit, can there be legal compensation?
There can be legal compensation because when B
bought the car from A on credit, the buyer B is also
going to pay the price in money, so there can be
legal compensation.
Fajardo borrowed money from ICB in the sum
of 50M, the bank released 20M, to secure this
obligation Fajardo mortgaged properties
amounting 110M, thereafter she also delivered
1M to the bank for money market investment,
so like just other investments it matured, so
Fajardo demanded for the return of the 1M, the
48
bank claimed that Fajardo has nothing to
recover from the bank because as to her loan
which Fajardo failed to pay, upon foreclosure of
the mortgage Fajardo still has a deficiency of 6
million, so compensation took place. Fajardo
questioned the mortgage. Can there be legal
compensation?
No. There can be no legal compensation while the
claim of Fajardo questioning the mortgage is being
litigated. As one of the requirement of legal
compensation, the debts must be liquidated and
demandable. Here, the amounts of the debt is not
yet identified or liquidated, the foreclosure being
subjected to litigation.
May leg al co mpensa tio n take p lace in
depositum or commodatum?
No. As expressed in Art. 1287. In such cases legal
compensation will not take place since in
depositum the depositor or the bailor must invoke
legal compensation?
May legal compensation take place in debts
which consists of civil liability arising from a
criminal offense?
No as expressed in Art. 1288. Only the the
aggrieved party may invoke compensation.
Assignment of Credit as a right to invoke
compensation
A was indebted to B for 50k, 30k, and 20k, B on
the other hand is indebted to A for 100k, A
assigned his credit to X, X demanded payment
from B, how much can X demand from B?
It depends on when did this assignment occur,
before or after the debt became due.
If the 50k was made on June 15, 2002, the 30k
was made on Oct. 15, 2002, and the 20k was on
Dec. 15, 2002, the deed of assignment was
made on Jan. 15, 2003, and the 100k debt of B
to A was due on Nov. 15, 2002. How much can X
recover from B?
Since the debt became due on Nov. 15, 2002 which
is prior to the debt incurred on Dec. 15, 2002 and
the assignment was made long before the debt of
100k became due, compensation took place only to
the extent of 80k. Hence, X can recover as much
as 20k only, for the latter was made after the debt
of 100k became due.
Assuming the 100k debt of B to A is due on
Nov. 15, 2002 and A assigned his credit X on
March 2002, how much can X recover from B?
Since the assignment was made before the debt
became due, X can recover nothing. The obligation
is not yet due until Nov. 15, 2002.
Assuming the due date of the 100k debt is on
Nov. 15, 2002, and the assignment is in July
2002, how much can X (assignee) recover from
B?
The only debt subject to compensation is the 50k
and the 30k and 20k is not covered. Hence, only
50k is subject to compensation. The Oct and Dec.
2002 debts may be recovered by X subject to
certain requirements required by law.
What are these requirements?
Determine if B had knowledge or without
knowledge of the assignment. If B is with
knowledge of the assignment, determine whether
there is consent or none. If consent is given,
determine whether he has made a reservation as to
B’s right to the compensation at the time his
consent is given.
What are the effects of reservation at the time
of consent?
If the debtor reserves there is compensation. If
there is no reservation, the debtor waived his right
to compensation.
If B did not reserve his right to compensation,
what is his remedy?
Demand the debts on the 50, 30 and 20k.
If B is without knowledge of the assignment,
what is the effect?
There is compensation.
Novation
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the
creditor. (1203)
49
- Novation is the extinguishment of an obligation by
the substitution or change of the obligation by a
subsequent one which extinguishes or modifies
the first, either by changing the object or principal
condition, or by substituting the person of the
debtor, or by subrogating a third person in the
rights of the creditor.
The effect of which is to extinguish the old.
What are the classifications of novation?
Novation is the extinguishment of an obligation by
the substitution or change of the obligation by a
subsequent one which terminates it, either by
changing its object or principal conditions, or by
substituting a new debtor in place of the old one, or
by subrogating a third person to the rights of the
creditor. 4 Novation through a change of the object
or principal conditions of an existing obligation is
referred to as objective (or real) novation. Novation
by the change of either the person of the debtor or
of the creditor is described as subjective (or
personal) novation. Novation may also be both
objective and subjective (mixed) at the same time.
In both objective and subjective novation, a dual
purpose is achieved-an obligation is extinguished
and a new one is created in lieu thereof. 5
If objective novation is to take place, it is imperative
that the new obligation expressly declare that the
old obligation is thereby extinguished, or that the
new obligation be on every point incompatible with
the old one. 6 Novation is never presumed: it must
be established either by the discharge of the old
debt by the express terms of the new agreement,
or by the acts of the parties whose intention to
dissolve the old obligation as a consideration of the
emergence of the new one must be clearly
discernible. 7
Again, if subjective novation by a change in the
person of the debtor is to occur, it is not enough
that the juridical relation between the parties to the
original contract is extended to a third person. It is
essential that the old debtor be released from the
obligation, and the third person or new debtor take
his place in the new relation. If the old debtor is not
released, no novation occurs and the third person
who has assumed the obligation of the debtor
becomes merely a co-debtor or surety or a co-
surety.
It may be express (by agreement) or implied
(incompatible).
It may be partial or total.
What are the requisites of novation?
1. A previous valid obligation
2. agreement f all the parties to the new contract
3. extinguishment of the old contract
4. validity of the new one
Art. 1292. In order that an obligation may be
extinguished by another which substitute the same,
it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on
every point incompatible with each other. (1204)
Can novation be presumed?
It is never presumed.
What is the test of incompatibility between the
old and the new obligation in order to effect
novation?
The change must refer to the object, the cause, or
the principal conditions of the obligation. In other
words there must be an essential change.
Accidental modifications in an existing obligation do
not extinguish it by novation. Mere modifications of
the debt, agreed upon between the parties do not
constitute novation. When the changes refer to
secondary agreements, and not the the object or
principal conditions of the contract, there is no
novation; such changes will produce modifications
of incidental facts, but will not extinguish the
original obligation.
E.g. A mere extension of the term of payment does
not result in novation, for the period affects only the
performance, and NOT THE CREATION OF THE
OBLIGATION.
Ultimately, the determination of whether the
changes in any given contract or obligation are
sufficient to bring about a novation, must depend
upon the facts and circumstances of each case.
The distinction between a principal and an
accidental condition in the contract or obligation is
relative. The legal effect of any change made by
the parties will depend upon a sound appreciation
of their importance. The courts should consider, in
each particular case, not only the nature of the
clause that is modified, but also the intention of the
parties and the economic significance of the
modification.
Art. 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be
made even without the knowledge or against the
will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237.
(1205a)
50
What are the two forms of substitution of
debtor?
1. Expromission which the initiative for the change
does not emanate from the debtor and may be
made even without his knowledge, since it
consists in a third person assuming the
obligation.
2. Delegacion is by the debtor who offers and the
creditor accepts a third person who consents to
the substitution, so that the consent of these
three are necessary.
Is the release of the old debtor required in order
that a new debtor may be substituted?
It is required.
Is the consent of creditor required?
Whether expromission or delegacion, the consent
of the creditor is required. This is so because
substitution of one for another may delay or prevent
the fulfillment of the obligation by reason of the
inability or insolvency of the new debtor; hence the
creditor should agree to accept the substitution in
order that it may be binding on him.
It may be express or implied, simultaneous or not,
nor is it required to be in any particular form.
Is the consent of the old debtor required?
In expromission the consent of the old debtor is not
necessary, while in delegacion the old debtors
consent is required for it shall be initiated in his
instance.
Is the consent of the new debtor necessary?
Ofcourse, because he is to assume an obligation.
To w h o m c a n t h e n e w d e b t o r d e m a n d
reimbursement?
If the novation is by delegacion, and the new debtor
pays the obligation, he could demand from the old
debtor what he has paid.
If the novation is by expromission, and the new
debtor pays the debt without the knowledge of the
old debtor, the former can recover only insofar as
the payment has been beneficial to the old debtor.
Art. 1294. If the substitution is without the
knowledge or against the will of the debtor, the new
debtor's insolvency or non-fulfillment of the
obligations shall not give rise to any liability on the
part of the original debtor. (n)
In case the new debtor became insolvent, can
the new debtors liability be enforced against
the old debtor who has no knowledge of the
novation?
If novation is by expromission, no liability for the
new debtor’s insolvency can be enforced against
the old debtor, because the latter did not have the
initiative in making the change, which might have
been made without his knowledge.
In case the new debtor became insolvent, can
the new debtors liability be enforced against
the old debtor who has knowledge of the
novation?
It depends. In case of expromission he is also
r e le a s e d f r o m l ia bili t y n o t wi t h st a n di ng h is
knowledge because obvious intent of the code is
the release the old debtor. To make the old debtor
liable in expromission simply because he has
knowledge of the assumption of his debt by
another, or that he assented to it, would make his
liability even greater that that of a debtor who took
the initiative and offered a new debtor in his place;
in the latter case, the liability of the old debtor
would be limited to the two exceptions provided in
art. 1295, while in the former, his liability in all
cases on non fulfillment would be without limitation.
Art. 1295. The insolvency of the new debtor, who
has been proposed by the original debtor and
accepted by the creditor, shall not revive the action
of the latter against the original obligor, except
when said insolvency was already existing and of
public knowledge, or known to the debtor, when the
delegated his debt. (1206a) (DELEGACION)
Other modes which does not exempt the old debtor
from liability due to the new debtor’s insolvency?
a. if the new debtor is only secondarily liable
b. if the third person is only an agent of the debtor
c. where the new debtor is bound solidarily with the
old debtor.
Art. 1296. When the principal obligation is
extinguished in consequence of a novation,
accessory obligations may subsist only insofar as
they may benefit third persons who did not give
their consent. (1207)
Accessory obligation such as pledges, mortgages
as well as guarantors and sureties, unless the latter
agree to be bound under the new obligation.
The exception provided has reference to a
stipulation in favor of the third person, which is
51
subordinated by the principal obligation. Although
technically it is an accessory obligation, it in ins
reality a distinct obligation in favor of a third person,
and cannot be extinguished by novation without the
consent of the latter.
Art. 1297. If the new obligation is void, the original
one shall subsist, unless the parties intended that
the former relation should be extinguished in any
event. (n)
What if the new obligation is voidable, or not
entirely void, will the old obligation subsist?
The novation becomes effective, it is valid until
annulled.
What if there is a conditional new obligation, is
there novation?
It depends, if the condition is attached to the old
obligation or not. Because if it is attached to the old
obligation, there is no novation at all.
If the condition on the new obligation is intended to
substitute the original pure obligation, the novation
itself, and the consequent extinguishment of the
original obligation, is subject to the condition, the
novation itself did not take place, until the
happening of the condition. Pending the happening
of the condition, novation did not yet take place, the
original obligation not extinguished.
Can the creditor demand from the object of the
old obligation if the novated object is loss?
The creditor cannot demand from the original
object, the latter is already extinguished by the new
obligation.
Art. 1298. The novation is void if the original
obligation was void, except when annulment may
be claimed only by the debtor or when ratification
validates acts which are voidable. (1208a)
May a void original obligation be validated?
No. It is void and cannot be ratified. What can be
ratified is a voidable obligation. A void obligation
cannot be a source or rights, or waivable by the
parties.
Art. 1299. If the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall be under the same condition,
unless it is otherwise stipulated. (n)
What if both obligations are conditional, old and
new?
They must all be fulfilled in order that novation may
become effective and the new obligation be
enforceable. If only the conditions affecting the old
obligation are fulfilled, and those affecting the new
obligation are not, then, there is no novation, and
the old obligation subsists, because the requisite of
a new valid obligation would be lacking.
Art. 1300. Subrogation of a third person in the
rights of the creditor is either legal or conventional.
The former is not presumed, except in cases
expressly mentioned in this Code; the latter must
be clearly established in order that it may take
effect. (1209a)
Art. 1301. Conventional subrogation of a third
person requires the consent of the original parties
and of the third person. (n)
Art. 1302. It is presumed that there is legal
subrogation:
• (1) When a creditor pays another creditor
who is preferred, even without the debtor's
knowledge;(2) When a third person, not
interested in the obligation, pays with the
express or tacit approval of the debtor;
• (3) When, even without the knowledge of
the debtor, a person interested in the
fulfillment of the obligation pays, without
prejudice to the effects of confusion as to
the latter's share. (1210a)
Art. 1303. Subrogation transfers to the persons
subrogated the credit with all the rights thereto
appertaining, either against the debtor or against
third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional
subrogation. (1212a)
Art. 1304. A creditor, to whom partial payment has
been made, may exercise his right for the
remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of
the partial payment of the same credit. (1213)
What obligation may be novated? Is it required
that an obligation must arise from a contract?
No, any obligation may be the subject of novation.
Is it required that there be agreement between
the parties in order that novation will take
place?
Yes. Agreement is required. There may only be a
novation as a result of the agreement of the parties.
What is the effect of novation?
52
There will be extinguishment of the old obligation
and a new one exist, except prescription. In
prescription there is no existence of a new
obligation. ??????
If there are changes in the original obligation
does it mean that there is novation?
No. If the changes does not result in novation,
there is no novation. Aside from the classification, it
goes into the nature of the extinguishment.
Contracts
Are agreements contracts?
Contracts are agreements but not all agreements are
contracts.
If A and B had an agreement, is it a contract?
A mere agreement will not necessarily constitute a
contract. The nature of a contract is one of the sources of
obligations. In an agreement where there is meeting of
the minds between two persons as defined in Art. 1305
where one binds himself to give something or to render
some service. Thus, for an agreement to become a
contract there must be a corresponding obligation arising
from that agreement.
Is dacion en pago a contract?
No. Dacion en pago is the delivery of the debtor of a
thing in satisfaction of his debt. It is not mere agreement
to deliver, but rather it is the delivery. Without the delivery
there is no dacion en pago. Dacion is a mode of
extinguishing obligation. Contracts creates an obligation.
Is a contract an obligation?
No. It is one of the sources of an obligation.
Is there such a thing as a mode of extinguishing a
contract?
Yes. If a mode of extinguishment is a mode of
extinguishing obligations that would also be a mode of
extinguishing contracts because, if it extinguishes a
contract then the obligation arising from the contract will
likewise be extinguished, except those which has already
been vested.
Saludaga vs. FEU
A sophomore law student of FEU was shot by the
security guard of FEU. He survived and sued FEU.
What possible liabilities may arise?
1. Quasi Delict - The employer of the security guard may
be held liable. FEU however, will not be liable under
quasi delict because FEU was not the employer of the
security guard.
2. Contract - FEU is liable under the contract because
when the student enrolls in a University, a contract is
entered into. In that contract it includes the duty of the
school to maintain a peaceful environment and
conducive to learning.
Is the right to enter into a contract a purely statutory
right?
No. This right is protected by the constitution. This is
called the non impairment clause. Not even the State can
impair the freedom of parties to enter into contracts, with
the exception if it is in the exercise of police power.
Is marriage a contract?
No it is considered as a special contract because:
1. parties - in contracts it does not require that parties be
male and a female.
2. governing law - the stipulation of the parties will
primarily govern the relation of the parties, whereas in
a contract of marriage, it is the law which will govern
the rights and obligations of the parties to such
marriage.
3. termination - there are so many modes of extinguishing
a contract, whereas in a contract of marriage it is only
death primarily which will cause the extinguishment of
the obligation of the parties and annulment.
Contracts is defined as the meeting of the minds
between two persons. May a person contract with
himself?
Contracts is a meeting of the minds between two persons
(parties) whereby one (reciprocal-two) binds himself, with
respect to the other to give something or to render some
service (includes not to do) (Art. 1305).
Yes. This contract is known as an auto contract. In one
capacity acting for one person and in another capacity for
himself or yet another person.
E.g. When a person is authorized to borrow money, he
himself may be the lender.
When a person is authorized to borrow money, can
he himself be the lender?
Yes. In that loan agreement he will be signing as
representative of the principal or the borrower and he
himself be signing for himself as a lender.
This authority is subject to the rule that the interest shall
be only for the market rate.
What auto contracts which are prohibited under
Philippine law?
53
1. A guardian is prohibited from acquiring by purchase
the property of his ward (art. 1491[1]). This is because
the guardian cannot sell for himself the property of the
ward.
Is it correct to say that only one of the parties to a
contract will be obligated to perform the contract
because as defined that an obligation is the meeting
of the minds of the parties where one binds himself
to give something or to perform a service?
No. It is a defect in the definition because reciprocal
obligations may arise from contracts. It is not merely
unilateral.
Is there an obligation not to do arise from contracts
because as defined that an obligation is limited to an
obligation to give and to render some service?
Yes there is an obligation “not to do” which may arise
from a contract and would render the definition defective.
As an example, in the dealers of Honda the buyers are
obligated not to use the cars as a taxicab.
Fundamental Principles/Characteristics of Contracts:
What are the fundamental characteristics of a
contracts? (5)
1. autonomy of contracts (Art. 1306)
2. consensuality of contracts
3. mutuality of contracts
4. obligatory force of contracts
5. relativity of contracts
What is autonomy of contracts or freedom of
contract or liberty to stipulate?
The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order or public policy (Art. 1306).
Stipulations contrary to law
In a contract of partnership entered into by A, B and
C, in that contract it was stipulated that of the profits
of the partnership, 50% will go to A, the other 50%
will go to B. Thus, if a 100,000 profit was earned by
the business of the partnership, who will share this
profit? Will A and B share 50,000 each?
No. This is because this stipulation as to the division of
sharing is void under the law. While the parties can
establish such stipulations, clauses, terms and conditions
as they may deem convenient, the requirement of the law
is that theses stipulations should not be contrary to law,
morals, good customs, public order or public policy.
This is a stipulation pactum leonina, where there is a
stipulation between the partners which excludes on of the
partners from sharing in the partnership profits.
As to law, whether this stipulation is contrary to law or not
is to know the laws which declares certain stipulations to
be void.
May a forfeiture clause in a contract be void?
Yes. The law renders it to be void if confronted by the
maceda law. If the problem covers issues under the
maceda law, then that clause declares to be a void
clause.
Are waivers valid?
Generally, yes. However there are laws where waivers
are not valid. For example in Sales, if there is a waiver as
against the seller in case of eviction. That would be a
void waiver if the seller is in bad faith.
Waiver as to future fraud is a void waiver.
Pactum Commissorium in a contract of a pledge or
mortgage is a void stipulation where it provides that upon
default of the principal debtor, the property pledge or
mortgage will automatically be owned by the pledgee or
mortgagee.
Pactum Leonina where there is a stipulation between the
partners which excludes on of the partners from sharing
in the partnership profits.
Pactum de non aliendo is a void stipulation prohibiting
the mortgagor from alienating his property without the
consent of the mortgagee.
July 1, 1998 Brian leased and office space of a
building at the rental rate of 1,000 a month. The lease
contract stipulated that in case of inflation or
devaluation of the Philippine peso the monthly rental
may be increased depending on the amount of
devaluation of inflation of the peso to the dollar.
Starting July 2000 the lessor increased the monthly
rental to 2,000 a month on the ground that there is
inflation proven by the fact that the exchange rate of
peso to the dollar is 25 pesos to 50 pesos. Brian
refused to pay in the increased rate, and an action
for unlawful detainer was filed against him. Will the
action prosper? Why?
The action will prosper. The parties may establish such
stipulations, clauses, terms and condition as they may
deem convenient. The stipulation that in case of
devaluation of the peso, the increase in rentals may be
done. Such stipulation is not a void stipulation, as it is not
contrary to law, morals, good customs, public order or
public policy. Such is a reasonable stipulation between
the parties, because when the value of the peso
devaluates, then the rental of 1,000 pesos a month is no
longer a reasonable rent, hence proper increase in
rentals as a result of the devaluation may prosper.
This is called an escalation clause where the happening
of a certain contingency, the compensation of one of the
parties may be increased.
May an escalation clause be rendered void or
ineffective?
54

Yes if this escalation clause is provided in the contract of
loan which would give the bank the right to increase the
interest. The reason why this escalation clause be
considered void is because there is no de-escalation
clause. This is because there is a monetary board
resolution as far as loans are concerned, in order for an
escalation clause to be valid, there should be a de-
escalation clause. Further, such escalation or increase in
interest should be only once a year.
It must be stressed that an escalation clause to be valid
must not be solely potestative in character. The clause
should not be based on one of the whim of one of the
parties. It should be based on a reasonable and valid
standard.
Non involvement clause in an employment contract,
is it valid?
In the case of daisy tiu vs. platinum plans it was
stipulated that “the employee during his engagement with
the employer, and in case of separation from the
company whether voluntary or for cause, he/she shall not
for the next two years, engage in or be involve with any
association, corporation or entity, whether directly or
indirectly engage in the same business or belonging to
the same pre-need industry as the employer. Any breach
of the foregoing provision shall render the employee
liable to the employer in the amount of 100,000 pesos for
and as liquidated damages.
Generally a non involvement clause is not a valid clause
because it will limit the right of a person as far as his
livelihood is concerned, and this would be an
unreasonable restraint of trade. However, in this case
such is not a void provision because this is not an
absolute prohibition. This is not absolute prohibition in
relation to the period (2 years) and trade or area of
engagement (pre-need business only in the Philippines).
Daisy Tiu was an Executive Vice President of the
Company and her job is highly confidential and having
sufficient knowledge of the strategies of the company, it
is but proper for the company to take measures to
preserve their trade secrets. Hence, such stipulation
constitute a reasonable clause which does not impair the
rights of the employee.
Contrary to morals
What stipulation may be considered immoral by the
Supreme Court?
Interest or penalties stipulation. If the penalties should be
5 pesos a day for every day of delay may either be
immoral or moral depending on the principal amount.
In one case, where the principal amount is 400 pesos,
the Supreme Court said that the 5 peso penalty is void
for being contrary to morals, unconscionable, and
excessive. It is almost 400% per annum penalty.
The 5.5. interest per month is considered contrary to
morals it being almost 76 percent interest per annum.
The interest of 3 percent per month plus penalty (36%
per annum) on the credit card decided by the Supreme
Court is considered unconscionable, inequitous, and
contrary to morals. Such interest and penalties being
rendered void by the S.C. does not render the Bank
unable to recover interest, but reduced the interest and
penalty to 1 percent per month (Macalinao vs. BPI 2009
Case).
Contrary to public policy
How would you know if there is a certain public
policy involved in relation to a certain topic?
If a law is passed, normally there will be a public policy
behind the law that may be cited by the lawmakers.
Public policies may be seen on the fundamental law of
the land, which is the constitution.
Alma was hired as a domestic helper in Hong Kong
by the Dragon Services Limited, through its local
agent. She executed a standard employment contract
designed by the Philippine Overseas Workers
Administration for overseas Filipino workers. It
provided for a salary for one year with a salary of
1,000 U.S. dollars a month. It was submitted to and
approved by the POEA, however when she arrived in
Hong Kong she was asked to sign another contract,
which reduced her salary to only 600 U.S. dollars per
month. Having no other choice she signed the
contract, but when she returned to the Philippines,
she demanded a salary differential of at least 400 US
dollars a month. Both dragon services limited and its
local agency claimed that the 2nd contract is valid
under the laws of Hong Kong and therefore binding
on Alma. Is their claim correct?
The claim is not correct even if the stipulation in Hong
Kong where the salary is 600 dollars is a valid stipulation
under the law of Hong Kong, it cannot be enforced in the
Philippines. Such stipulation is contrary to our public
policy under the Constitution which provides full
protection to labor.
Cui was a student and enjoyed a scholarship.
However, it was stipulated that if he would transfer to
another law school he will have to reimburse
Arellano for the amounts which he should have paid
had he not been a scholar. The Law Dean of Arrellano
at that time was the uncle of Cui. When the law dean
transferred to another law school, Cui also
transferred. When he was about to take the bar
exams, he asked for his grades from Arellano, but
the latter refused to release the grades until he would
reimburse Arellano as so provided in the scholarship
agreement. He paid under protest. He passed the bar
exam and sued Arellano. What was the ruling of the
Supreme Court?
The agreement requiring reimbursement is contrary to
public policy. The public policy involved in this case is
that scholarship grants are granted on the basis of merit
and should not be granted in order to bolster the
reputation of law schools. If a student wants to transfer to
another law school, he should not be required to
reimburse (Cui vs. Arrellano School of Law).
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An agreement of two persons vying for special
nomination as an official candidate of a
congressional seat of the Nationalista party. It was
stipulated in the agreement that they would have to
go through the process of convention, and whoever
would lose in that convention shall not run as an
independent or rebel candidate. Syndico the
defendant lost in the party convention but she still
run and won. Saura sued Syndico for damages, will
the action prosper?
The action will not prosper because the stipulation which
prohibited Syndico from running is a void stipulation
because it is contrary to public policy. A mere agreement
of two persons cannot not limit himself as a candidate in
an electoral contest. An agreement between two persons
cannot limit the right of the electorate to choose who
among the candidates is fit for that particular position.
Consensuality of Contracts
For a contract to be valid, the parties must voluntarily
give their consent. No one can be compelled to enter into
a contract.
Republic vs. PLDT
Republic filed an action to compel PLDT to enter into
an interconnection agreement. At that time when the
action was filed, the telecommunication services
within the country was controlled by PLDT. Will the
action prosper?
PLDT cannot be compelled by the Republic to enter into
a contract. Consent must be voluntarily given in order to
have a valid contract. Consent must be freely given.
However, this action was treated as an expropriation
proceeding.
Contract of Adhesion
There is a contract which is claimed to be void allegedly
for lack of consent of one of the parties because the
contract was prepared only by one of the parties. Such
contract was presented to the other party for his
adhesion, and there is practically no negotiation or
consent as to the contracts terms and conditions. This is
a contract of adhesion.
Atty. Ong Yu was on his way to Butuan City and his
luggage was lost and he filed an action against PAL
claiming damages. PAL invoke a provision in the
contract “If at all PAL shall be held liable for the
luggage, such cannot exceed 100 pesos”. Atty. Ong
Yu interpose that such stipulation was in a contract
of adhesion and he did not consent to such contract.
A contract of adhesion is a valid contract. The reason is
that a party has a choice whether to accept or to reject
the contract. If bought the ticket, he practically accepted
the terms and conditions (Ong Yu vs. CA).
A case involving a trust receipt which is a contract of
adhesion. Jimmy Go questioned the validity of the
trust receipt claiming that it is a contract of
adhesion.
The trust receipt is valid however, if there is ambiguity in
the contract, such ambiguity shall be construed against
the party who prepared the contract. Since it was
Metrobank who prepared the contract, such ambiguity
was ruled in favor of Jimmy Go. The ambiguity is to when
Jimmy Go would deliver the goods, the Supreme Court
said this stipulation should be construed against
Metrobank. The obligation became due when the
demand was made by Metrobank (Metropolitan Bank vs.
Jimmy Go).
Stipulation pour atrui (Stipulation in a contract for the
benefit of a third person)/ Mutuality of Contracts.
In order for this stipulation be binding on the beneficiary,
he must communicate his acceptance before the
revocation of such benefit to the obligor.
What if one of the parties to the contract (not the
beneficiary) revoked the benefit, in fact he may have
sent a letter to the beneficiary informing the latter
that the benefit in your favor in the contract which i
entered into with B has already been revoked. This
revocatory letter has been sent by A before the
beneficiary communicated his acceptance. Does it
mean that the beneficiary would no longer be entitled
to this benefit?
Not necessarily. He may still be entitled because in order
for the revocation to be effective it has to be consented to
by both parties. Otherwise if only one of the parties
revoked the benefit in favor of the beneficiary, that would
be contrary to the fundamental principle of contracts
which is the mutuality of contracts.
Under this mutuality of contracts principle, a contract
must bind both contracting parties and its validity and
compliance cannot be left to the will of one of them. So,
as far as the benefit is concerned as it was agreed upon
by both parties, it can only be revoked by both parties. A
revocation by only one is a violation of this fundamental
principle of mutuality of contracts.
If an escalation clause would be invoked by one of the
parties without a reasonable and valid standard, the
Supreme Court would rule that it is contrary to the
mutuality of contracts principle. To be a valid clause, it
must be based on a valid and reasonable standard. It
should not solely be potestative in character.
May the termination of the contract by one of the
parties be violative of this fundamental principle of
mutuality of contracts?
No. In the case of Philbanking vs. Louie Sy involving a
contract of lease where the lessee was given the right to
terminate the contract by merely giving notice to the
lessor, and the termination shall take effect after 15 days
from receipt of the notice of the termination. The S.C.
ruled that such stipulation does not violation the mutuality
of contracts principle. It is not covered by the mutuality of
56
contract, what is covered is the validity or compliance, it
does not pertain to the termination of the contract.
Obligatory Force of Contracts
Under this principle, obligations arising from contracts
have the force of law between the contracting parties,
and should therefore be complied with in good faith.
When would a contract have the force of law between
the contracting parties? The fact that there is already
a meeting of the minds between the object and
subject matter of the cause, does it mean that the
contract already has the force of law?
Not necessarily. In order for a contract to have the force
of law, the contract must have been perfected. It is at the
time of the perfection of the contract that either parties to
the contract can compel the other party to perform the
obligations under that contract.
Just because the contract has been perfected does it
mean that such is already enforceable?
Not necessarily. Because such perfection of the contract
is subject to the statute of frauds. A contract of sale may
have been perfected because there is already a meeting
of the minds as to the object and the price, however if it
is not in the form prescribed by law or it is not covered by
Article 1403, that would be an unenforceable contracts.
Autonomy of contracts
The parties to the contract in the loan for money
agreed that the yearly interest rate is 12% will be
increased if there is a law authorize the increase of
the interest rates. Suppose OB would increase the
interest rate by 5% to be paid by TY the borrower
without a law authorizing such increase, would that
increase would be just and valid? Would TY has a
remedy against the imposition of such interest rate
increase. Would OB’s action be just and valid?
Ofcourse no. Under the autonomy of contracts principle
the parties can establish such stipulations terms and
clauses as they may deem convenient. They agreed that
there can only be an increase if there is a law. Since
there was no law, there can be no valid increase.
In one case, similar to this scenario that there should
be law authorizing such increase. Thereafter at that
time, the usury law has not yet been suspended. The
Central Bank at that time issued a monetary board
resolution authorizing an increase rate. With that
monetary board resolution authorizing the increase
in the rate, would that now give the lender the
increase in the rate considering their stipulation?
The SC said no because a law is not the same as a
monetary board resolution. Although such monetary
board resolution may have the force of law, but it is not a
law. Since the parties agreed only if there is a law. Since
there is no law, but only a monetary board resolution,
there can be no valid increase in the interest rate.
Don, an American businessman secured parental
consent for the employment of 5 minors to certain
roleses in two movies he was producing at home in
Makati. They work 5 hours a day and night but
always accompanied by their parents or other adults.
The producer paid the children talent fees better than
adult wages, but a social worker reported to SWF
that these children often missed going to school.
They sometimes drank wine and in some cases they
were exposed to drugs and sometimes they were
filmed naked or in revealing costumes. Don, in his
defense, all these are part of artistic freedom and
cultural creativity. None of the parents complained
said Don, and he said that the contract containing a
waiver of the right to file any complaint in any office
or tribunal concerning the working conditions of the
children acting in the movies. Is the waiver valid and
binding?
The waiver here is a void waiver because this would be
contrary to the law which provides for the protection of
minors. Any waiver as to the rights of minors in relation to
the law protecting them would be a void waiver because
it is contrary to law.
Relativity of contracts
A sold an item to B, thereafter B sold the same item
to C. Ordinarily would A have the cause of action
against C?
None because there is no privity of contracts
between A and C. It is only A and B and B and C who
has privity of contract. So who would be bound to a
contract?
Ordinarily the parties, their assigns and heirs and those
who would be affected, benefited and who can be liable
under the contract.
The assigns and heirs are privy to the contract. Under
Art. 1311, contracts take effect between the parties, their
assigns, and heirs.
Is it possible that a contract will not affect the heirs,
or not to benefit the heirs?
Yes, under this provision. A contract may take effect only
upon the parties when the rights and obligations arising
from this contract are intransmissible. Three scenarios
where rights and obligations are intransmissible: 1) When
the law so provides; 2) If there is a stipulation; 3) If the
nature of the rights and obligations would not allow the
transmissibility of these rights and obligations.
(Stipulation)
In a lease contract decided by the Supreme Court,
there was a stipulation in the contract that the rights
and obligations of the parties are intransmissible.
The lessee died, would his heir would still have the
right to the possession of the leased premises until
the expiration of the period?
The S.C. said no because with the death of the lessee,
the contract was extinguished because the rights and
obligations arising from the contract are intransmissible
by stipulation.
57

But ordinarily, the heirs will still have the right to possess
because a lease contract is not a purely personal
contract. Therefore the rights and obligations of the
parties in relation to the contract may be transmitted to
heirs and assigns. Even in lease contracts, also a lessee
ordinarily sublease the premises in whole and in part,
unless he is prohibited from subleasing the property.
(Law)
Under the law on usufruct, ordinarily, when the
usufructuary dies, will his rights be transmitted to
his heirs?
No because the law so provides, except when there is a
contrary stipulation in their agreement.
(By Contract or agreement)
A property right of a partner known as the right in a
specific partnership property. A partner cannot assign his
rights in a specific partnership property without all
partners making the same assignment over the same
property. A partner alone without the consent or
knowledge of the other partners cannot transmit his
rights to an assignee by law.
(By nature)
When the rights and obligations are purely personal or
the qualifications of the parties have been considered in
the establishment of the contract. This is common in
contracts which will involve skills because with the nature
of such rights it cannot be assigned to another person,
for such is a purely personal right.
In the principle of privity of contracts, in what
circumstances may a third person may be bound to a
contract?
A third person may be held liable in a contract in which
he is not a party or in which he is not privy, or a third
person may have a cause of action in relation to a
contract, when he may be benefited or prejudiced by
such contract.
In contracts involving or creating real rights, third persons
who would take possession of the object or subject
matter of the contract, subject to the requirements of
mortgage laws and registration laws, etc.
(In contracts involving real rights)
In a contract involving a real estate mortgage on a
parcel of land entered into between A and B, A being
the mortgagee and B being the mortgagor. A sells his
land to C and thereafter if A the mortgagor is also the
principal debtor, he defaulted. Can the mortgagagee
foreclose the mortgage of this parcel of land? With
the sale and the land may have been delivered to C,
C may already be the owner of the land. May there be
still a valid foreclosure over the land, if the land is no
longer owned by the mortgagor?
Yes it is possible because in such contracts which
creates real rights, the rights of the mortgagee attaches
to the property whoever may be the owner over the
property who may be bound to this mortgage. Even if C
is the owner, his rights will be subject to the rights of the
mortgagee, subject to the qualification of the law on
mortgage and registration law. In this case, for C to be
bound to this contract, though C is not a party or privy to
this contract, nonetheless he would be bound if this
contract is registered or even if not registered, C has
actual knowledge of this contract. Actual knowledge has
the same effect as registration.
(In contracts in fraud of creditors)
A sold a parcel of land to B, but the sale is in fraud of
creditor X. Ordinarily B being a third person will not be
bound to the contract or will have a cause of action to
this contract. But because this contract is in fraud of
creditors, the law grants him the right to rescind the
contract. This is one contract which is rescissible under
Art. 1381.
When may a third person be held liable under a
contract which he is not a party or privy to such
contract?
Under Art. 1314 when a third person interferes in a
contract subject to the requirement that there must be
malice in the interference.
Francis Albert, a citizen and resident of New Jersey
USA, under whose law, he is still a minor being only
20 years of age which was hired by ABC corporation
Manila to serve for 2 years as its chief computer
programmer. After serving for only 4 months he
resigned to join XYZ corporation which entice him by
offering more advantages terms. His first employer
sued him for damages arising from the breach of
contract arising from his employment, he sets up his
minority defense as for annulment of the contract on
that ground. The plaintiff disputes this by alleging
that the contract was executed in the Philippines
under whose law the age of majority is 18, he was
only a minor. Suppose XYZ corporation was
impleaded as a co-defendant, what would be the
basis of its liability?
XYZ Corp. is a third person in a contract entered into
between ABC and Francis Albert. XYZ Corp. may be held
liable under Art. 1314 when he maliciously induced a
party to a contract to violate the contract. Since XYZ
Corp. enticed Francis Albert offering the latter more
advantages terms mean that the former may be held
liable for malicious interference because of such
enticement. For liability to arise under Art. 1314, the first
requirement of the law is that there must be knowledge of
such third person of the existence of a contract. If he has
no knowledge and merely asks the person to join the
company, apparently there can be no malice.
By the use of the term enticement and giving more
advantageous terms, to that extent it can mean that there
is such malicious interference on the part of XYZ.
The basis of liability of XYZ would be solidary liability with
Francis Albert because such is a tortious act and under
Art. 2194 where it provide that when 2 or more persons
are held liable for quasi delict, shall be solidarily liable.
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May the liability of a third person who maliciously
interfered to the contract be more than the liability of
a party to a contract who violated the contract?

No. In one case the S.C. held that the liability of such
third person cannot be more than the liability of a party to
the contract who himself violated the contract.

Roland, a basketball star was under a contract for 1

year to play for and exclusively for lady love. Even
before the basketball season could open, he was
offered a more attractive pay plus fringe benefits.
Roland accepted the offer for sweet taste. Lady love
sued Roland and Sweet taste. Defendants claimed
that the restriction to play for lady love alone i
A chattel mortgage being an accessory contract, and
although such accessory contract is extinguished, that
will not extinguish the principal because the accessory
follows the principal.
So, even if the crops were destroyed due to a fortuitous
even, at best it would only extinguish the chattel
mortgage. Being an accessory contract it does not at all
affect the obligations under the principal contract.
The effect of such extinguishment on the loan contract is
that it will not be unsecured.
If the scenario would pertain to the extinguishment of the
principal contract, then the accessory contract would
necessarily include the extinguishment of the accessory
contract by operation of law. The accessory will follow the
principal (Republic vs. Grihaldo).
What are the accessory contracts?
1. Guarantee
2. Suretyship
3. Pledge
4. Chattel Mortgage
5. Real Estate Mortgage
6. Antichresis
Are preparatory contracts accessory contracts?
No. Preparatory contracts are principal contracts.
principal contracts will not necessarily be the end by
themselves. They are entered into for other contracts to
be made like agency or partnership.
If the agent did not enter into a contract as he bound
himself to do so in an agency to sell such that he did
not sell anything of the goods of the principal. Will it
affect the validity of the contract of agency?
No. preparatory contracts can stand on their own.
Though they cannot be the end by themselves, they can
stand on their own, they are not accessory contracts.
If he failed to comply with his obligation under the
contract, as a rule, he can be held liable for not
performing his obligation.
Real Contracts: Perfected by delivery of the object or the
subject matter of the obligation.
A borrowed money from B. To secure the fulfillment
of his obligation, A agreed to deliver his watch to B
as a security in a verbal agreement. Without this
watch being delivered to B and before the delivery of
the sum of money borrowed. Was there a perfected
contract involve in the problem?
The contracts involve in the problems are 1) contract of
loan and 2) pledge.
No contracts has been perfected to both. These
contracts are real contracts. For the perfection of this
contract, delivery of the object or the subject matter of
the contract is required. Art. 1316 enumerates real
contracts, though there are only 3 enumerated real
contracts which is pledge deposit or commodatum,
clearly mutuum or simple loan is also a real contract as
expressly provided under the provisions of simple loan.
This contract can only be perfected upon the delivery of
the thing or money borrowed to the borrower or the
lender, as the case may be.
Consensual Contracts: These are contracts which is
perfected by mere consent.
This should be considered as the meeting of the minds
as to the object and the consideration
Note: If there is a meeting of the minds as to the object
and not to a consideration, there is a meeting of the
minds but there is no perfected contract.
Formal Contracts: Contracts require certain form.
What contract is not perfected by mere consent even
if it is not a real contract?
If such contracts is required to be in a certain form to be
valid.
If a contract is not valid, may it be perfected?
Ofcourse not. In fact, no obligation would even arise, if it
is a void contract.
As an example in antichresis, the law requires that the
agreement as to the principal and interest shall be in
writing, otherwise the antichresis is void.
Other example would pertain to a donation, where the
object of the donation is a real property, the donation
should be in a public instrument, otherwise, the donation
is void.
Merly offered to sell an automobile to Violy for 60k,
after inspecting the automobile Violy offered to buy it
for 50k. The offer was accepted by Merly. The next
day Merly offered to deliver the automobile but Violy
being short of funds secured postponement of the
delivery. Promising to pay the price upon arrival of
the steamer Helena. The steamer however, never
arrived because it was wrecked by a typhoon and
sunk somewhere over the coast of Samar. Is there a
perfected contract in this case? Why?
Since this is a contract of sale, and it being a consensual
contract, there was a perfected contract of sale because
when Violy’s counter offer was accepted, then there was
already a perfected contract of sale. Although, Violy’s
delivery of the car is conditioned that steamship Helena
would arrive, does not affect the perfection of the
contract. The condition here is not a condition for the
obligation to arise, because the contract had already
been perfected. The condition here is only to the
fulfillment of the obligation. This is not an obligation to
arise.
In a problem involving a contract where a thing was
delivered, what contract was entered into. What
rights and obligations of the parties under the
contract?
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It depends on the intention of the parties as to the effect
of the delivery. Would the delivery result in the transfer of
ownership? Was the purpose of the delivery was only for
the use and enjoyment of the thing by the other party?
Was the delivery only for the purpose of safekeeping?
If it involves transfer of ownership it may be a contract or
transaction. If it is a contract it could be a sale, barter. But
it cannot be a lease or commodatum because there is
transfer of ownership. If it is merely a transaction this
could be dacion en pago since there is transfer of
ownership.
If the purpose is only for the use and enjoyment of the
thing by the other party to whom the thing was delivered,
the contract could be a lease or commodatum. The
difference this time goes into the nature of the contract
as to the cause. Because if there is a price to be paid for
the use and enjoyment of the thing, that is a lease. But if
the use or enjoyment is gratuitous, this could be
commodatum.
Kinds of Contracts as to cause:
1. Onerous
2. Contracts of pure beneficience
3. Remuneratory
Onerous Contract - Lease of Service
Art. 1350 In onerous contracts the cause is understood to
be, for each contracting party, the prestation or promise
of a thing or service by the other; in remuneratory ones,
the service or benefit which is remunerated; and in
contracts of pure beneficience the mere liberality of the
benefactor.
Commutative - Equivalent in the value of the prestation
(in a contract of sale the value of the thing to be delivered
is equal to the value of the price).
Are all contracts of sale commutative?
No Sale of Hope is not commutative, like lotto or
sweepstakes.
Nominate - Special Rules governing this contract.
Inominate - Without a name
If the stipulation of the parties are not sufficient to
resolve the controversy, what rules should apply?
Rules on obligations and contracts. If not, rules
analogous to obligations and contracts.
In accessory contracts, what is the cause?
It depends on the contract.
The pledgor or mortgagor may be a 3rd person. If the
pledgor or mortgagor is the same person, the cause is
the same.
When must the cause exist?
It mist exist at the time the contract is entered into.
In a deed of sale, what is the cause?
As to the seller, it is the price, as to the buyer it is the
thing sold.
If the price does not appear in the contract, is the
contract void?
No. the cause is presumed to exist, so even if not stated
in the contract it is presumed to be lawful.
If the buyer bought a gun for the purpose of killing a
person, was the sale void?
No, because cause is different from motive. Cause is the
essential reason, motive is the personal reason. A
personal reason even if unlawful or illegal does not affect
the validity of the contract.
If the person entered into a contract to avoid a
threatened injury, would that be affected by the
motive?
Yes. As a rule, the illegality of motive will not affect the
validity of the contract. It might affect the validity if the
purpose of the person or motive predominates the
purpose of the contract.
May a contract be void because the motive is illegal or
unlawful?
Yes in cases where the sale to a person whose motive is
only to circumvent the prohibition under Art. 1490 where
the husband and wife cannot sell property to each other
subject to certain exceptions as provided therein.
If the cause or reason why the seller sold the thing is
to defraud his creditors, is the contract valid?
It is valid but the contract may be considered defective, it
is a rescissible contract.
Deed of Sale over a certain car for P1, is the sale
valid?
Yes the sale is valid. Lesion does not affect the validity of
a contract except in cases provided by law such as lesion
suffered by a ward under rescissible contracts. However,
when there is fraud, mistake or undue influence, then it is
not valid, it is voidable (Art. 1355)
If the cause stated in the contract is a false cause, is
the contract valid?
The cause is false if it is fictitious or simulated. If the
cause is false, it does not follow that the contract is void;
it is considered only as a voidable contract because if it
can be proven that there is another cause which is true
and lawful, the contract is valid.
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E.g. In a contract executed between S and B, it was
made to appear that S delivered to B a parcel of land,
and B paid S 10,000, when in fact there was indeed a
delivery but no payment was ever made. The contract of
sale executed is not valid because the cause stated is
false. However, if the parties can prove that the cause of
S giving the land to B is pure liberality, then that contract
may be considered as a donation.
Kinds of contracts according to subject matter:
1. Thing
2. Service
3. Right
Does it mean that all special contracts will have the 3
subject matters as valid subject matters of contract?
No. In a contract of sale, there can be no service.
Stages of a Contract:
1. Negotiation (Preparation)
2. Perfection
3. Consummation
May there be a perfected contract during the
negotiation stage?
Yes in option contract.
Before the preparation of the contract, what if the
offerer withdrew the offer?
As a rule the offerer has the right to withdraw his offer at
anytime unless there is option money or there is a
consideration as something paid or promise.
If there is a withdrawal of the offer and there is no
option contract, may the offeror be held liable for
damages?
As a rule, no because there is no perfected contract. But
the offeror may be liable because there are other sources
of obligation. He may be liable under torts.
He may be liable under torts when for example the
offeror has already decided to withdraw the offer 3
months before he made the communication to the other
party, he may be considered negligent.
At the performance stage, will the statute of frauds
apply?
No it will apply if the contract is executory. If the parties
have already performed the obligation there is no room
for the statute of frauds to apply.
Requisites of Validity of Contracts:
1. Consent
2. Object
3. Cause
Is a particular form or delivery an essential requisite
of contracts?
No requiring a particular form or to require delivery is not
an ESSENTIAL element of a contract. It is only consent,
object and cause which are the essential elements of a
contract.
An action was filed to nullify or to declare null and
void a contract, will the action prosper?
In case of action to annul a contract, which pertains to a
voidable contract, the action may prescribe because a
voidable contract prescribes in 4 years from the time the
defect of the consent ceases in case of Intimidation,
Violence or Undue Influence. In case of mistake or fraud,
4 years from the time of the discovery of the same.
What distinguishes an absolutely simulated contract
from a relatively simulated contract?
In absolutely simulated there is only one contract, while
in relatively simulated contract, there are actually two
contracts where the true intention or true contract of the
parties are concealed. In absolutely simulated there is
actually no contract and the parties did not intend to be
bound by any contract at all, while in relatively simulated,
there is a contract.
What are the kinds of capacity?
1. Juridical capacity - To become the subject of juridical
relations.
2. Capacity to act - power to do acts with legal effects
(but may be subject of juridical relations).
A person without juridical personality entered into a
contract, status of the contract?
Void.
Can minors enter into a contract of sale?
Minors are incapable of giving consent, except where
necessities are sold and delivered to a minor or other
person without capacity to act, then he must pay only a
reasonable price (Art. 1489).
A contract entered into by a minor without the
consent of the parents or guardian is voidable, what
are the exceptions?
1. Where the contract is entered into by a minor who
misrepresents his age, applying the doctrine of
estoppel.
2. Where the contract involves the sale and delivery of
necessities to the minor (Art. 1489).
X, of age entered into a contract with a minor, Y knew
the age of Y. May X demand annulment of the
contract?
No. A contract entered into by a person who is
capacitated cannot allege the incapacity of the person
who is incapacitated by reason of estoppel.
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What is absolute incapacity?
Persons who are prohibited by law to enter into any
contracts. It is void from the beginning.
What is relative incapacity?
Persons who are capacitated to enter into contracts but
for other contracts they are not allowed by reason of their
relationship to the person with whom they represent.
(e.g. Art. 1491).
May an agent buy the property of the principal?
Yes, provided it is consented to by the principal.
May an alien may acquire property by purchase in
the Philippines?
Yes, an alien may acquire property by purchase in the
Philippines, provided he is a former natural born citizen
as provided in the Constitution.
May there be a contract of sale over a private land
even if the alien is not a natural born citizen?
Yes, if the alien is disposing of the property. What is
prohibited is acquiring property.
How can the alien sell if he did not acquire?
He may have acquired it by succession.
A contract was entered into by a person who has
capacity to give consent, is the contract valid?
Not necessarily because even if consent was given by a
person who has capacity to act, the contract may be
voidable when there is vitiated consent.
A gave consent with a contract with C. He gave
consent in representation of B. If B did not authorize
A to enter into the contract, what is the status of the
contract?
It may be unenforceable. It may be valid if A is given
authority of the law to enter into such contract such as
guardians, executors or administrators.
What are the vices of consent?
1. Mistake or error
2. Intimidation or threat
3. Violence or force
4. Undue influence
5. Fraud or Deceit (Art. 1330)
Mistake
An action was filed by the buyer of a car for the
annulment of a contract on the ground that he was
mistaken as to the brand of stereo of the car which is
alleged to be Pioneer but it was Sanyo. Would the
court grant the prayer of the plaintiff for the
annulment of the contract?
No. Not every time there is mistake would give a person
a right to annul the contract. The error or mistake in order
for annulment to prosper must be substantial regarding:
a. object of the contract
b. conditions which principally moved one or both parties
to enter into the contract
c. identity or qualifications of persons
d. error must be excusable, and not caused by
negligence
e. the error must be a mistake of fact and not of law.
Simple error or mistake as to account will give rise to
correction, not annulment of the contract.
The mistake in the brand of the stereo may not be the
condition which impels the buyer to purchase the car.
The possible mistake which would give rise to a condition
which would principally move the buyer to purchase the
car is the engine, because it goes into the essence of the
thing, probably because he is a race car driver, and he
would want a car with a powerful engine.
A entered into a contract of sale payable on
installment, may annulment be a remedy?
For the buyer, it may be a condition which impels him to
enter into a contract, when there is an error that the
payment will not be in installment. Annulment is a remedy
because he could not have entered into such contract
when he knew that the sale was on a cash basis.
May the mistake in the identity or qualification of
persons required in order to be a ground for
annulment?
Not necessarily. It is necessary however, as in the case
of contract of guaranty when the principal cause which
moves the creditor to accept him as a guarantor.
Violence/Intimidation
Violence - There is violence when in order to wrest
consent, serious or irresistible force is employed (Art.
1335).
Intimidation - When one of the contracting parties is
compelled by a reasonable and well grounded fear of an
imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants
or ascendants to give his consent (Art. 1335).
Violence was employed upon the spouse of the party
claiming vitiation of consent? Would that be a valid
ground for annulment?
View 1: No. He cannot invoke annulment because it was
not employed upon his person.
View 2: But, if in intimidation, the person may already
invoke the remedy of annulment with more reason that
such remedy should be available there being physical
compulsion.
If the plaintiff claims that he sold his fish pond at a
time where there were lawless elements roving in
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that area where his fish pond was located. His
neighbors also did the same. May he invoke that they
were compelled to sell because of lawless violence?
No. In order for violence or intimidation to be a valid
ground for annulment, it should not be a general duress.
It has to be actually employed upon the party or those
persons so provided by law. This duress is called
collective duress which is not a ground for annulment of
the contract.
Note:
1. A threat to enforce one’s claim through competent
authority, if the claim is just and legal does not vitiate
consent.
2. In determining the degree of intimidation, the sex, age
and condition of the person intimidating and
intimidated should be taken into consideration.
3. Violence or intimidation shall annul the obligation
although it may have been employed by a third person
who did not take part into the contract (Art. 1336).
If it was undue influence that was exerted by a 3rd
person upon one of the contracting parties, would
that party have a right to annul if he can prove
collusion upon a 3rd person?
Though the law does not provide, the answer is yes
because undue influence would also affect volition or
voluntariness just like violence and intimidation.
If violence, intimidation or undue influence is
employed by a 3rd person upon one of the
contracting parties, would that party have a right to
annul the obligation if he cannot prove collusion by
the 3rd person and the other contracting party?
With or without collusion, there is a right to annul the
contract.
Fraud
There is fraud, when, through insidious words or
machinations of one of the contracting parties, the other
is induced to enter into a contract, without which, he
would not have agreed (Art. 1338).
Dolo Incidente - Committed after the perfection of the
contract; the party would have entered into that contract
under different terms and conditions. The remedy of the
party is to ask for damages.
Dolo Causante - Committed before or at the time of
perfection. Causal fraud that would make the contract
voidable, and a ground for annulment of the contract.
How is Consent manifested?
Consent is manifested by the meeting of the offer and the
acceptance of the object and the cause.
What are the requisites of consent?
1. Must be given by two or more parties
2. Parties must be capacitated to give consent, as a rule
3. Consent must be intelligently or freely given, as a rule
4. Express manifestation of the will of the contracting
parties.
A offered to sell his parcel of land to B. B could not
decide whether he would but the land or not. A
granted B 2 years to decide. This agreement was put
into writing (option agreement). Assuming 3 months
from the time the offer was made the offeror
withdrew the offer and informed B. One year
thereafter B said I am buying the land. A said he does
not want to sell the land. May A be compelled to sell
the land?
No. A cannot be compelled to sell. When B finally
decided to accept the offer, A had already withdrawn the
offer. There is no more offer to be accepted.
In an instance where B accepted the offer was
withdrawn, B cannot compel A to accept the price
because that would amount to involuntary servitude. The
remedy of B is an action for damages due to breach of
contract.
In the above scenario where there is an option
money given after the withdrawal by A, may B
compel A to accept the price?
No. There can never be a meeting of the offer and
acceptance because there is no contract to talk about.
In a scenario where A can withdraw but has not
withdrawn, an option money is given, may B compel
A to accept the price?
Since the giving of an option money amounts to
reservation of acceptance, and gives A no right to
withdraw, B is nonetheless precluded from compelling A
to accept the price because that would amount to
involuntary servitude. The remedy of B is to ask for
damages for breach of contract.
If there is an option agreement, should it always be
money which is the consideration to the option
agreement?
Not necessarily, It is a consideration which is something
paid or promised which is separate and distinct from the
price.
When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon a consideration as
something paid or promised (art. 1324).
Note:
1. Acceptance made by letter or telegram does not bind
the offeror except from the time it comes to his
knowledge. An offer becomes ineffective upon the death,
64
civil interdiction, insanity or insolvency of either party
before acceptance is conveyed.
2. The acceptance by the offeree may be revoked before
reaching the knowledge of the offeror. If it is revoked,
the contract is not perfected if the notice of revocation
reaches the offeror before the letter of acceptance is
received.
3. If an obligor promises a reward for the realization of an
act or achievement of a particular result, said obligor is
obliged to pay the reward to anyone who performs the
act or attains the result. No specific acceptance is
required because the offer is made to the public. This
is an exception to the rule of law that if the offer is not
accepted the same is not binding.
4. Unless it appears that the offer is definite or certain,
business advertisements of things for sale are not
definite offers, but mere invitations to make an offer
(Art. 1325).
5. Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary
appears.
An offer was made on January 2, 2008 when A sent a
letter offering to sell his land to B. This letter was
received 2 weeks after (1-14-08), two days thereafter
(1-16-08) he sent his letter accepting the offer. The
letter was received (1-25-08). If A died on 1-23-08
would there a perfected contract?
None. The acceptance must be from the time it was
made known to the offeror and not from the time the
offeree manifested his desire to enter into a contract.
If A was insane on 1-23-08, would there be a
perfected contract?
None. Even if A was merely insane at the time he
receives the letter, there will be no perfected contract.
There is no meeting of the minds because he was
already insane at the time he has knowledge of the
acceptance.
Requirements for object of contracts?
1. The thing must be within the commerce of men
2. Transmissible
3. Licit
4. Possible
5. Determinate
If the object of a contract a thing?
Not necessarily. It may pertain to performance of
obligations to do (things, rights, services).
Is it correct that in special contracts 3 subject matters
(thing, right and service) may be a valid subject matter of
the contract?
Yes. In a contract of lease.
In all other contracts?
No, as in sale only things and rights may be to subject of
sale.
Rights
Does the law require it to be licit?
No. Because by their very nature , it should be licit.
Does the law require rights to be transmissible to be
the subject matter of contracts?
No. It may or may not be transmissible. It may not be
transmissible if the law or stipulation of the parties
provide otherwise.
May future rights be sold?
Yes. Rights over a book which is still to be written may be
sold.
Requirements in order that service may be the
subject matter of contracts?
It must not be contrary to law, morals, good customs or
public policy. It must not be impossible.
Requirements in order that a thing may be the
subject matter of contracts?
It must be within the commerce of men, otherwise it is
void.
Form of Contracts
Does the law require a particular form for the validity
and enforceability of contracts?
As a rule, the law does not require a particular form,
except when the law requires that a contract must be in a
certain form to be valid and enforceable then this
requirement is absolute and indispensable.
When the law requires a particular form and the
parties failed to comply, the contract is void?
Not necessarily. If the law requires a particular form, the
contract need not be void if the law did not provide for
nullity of contract.
What contracts would be void if the parties failed to
comply?
Donation of real property must be in a public instrument
in order to be valid, even between the donor and the
donee (Art. 749), otherwise if is void.
If the value of the personal property donated exceeds 5
thousand pesos , the donation and the acceptance shall
be made in writing, otherwise the donation shall be void
(Art. 748).
In antichresis, the agreement as to the principal and
interest must be in writing, otherwise it is void.
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Contribution of a partner ins a partnership of an
immovable property, must be in writing, otherwise, void
(Art. 1773).
Sale of land through an agent, the authority of the agent
to sell must be in writing, otherwise void (Art. 1874).
A creditor can only demand interest if it is in writing.
A stipulation reducing the degree of diligence required
that should be observed by the common carrier should
be in writing.
Oral sale of large cattle, is the sale valid?
The sale is void because the anti-cattle rustling law
requires that it must be in a public instrument and must
be registered.
S sold orally to B a parcel of land for 10,000. B
needed a public instrument to register the sale at the
register of deeds. Can B compel S to execute a
public instrument of sale?
No, because the contract is unenforceable because the
same is not in writing. The requirement that a party may
compel the other to execute the necessary form is when
the contract is valid and enforceable. Since in this case
the contract is unenforceable, although valid, the right to
execute the required form cannot be enforced.
S sold to B in writing a parcel of land for 10,000.
Later, B wanted to register the sale with the Register
of Deeds, but registration requires a public
instrument. B, therefore, requested S to execute the
public instrument of sale but the latter refused. Can
B compel S to execute the public instrument of sale?
Yes, because the contract is valid and enforceable.
In what contracts would the law require a particular
form for enforceability of contract?
Contracts covered by statute of fraud under Art. 1403.
Contracts covered by Art. 1878 -- e.g. agent must have
SPA to be enforceable against the principal.
Sale of public land, if not in a public instrument
would that be valid and enforceable?
It depends on whether the contract of sale was only a
verbal sale or in writing but not in a public instrument.
If verbal sale it will be unenforceable because it will be
covered by the Statute of Frauds.
If in writing, even if not in a public instrument, that will
already be valid and binding at least between the parties.
If in a public instrument, it may also bind 3rd persons
because only public instruments may be registered in the
register of deeds.
If private instrument, the register of deeds has no
business of registering the instrument.
Note: The requirement of the law whereby a public
instrument is required is only for convenience and to bind
3rd persons, not for validity and enforceability. The
contract remains to be valid, the right of the parties is to
compel each other to execute a public instrument if made
in a private instrument.
Reformation of Instruments:
May a verbal agreement be the subject of
reformation?
No. Only instruments may be reformed and the reason
for reformation is that the instrument does not reflect the
real intention of the parties.
Requisites for reformation of instruments in a
contract?
1. Meeting of the minds of the parties
2. Instrument does not express the real intention of the
parties
3. Failure of intention due to mistake, fraud, inequitable
conduct or accident.
4. There must be clear and convincing proof.
Note: If the mistake, fraud, inequitable conduct or
accident has prevented the meeting of the minds of the
parties, the proper remedy is annulment of contract and
not reformation of the instrument.
A delivered a sum of money to B which was accepted
by B. One year thereafter, A went back to B and
demanded the return of the money plus interest. B
asked why should I return the money, it was a
donation. A told him it is not a donation but a loan. Is
reformation a remedy?
It will not be a remedy. Reformation presupposes a
meeting of the minds. Since there is no meeting of the
minds because the parties does not know whether it is a
sale or donation, and secondly there is no instrument to
be reformed, reformation shall not be a remedy.
If the plaintiff asked for reformation of the instrument
where it was stated “cocaine”, but the real intention
was morphine, may reformation prosper?
Yes because the real contract is not a void contract. The
content of the instrument is being reformed.
What instances where reformation cannot prosper?
1. Simple donations inter vivos wherein no condition is
imposed since the intentions of the donor will prevail,
because donations reflect the liberality of the
benefactor.
2. Wills because the testator is already dead, and the will
reflect his personal intentions.
3. When the real agreement is void. Void contracts are
inexistent, so there is nothing to reform.
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In case of conflict between intention and the words
or phrases which shall prevail?
The real intention of the parties prevail even if the words
and phrases are clear as to their meaning.
Rules in Interpretation of Contracts:
If the terms of the contract is clear, the literal
meaning shall control?
Not necessarily. If the stipulation is contrary to the
intention of the parties, the intention shall prevail and the
literal meaning will not bind the parties.
How to determine the real intention of the parties?
The contemporaneous and subsequent acts of the
parties, such as the subsequent payments and the
subsequent execution of real estate mortgage shows that
there is no dation in payment.
A stipulation in a contract of sale that payment is
deemed made upon the signing of the contract.
Despite such stipulation, seller filed an action for
recovery of purchase price. Will the action prosper?
Yes. because there is no presumption that payment is
made. By the contemporaneous and subsequent acts of
the parties, it was shown that indeed payment was not
made.
Rules in the interpretation of words and phrases
shall not favor who?
The party who caused the ambiguity. In the case of ESL
vs, Margarine, the shipper who prepared the bill of
lading, it was stipulated as to the extent of the liability of
the common carrier in case damage is sustained. The
SC held that it will be interpreted against the shipper who
prepared the document.
In a sale of one of the cars, the seller, despite the
application of the rules on interpretation of contracts
and the circumstances surrounding it, there is
ambiguity as to which car is the object of the sale.
What is the effect?
The contract is void when it is absolutely impossible to
settle the doubt.
A obliged himself to deliver and transfer ownership
over a specific car. During the negotiation B already
saw the car with stereo. When the car was delivered,
there was no stereo. B demanded delivery of stereo.
If the claim of B a valid claim?
It depends on what contract was entered into.
If gratuitous, the doubt refers only to the incidental
circumstance pertaining to the contract, and because the
principle of least transmission of rights shall prevail.
If it is an onerous contract, the he will be entitled to the
stereo because in onerous contracts the greatest
reciprocity of interest shall govern.
Defective Contracts
Is defective contracts a good classification under
this title?
No. Because the term defective contract mean that there
is an existing contract. In Void Contracts there is no
contract to speak of.
May a contract be rescissible, voidable and
unenforceable all at the same time?
Yes because the defects differ depending on the status of
the contract.
What are the four kinds of defective contracts?
1. Rescissible Contracts; Valid until rescinded; the defect
is extrinsic defect consisting of an economic damage
or lesion.
2. Voidable Contracts; Valid until annulled. Annullable
unless ratified. If ratified, the contract is cleansed of its
defect. This contract is effective now, but may be
invalidated.
3. Void Contracts is one that has no effect at all; it cannot
be ratified or validated. This is called inexistent
contracts.
Distinguish Rescission under Art. 1191 and
Rescission under Rescissible Contracts?
1. In 1191 there must be a breach while in Rescissible
Contracts there may or may not be a breach.
2. The prescriptive period under 1191 is 1 years while
rescission under 1380 and 1381 should be filed within
4 years from the date of the contract.
3. The breach under Art. 1191 should be a substantial
breach or fundamental breach. Slight breach or casual
breach cannot be the basis on an action for rescission
under 1191.
4. Under 1191 it is a principal remedy, while in 1380 and
1381, it is a subsidiary remedy.
May the defect of the contract be void and voidable
at the same time?
No, because void contracts are inexistent while voidable
contracts exist.
May rescissible, unenforceable and voidable
contracts be ratified?
Unenforceable contracts and voidable contracts may be
ratified.
Rescissible contracts cannot be ratified because it has
no inherent defect as to the requisite.
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May a void contract be ratified?
Yes, under Art. 1898 the principal can ratify the contract
as when the agent acted in excess of authority and the
3rd person was aware that the agent acted in excess of
authority.
However, the enumeration under Art. 1409 cannot be
ratified for they are void and inexistent from the
beginning.
Rescissible Contracts
How may contracts be considered rescissible?
Contracts may only be considered rescissible because
the law so provides.
If there is no law declaring the contract to be rescissible,
it is not.
What contracts are considered rescissible?
1. Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than 1/4 of the value of the things which are the object
thereof;
2. Those agreed upon in the representation of absentees,
if the latter suffer the lesion stated in the preceding
number.
3. Those undertaken in fraud of creditors when the latter
cannot in any manner collect the claims due them;
4. Those which refer to things under litigation if they have
been entered into by the defendants without
knowledge and approval of the litigants or competent
judicial authority.
5. All other contracts specially declared by law to be
subject to rescission (Art. 1381).
What other contracts declared by law to be
rescissible?
1. The right to rescind as provided under Art. 1189 in
case of deterioration of the thing delivered.
2. The right to rescind given an unpaid seller as provided
for in Art. 1526.
3. The right to rescind given to a vendee in sale of real
property per unit of measure or lump sum price.
4. Violation of warranty against hidden defects under Art.
1567.
How to determine whether a contract is entered into
in fraud of creditors?
1. There must be an intention to defraud creditors.
2. There must be a pre-existing obligation at the time it
was entered into.
Note: Even if the contract was entered into
before the obligation arose, it is still in fraud of creditors
when the purpose is really to defraud creditors.
3. The existence of fraud or bad faith on the part of the
debtor which can either be presumed or proven; and
4. The creditors cannot recover their credits in any other
manner.
In what instance may a contract be said to be in
fraud of creditor even before the obligation arose?
In a contract of loan where a person is supposed to
mortgage his property as security for the loan. Here the
debtor owns the property at the time of the loan but
before the money to be loaned was released by the
Bank, the person disposed of the property. There was no
perfected loan but there was already fraud of creditors,
even before the money was released, the titles will
already be delivered to the bank.
How to prove fraud in (contracts in fraud of
creditors)?
Creditor may prove fraud by invoking the presumptions
provided for by law. It may be proved by proving badges
of fraud.
What are some instances considered by the Court as
badges of fraud?
1. The fact that the consideration of the conveyance is
fictitious or inadequate;
2. A transfer made by a debtor after suit has begun and
while it is pending against him;
3. A sale on credit by an insolvent debtor;
4. Evidence of large indebtedness or complete
insolvency;
5. Transfer of all or nearly all if his property by a debtor
especially when he is insolvent or greatly embarassed
financially;
6. The fact that the transfer is made between father and
son, when the above circumstances are present;
7. The failure of the vendee to take exclusive possession
of all the property.
May a contract be considered rescissible even
without badges of fraud?
Yes, in:
1. Gratuitous contracts - Contracts entered into by the
debtor when he did not reserve sufficient property to
pay his debts before donation are considered
fraudulent.
2. Onerous contracts -
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a. Made by a person against whom some judgment has
been rendered even if not yet final.
b. Made by person against whom some writ of
attachment has been issued. The decision or
attachment has been issued. The decision or
attachment need not refer to the property alienated.
Note: Even if the order of attachment is not yet
final and the executor 2 days after the issuance
disposed of it, the presumption would still arise.
It is not necessary that the order becomes final.
A donated a property worth 5M to X, and the debt is
500k, is there a presumption that the donation is in
fraud of creditors?
Not necessarily because A may have reserved sufficient
property to pay his debts.
Does it matter whether the debtor was aware of the
order?
It does not mater.
Are the presumptions conclusive or disputable?
The presumptions are merely disputable and the debtor
can prove good faith. But with respect to donations, the
fraud of creditors should be conclusive because debts
should be satisfied first before any gratuitous
transactions should be made by the debtor.
Because there was lesion of 25%, is it rescissible?
Not necessarily. It is void if the guardian is the buyer. It is
valid if it is made with judicial authority.
Because there was lesion of 25%, is rescission a
remedy?
No because there are requirements for rescission to
prosper. Rescission is merely subsidiary and there must
be prior exhaustion of all legal remedies.
If there is rescission, should there be a return of
what has been received?
Not necessarily because if the thing which is the object of
the contract is legally in the possession of another who
did not act in bad faith, rescission will not prosper.
May a 3rd person pay for the damage or
indebtedness of the debtor who is the seller in fraud
of creditors?
No. The creditor can no longer rescind.
What is the prescriptive period for rescission?
A. General Rule
Within 4 years from the date it was entered into:
1. If the person is under guardianship, within 4 years from
the time the guardianship ceases;
2. In case of absentees, within 4 years from the time the
domicile is known.
B. In certain contracts of sale which are specially
declared by law to be rescissible, the period is 6 mos.
or even 4 days counted from the day of delivery (Arts.
1543, 1571, 1577).
Who are the persons who can bring the action for
rescission?
1. the injured party
2. the heirs of the injured party
3. the creditors if the transaction is fraudulent
Two parcels of land are alienated in fraud of creditors
in one contract, may the contract be rescinded?
The contract may be rescinded by the restitution of both
properties is not required because the restitution may
only be to the extent to recover damages caused.
Voidable Contracts
What are voidable contracts?
Those which possess all the essential requisites of a
valid contract but one of the parties is INCAPABLE OF
GIVING CONSENT, or CONSENT IS VITIATED by
mistake, violence, intimidation, undue influence or fraud.
Who may avail of the remedy of annulment of a
voidable contract?
Only those principally and subsidiarily obliged can be a
party.
The capacitated person cannot invoke the incapacity of
the other party. Only the incompetent party may avail of
this remedy.
May a 3rd party who is subsidiarily obliged have the
contract annulled?
An action for annulment by 3rd person may be allowed if
that person can show to the court damages that he may
incur if the contract is not allowed. Guardians, guarantors
or pledgors are subsidiarily liable, they will be benefited if
annulled and prejudiced if not annulled.
Do void contracts produces no legal effect?
Void contracts produces no legal effect whatsoever.
An action to recover from a void contract, can it
prosper? If so, there is an effect of a void contract?
It can prosper, there is a right to recover in case the
parties are in par delicto (Art. 1411, 1412, 1414, 1416).
There is right to recover because the law so provides. It
is not an effect of contracts.
Unenforceable Contracts
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These contracts cannot be enforced through court action
unless ratified. If there is a proper objection there is
obviously no ratification. One kind of ratification is when
there is failure to properly object, when oral evidence is
presented to prove the existence of a contract.
What contracts are considered as unenforceable
contracts?
1. Contracts where both parties are incapacitated;
2. Contract entered into in representation of another but
he does not have the authority of that person.
3. Contracts enumerated under Art. 1878 entered into by
an agent without a Special Power of Attorney.
4. Contracts entered into under 1403 more properly
known as the Statute of Frauds.
What are the unenforceable contracts under Art. 1403?
The following contracts are unenforceable, unless they
are ratified:
1. Those entered into in the name of another person by
one who has been given no authority or legal
representation, or who has acted beyond his powers.
2. Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by
the party charged, or by his agent; evidence, therefore,
of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a. An agreement that by its terms is not to be performed
within a year from the making thereof;
b. A special promise to answer for the debt, default, or
miscarriage of another;
c. An agreement made in consideration of marriage, other
than mutual promise to marry;
d. An agreement for the sale of goods, chattels or things
in action, at a price not less than P500, unless the
buyer accept and receive part of such goods and
chattels, or the evidences or some of them, of such
things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book.
at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the
purchasers and persons on whose account the sale is
made, it is a sufficient memorandum;
e. an agreement for the leasing for a longer period than 1
year, or for the sale of real property or of an interest
therein;
f. A representation as to the credit of a third person.
3. Those where both parties are incapable of giving
consent to a contract.
If both parties are incapacitated and one of the
parties ratified, what is the status of the contract?
Voidable because by then only one party is
incapacitated.
If a person entered into a contract in representation
of another but does not have the authority of that
person, is the contract unenforceable?
Not necessarily because such person may have entered
into a contract through legal representation (authorized
by law or by the court), even if he is not authorized by the
person represented.
Statute of Frauds
Is the Statute of Frauds applicable only in Contracts
of Sale and/or Lease?
No. Under Art 1403 it was provided that any agreement
under its terms is not to be performed within 1 year and it
is not in writing would be unenforceable. Thus a contract
for piece of work or contract of agency, or any contract
for that matter may be covered by the Statute of Frauds if
under the terms of such contract, is not to be performed
within 1 year. It will be unenforceable if not in writing.
What is the purpose of the law in requiring a contract
to be in writing if it is to be performed within 1 year,
is it to prevent fraud from being committed?
It is not necessarily to prevent fraud from being
committed but rather because that even honest men may
commit mistakes.
An oral partnership is valid?
True, even if one of the parties contributed an immovable
property. What the law requires is that the partnership
itself should be in writing, which require to have an
inventory of such immovable property, to be signed by all
the contracting parties.
There is no debate to the fact that the provision under
ARt. 1771 where it provides that where immovable
property or real rights are contributed thereto, a public
instrument shall be necessary. In relation to Art. 1773
where it provides that whenever an immovable property
or real rights is contributed, if an inventory is not made,
the contract of partnership is void. Nowhere in these two
provisions that would tell that whenever the contract of
partnership is entered and a contribution of real property
is made, if not in a public instrument, it is void. What is
void is when there is no inventory of the real property,
that would make the contract of partnership void. It is
valid, the purpose of inventory is to notify third persons
who would enter into contracts with the partnership.
Oral promise of guarantee is valid?
An oral guarantee is alway entered into by a 3rd person.
The guarantor here is not the principal debtor. This would
fall under the statute of frauds, a special promise to
answer for the debt of another. Since it is not in writing, it
70
is merely an oral promise of guaranty, it cannot be a valid
and binding contract, it will be unenforceable under Art.
1403.
Cabagui vs. Roxillo
The father and his son had a verbal agreement with
another father with his daughter, that the son and the
daughter will get married, but the father and the son
will cause the repair of the house of the father and
the daughter. Pursuant to this agreement the father
and the son had the house of the father and the
daughter repaired. They spent 700 pesos. However,
after the house of the father and the daughter
repaired, the daughter refused to marry the son. The
father and the son filed an action for damages
against the father and the daughter. Will the action
prosper?
As to the cause of action the father as against the father
and the daughter, this would be an action based on an
agreement, in consideration of marriage. Therefore,
under the statute of frauds it should be in writing, since
this is merely a verbal agreement, that agreement is
unenforceable. The action should be dismissed. (Art.
1403)
However, as to the son, the cause of action pertains to
an action under a mutual promise to marry which is not
covered by the statute of frauds. Under the law, An
agreement made in consideration of marriage other than
a mutual promise to marry. (Art. 1403).
Note: A mere breach of a mutual promise to marry is not
actionable, but the manner by which the breach of
promise to marry may be the basis of an action for
damages.
Does the law require that for the statute of fraud to
apply it had to be in a public instrument?
No. It merely require that it be in writing to be a valid and
binding contract.
If the contract of sale involves an immovable
property, and it is not in writing, it will be
unenforceable?
In sale of an immovable property as long as it is in
writing, it would be a valid and binding contract between
the parties. But it will not bind 3rd persons, because a
private instrument cannot be registered except if such
3rd person have actual knowledge of this contract.
Does it matter if the purchase price of the immovable
property is only 300 pesos?
No. The price in sale of immovable is irrelevant.
If A sold a bag to B, which bag he purchased 3 days
ago for 3500 but he sold it to a friend today and it is
not in writing, is it covered by the statute of frauds?
Not necessarily. Even if the value of the bag is 3500, and
he sold it merely for P350, it will not be covered by the
statute of frauds. The law on sales follow the principle
that lesion does not affect the validity of contracts.
A contract of sale involving a movable property, wort
P300, may that contract still be covered by the
statute of frauds?
Yes it may still be covered when under the terms of the
contract, it is not to be performed within one year.
In a contract of lease which is for a period of 3 years,
it is merely a verbal contract, would that be covered
by the statute of frauds?
Not necessarily. Under the law an agreement for leasing
for a longer period than one year, must be in writing to be
enforceable pertains to a real property or an interest
therein. If the subject of the lease is a personal property,
then it cannot be subject to the provision of the statute of
fraud pertaining to lease contracts.
In a contract of lease entered into by an agent, and
the contract will involve a real property and the
period is more than 1 year. What is required for this
to be enforceable?
It has to be in writing and the agent should have a
special power of attorney.
X came across an advertisement in the Manila Daily
Bulletin about the rush sale of three slightly used
Toyota Corollas model 1989 for 200k pesos each.
Finding the price to be very cheap and in order to be
sure he gets 1 of the unit ahead of the others, X
immediately phoned the advertiser and placed an
order for 1 car. Y accepted the order and promised to
deliver the ordered unit on July 15, 1989. On the said
date, however, Y did not deliver the unit. X brings an
action to compel Y to deliver the unit. Will such
action prosper?
This action will not prosper is there is a proper objection
on the part of Y. But if oral evidence is presented to prove
the existence of the contract, and there is no proper
objection on the part of Y, then the action may prosper to
prove the existence of the contract. As stated under the
facts, the contract is a sale of a movable property valued
more than 500 pesos, hence covered by the Statute of
Frauds which require that the contract be in writing. In
this case there is only a verbal contract.
A and B entered into a verbal contract whereby A
agreed to B to sell his only parcel of land for 20k
pesos. B agreed to buy the land on the
aforementioned price. B went to the bank to
withdraw the money to be paid to A and immediately
returned A for the consummation of the contract. A
however, changed his mind and refused to go
through with the sale. Is the agreement valid? Will
the action by B against A for specific performance
prosper?
The agreement is valid but this cannot be enforced
through court action because the facts involve a parcel of
land which is required to be in writing to be enforceable.
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The action for specific performance may prosper if there
is no proper objection on the part of A when B offered his
evidence to prove the existence of the contract,
otherwise such action will not prosper.
This action may also prosper notwithstanding the failure
on the part of A to object to the evidence when B raises
the defense of partial fulfillment. However, under the
facts there is no partial fulfillment. B just went to the Bank
and withdraw the money and returned to A. Such fact
does not prove partial performance, but merely an act
preliminary to the fulfillment of the obligation to pay. He
only planned to pay.
In an oral contract which by its terms is not to be
performed within 1 year from the execution thereof,
One of the contracting parties already complied
within the year with the obligation imposed upon him
by said contract. Can the other party avoid fulfillment
of those incumbent upon him by invoking the Statute
of Frauds?
No. He can no longer invoke the Statute of Frauds had
there been performance of the obligation by one of the
parties. The reason why a person can invoke the Statute
of Frauds is because the contract is still wholly executory
thus there is no proof of the existence of the contract. If
there had been performance already of the contract,
even if partial, it presupposes there has been a contract
in the first place.
One half of a parcel of land belonging to A and B was
sold by X to Y for the amount of 1500. The sale was
executed verbally. One year later A and B sold the
entire land to X. Is the sale executed verbally by X to
Y, valid and binding?
The sale between X and Y being a verbal sale which
involves a parcel of land. On its face it appears to be
covered by the Statute of Frauds.
Alt. 1 But the answer would be, as suggested by the UP
Law Center, the sale is valid and binding because of the
payment, and that took the contract outside the operation
of the Statute of Frauds.
Accdg. to Professor Uribe, under the facts there was no
payment. There was no mention that Y paid X 1500.
Alt.2 Even if X was not the owner at the time of the sale,
when he thereafter acquired ownership because A and B
sold the entire land to X, by operation of law, ownership
passes to his own buyer (Y). The basis of which is Art.
1434.
Accdg. to Professor Uribe however, the above basis
cannot also apply because for Art. 1434 to apply the law
further requires there must have been delivery of the
thing by the seller to the buyer, even if the seller was not
the owner and no right to sell, he must deliver the thing to
the buyer in order that ownership to automatically pass to
the buyer, the moment the seller acquires ownership
over the thing. Under the facts, there was no mention of
delivery.
Alt. 3 Since this a sale of an immovable property and this
is a verbal sale, there being no partial fulfillment of any
obligations arising from this contract, this is
unenforceable under the Statute of Frauds. (proper
answer)
An agreement or contract which involves a Real
Property is covered by the Statute of Frauds?
Not necessarily.
An agreement as to the partition of a parcel of land, but
that agreement is not covered by the Statute of Frauds.
The Statute of Frauds would be applicable if the action
filed is to enforce a contract which is covered to claim
damages because of breach of that contract.
Where an ejectment suit was filed and the plaintiff
was about to testify as to the existence of a contract
in relation to the land to prove his right to evict the
occupant. The lawyer of the defendant invoked the
Statute of Frauds. Should the judge sustain the
objection of the defendant?
No. The action was not an action to enforce an
unenforceable contract, nor an action covered by the
Statute of Frauds, nor an action to claim damages based
on an unenforceable contract. This involves a third
person. A third person under the law cannot assail an
unenforceable contract.
If there is no partial payment or no partial delivery,
the doctrine of part performance shall not apply,
which will bring the contract outside the coverage of
the Statute of Frauds?
No True. Partial fulfillment may pertain to any obligation
arising from a verbal contract.
For example in a case decided by the Supreme Court
involving a sale of a parcel of land, as verbally agreed
upon buyer paid the real property taxes. The buyer also
had the property surveyed. The buyer also constructed a
building, more or less permanent in character. These
obligations does not have anything to do with payment or
delivery, but nonetheless the S.C. ruled that because of
partial fulfillment of the obligations arising from that
contract, the contract was taken out of the Statute of
Frauds. Fulfillment does not necessarily be related to
payment or delivery.
If a contract is covered by the Statute of Frauds, and
the plaintiff would want to present a witness who
would testify without any document at hand. In other
words, oral testimony is being presented, and there
is an objection under the Statute of Frauds, does it
necessarily mean that the judge should sustain the
objection, because the contract is covered by the
Statute of Frauds?
It depends on the purpose of the testimony. If the
purpose of the testimony is to prove partial fulfillment,
then the Statute of Frauds is not applicable. Partial
fulfillment may be proven wholly by oral testimony. No
documentary evidence is required in relation to partial
72
fulfillment. Hence, the judge should not sustain the
objection.
Moreover, even if three (3) witnesses would testify in
court as to partial fulfillment. The court should not
automatically conclude that there was in fact partial
fulfillment. The court should satisfy itself base on the
testimony that indeed there was partial fulfillment.
On the other hand the Statute of Frauds does not pertain
to the weight of evidence. The Statute of Frauds affects
the admissibility of the evidence. In other words if the
contract is covered by the Statute of Frauds, the
testimony may not even be allowed under this objection.
It goes into the admissibility of the evidence.
How shall unenforceable contracts be ratified?
1. By acceptance of the benefits under such contract.
2. For failure to object to the presentation of oral
evidence at the proper time.
Void Contracts or Inexistent Contracts
What contracts are void or inexistent 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
(Art. 1409).
Are relatively simulated contracts void?
The relatively simulated contract is void but they will be
bound to the contract or transaction which the parties
actually entered into.
The cause or object of the contract need not exist as
long as such cause has the potentiality of existence?
False. The object is not a thing, the object is the subject
matter of the contract. Such view may be right in a
contract of sale, where the contract of sale may be valid
even if the thing is not yet in existence as long as it has
the potentiality of existence. But in contracts, there has to
be a cause or object at the time of the transaction. If
there will be no subject matter, it lacks one of the
essential requisite of a contract.
What other contracts expressly prohibited or
declared void by law?
The following persons cannot acquire by purchase, even
at public or judicial auction, either in person or through
the mediation of another:
1. The guardian, the property of the person or person
who may be under his guardianship;
2. Agents, the property whose administration or sale may
have been intrusted to them, unless the consent of the
principal have been given;
3. Executors and administrators, the property of the
estate under administration;
4. Public officers and employees, the property of the
State or of any subdivision thereof, or of any
government owned and controlled corporation, or
institution, the administration of which has been
intrusted to them; this provision shall apply to judges
and government experts who, in any manner
whatsoever take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of
justice, the property and rights in litigation or levied
upon an execution before the court within whose
jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring
by assignment and shall apply to lawyers, with respect
to the property and rights which may be the object of
any litigation in which they may take part by virtue of
their profession;
6. Any others specially disqualified by law (Art. 1491 - law
on sales).
A void contract produces no legal effect whatsoever?
True, a void contract produces no legal effect
whatsoever. Under Art. 1352, Contracts without cause,
or with unlawful cause, produce no effect whatsoever.
Secondly, a void contract is being categorized as
inexistent. If a contract is inexistent, how can it produce
any legal effect.
If an action is filed to enforce a void contract, will the
action prosper?
No. Any action to enforce a void contract will never
proper because there is nothing to be enforced.
If the contract is void, and pursuant to that contract,
one of the parties delivered a sum of money or a
thing to the other party, may he be able to recover
what he delivered to the other party?
Ordinarily if a contract is an illegal contract, meaning the
object or the cause is contrary to law, morals, good
customs, public order or public policy, he can no longer
deliver under the principle of in pari delicto. The court
should leave the parties as they are, and no aid should
be given to either party to this contract.
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However, under Art. 1411, 1412 , 1414, 1415 and 1416. What defense could have been proper by B under the
The exceptions: facts?

1. If one of the parties to this illegal contract was
incapacitated at the time the contract was entered into,
he may be allowed to recover what he delivered to the
other party. Therefore, even if the contract is illegal and
therefore void, still he should be allowed to recover if
public interest warrants what he delivered pursuant to
the void contract.
2. Despite the fact that the contract is an illegal contract,
a party to such contract may be allowed to recover
what he delivered if he repudiated the contract before
the consummation of the contract or before damage is
caused to a third person.
What is the distinction between an inexistent
contract and annullable contract?
Inexistent are void contract while annulable contracts are
valid contracts until annulled.
Inexistent contracts cannot be ratified; while annulable
contracts can be ratified.
Inexistent contracts are void because one of the
essential elements is lacking or maybe because the
contract is contrary to law, morals, good customs, public
order or public policy. Annulable contracts is a defective
contract because of defect in the consent either
incapacitated or there is vitiation as to his consent.
In 1950, the Bureau of Lands issued a homestead
patent to A. Three (3) years later A sold the
homestead to B. A died in 1990 and his heirs filed an
action to recover the homestead from B on the
ground that the sale of A (their father) to B is void
under sec. 118 of the Public Land Law. B contends
however, that the heirs of A cannot recover the
homestead from him because their action has
prescribed, and furthermore, A was in pari delicto.
Decide.
The proper defense should have been laches. In this
case almost 40 years had elapsed. The grantee, the
seller slept on his rights, and therefore he and his heirs
may not recover, under the principle of laches.
M an unwed mother gave her child for adoption to a
childless couple, BC for which the latter paid 20k. In
the civil register of birth, the father was listed as
father unknown. Two years later after BC learned to
love the child as their own, the adoption proceedings
commenced with required publication. F the father of
the child appeared to oppose the adoption and to
seek custody of the child. M sided with BC claiming
that F had abandoned her when he was pregnant
declararing that she wanted BC to keep the child.
Could BC recover the twenty thousand (20,000) they
had paid for either F or M? Reasons.
No they cannot recover. Effectively, M sold the child to
the spouses BC and obviously the sale is a void sale
because the object is contrary to law, morals, good
customs, public order or public policy. The contract being
an illegal contract , the in pari delicto rule would be
applicable and whatever was delivered by the party to
the other may no longer be recovered, as the court
cannot give aid to either party to such contract.

As to prescription, it is not a good defense because the

sale made within 3 years from the grant under the Public
Land Law is a void sale. Any alienation of the land under
this law within the 5 year prohibitory period is a void
alienation. A contract which is null and void and an action
to recover from such void contract does not prescribe.

However, into the second defense that the heirs cannot

recover under the in pari delicto rule, as provided in Art.
1416, that when a law declares a contract null and void
but there is no inherent illegality (not illegal per se) in the
contract and the declaration of nullity by law is intended
or designed to protect one of the parties to that contract,
that person in whose favor the law would so provide its
nullity may recover what he sold to the other party. The
prohibition under the Public Land Law is intended to
protect the grantee and his family because if he sell or
alienate the property within that period he would have
nothing more to cultivate himself and his family. That is
why he would still have the right to recover the property
as the contract is a void contract and the in pari delicto
rule is not applicable under the facts.

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