Ti Mang

Obligations and Contracts The Fraternal Order of St.
Thomas More
Atty. Lielanie Yangyang-Espejo Ateneo de Davao University College of Law
TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU TAU MU
PRESCRIPTION collection sooner. You would not have allowed ten years
to lapse without doing anything.
Prescription is one concept which is present in almost all
subjects in law because except for other actions, there is Extinctive prescription is based on the probability, born
really a limitation. Prescription sets a limitation either in the from experience, that the alleged right which accrued in
acquisition of rights or the extinction of rights. the distant past never existed or has already been
extinguished; or, if it exists, the inconvenience caused by
the lapse of time should be borne by the party negligent
in the assertion of his right.
Article 1106. By prescription, one acquires So that is also the basis of extinctive prescription.
ownership and other real rights through the lapse
of time in the manner and under the conditions Now, in case of acquisitive prescription:
laid down by law.
Example:
In the same way, rights and conditions are lost by
prescription. (1930a) A parcel of land has been acquired by X through
acquisitive prescription. Assuming he was in bad faith, he
did not have just title, so that would mean 30 years.
He occupied the land in 1970 and then finally when will

Article 1106 talks of the two kinds of prescription. he acquire the land by prescription? Year 2000.
Under the first paragraph, we have acquisitive
prescription. It is very admitted from the first statement, From year 1970 until now, he has been in possession of
one acquires ownership and other real rights through the the land. He has already acquired the land by
lapse of time in the manner and under the conditions laid prescription.
down by law. You will discuss this also in your law on
Now, when do we reckon the start of his ownership?
property. There are different modes of acquiring
Would it be in year 2000, after the lapse of 30 years? Or
ownership. One is prescription. Prescription is a mode of
would it be in 1970, the period when he started
acquiring ownership.
possession?
Example:
Remember that prescription has a retroactive effect. This
There is real property or a parcel of land which is owned means that because of prescription X acquired the land,
by another person but now is being possessed by X. So, we need 30 years to set in before we can say that he
the law says ―after the lapse of time and in the manner acquired by prescription but because of the retroactive
and under the conditions laid down by law.‖ Generally, effect, the ownership would start not from year 2000 but
after a certain period of time like 10 years or 30 years and from 1970. Ownership starts from the period when the
in the manner provided by law (like in the concept of prescriptive period began to run. We‘re talking here of
owner, public, continuous, peaceful and adverse), X may acquisitive prescription.
acquire ownership over the land. It becomes a mode of
Insofar as extinctive prescription is concerned, it is a
acquiring ownership.
matter of defense. When we say ―a matter of defense,‖
As discussed, acquisitive prescription is based on the you can assert that right when the other party has
assertion by a usurper of an adverse right for such a long already made a demand or instituted an action.
time, uncontested by the true owner of the right, as to
Example:
give rise to the presumption that the latter has given up
such right in favor of the former. A debt that has already prescribed. For ten years, the
creditor did not make any demand. On the 11 th year, he
If you‘re really interested to assert your right over that
made a demand for the debtor to pay. In that case, the
certain property, you would have already contested the
debtor may raise as a matter of defense that he is no
possession of X in that land. You would have already
longer obligated to pay because the debt has already
complained. But because you kept silent for a certain
prescribed. So, for ten years, the debtor does not have to
period of time, you did not complain, the law gives the
do anything. Because the debtor will say ―hey creditor,
presumption that you are willing to give up your right in
my debt is almost about to prescribe!‖ The creditor might
favor of the usurper or in my example, X.
remember and so the prescription will be wasted. So the
The second paragraph talks of extinctive prescription. So, debtor does not have to do anything. Extinctive
rights and conditions are lost by prescription. prescription is a matter of defense. It can be raised once
the other party is already making a demand or asserting
Example: his claim.
There is an obligation to pay a sum of money and it is in And because it‘s a matter of defense, for example, you
writing so the creditor has 10 years within which to are the debtor and the creditor files an action for
institute an action for collection. But if after that period, collection of the debt. If your defense is prescription, you
he allowed ten years to lapse without making any have to state that in your answer. You have to allege that
demand and without filing any action, that again would you are no longer bound to pay the debt because the
be construed as an abandonment of his right because if debt has already prescribed. If you do not allege that in
you were really interested to assert your right, you would your answer, that defense can be waived. The defense
have at least made a demand or instituted an action for of prescription can be waived. It has to be alleged and
pleaded in the answer.
Revelen Solis and Mizzy Mareé Martinez TAU MU Page 1 of 262

Obligations and Contracts The Fraternal Order of St. Thomas More
Article 1107. Persons who are capable of acquiring Article 1108. Prescription, both acquisitive and
property or rights by the other legal modes may acquire extinctive, runs against:
the same by means of prescription.
(1) Minors and other incapacitated persons who
Minors and other incapacitated persons may acquire have parents, guardians or other legal
property or rights by prescription, either personally or representatives;
through their parents, guardians or legal representatives.
(1931a) (2) Absentees who have administrators, either
appointed by them before their
disappearance, or appointed by the courts;
Under the first paragraph, if a person is capable of (3) Persons living abroad, who have managers or
acquiring property or rights in other legal modes like if he administrators;
is qualified to acquire property by donation or if he is
qualified to acquire property by sale or by succession, so (4) Juridical persons, except the State and its
he is also allowed to acquire property by means of subdivisions.
prescription.
Persons who are disqualified from administering their
Now, unlike other modes of acquiring ownership, we also property have a right to claim damages from their
have here the provision under the 2 nd paragraph that legal representatives whose negligence has been the
minors and other incapacitated persons may acquire cause of prescription. (1932a)
property or rights by prescription, either personally or
through their parents, guardians or legal representatives.
The law says either personally (they can, on their own,

In Article 1107, when we say ―prescription‖ and when we
acquire property by prescription) or through their parents,
mention ―minors and other incapacitated persons,‖ we
guardians or legal representatives.
are referring to their capacity to acquire by prescription.
Unlike in other modes, like for a minor, general rule is that
In Article 1108, we are referring to the running of
they cannot enter into a contract of sale personally. It
prescription against them. They may lose property or
has to be with a legal representative, parents or the legal
rights also by prescription.
guardian. But in prescription, he may acquire personally
or through parents, guardians or legal representatives.
(1) Minors and other incapacitated persons who
have parents, guardians or other legal
There is one element that has to be present for a minor or
representatives;
other incapacitated person to acquire property by
prescription. There has to be discernment because we
Under number 1, minors and other incapacitated persons
have what we call the animusrem sibi habiendi or ―intent
who have parents, guardians or other legal
to appropriate the thing as one‘s own.‖ That should be
representatives. It doesn‘t mean that if you are a minor,
present for the minor or other incapacitated persons to
you cannot lose a property or a right by prescription.
acquire the property personally through the mode of
prescription. Example:
But if there is no discernment so they don‘t have the You are a minor and you are the owner of a property
intent to appropriate the thing as one‘s own, they need and then it is being occupied adversely by another
to be represented by their legal guardian, parents or person in the concept of an owner. Prescription would
legal representatives. They can still acquire a thing by run against the minor if he has parents, guardians or other
prescription even without discernment but the acquisition legal representatives. So, he cannot say that there should
should be with their legal representatives. be no prescription because ―I was still a minor at that
time and I could not have possibly filed a case in court.‖
No, because you have parents, guardians or other legal
representatives who could file in your behalf or who
could have made a demand against the usurper in your
behalf.
Now what if the minor or other incapacitated persons do

not have parents, guardians or other legal
representatives? Does it mean that prescription would not
run against them because the law says ―Prescription runs
against minors and other incapacitated persons who
have parents, guardians or other legal representatives?‖
If they don‘t have parents, does it mean that prescription
will not run against them?
We have to reconcile that with Section 42, 45 and 46 of

Act No. 190 or the Code of Civil Procedure.
Even if the Code of Civil Procedure has already been

replaced by the New Civil Code, it doesn‘t follow that all

the provisions of the Code of Civil Procedure are already The last paragraph says they have a right to claim
repealed. These particular provisions, Sections 42, 45 and damages from their legal representatives whose
46, have not been expressly repealed by the New Civil negligence has been the cause of prescription. So, with
Code and any other laws so they will still apply. respect to the legal representatives, they cannot just rely
on the fact that it‘s not their property so they will not
What are these rules? exercise the proper action or the proper diligence. No,
because you can be held liable for your negligence.
Sec. 42. If the person entitled to bring the action mentioned in
the preceding sections of this chapter (title to land by
prescription) is, at the time the cause of action accrues, within
the age of minority, of unsound mind, or in prison, such person
may, after the expiration of ten years (the period of prescription
provided for title to lands) from the time the cause of action
Article 1109. Prescription does not run between
accrues, bring such action within three years after such disability husband and wife, even though there be a separation
is removed. of property agreed upon in the marriage settlements
or by judicial decree.
Sec. 45. If a person entitled to bring any action mentioned in
either of the last two preceding sections (extinctive prescription
Neither does prescription run between parents and
in all other civil actions aside from suits on title to land) is, at the
time the cause of action accrues, within the age of minority, or children, during the minority or insanity of the latter,
unsound mind, or in prison, such person may bring such action and between guardian and ward during the
within two years after the disability is removed. continuance of the guardianship. (n)
GENERAL RULE: Even if the minor or other incapacitated Why is it that prescription will not run between husband
persons have no parents, guardians or other legal and wife? Because reasons of influence or affection may
representatives, prescription could still run against them often prevent one from bringing an action against the
but they have a certain number of years within which to other.
bring an action after their disability had been removed.
In that case, GENERAL RULE: prescription will not lie
With respect to them, even though they were under
against the other.
disability or they were minors or incapacitated, they still
have this period within which to file an action after the
minority or disability has been removed. Example:
In case of recovery of land, we have three years. So, if The wife has a separate property (they can still have
you are a minor, three years from the time you attained separate properties, paraphernal or capital). So, even if
the age of majority. If you are insane, three years from that property is being occupied by the husband and the
the time that you regain your insanity. husband occupies it in the concept of an owner,
adversely, publicly, exclusively, etc., he cannot later on
Two years in other civil actions from the time that the claim that that is his exclusive property by prescription.
disability has been removed. So, that is the base period
within which they could still file an action against the
Are there instances where prescription would apply
person who acquired their properties or rights.
between husband and wife?
(2) Absentees who have administrators, either

1. In cases of action for legal separation (Article 57,
appointed by them before their disappearance,
Family Code)
or appointed by the courts;
2. In cases of objections to decisions made by the
Number 2, we have absentees who have administrators, husband in the administration and enjoyment of
either appointed by them before their disappearance, or the common property (Article 96 and 124, Family
appointed by the courts. Code)
(3) Persons living abroad, who have managers or In that case, there can be prescription. These are the two
administrators; instances when prescription would lie between husband
and wife.
(4) Juridical persons, except the State and its
subdivisions. In actions for legal separation, there is a prescriptive
period within which to file an action. You cannot say that
Juridical persons, except the State and its subdivisions you can always file it anytime. No, there is a prescriptive
because as we will discuss later,general rule: properties of period.
the state which are not patrimonial in character cannot
be acquired by prescription. And objections to the decisions made by the husband.
That would be in Articles 96 and 124 of the Family Code.
So, what happens now if the minor has lost his land Supposedly, the decision should be made jointly by the
because his guardian did not timely institute the proper husband and wife, in case of disagreement, the
action? Or he lost the right to collect because his husband‘s decision should prevail. What is the recourse of
guardian or parent did not collect on time so they the wife? She can go to court. So there is a prescriptive
allowed the period to lapse? period within which the wife should go to court. It should
be timely filed also.

In the second paragraph, what is the reason why could also lose property by prescription. So there is no
prescription would not run between parents and need to place here a provision on the married man
childrenand between guardian and ward while the child because it has always been recognized that he has the
is still a minor or while the ward is still under guardianship? right to acquire property and lose property by
prescription.
Example:
Article 1111. Prescription obtained by a co-proprietor
The parent is occupying the property adversely against or a co-owner shall benefit the others. (1933)
the interest of the minor, so upon the lapse of the
prescribed time, let‘s say 30 years, and the minor has
already grown up and he wants to get the property from When we say co-ownership, meaning there are several
his mother, can the mother say that she acquired the owners over an undivided property.
property by prescription?
Like a parcel of land containing ten hectares. The land is
Or between guardian and the ward: so there‘s an insane co-owned by A, B, C and D. Even if they own the
person who is under guardianship and then this insane property in equal shares, one cannot say that ―I am the
person has certain properties but the guardian occupied owner of this specific portion‖ or ―I am the owner of the
one of his properties adversely, publicly, in the concept of southern portion.‖ because in co-ownership, all the co-
an owner. Can he acquire the land by prescription? owners own the thing in accordance with their
proportioned shares. Like in the example, they own the
property in equal shares so ¼ each. Every square meter,
What is in the relationship between these people? What is every inch of the property would be co-owned by them
the nature of their relationship? (¼, ¼, ¼, ¼).
Their relationship is characterized by TRUST. Of course, the In co-ownership there is sharing. Their shares would be
minor child would naturally trust his parent. The ward, the what we call ideal shares or spiritual shares so fraction. So
law presumes that there is a relationship of trust and in that case, in co-ownership, generally, prescription
confidence between them. obtained by a co-owner or co-proprietor shall benefit the
others because we cannot separate the personality of
That would be in violation of the relationship of trust if the one co-owner from the others.
parent or the guardian would be allowed to acquire the
property of the minor or the ward by prescription. To General rule: a co-owner, with respect to the property
prevent a conflict of interest in the part of the parent or co-owned, acts for the benefit of the other co-owners.
the guardian, the law says he cannot acquire the But this would only apply insofar as the property owned in
property of the minor or the ward by prescription. So that common is concerned as long as the act has a relation
in such a situation, he would never think of really to the property owned in common.
possessing the property adversely he knows that he can
never get the property unless the law would allow so he
would be suffering from a conflict of interest and that Example:
would tempt him to violate the confidence and trust
reposed upon him. The ten hectares are owned by A, B, C and D. A is a
representative of the co-owners and is the one in
possession of the property. Then unknowingly, A also
Article 1110. Prescription, acquisitive and extinctive, occupies the property of X. And when A discovered this
runs in favor of, or against a married woman. (n) (that his land is just beside the land of X), he continued his
possession. They claimed that the property of X now
belongs to them as part of the property in their co-
ownership. So in that case, if the requisite period of time
The law is very clear. Even if you‘re a married woman, has already lapsed, the acquisition of the property by
prescription lies against you or in favor. You can acquire prescription would inure to the benefit of the co-
a property by prescription; you can also lose property by ownership. To B, C and D, the co-owners. That is under
prescription. By marrying, you do not lose your capacity Article 1111.
or your personality.
But if A, B, C and D are co-owners of a property here in
Now how about the married man? He is not mentioned Davao City. Then in Manila, A usurped property there,
here. So do we presume that prescription does not run in and then he says that it is for the benefit of the co-
favor of or against the married man? ownership and he is able to acquire property by
prescription, would that also inure to the benefit of the
Prescription would lie in favor of or against the married co-owners B, C and D?
man but the law mentions only a married woman
because it has been a view before that if you are No more because it is no longer related to the property
married you lose your capacity and personality. But it was here in Davao unless the other co-owners would ratify the
never viewed that a man would lose his personality if he other act of A. But general rule, it is not the one
would marry. In fact, before, the view is, if you get contemplated in Article 1111 because for this to apply,
married, the husband is really the head of the family so the prescription has a relation to the property owned in
he decides everything. Now, it is made very clear that common. So, that would be in Article 1111.
themarried womanretains her own separate personality.
So she can acquire property by prescription and she

Take note under the first paragraph it says ―persons with
Article 1112. Persons with capacity to alienate capacity to alienate property may renounce.‖ How
property may renounce prescription already about minors, insane persons, persons under
obtained, but not the right to prescribe in the future. guardianship? Can they renounce? No. They cannot
renounce because they do not have capacity to
alienate property. They do not have the right to enter into
Prescription is deemed to have been tacitly
a contract.
renounced when the renunciation results from acts
which imply the abandonment of the right
acquired. (1935) Can they renounce the prescription through their
guardians or legal representatives? Because, usually, they
can act through their guardians or legal representatives.
The first principle that you have to remember in
prescription is that it can be renounced. No, it cannot be done. Representatives cannot renounce
in favor of their ward. Except of course, when we go to
Who can renounce? Article 1112 says ―Persons with succession, there are cases when the
capacity to alienate property may renounce representative/guardians may renounce in behalf of the
prescription‖ meaning those who have juridical capacity. ward. But insofar as the law on prescription is concerned,
Those who can enter into contracts can renounce or the representatives cannot renounce a prescription in
repudiate the benefit of prescription. behalf of the ward.
What would be an example of renunciation? In relation to the second paragraph, the law says
―Prescription is deemed to have been tacitly renounced
Example: when the renunciation results from acts which imply the
abandonment of the right acquired.‖ Again, prescription
does not have a specific formality. It can be done orally
A owes B 1 million pesos so he executed a promissory or in writing. It can be implied (implied renunciation of
note as evidence of that obligation. But B, for 10 years, prescription). So in the example of payment of an
did not demand and did not institute any action for obligation, acknowledgment and promising to pay an
collection. For that period of time,the obligation has obligation after it has already prescribed, that is an act of
already lapsed so the debt has already prescribed. Now, renunciation of the prescription.
what is the consequence of that prescription? If B, the
creditor, would demand on the 11th year or after the 10th
year, the defense of A would be prescription. He cannot Now, for example, the debtor paid the obligation after it
be compelled to pay the debt. has already prescribed. What is the consequence of that
payment? That is also equivalent to renunciation of the
prescription. In addition, the law on natural obligations
But, for example, even if it is already on the 12 th year, A would apply.
acknowledged his debt and executed another promise
to pay the debt. What is the consequence of that act? A
has already renounced the prescription. What does the law on natural obligations provide? One
classic example of a natural obligation would be
prescribed debt. If the debtor pays a prescribed debt, he
Does it need the acceptance of B? B says ―Okay. I cannot recover what he has voluntarily paid. The law on
accept it.” No. The renunciation of prescription is a natural obligations would prevent him from recovering
unilateral act. It does not need the acceptance of the but he would not be compelled to pay. If he pays
person in whose favor it is waived. That‘s one principle. knowingly and voluntarily, ha cannot recover what he
has paid.
And there is no formality required also for the
renunciation of the prescription. There is no need to Now for example, he paid not knowing the debt has
reduce it into writing, or to have it in a public document, already prescribed, would that be equivalent to
or to register it. There is no formality required; it can be renunciation of the prescription? No. It is not equivalent
implied, as mentioned in the 2nd paragraph of Article because, in the first place, he did not know that the debt
1112. had already prescribed.
Take note, under the first paragraph, the right to If he already paid, what happens now to the payment?
prescribe in the future cannot be renounced. It cannot Can he recover it? Yes. He can recover what he has paid
be renounced in advance. In a contract between A and and that would be the application of the law on quasi-
B (the note agreement), even if the parties provide in the contracts, specifically solutio indebiti, as we will discuss in
contract that ―even if the requisite period for prescription the succeeding articles.
has lapsed, the debtor still acknowledges his debt and
promises to pay the same.‖ They put it in the contract
because the creditor is afraid that he will forget to Under the principle of solutio indebiti, no person shall be
demand for payment.The law says it is prohibited. It is a unjustly enriched at the expense of another. So that is
void stipulation. The right to renounce in advance cannot unjust payment; a payment by mistake and the creditor,
be made. in that case, because the debt has already prescribed,
has no right to retain it. He has to return the payment to
the debtor.
But past prescription can be waived. If the debt has
already prescribed and the debtor really wants to pay
because he is afraid, he can renounce the prescription.

2) Lands registered under the Torrens system.
Article 1113. All things which are within the
commerce of men are susceptible of prescription,
When we say Torrens system, it is registered under
unless otherwise provided. Property of the State or
the Land registration authority. It is covered by a
any of its subdivisions not patrimonial in character
title, certificate of title. If you are a holder of a
shall not be the object of prescription. (1936a)
Torrens title, even if your property was occupied
for 50 years, it cannot be acquired by
GENERAL RULE: All things which are within the commerce
prescription.
of man are susceptible of prescription.
Most of the time, squatters would say that they

When we say ―within the commerce of man,‖ these are
have occupied the land even before the owner
the properties which can be appropriated, subject of
was born.But they cannot acquire the property
appropriation. They are not prohibited, they are not res
by prescription. They remain to be squatters,
nullius, and they are not res communes.
intruders over the property because when you
have a Torrens title, you are protected by that.
When we say prohibited, we have illegal guns. They are No one can acquire the property by prescription.
properties but they are prohibited so they are outside the Even if the squatters occupy the property
commerce of men. You cannot acquire them by adversely, publicly and even in they think that
prescription. They cannot be subject also of prescription. they are the owners already, they cannot
acquire the property by prescription. No,
What do we mean by res nullius? Those which are not because your title is a Torrens title. Your
owned by anyone. ownership over the property is protected.
Nobody can acquire the property by
Example: prescription. Torrens title cannot be defeated by
prescription.
The sun. The sun exists, right? The star, the moon. So can
you own the sun by prescription? These things are res
nullius. They cannot be acquired by prescription. They are GENERAL RULE: all things which are within the commerce
not owned by anyone. of man may also be susceptible of prescription unless
otherwise provided.
Res communes – those owned by everyone. Like public With respect to the properties of the state, if the property
properties such as the city hall, the public road. Property is not patrimonial in character, it is not prescription. But if it
of the state or any of its subdivisions not patrimonial in is patrimonial then it can be subject of prescription.
character shall not be the object of prescription.
CASE: SEVILLE vs NATIONAL DEVELOPMENT COMPANY
What do we mean by patrimonial properties of the state?
You will discuss this also in your Natural Resources.
You learned before in your Constitutional Law that the Remember that when it comes to the state, we have to
state may have different personalities. It may exercise know what is the kind of property being claimed as
rights, do actions in pursuance of its character, its having being acquired by a private person by the mode
sovereign capacity but it can also enter into certain of prescription.
transactions, contracts with proprietary capacity.
If it is not patrimonial, it is still owned by the state in a
sovereign capacity or in this case, the land is still
A state can enter into commercial transactions,
considered as inalienable, not yet reclassified as
commercial contracts. So when the state does that, it
alienable and disposable, no matter how long the person
sheds itself of its sovereign character and it shall be
has been in possession (even if his predecessors had
treated like a private individual. So when the state
already been in possession for a hundred years then he
acquires property in that capacity, it can be the subject
also possessed for 50 years), it would never ripen into
of prescription. But if the property is owned by the state in
ownership. That land cannot be acquired by prescription.
a sovereign capacity, they cannot be acquired by
prescription.
In this case, the Supreme Court also cited Section 48 of
the public land act which provides that ―citizens of the
There are two instances when even if a property is within Philippines occupying lands and public domain or
the commerce of man, it cannot be acquired by claiming to own any land oran interest thereon, but
prescription: whose titles have not been perfected or completed, may
apply to the Court of First Instance of the province where
1) Movables possessed through crimes. the land is located for confirmation of their claims, and
the issuance of a certificate of title therefor, under the
Like a cellphone. A cellphone is property within Land Registration Act, to wit:
the commerce of man but if the cellphone is
stolen and then for a period of ten years, it is with (b) those who by themselves or through their
the one who stole it exclusively. Can he claim predecessor in-interest have been in open,
that he acquired that by prescription? No. If a continuous, exclusive and notorious possession and
property is acquired by crime, it cannot ripen into occupation of agricultural lands of the public
ownership. Prescription will not lie. domain, under a bona fide claim of acquisition or
ownership, for at least thirty years immediately
preceding the filing of the application.‖

That is qualified under PD No. 1073 wherein the law claiming to own any such lands or an interest thereon,
clarifies that this will apply only to alienable and but whose titles have not been perfected or
disposable lands of the public domain. completed, may apply to the Court of First Instance of
the province where the land is located for confirmation
of their claims, and the issuance of a certificate of title
SEVILLE vs NATIONAL DEVELOPMENT COMPANY
therefor, under the Land Registration Act, to wit:
(G.R. No. 129401 February 2, 2001)
xxx xxx xxx
(b) those who by themselves or through their
FACTS:By virtue of Presidential Decree No. 625, Leyte Sab-A Basin
predecessor in-interest have been in open, continuous,
Development Authority (LSBDA) was created to integrate
exclusive and notorious possession and occupation of
government and private sector efforts for a planned
agricultural lands of the public domain, under a bona
development and balanced growth of the Sab-a Basin in the
fide claim of acquisition or ownership, for at least thirty
Province of Leyte, empowered to acquire real property in the
years immediately preceding the filing of the
successful prosecution of its business. Letter of Instruction No. 962
application for confirmation of title except when
authorized LSBDA to acquire privately-owned lands
prevented by war or force majeure. They shall be
circumscribed in the Leyte Industrial Development Estate (LIDE)
conclusively presumed to have performed all the
by way of negotiated sales with the landowners.
conditions essential to a Government grant and shall
he entitled to a certificate of title under the provisions
Calixtra Yap sold to LSBDA Lot No. 057 SWO 08-000047 consisting
of this Chapter."
of 464,920 square meters, located at Barangay Sto. Rosario,
Isabel, Leyte.
Under Section 4 of Presidential Decree (PD) No. 1073, paragraph
"b" of the aforecited provision applies only to alienable and
LSBDA assigned all its rights over the subject property to its co-
disposable lands of the public domain.
respondent National Development Company (NOC) as a result
of which a new Transfer Certificate of Title "vas issued on March
It should be stressed that petitioners had no certificate of title
2, 1990 by the Registry of Deeds for the Province of Northern
over the disputed property. Although they claim that their title
Leyte in the name of NDC. The subject property was leased to
was based on acquisitive prescription, they fail to present
[Respondents] Philippine Associated Smelting & Refining
incontrovertible proof that the land had previously been
Corporation (PASAR), Philippine Phosphate Fertilizer Corporation
classified as alienable. They simply brush aside the conclusion of
(PHILPHOS) and Lepanto Consolidated Mining Co., Inc.
the CA on this crucial point by saying that it was "without factual
(LEPANTO).
basis." Instead, they maintain that the private character of the
land was evidenced by various tax declarations, Deeds of Sale,
On November 29, 1988, the Estate of Joaquin Ortega
and Decisions of the trial court and even the Supreme Court.
represented by judicial administrator Felipe Seville filed a
The Deeds of Sale of portions of the disputed property, which
complaint for recovery of real property, rentals and damages
Joaquin Ortega and several vendors executed, do not prove
against the above-named respondents.
that the land was private in character. The question remains:
What was the character of the land when Ortega purchased it?
Petitioners argue that LSBDA's title to 73 hectares of the 402-
Indeed, a vendee acquires only those rights belonging to the
hectare Leyte Industrial Development Estate was void, having
vendor. But petitioners failed to show that, at the time, the
allegedly been obtained from Calixtra Yap who had no right to
vendors were already its owners, or that the land was already
it. They maintain that they acquired title to the disputed property
classified as alienable.
by acquisitive prescription, because they and their predecessors
in interest had been in possession of it for more than thirty years.
Clearly, the burden of proof that the land has been classified as
alienable is on the claimant. In the present case, petitioners
Disputing these contentions, respondents and the appellate
failed to discharge this burden. Hence, their possession of the
court maintain that petitioners have not shown that the land had
disputed property, however long, cannot ripen into ownership.
previously been classified as alienable and disposable. Absent
such classification, they argue that possession of it, no matter
how long, could not ripen into ownership.
Article 1114. Creditors and all other persons
RULING: Unless a public land is shown to have been reclassified interested in making the prescription effective may
as alienable or actually alienated by the State to a private avail themselves thereof notwithstanding the express
person, that piece of land remains part of the public domain. or tacit renunciation by the debtor or proprietor.
Hence, occupation thereof, however long, cannot ripen into (1937)
ownership.
Under the Regalian doctrine, all lands of the public domain So we have learned last time that the benefit of
belong to the State, which is the source of any asserted right to
prescription may be renounced but that renunciation is
ownership of land. All lands not otherwise appearing to be
clearly within private ownership are presumed to belong to the
also subject to limitation.
State.8 In Menguito v. Republic,9 the Court held that "[u]nless
public land is shown to have been reclassified or alienated to a As you have learned before under Persons and Family
private person by the State, it remains part of the inalienable Relations, Article 6 as to waiver of rights: Rights may be
public domain. Indeed, 'occupation thereof in the concept of waived provided that the waiver is not contrary to law,
owner, no matter how long, cannot ripen into ownership and be morals, good customs, public order, public policy and not
registered as a title.' To overcome such presumption, prejudicial to the interest of a third person.
incontrovertible evidence must be shown by the applicant.
Absent such evidence, the land sought to be registered remains
inalienable."
In this case, if for example, a debtor already has the
benefit of prescription but he waives that benefit. Had he
A person in open, continuous, exclusive and notorious possession not waived that benefit, a creditor would be benefitted.
of a public land for more than thirty years acquires an imperfect
title thereto. That title may be the subject of judicial Example:
confirmation, pursuant to Section 48 of the Public Land Act,
which provides: The debtor has several debts. We have A, B, C. When you
go to credit transactions, we have the rule on
"SECTION 48. The following described citizens of the
Philippines, occupying lands of public domain or
concurrence and preference of credits.

For example we have an insolvent debtor (His assets are
not enough to pay off all his obligations; although he has
Article 1116. Prescription already running before the
some assets, it is notsufficient to pay all of his debts).
effectivity of this Code shall be governed by laws
previously in force; but if since the time this Code
Under the rule on concurrence and preference of credits,
took effect the entire period herein required for
you pay first the preferred creditors and then theless
prescription should elapse, the present Code shall
preferred.Assuming A is a preferred creditor, so among A,
be applicable, even though by the former laws a
B and C, A will be paid first and then B will be paid after
longer period might be required. (1939)
A.
But in this case, the debt of the debtor from A has

already prescribed so supposedly the debtor no longer So the New civil Code took effect on August 30, 1950.
has an obligation to pay A but the really wants to pay A
so he waived the prescription. In that case, B can invoke What happens if the possession started before the New
the prescription. He can assert that ―you are no longer Civil Code?
bound to pay A such that in the order of preference, I‘m
the second, any money that you have as of this time So before the New Civil Code, usually the period of
should be paid directly to me.‖Because A‘s debt has prescription was 10 years but under the Civil Code, we
already prescribed, that can be availed of by the have a different period for those who possess in good
creditor. faith and just title and those not in good faith and without
title. So we have ten years, we have 30 years.
Example:
If the prescription started before the New Civil Code, so
The debtor has a debt against the creditorand then he under the old civil code and ended also under the old
has no money but he has a property that he has civil code then the old civil code will govern.
possessed for thirty years adversely, publicly so
supposedly he has acquired that property by If the prescription started under the New Civil Code and
prescription. Now he is waiving that prescription. Can the of course will end under the New Civil Code, obviously,
creditor say that if you are not interested to avail of the we apply the New Civil Code.
acquisitive prescription, I will exercise that on your behalf
and I will collect my credit out of that property? Can that But if the prescription started before the New Civil Code,
be done? Yes. That‘s also an example of a remedy so the person was already in possession prior to August
available to the creditor. 30, 1950, but if his possession lapsed into the New Civil
Code because his period of prescription is not yet done,
But remember here that the prescription availed of or what law shall govern?
pleaded by one creditor is only available to him. The
other creditors who did not plead that cannot be GENERAL RULE: It is the old civil code that will govern.
benefitted.
EXCEPTION: If the New Civil Code provides for a shorter
period, we follow the New Civil Code. But take note that
Article 1115. The provisions of the present Title are the counting should begin from August 30, 1950. That‘s
understood to be without prejudice to what in this the rule.
Code or in special laws is established with respect to EXCEPTION TO THE EXCPETION: If counting starting from
specific cases of prescription. (1938) August 30, 1950 would give us alonger period then we go
back to the old civil code.
The law on prescription which we had discussed and we Article 1117. Acquisitive prescription of dominion and
will be discussing from Articles 1106 to 1155 are not other real rights may be ordinary or extraordinary.
exclusive. There are other several laws enumerating the
prescriptive periods and the rule on prescription. Ordinary acquisitive prescription requires possession
of things in good faith and with just title for the time
So we can also site those laws like the Family Code fixed by law. (1940a)
(prescriptive period to file an action for legal separation,
within which to claim recognition). So under the Rules of
Court, there are prescriptive periods, the Labor Code, Article 1117 talks of two kinds of acquisitive prescription.
when do you file a money claim for illegal dismissal, the So we discusses acquisitive prescription and extinctive.
Revised Penal Code, prescription of crimes, Corporation Now we‘re discussing the two kinds of acquisitive
Code and the Code of Commerce and several other prescription. So we have:
laws.
1. Ordinary prescription
So as I‘ve mentioned, the law on prescription is discussed 2. Extraordinary prescription
not only in Obligations and Contracts but in all other
subjects in law school, there are rules on prescription What is ordinary prescription (although this is discussed in
which you will encounter. the subsequent article)? Article 1117 says it requires
possession of things in good faith and with just title for the
time fixed by law. So remember good faith, just title and
what is the time fixed by law? If it is good faith, 10 years.

Extraordinary prescription – possession of things in the interruptions, it will not ripen into ownership by
concept of an owner for 30 years. If it is 30 years, so bad prescription.
faith and without just title. We need thirty years.
UNINTERRRUPTED – When we say uninterrupted, it is when
Before acquisitive prescription would set in, we have to the possessor has never ceased to manifest with internal
qualify with certain requisites: acts his intention to exercise a right over the thing which
presupposes ha has never in fact ceased to exercise the
1. As to the person, he should have the capacity to right. When we say uninterrupted, it is continuous without
acquire by prescription. We already discussed the intervention of third persons.
this before. A person who has the capacity to
contract may acquire by prescription. Minors Example:
and incapacitated persons may acquire by
prescription thorough their legal representatives The possessor possessed the property for 20 years. He
or even through their own as long as they have possessed the property and then he went on a vacation
discernment. to Canada for one month, then he came back to the
property and then next year, he went again to Canada
2. A thing capable of acquisition by prescription. So but this time for 1 year. Can we say that the possession is
when is a thing susceptible or capable of interrupted in that case?
acquisition by prescription? If it is within the
commerce of man. No, it is not the legal interruption being referred in here
because he never ceased to manifest his intention to
3. Possession of the thing under certain conditions. exercise a right over a property especially if, for example,
GENERAL RULE: the possession must be in the he leaves but appoints an administrator and constructs a
concept of an owner; it must be public, peaceful fence.So he never ceased to manifest his intention to
and uninterrupted. That would be under Article exercise the right over the thing but if, for example, when
1118. he went abroad, a third party entered the property and
claimed possession of the samethen in that case, there is
4. The lapse of time required by law. So if it is interruption. So, the period is cut off.
ordinary, ten years, if it is extraordinary, 30 years.
Now, how do we distinguish interruption from
discontinuity? When we say, interruption, it is a positive
act of a third person; meaning like in the example I gave
you, another person asserted his right over the property
Article 1118. Possession has to be in the concept of
adversely over the present possessor. The effect of that
an owner, public, peaceful and uninterrupted. (1941)
interruption would be to cut off the period and for
example, when the possessor wnet abroad and then
came back, there was another person who was living
So these are the conditions when prescription can be there and so they fought and then later on the third party
available, can be invoked. was ejected, the period will start to run again. It will not
continue even if it has been 20 years already, it has been
So it has to be in the concept of an owner so meaning cut off so the prescriptive period will start again at 1.
you are possessing a property with the belief, and
assertion and declaration that you are the owner of the But discontinuity, it is a negative act or abstention on the
property. You do not recognize ownership of any other part of the possessor. It is not equivalent to interruption. It
person. You consider yourself to be the owner. will not cut off the period of prescription.
That is why if you possess the property but you‘re paying

rental over the property or you‘re asking permission from
Article 1119. Acts of possessory character executed
the person, that is not in the concept of an owner. Even if
in virtue of license or by mere tolerance of the
you possess the property for 100 years but you recognize
owner shall not be available for the purposes of
the ownership of some other person by paying rents, you
possession. (1942)
will not acquire the property by prescription.
It must be public. What do we mean by public? When

the acts of enjoyment are executed in such a manner as So ―acts of possessory character executed in virtue of
to be manifest or visible to all especially to the person license or by mere tolerance.‖
against whom the possession is being adversely asserted.
The general public knows that you are asserting your When we say, license, it is a positive act of the owner in
claim over the property; not just that you go there only at favor of the holder of the thing.
night when no one can see you.That is not the concept
of public. That‘s the exact opposite. So, in that case, it will Example:
not ripen into ownership even if you there at night for 100
years. “Sige, puy-i ni akong balay so ikaw sa diha.” So that‘s a
license, meaning ang owner mismo positively giingon
PEACFUL. When possession is acquired and maintained niya ang owner to possess.
without any violence, physical or moral. So when you
acquire the possession by force, and the duration of your Tolerance – it is passive acquiescence of the owner to
possession also is attended by violence, force, acts being performed by another which appear to be
contrary to the rights of the former.

When possession is by virtue of license or tolerance, it will
never ripen into ownership by prescription, as a general
rule.
But once the possessor, halimbawa, gitolerate lang siya,

and then niingon na gyud siya na “Dili akoa na gyud ni.
Dili na ko mananghid sa imo kay akoa na ning yuta.
Akoa ni so wala kay labot diri.” In that case, if for But under Article 1122, if less than one year, the counting
example, he remains in possession for the requisite period continues. So in natural interruption, as long as the period
of time, he may acquire the property by prescription. of interruption does not exceed one year, it will just
When the possessor already disregards the owner and continue. So if it is more than one year, it is already
exercises rights in opposition to that of the owner. considered as really interrupted. Naputol.
Example: What‘s the other kind of interruption? The law says civil.
What is civil interruption?
A possessed the property of B in 1980 by tolerance of B.
And then in 1990, A already disregarded the ownership of
B so he already claimed that the land is his. So there is Article 1123. Civil interruption is produced by judicial
basis for A. A may acquire the property by prescription. summons to the possessor. (1945a)
When do we start counting the period? From the time A

possessed the property or from the time he repudiated ―Produced by judicial summons to the possessor‖ that is
the ownership of B? In 1990 or 1980? civil interruption. You know what is a summons? Kung ma-
filan mo ug kaso, makareceive mo ug summons na
It will be 1990 because in 1980 that was by mere patubagun mo sa gifile na kaso sa inyoha.
tolerance. It will never ripen into ownership by
prescription. That would start only in 1990 when he There are only two kinds of interruption. You have natural
already disregarded the ownership of B which will make it and civil. Civil, the one with judicial summons, which
possible for him to acquire the property by prescription. comes from the court. Any other summons, what would
that be? Will that fall under civil? No. If possession is
interrupted because of that, it could fall under natural
interruption because it is for any cause.
Article 1120. Possession is interrupted for the
purposes of prescription, naturally or civilly. (1943) So, what happens when there is interruption, civil or
natural? The period of prescription is cut off.
So, we discussed before interruption. How will there be So what happens now? The benefit of prescription would
interruption? It may be natural interruption or civil cease. If the property comes back into your possession,
interruption. the period would have to be counted again, anew. You
will have to start at one.
What is natural interruption? That would be under Article
1121. When we say suspension, how do we distinguish
suspension from interruption? In suspension, the past
period is included in the computation, being added to
Article 1121. Possession is naturally interrupted the period after prescription is resumed.
when through any cause it should cease for more
than one year. In interruption, the period is cut off.
In discontinuity, the period is not cut off; it will continue to

The old possession is not revived if a new
run even if the owner is not there, as long as he never
possession should be exercised by the same
ceases to exercise his right or manifest his right over the
adverse claimant. (1944a)
property.
In suspension, the period is cut off but it will not start

Actually, when we say natural interruption: that is anew. Once the possession resumes, the period of
interruption for any cause. If it is more than one year, prescription will continue.
under article 1121, then possession is considered to have
been interrupted, meaning it is cut off if for more than Just like in times of war, when the civil courts are not
one year. open, the period of prescription is suspended. Why?
Because even if you file an action, it cannot proper, it will
not be entertained. When the war is finished and it is
peace time, that is when you can file, and the period of
prescription will continue to run.
Or a person who stays under guardianship, so the period

of prescription is suspended. Or before, when there was a
moratorium on the payment of debts. So in that case, the
prescriptive period on the payment of debts would be
suspended. The period of prescription will only continue
Article 1122. If the natural interruption is for only one

Revelen
year Solis and Mizzy
or less, the Mareé Martinez shall be counted in
time elapsed TAU MU Page 10 of 262
favor of the prescription. (n)),
to run again when the moratorium law is lifted. So that is case in the RTC but the RTC has no jurisdiction over the
suspension as distinguished from interruption. case. The court will always issue a summons and ―lack of
jurisdiction‖ will be the defense of the defendant.
Article 1124. Judicial summons shall be deemed not Since there was issuance of summons, was it interrupted?
to have been issued and shall not give rise to Eventually, the case was dismissed for lack of jurisdiction.
interruption: It is not interrupted because it did not comply with the
legal solemnities. It is void.
(1) If it should be void for lack of legal
solemnities; (2) If the plaintiff should desist from the complaint
or should allow the proceedings to lapse;
(2) If the plaintiff should desist from the
complaint or should allow the proceedings to Number two: If the plaintiff should desist from the
lapse; complaint or should allow the proceedings to lapse.
(3) If the possessor should be absolved from After the complainant files and the period is interrupted,
the complaint. later on the complainant desisted or failed to appear
during the pre-trail or did not file a pre-trial brief. That
In all these cases, the period of the interruption shall would be a ground for the dismissal of the complaint. So,
be counted for the prescription. (1946a) in that case, the prescriptive period will continue to run.
So magpadayun.
(3) If the possessor should be absolved from the

Example: complaint.
A owes B 1 million. It is evidenced by a promissory note. Number three: If the possessor should be absolved from
So the period of prescription should be ten years. So, B the complaint.So if the case was dismissed, the
has ten years within which to collect the debt from the prescription will continue to run because prescription
time of maturity. After one year. The debt has matured operates adversely for example, the creditor or the
but B still did not collect until the 7th year. On the 7th year, owner.
B filed an action against A for collection. So, in that case,
because of the filing of the complaint, summons were
issued by the court to A, to answer. Article 1125. Any express or tacit recognition which
the possessor may make of the owner's right also
interrupts possession. (1948)
When a case is filed, for example, B files a case against A
for collection, ang bohaton sa court ana kay dili lang
diretso“A bayad na.”Not yet, summons will first be issued
So ―any express or tacit recognition.”
by the court that B filed a case against A. So A first has to
answer B‘s complaint within a period of 15 days
otherwise, you will be declared in default. Example:
So that is where the prescriptive period is interrupted. On A has already possessed the property for 25 years without
the 7th year, it was interrupted. So bisan pana ang kaso just tile but publicly, adversely and continuously. So he
pending siya(dugay mahuman ang kaso. Malipay na ta could possibly acquire the property by prescription after
kung mahuman ang kaso in three years), for example, it another 5 years. But on the 25th year, there is an implied
has already been 5 years, and the case has not yet been recognition on the part of A acknowledging ownership of
resolved. Unya naglampas na siya, diba 7th year man to B. Halimbawa, naghatag siya ug harvest sa yuta kay
nagfile ug case si B so plus five, 12 na. But the period of dugay-dugay na ko sigeg harvest, tagaan pud tika kay
prescription was interrupted on the 7 th year so the naluoy na ko sa imoha na ikaw ang tag-iya pero wala ka
prescriptive period will not yet run. nakatilaw sa imong yuta. In that case, that is a tacit
recognition. Or magbbuhat gyud siya in wiriting na gi-
acknowledge niya na dili siya ang owner sa property. Or
(1) If it should be void for lack of legal
magbayad siya ug rent. Gusto gyud niya magbayad ug
solemnities;
rent kay nakonsensya siya kay Born Again siya. In that
case, there is interruption. There is interruption of
Now, it shall not give rise to interruptionif it should be void possession. So, dili na to. Wala na tong 25 years.
for lack of legal solemnities.
Example:
Under our laws, for example Batas Bilang 129, we have

the law on jurisdiction. So, there are cases which would
be filed in the Municipal Trial Court, there are cases which
should be filed in the Regional Trial Court. For example, Article 1126. Against a title recorded in the Registry
for cases up to P 300,000, they should be filed in the MTC, of Property, ordinary prescription of ownership or
exceeding that, the RTC. So his debt, for example, real rights shall not take place to the prejudice of a
P200,000. And then he files a case. His lawyer files the third person, except in virtue of another title also
recorded; and the time shall begin to run from the
recording of the latter.
As to lands registered under the Land Registration
Act, the provisions of that special law shall govern.
(1949a)
What do we mean by good faith? It is the reasonable
belief that the person from whom we received the thing
was the owner thereof and could transmit his ownership.
This is when you invoke prescription for ten years because

it should be with good faith and just title. So, when we say
So we discussed this before when the property is covered good faith, dapat wala ka kabalo na nay defect ang
by a Torrens title so registered in the registry of property; iyahang title.Kungnagtuo gud ka naand nagbaligya sa
the property cannot be acquired by another person by imo ang tag-iya. So, that is good faith.
prescription.
Example: Article 1128. The conditions of good faith required for

possession in articles 526, 527, 528, and 529 of this
The title is in the name of A and the property is adversely Code are likewise necessary for the determination of
claimed by X. So X is the possessor of the property. Even if good faith in the prescription of ownership and other
he is in possession of the property for 30 years, he can real rights. (1951)
never acquire the property by prescription. EXCEPT, under
Article 1126, in virtue of another title also recorded; and
the time shall begin to run from the recording of the latter.
So, article 526, 527, 528 and 529 will be discussed in your
2nd year, the law on property.
For example, A is the registered owner of the land and
then it appears that there is a document wherein A sold Just remember, as long as the person, the possessor, has
the land to X and then X caused the sale to be recorded no knowledge of any defect in the title of the person
in the registry of property. In fact, the title is now from whom he acquires the property then he is in good
transferred in the name of X. It is recorded. faith and good faith actually is always presumed. Good
faith is presumed unless the contrary is proved.
The law says that may give rise to prescription. When shall
the prescription start? From the time that it is recorded in
the registry of property because recording in the registry
of property constitutes constructive notice to the whole Article 1129. For the purposes of prescription, there is
world. So, the owner has been notified also that his just title when the adverse claimant came into
property has been bought by X. possession of the property through one of the modes
recognized by law for the acquisition of ownership or
other real rights, but the grantor was not the owner or
So that is it.If there is a transaction coming from the
could not transmit any right. (n)
registered owner himself but without that, it will never give
rise to prescription.
Take note, under 1126, the first paragraph refers to ―titles

So, what do we mean by just title, another requisite for
recorded in the registry of property.‖
ordinary prescription.
Then the 2nd paragraph, ―lands registered under the land Just title - when the adverse claimant is claiming the
registration act.‖ So the provisions of that special law shall possession of the property through one of the modes
govern. Please remember, when you say ―lands recognized by law for the acquisition of ownership of
registered under the land registration act,‖ these are the other real rights but the grantor was not the owner or
lands covered by Torrens titles. Any other title not a could not transmit any rights.
Torrens title but registered in the registry of property, that
would be covered under the first paragraph. What are the modes of acquiring ownership under the
law?
Take note, as we have explained before, prescription
can only be available if there is another title also For example, sale with delivery. Sale itself is not a mode of
recorded in the registry of property. So from the time of acquiring ownership. There has to be delivery. So, sale
recording, that would serve as constructive notice. Even if with delivery. If it is sold and delivered to you, then you
the original owner did not actually know but it has been already have a just title. If the seller is the owner then
registered in the registry of deeds, that is constructive ownership will have to be transferred but for our purpose,
notice. Deemed na kabalo na siya pero dili actual but he is not the owner so you just have a just tile. Just title or
constructive. what we call, colorable title. He is not the real owner but
you believe that he is the owner.
You will also discuss further the rule on lands registered
under the Torrens system when you go to 2 nd year, land Another would be donation. The property is donated to
registration. you, formalities were complied with and you accepted
so if he really was the owner then the property would
have been transferred to you.
Article 1127. The good faith of the possessor consists
These are the modes of acquiring ownership:
in the reasonable belief that the person from whom
he received the thing was the owner thereof, and
could transmit his ownership. (1950a)
Succession – You inherited the property and the one who Because usually, the law does not favor prescription. By
you inherited the property from was not the real owner prescription, a person loses ownership or loses his right. So
but you believe in good faith that he was the owner. if prescription is alleged, it has to be proved. It is never
presumed. Although as I said, good faith is presumed. But
Remember, under Article 1129, there could have been just title, it is not presumed.
transfer of ownership had the transferor been the owner
of the property. That is the only defect. Because if there
are other defects like donation, the property is donated
to you. The owner is not the owner of the property but he
donated. It‘s a real property: land. And then what you
have as evidence of that donation is only a private
document. That is not a valid form for donation.
If you have that donation of a land, real property, in your

favor, covered only by a private document and then you
possess that property, you cannot say that you have a
just title because even if the donor was the owner of the
property, still the donation itself is defective so it is null and
void. Therefore, if you possess the property, probably you
can acquire the property after 30 years but not ordinary
prescription. You don‘t have a just title.
When you say just title, the only defect is that the
transferor is not the owner of the property. There should
be no other defect. The only defect is that the transferor
is not the owner of the property for you to have a just title.
Article 1132. The ownership of movables prescribes
through uninterrupted possession for four years in
Article 1130. The title for prescription must be true good faith.
and valid. (1953)
Article 1131. For the purposes of prescription, just The ownership of personal property also prescribes
title must be proved; it is never presumed. (1954a) through uninterrupted possession for eight years,
without need of any other condition.
With regard to the right of the owner to recover

So, you have to remember for the title to be considered
personal property lost or of which he has been
title, it is a just title, it is true, it is valid and it has to be illegally deprived, as well as with respect to movables
proved. So, just title, we already discussed that. acquired in a public sale, fair, or market, or from a
merchant's store the provisions of articles 559 and
When you say true, the title must exist actually and not 1505 of this Code shall be observed. (1955a)
merely in the mind of the possessor.
When we say true and valid, it is not in the sense that

there are no defects in the title. Because, if there are no
defects at all, you don‘t need prescription for ownership We now have the prescriptive period for movables.
to set in. You will acquire ownership by virtue of the title.
So when we say true and valid, that means it is true and Article 1132 says:
valid except that the transferor, again, is not the owner.
So, true, it must be existingas a fact and not only in the If you are in good faith, 4 years.
mind of the person.
If there is no good faith, without need of any other
VALID – it means that it should be sufficient to transmit the condition, 8 years.
right if thetransferorhadbeen the owner.
Uninterrupted possession for 4 years or 8 years.
So, as I already explained before, in donation, it does not
satisfy the requisite of a valid title. Why? Because even if
the transferor, the donor, was the owner, still the donation For immovables, you have 10 years and 30 years.
would be void because the formalities had not been
complied with. With regard to personal property which isacquired in a
public sale, fair, or market, or from a merchant's store.
It must be proved. Under Article 1131, just title must be
proved. So, it is not enough to allege that you have a just Example:
title. When it is contested, you must be able to prove that
you have a just title and it is true so you have a
You lost property and then someone bought it in a
document and all the requisites are complied with, that is
merchant store or public sale. Actually the requisite is that
valid.
you should reimburse the one who bought it at the price
of sale for you to get your property back. Although you
have recourse also against those who stole your property,

the only problem is if you know who stole your property. If
you lost your cellphone or jewelry, and then it was
acquired and later on sold by a merchant like Article So in this particular example, prescription is suspended.
1113, so you have to reimburse the price of the thing.
Possession in wartime, when the civil courts are not open,
shall not be counted in favor of the adverse claimant.
Article 1133. Movables possessed through a crime
can never be acquired through prescription by the
Example:
offender. (1956a)
You possess the property for 12 years, it is in bad faith and

then subsequently there was war so the courts are closed
So movables possessed through a crime. I think I so the 12 years will not continue to run. It is suspended.
explained this last night also. You stole a cellphone or Because even if the real owner would like to complain
jewelry and then since you stole it, you are already in and to file a case to recover his property, he could not
possession. Movables (if not in good faith), you need 8 do so because the civil courts are not functioning so the
years. So if you are in possession for 9 years, can you period of prescription will also be suspended.
claim ownership? No. You cannot claim ownership.
This is for the benefit of the owner. His period within which
But the law says ―can never be acquired through to recover becomes longer. If the period runs and the
prescription by the offender.‖ How about if the offender war ensues for 20 years then he really cannot recover
sold the property? Can the one who bought the property because then the period for filing an action will prescribe.
from the offender acquire it by prescription? Yes, So that‘s under Article 1136.
because the law mentions only the offender unless the
subsequent finder will fall under the requisite of anti-
fencing law so he cannot acquire it. But any other Article 1137. Ownership and other real rights over
subsequent transfer, prescription would be possible. immovables also prescribe through uninterrupted
adverse possession thereof for thirty years, without
Insofar as immovables are concerned, we already need of title or of good faith. (1959a)
mentioned before that for prescription to set in, the
possession must be acquired peacefully. If you acquire
by violence, force or intimidation, it will not ripen into So you just usurped the property. You did not present any
ownership by prescription. claim that you bought the property or it was donated to
you. As long as you have been in possession adversely,
publicly, peacefully, uninterrupted for at least 30 years,
without need of any other condition then ownership may
Article 1134. Ownership and other real rights over be acquired.
immovable property are acquired by ordinary
prescription through possession of ten years. (1957a) This will not apply to a property covered under the Torrens
system.
We already discussed this. Ordinary prescription, you

need good faith and just title and a period of ten years in
the concept of an owner, public, peaceful and
uninterrupted.
Article 1135. In case the adverse claimant

possesses by mistake an area greater, or less than
that expressed in his title, prescription shall be
based on the possession. (n)
So, the prescription shall be based on the possession.
Again, we are talking here of a title which is not really the

title sufficient to transfer ownership but a just title. So you
bought land thinking that the seller is the owner and then
you possess the property. In a deed of sale, it was
mentioned ten hectares but you actually occupied 11
hectares so the basis of prescription should be the
possession, not the title. The prescription shall be based
on the possession.
Article 1136. Possession in wartime, when the civil

courts are not open, shall not be counted in favor of
the adverse claimant. (n)

the last day will be on November 27, 2012. That is the
Article 1138. In the computation of time necessary
usual computation.
for prescription the following rules shall be
observed:
Example:
(1) The present possessor may complete
the period necessary for prescription by Possession was first in good faith then it became bad
tacking his possession to that of his grantor faith, how do you compute? Initially the possession was in
or predecessor in interest; good faith, you are in good faith if you did not have
knowledge or you were not aware of any infirmity in the
title of your transferor or predecessor so you are in good
(2) It is presumed that the present
faith. But once you learn that there is now a defect, that
possessor who was also the possessor at a he is not really the owner, good faith ceases. So from that
previous time, has continued to be in time on, your possession can no longer be said to be in
possession during the intervening time, good faith, you are already in bad faith. So how do we
unless there is proof to the contrary; compute?
(3) The first day shall be excluded and the For example, you are in good faith for 4 years and then
last day included. (1960a) subsequently you learned that he was not the owner but
you still continued possessing the property. How many
more years would you need for you to be able to acquire
So how will you compute the time for prescription? the property?
(1) The present possessor may complete the You are in good faith for 4 years. Supposedly good faith
period necessary for prescription by tacking his and just title, 10 years only. But on the 4th year, you are
possession to that of his grantor or predecessor in apprised that there is a defect in your title so from that
interest; time on, you are no longer in good faith. Supposedly, you
only needed 6 more years but then you possession is
Under 1138, you can include the possession of your already in bad faith, how will you compute the period?
predecessors. Like if your predecessor had been in How many more years would you need to complete the
possession for 10 years but in bad faith without title, and possession?
then they dies and you inherited the property, how many
more years do you need? 20 years. So you can tack the Actually there are several views on how to compute.
possession of your predecessors. Again, this presupposes Some would say the good faith is erased so when you
that there has been no interruption. learned on the 4th year that there is a defect, you start
again from 1. So possession is better started in bad faith,
(2) It is presumed that the present possessor who at least they already have 4 years.
was also the possessor at a previous time, has
continued to be in possession during the Actually, you can do so by proportion. 10 is to 30. How
intervening time, unless there is proof to the much is that? 1 is to 3. How many years do you lack? The
contrary; more prevalent view is you can actually benefit from the
possession in good faith; you don‘t have to complete the
The second is there is a presumption that the present 30 years anew. You can deduct the period of time that
possessor was also the possessor at the previous time and you were in bad faith so in proportion to the period
that he continued to be in possession, there is no required for you to complete it not for thirty years.
interruption. That‘s the presumption. This is a disputable
presumption. Tolentino says, double. Multiply the four years by two and
then that‘s number of years of possession you lack in bad
So it can actually be proved otherwise that there was faith. 4 x 2 = 8 and 30 – 8 = 22.
interruption. If you are the owner, of course one of your
defenses against prescription is that there was actually We now proceed to prescription of actions.
interruption because even if they had been there for 40
years but in the meantime on the 20 th year, there is
interruption. Then what is the effect of interruption? It will Article 1139. Actions prescribe by the mere lapse of
not continue so the period shall be counted anew. time fixed by law. (1961)
(3) The first day shall be excluded and the last

day included. We are referring here to extinctive prescription. Rights
and actions will be lost by prescription. The rule on
And the first day shall be excluded and the last day shall prescription of actions is what we call the Statue of
be included. Actually, in all computations, under the rules Limitations. The Statue of Limitations provide for a period
of court (under the Labor code or under the Civil Code) of time within which certain actions must be filed and
when you compute, you exclude the first day and rights must be asserted otherwise it is already barred; it is
include the last day. already lost.
So if you are given ten days to answer from today Basically, under these provisions, you will have to
(November 17, 2012), you exclude 17 so 18, 19, 20…27. So memorize the prescriptive period for filing the actions.

Article 1140. Actions to recover movables shall Article 1143. The following rights, among others
prescribe eight years from the time the possession specified elsewhere in this Code, are not
thereof is lost, unless the possessor has acquired the extinguished by prescription:
ownership by prescription for a less period, according
to articles 1132, and without prejudice to the provisions
(1) To demand a right of way, regulated in
of articles 559, 1505, and 1133. (1962a)
article 649;
(2) To bring an action to abate a public or

Action to recover movables shall prescribe in 8 years. private nuisance. (n)
Article 1141. Real actions over immovables prescribe

after thirty years.
(1) To demand a right of way, regulated in article 649;
This provision is without prejudice to what is

established for the acquisition of ownership and other To demand a right of way, you cannot be barred by
real rights by prescription. (1963) prescription.
Example:
When it comes to real actions over immovable, they
prescribe after 30 years. Action to recover, action for You are enclosed and you don‘t have access to a public
quieting of title. highway. If you are not given right of way, where will you
pass? You have to be given a right of way. It‘s okay if you
Although there are also exceptions to this general rule. are given a right to pass and you just don‘t exercise that
right. But once you really want to exercise that right, you
can always do it as long as you want. There is no
Example:
prescriptive period.
A person who has been always in possession of a

(2) To bring an action to abate a public or private
property but he had no knowledge that there was a
nuisance. (n)
deed of sale executed in favor of another person.
However, the buyer is not in possession. The owner is still in
possession. He can always file the action for quieting of Number 2: To bring an action to abate a public or private
title because he is in possession already. The law will not nuisance. You know what the concept of a nuisance is?
consider him to be negligent because in the first place, if You will discuss this on your law on property.
you are in possession, you have no urgency to file the
action; in that case, your right to file the action will not Example:
prescribe if you are in possession.
In the middle if your road, somebody built a basketball
Article 1141 is the general rule: 30 years. court. Everytime you pass, a ball hits you on your head.
Can you abate that? Anytime. There is no prescriptive
period. Usually, the concept of a nuisance is with your
Article 1142. A mortgage action prescribes after ten neighbors, their loud voices, so you can always abate
years. (1964a) that because that is a nuisance.
We are referring here, for example, to foreclosure of a

mortgage. So when do you foreclose a mortgage? You
have 10 years.

Article 1144. The following actions must be
brought within ten years from the time the right
of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n) (1) Upon an oral contract.
Written contract – 10 years.Oral contracts – 6 years.
Just remember Article 1144. These actions must be (2) Upon a quasi-contract also 6 years.
brought within 10 years from the time the cause of action
accrues. You have 2 kinds of quasi-contracts. You have
negotiorum gestio and solutio indebiti. Those actions
(1) Upon a written contract arising from a quasi-contract should be brought within 6
years.
Take note ―from the time the cause of action accrues.‖
When you enter into a contract, the prescriptive period
will not be deemed to run from the execution of the
Article 1146. The following actions must be instituted
contract but from the time there is a validation of that
within four years:
contract because that is the time your cause or right of
action will accrue.
(1) Upon an injury to the rights of the plaintiff;
(2) Upon an obligation created by law
(2) Upon a quasi-delict;
There are obligations created by law like an obligation to
pay taxes. It is not by a written contract. Quasi contracts However, when the action arises from or out of any
are obligations created by law. Obligation to give act, activity, or conduct of any public officer
support. These are the prescriptive period. Remember; involving the exercise of powers or authority arising
when you study other subjects, there are rules also on from Martial Law including the arrest, detention
prescription. In certain actions, there are reglementary and/or trial of the plaintiff, the same must be brought
periods for filing the actions. But if you are confused on within one (1) year. (As amended by PD No. 1755,
what law to apply, always go back to the law on Dec. 24, 1980.)
prescription. It is just there unless otherwise specified in
other laws.
(3) Upon a judgment

(1) Upon an injury to the rights of the plaintiff;
If you want to enforce a judgment, when the court

renders a judgment, it is not automatically executed. This is for an injury to the rights of the plaintiff so there is no
particular mention what kinds of injury.
Example:
(2) Upon a quasi-delict;
A is ordered to pay; if A agrees to pay then no problem

but if A refuses to pay, you will need to secure a writ of This is an act or omission causing damage or injury to
execution from the court. The sheriff will give a demand another where there is negligence or fault. So 4 years.
to A to pay and if A will not pay, the sheriff will levy upon
the properties of A. The properties of A will be sold at Basically these are just prescriptive periods which you
public auction and the proceeds will be given to you. have to remember.
Ordinarily, you can file a motion for execution 5 years
from the time the decision is rendered. After 5 years, you
will need an independent action, to file a new case, just
to enforce that decision. Take note, under Article 1144, it
will prescribe in 10 years so you really have to enforce the
judgment within 10 years.
Article 1147. The following actions must be filed within

one year:
Article 1145. The following actions must be
commenced within six years:
Revelen Solis and Mizzy Mareé Martinez (1) For forcible entry and detainer;
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(1) Upon an oral contract;
(2) For defamation. (n)
(2) Upon a quasi-contract. (n)

The only difference is that, if you file these cases for
forcible entry and unlawful detainer, mas paspas ang
procedure. And usually if you win, you can readily
execute pending appeal, meaning, even if the lessee will
appeal, you can already have him removed from the
premises.
But, in cases for recovery of ownership or possession

So again, you have to remember the prescriptive period which is after one year, although you win the case, but, it
for filing an action for forcible entry and illegal detainer is discretionary upon the court whether the decision
and defamation. would be implemented or executed pending appeal. But
in these two cases (forcible entry and unlawful detainer),
(1) For forcible entry and detainer; automatic, not discretionary. You can enforce execution
pending appeal.
This forcible entry and detainer actually are remedies of
the owner or possessor of a real property unlawfully (2) For defamation.
disposed of hi property.
For defamation, again, defamation can be filed or can
In fact, forcible entry is when, within a period of one year, arise, or will give rise to two actions: civil action and
a person has been deprived of his possession of his criminal action.
property through force, violence, threat, strategies, and
The criminal action is governed by the Revised Penal
stealth. So for that reason, you lost possession of your
Code. Slander and Libel - when you make a malicious
property.
Imputation against another person whether by
And, unlawful detainer when the possession, which was blackening his reputation, etc. You can file a case for
legally established from the beginning, and when the use Libel, Slander or Defamation. That would be governed by
of the property is by reason of tolerance, the permission a different prescriptive period.
of the owner and subsequently, that permission or
Here, we‘re discussing the civil aspect. Like you would
tolerance has ended or by virtue of contract of lease, the
want to claim damages based on Defamation. So again,
lease has ended and or the lessee has violated a
you have one year within which to file the action. That is
provision in the contract, you can file an action for
the prescriptive period.
detainer. Actually the term here is unlawful detainer.
You have also learned before that when you file a
So forcible entry and unlawful detainer. The issues in these
criminal action, it carries with it the civil aspect
cases will be mere possession and not ownership
automatically. So you learned.
although, the question of ownership may be passed
upon to resolve issues on possession.
So in that case, you have a period of one year to file the

action from when? From the time when the right of Article 1148. The limitations of action mentioned in
action accrues. articles 1140 to 1142, and 1144 to 1147 are without
prejudice to those specified in other parts of this
And when would that be? From the time of possession, in Code, in the Code of Commerce, and in special
case of forcible entry, from the time you have been
laws. (n)
deprived of possession by force, strategies, threat, or
stealth or when it is for unlawful detainer, from the time
that the tolerance, or the provision on the lease contract So again, there are several provisions of law which give us
or the violation has commenced. Or the tolerance, lease, the rule on prescription. So these are not limited to the
provision, for example has ended. prescription mentioned in this chapter of the New Civil
Code.
So, usually the remedy here under the Court would be
summary. So paspas ni siya nga proceeding. That is why The law says ―without prejudice to those specified in
you have to file the case within one year. other parts of this Code.‖ So again, the law on Sales,
Obligations and Contracts, law on Donations, Partnership,
Example: Succession, (and) Property, you will still encounter
prescriptive periods. So not only these.
You have been deprived of your property, again, by
force, strategy, threat or stealth or you have a lessee
whose contract has expired but he has not vacated the
premises and you were too busy with your everyday
activities to file a case within one year.
So what happens after one year? Can you not file a case
anymore? Will his possession ripen into ownership?
No. You can still file a case but not for forcible entry or
Article 1149. All other actions whose periods are not
unlawful detainer, that would be for recovery of
possession or recovery of ownership, accion fixed in this Code or in other laws must be brought
reinvidicatoria, recovery of ownership.So, you can still file within five years from the time the right of action
but not these cases. accrues. (n)

knowledge yet of that violation. So, from the time you
learned of the fraud.
So I already mentioned this. All other actions which
periods are not mentioned in the New Civil Code or in We can have another example. If a person becomes
other laws. insane and has no guardian, so he cannot institute the
action. So when shall his right of action, or when can he
For example: there is no prescriptive period within which file a case? He has a certain period to file a case from
to file an action in the New Civil Code, there is none in the time he reaches majority, or if he is insane, from the
the Code of Commerce, etc.Generally, it must be time he regains sanity. So from the day that it may be
brought within 5 years from the time the right of action brought.
accrues.
When will the right of action accrue? Article 1151. The time for the prescription of actions
which have for their object the enforcement of
Usually, we‘re referring here to the right to institute the obligations to pay principal with interest or annuity
action or the cause of action. There is a cause of action runs from the last payment of the annuity or of the
when a person possesses the right and then another,
interest. (1970a)
causes a violation or breach of that right and there is a
damage caused to that person who possesses that right.
In order to vindicate himself or to remedy the violation of So this refers to the enforcement of obligations to pay
his right so he can file the action. principal with interest. It shall be reckoned from the time
of the last payment of the annuity or of the interest. Sonot
Like in a cause of action which arises from a contract. from the time that you paid but from the time of the last
When does the right of action accrue? payment.That is when you will count because after that
there are no longer any subsequent payments so that is
You enter into a contract of loan, for example. So you when the violation will start.
borrowed 1M, payable within 1 year. So after one year,
the debtor did not pay.
When will the cause of action accrue? When will the Article 1152. The period for prescription of actions to
prescriptive period commence? Will it be from the time demand the fulfillment of obligation declared by a
the contract was executed?
judgment commences from the time the judgment
Of course not.Because from the time of execution, became final. (1971)
although you have a right under the contract, but there is
still no violation. So, it is not enough that you possess a
right. It should be coupled with a violation of that right, a
breach, that is non-payment. You now have the right to We are referring here to an action to demand the
institute an action from the time that there has been a fulfillment of an obligation declared by a judgment. So
violation, from the time of non-payment. meaning the right arises from the declaration as
embodied in a judgment.
Article 1150. The time for prescription for all kinds of Like any other case, again, for collection, for specific
actions, when there is no special provision which performance, the Court said that you have to turn over
ordains otherwise, shall be counted from the day the land or you have to execute the contract of sale in
favor of B because you already entered into an oral
they may be brought. (1969)
contract of sale and there was payment and you had a
valid agreement so you can be compelled to execute a
written document.
Okay, so all other kinds of action when there‘s no special
provision which provides otherwise shall be counted from So, specific performance.Or recovery of possession so X,
the day they may be brought. not the owner of the property deprived Y of possession
thereof, by force so he has to vacate. There is a period
Example: within which you should institute the action for the
implementation of that decision. So it is, 10 years. After 10
The action is based on fraud. Like you have a real years it will prescribe.So you have 10 years.Even if the
property so when you say real property, an immovable Court will say thatX is found to be the rightful owner of the
like a parcel of land, a building, and then, without your property you cannot get. You already have a copy of
knowledge another person forged your signature and that decision, so you cannot just, by virtue of a copy of
sold the land to another. So, the forgery happened in that decision, go to the disputed premises and show X
1990 but you did not learn of the forgery. You only the copy of that decision. “X, you have to vacate, if you
learned of the forgery in 1992. will not vacate, I will physically remove you from the
property.‖
So, when will the cause of action or the right of action
arise or commence? From the time when the forgery was That is not the proper way to implement the decision. So
committed? Or from the time it was discovered? you still have to move for the execution of that decision. It
is the sheriff of the Court who will go to the house of X or
Okay, from the time it was discovered. The violation was to the premises and demand that X will vacate, or it is a
committed in 1990 but you could not have possibly debt that X will pay. It is also that sheriff that will contact
brought the action because you did not have the police and look for people to demolish the house of X
so that he will be forced to leave the premises. Alangan

maglingkodlang siya didto wla siya’y balay. So, it is the said (referring to the one who demanded the accounting
sheriff. That can only be done from the time the judgment in Art. 1153 (1)) that it is not yet clear so he still has a
becomes final. question and then even the accountant said that ―Yes.
Okay. I will do it again.‖
So when will the judgment become final? If the period for
appeal has already lapsed and no appeal has been But from that timehe says ―That accounting is correct. It is
filed. Okay, but if you are referring to a decision of higher final.‖ So anybody who is affected by that accounting
courts like the Court of Appeals, ordinarily, you have a can file an action from the time that that party who did
reglementary period. That is a period when you can file the accountingrecognized that that is the only result and
your appeal, a motion for reconsideration, or other it cannot be changed anymore. The remedy is to
remedy provided for under the Rules of Court. question that. Your period to file the action starts from
that time (time of recognition).
Usually if you still want to appeal. You have 15 days. If the
15 days will lapse, in the lower court, you can say that the
Article 1154. The period during which the obligee was
decision is really final. But for higher courts, like the Court
of Appeals, you still have to wait for the issuance of the prevented by a fortuitous event from enforcing his right
Certificate of Finality. They will give you a piece of paper is not reckoned against him. (n)
stating that the decision has become final and
executory.
Okay, so what is the effect if there is a fortuitous event?
Your time within which you could implement that decision And what is a fortuitous event? Do you already have the
or you could enforce the writ of execution will concept of what is a fortuitous event?
commence not from the expiration of the 15 days but
from the issuance of the Certificate of Finality by the It is an event basically that would also be discussed under
Court of Appeals. Okay, so that is the time from which the the law on Obligations. Basically, when you say fortuitous
prescriptive period will be reckoned. event, it is an event, which is not foreseen or even if it
foreseen, it is inevitable. And usually, it is characterized by
not being under the control of that person who is
Article 1153. The period for prescription of actions to supposed to comply.
demand accounting runs from the day the persons
who should render the same cease in their functions. What are examples of fortuitous event? Natural
calamities, for example. How about war? Is it a fortuitous
The period for the action arising from the result of the event?
accounting runs from the date when said result was
recognized by agreement of the interested parties. Technically speaking, a fortuitous event may be
(1972) understood in two senses: An act of God or an Act of
Man.
When it is an Act of God, the usual technical definition or

Take note of the difference between the first paragraph term used for that is Caso Fortuito, if it is an Act of Man, it
and the second paragraph. In the first paragraph,there is is Force Majeure. But again, whether it is an Act of God
still no accounting. So, you will be demanding for or an Act of Man, it is beyond the control of the obligor.
accounting. From the day the person who should render
the same cease in their functions. Form the time that he So here, what is an obligee as distinguished from an
did not start accounting. obligor? We will discuss that when we reach Obligations
and Contracts. When you are the obligee you are the
Example: one who has the right to demand. If you are the obligor,
you are the person from whom the right is demanded.
A guardian or an administrator of an estate. You are
actually required to render an accounting for example, So here, if you are the person who has the right to
every year. So if for this year, you are supposed to render demand, you are the obligee. Supposedly, from the time
an accouting by December 31 but you did nit render an that your cause of action accrues, the prescriptive period
accounting, from that time, if you are the aggrieved will start to run. But what if there is a fortuitous event? So
party, you already have the right to demand for an you cannot file the action because of the fortuitous
accounting and your right to demand will start from that event. The law says, it shall not be reckoned against you.
time that he did not render an accounting. And it will
start to run until the time that the action will prescribe. Example:
The second paragraph refers to a situation where there You are the creditor so you have ten years within which
was already an accounting and there was already a to execute an action for collection as written in a
result but perhaps, you disagree with the result of the promissory note. So you only have two days left until the
accounting. So the period would start from the time the ten years will lapse. You planned to go to court to file a
result was recognized by agreement of the interested case when suddenly, there was a volcanic eruption. The
parties. court was covered in ashes, worst case scenario; the
personnel there are all dead. How can you file a case
Example: when there is no more court? Then the debtor will say
that it has already prescribed because you did not file a
You are affected by the result of the accounting, so case. But you were prevented by the fortuitous event,
fromthe time that that result was recognized to be really that should not be reckoned against you.
the result and for example there is already an accounting
that was made but the one who made the accounting
Article 1155. The prescription of actions is interrupted
Revelen Solis and Mizzy Mareé Martinez when they are filed before the court,
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MU Pagethere
20 ofis262
a
written extrajudicial demand by the creditors, and
when there is any written acknowledgment of the
debt by the debtor. (1973a)
Or when there is any written acknowledgment of the
debt by the debtor. So, even if you did not demand but
the debtor acknowledged his debt in writing, the
prescriptive period here is interrupted.
Example:
It has been 8 years and you have not demanded yet,

Now here is the second concept of interruption. In the first you still have 2 years within which to file the action but on
discussion which we had before, that was with reference the 8th year, the debtor made a written acknowledgment
to acquisitive prescription. When we say interruption in of his debt. But then the period lapsed again; it has been
acquisitive prescription, meaning when you are a 2 years already but the debtor still has not paid. On the
possessor in bad faith, as we have discussed, when you 11th year, you filed a case in court for collection.
are possessing the property publicly, peacefully,
adversely, continuously, for 30 years, you can acquire the Can the debtor allege that your action had already
property by prescription. That is covered by a Torrens title. prescribed? No. Why not? Because there has been
interruption. So the prescriptive period was suspended or
So on the 25th year for example, naa pay mas isog sa when they are filed before the court.
imoha na niadto, he took your property, so siya na ang
naga-adto sa property, so you were dispossessed.After Actually, you do not need a written demand before you
two years, the one who took your property died so the can file in court. The demand can be judicial or
property was again in your possession. Can you say that it extrajudicial. You may opt to file the action for collection
has already been 25 years that the land has been in my directly against the court and that will also interrupt the
possession so I will just continue the 25 years?It has prescriptive period.
already been 25 so I will just continue my possession for 5
more years,‖ is that correct? But of course, in practice, we usually send demand letters
it is expensive to file a case in court, unless the debt is big.
No. There was interruption, so what is the effect of that But let‘s say his debt is only 10,000 and then you file a
interruption? The previous possession was erased, you case in court when the debtor is actually willing to pay. If
have to go back to zero. So that is the interruption in or example, you send a demand letter and so he is willing
acquisitive prescription. The interruption there is not to pay, at least you are saved from the expenses in court
favorable to the possessor but it is favorable to the owner. litigation. So it is more advisable of course that you first
send a demand letter demand letter before you file a
when they are filed before the court case in court.
So here, the prescriptive period within which to file the Although in collection, it is not a pre-requisite but in other
action, the interruption here could be favorable to the cases like, in some cases of Estafa, a prior demand would
person who possesses the right – the obligee. If the be required before the elements of Estafa will be
prescriptive period is interrupted, like 10 years for completed before you can file a case. So, that will be for
collection of debt but on the 6th year, there was prescription.
interruption because you filed the action,so the
prescriptive period will no longer continue to run. Q: Ma‘am, going back to Article 1154 regarding fortuitous
event, if the obligee is prevented, is the prescriptive
Example: period suspended or interrupted?
Ang case kung mga two years na niingon ang judge na A: Actually, here in prescription, suspension or
dismissed siya, magbalik na pud na ang prescriptive interruption, when we are talking of extinctive
period, magdagan na pud ug balik. Kung maabtan ka prescription, the concept of suspension and interruption
ug 10 years na gyud na wala kay gibuhat, wala na gyud would be the same because we don‘t go back to year 1.
kay right. After the case was dismissed,you instituted Unlike on the 8th year or for 2 years, the war was really
another action, so, pwede pa. Even if two years already long, so on that two year period, the running of the
passed, it will not be counted for purposes of prescription. prescriptive period will stop but it does not mean that it
will go back to 1. When the fortuitous event stops, it will
continue to run from where it stopped. So if
theprescriptive period ceased to run on the 8th year,it will
continue to run when the fortuitous event stops, there
areonly two years left.
So the concept of suspension and interruption insofar as

when there is a written extrajudicial demand by
extinctive prescription is concerned, is the same. Unlike sa
the creditors
acquisitive. If you say interruption in acquisitive
prescription, it will go back to 1. But when you say
So when will the prescription of action be interrupted?
suspension, you will just continue to count from where you
When there is a written extrajudicial demand by the
stopped. So when you say interruption, although it can
creditor. So, when you send a demand letter to the
also be termed as suspension, if there is a fortuitous event,
debtor for the payment of debt, the prescriptive period
it will interrupt but not in the same sense as interruption in
has been interrupted.
acquisitive prescription. It is like suspension. It will suspend
when there is any written acknowledgment of the the running of the prescriptive period.
debt by the debtor
Okay, so we now go to Obligations.

is not sufficient, you can already top the bar with that. So,
OBLIGATIONS that is the definition.
Article 1156. An obligation is a juridical necessity to Now, what are the ELEMENTS OF AN OBLIGATION?
give, to do or not to do. (n)
1.) Active subject or the creditor or obligee - the one
who can demand the fulfillment of an obligation.
So, based on the definition in Article 1156, it is a juridical
necessity to give, to do, or not to do. So we are referring
2.) Passive subject, the debtor or obligor – the one
here to an obligation.
from whom performance is being demanded.
Let us dissect the definition given in 1156. So, the law says
3.) Prestation or object - that is the one which is to
it is a juridical necessity to give, to do, or not to do. First,
be given, to be done, or not to be done, the
what is your general understanding of this definition?
subject matter of the obligation.
The active subject here, what is the term for that? The
4.) Juridical tie or vinculum that connects or binds
creditor/obligee.
the parties to an obligationand by reason of that,
if there is violation, the aggrieved party may also
And the passive subject? The obligor or the debtor.
invoke the aid of the court for his assistance and
So, there is the active subject and the passive subject. for the enforcement of his rights.
The law says there is a juridical necessity to give, to do or
And is form also an element of an obligation? Is it
not to do. What is the meaning of juridical necessity?
required? Generally, not. But, in some cases, form would
It means that if in case there is non-compliance, there is a be required because there are certain obligations or
sanction. contracts, which becomes void without the observance
of the form required.
What is prestastion? In the definition of obligation, where
is the prestation here? We discussed last meeting Article 1156. We also discussed
the definition of what is an obligation and we criticized
To give, to do or not to do.So the prestation, that is the the definition in article 1156.
one which is to be given, to be done, or not to be done.
Now, if you notice in the definition, there is to give, to Let‘s go to some further classifications. Based on 1156,
do,or not to do. But, it seems the definition is lacking there are also different kinds of prestations. To give, to do
because there is no mention here of not to give. Why is and not to do.
there no mention of not to give? In your analysis, why?
There is no mention here of not to give because it is What do you call the prestation ―to give?‖ It is a real
already contemplated under the phrase not to do. When obligation.
you are obliged not to give, it means you are not
supposed to do the act of giving. Now, what is your How about the obligation ―to do?‖ It is a personal
criticism of this definition? obligation.
This definition only gives us the definition of an obligation How about ―not to do?‖ That is also a personal
from the viewpoint of the debtor. There is nothing here obligation.
about the rights of the creditor, or the obligee. That is
actually the criticism of this definition. Now, Arias Ramos
here has a complete definition of an obligation. Can you There are other classifications of obligations. As to
read the definition? SANCTION, what are the kinds of obligations?
Arias Ramos defined obligation as ―A juridical relation 1. Civil Obligation – it is one which can be
whereby one person (called the creditor) may demand compelled by judicial process. If the other does
from another (called the debtor) the observance of a not comply, you can seek for an order from the
determinate conduct and in case of breach, may obtain court to cause/compel him to perform.
satisfaction from the assets of the latter.‖
2. Natural Obligation – there is really no obligation
So here, the definition of Arias Ramos is actually a more because maybe it has already prescribed.
complete definition of an obligation because it gives us
the two viewpoints: the obligation from the viewpoint of Example:
the debtor and the obligation from the viewpoint of the
debtor. Whereas here, it merely gives us the prestation to In a debt that has already prescribed the debtor
be done by the debtor but there is no mention of the has no obligation to pay but if he pays
consequence if the obligation is not complied with, as voluntarily, the obligation lies in the sense that he
well as the remedies of the creditor. cannot recover what he voluntarily paid. A
natural obligation would arise after payment
Actually, when you take the bar, a few years from now, if wherein the creditor is authorized to retain what
you are asked the meaning of an obligation, unless the has been paid and the debtor cannot recover
examiner would say ―what‘s the definition of an what he has paid. The sanction here is the law on
obligation by Arias Ramos?‖ you should cite Arias Ramos. natural obligation which authorizes the retention
But, Article 1156 would be sufficient. Although, if you can of what has been voluntarily paid.
also add that according to the authorities, the definition

3. Moral Obligation – It is one where the sanction is As to the PERSONS OBLIGED, what are the kinds of
the morality, the church, the conscience. So obligations?
whether you go to church every Sunday.
Whether you greet your teachers or your 1. Unilateral – only one of the parties is bound
classmates. Nobody compels you to do that. So
whether you share your food with your seatmate. 2. Bilateral – both of the parties are bound.
That is not compelled by law but it is just your
conscience or morality which motivates you to
In a contract of loan, it is actually a bilateral obligation
perform those acts. There is no legal sanction.
because when you enter into a contract of loan, the
There is no judicial process but it is conscience,
creditor is bound to lend the money and the debtor is
morality or the law of the church.
bound to pay. Contract of sale is also a bilateral
obligation; seller is bound to deliver the property sold and
Article 1423 actually defines natural obligations and the buyer is bound to pay.
distinguishes it from civil obligations.
An example of a unilateral obligation is a contract of
Article 1423. Obligations are civil or natural. Civil obligations give commodatum. What is a contract of commodatum?
a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their Example:
performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered
You have a seatmate. You have an exam and then you
by reason thereof. Some natural obligations are set forth in the
following articles.
forgot your sign pen. You borrowed from your seatmate.
Your seatmate has no obligation to lend you the ball pen.
But once he/she lends the ball pen, you have the
This article gives us demonstrations between natural obligation to return. There is only one person bound in
obligations and civil obligations. that obligation. That is an example of a unilateral
obligation.
As to SUBJECT MATTER, what are the classifications of
obligations? The subject matter pertains to the prestation.
We have: Article 1157. Obligations arise from:
1. real obligations (1) Law;

2. personal obligations
(2) Contracts;
Example:
(3) Quasi-contracts;
You are a helper and then you have a contract for 1
year. And then on the 6th month, you decided to resign (4) Acts or omissions punished by law; and
from your employment. Can your employer compel you
to still perform your obligation as a helper? No.
(5) Quasi-delicts. (1089a)
Why not? There is a provision in the Constitution against

involuntary servitude. When it comes to an obligation to
do or a personal obligation, even if you bound yourself to Remember this article. This is also a favorite bar question.
perform and then you violated, the court cannot compel What are the sources of obligations?
you to still perform. An action to for specific performance
cannot lie in a personal obligation because you cannot
What is the criticism with respect to these sources as
be forced against your will to render service even if you
mentioned in Article 1157?
are bound under the contract. You can be held liable for
damages that you caused by reason of your violation but
not to perform. Or it can be performed at your expense. Some authors would say that this is actually an
inaccurate enumeration. Some authors would say that
law and contract covers everything.
In a real obligation or obligation to give, an action for
specific performance may lie. You are obligated to
deliver a specific house or specific car, you can be Why? Quasi-contracts are actually provided for under
compelled you deliver by court processes aside from Civil Code. Acts or omissions punished by law, we have
damages or that it can be performed by another at your the Revised Penal Code in relation to the Civil Code. And
expense. quasi-delicts also under the Civil Code on the chapter
under Torts and Damages.
As to AFFIRMATIVENESS and NEGATIVENESS, what are the
kinds of obligations? So when you analyze this enumeration, there are just
actually 2 sources. We have the law and we have the
1. positive/affirmative (to give, to do) contract. But f you are asked in the bar exam, of course,
do not just site the 2. If you are asked, you site the 5.
2. negative (not to do) Although you may add that some authorities would say
that in reality there are just only 2 sources.

These sources are exclusive. There are no other sources Navales, the deputy sheriff who carried the judgment into
aside from this. If you cannot point to a source contained execution was obliged to destroy the said house and removed it
in Article 1157, you cannot claim for damages or any from the land, according to the usual procedure in the action for
ejectment.In the order of execution issued to the deputy sheriff,
relief.
the directive portion of the judgment of the justice of the peace
was inserted, and it contained the essential statement that the
For example: you say that he has an obligation but what said judgment, by reason of its not having been appealed from,
is the source of this obligation? You cannot just say that had become final.There was no reason why it should not be
it‘s form law, contracts, quasi-contracts, acts or omissions enforced when it had already become final and acquired the
punishable by law and quasi-delicts, it means that he has nature of res adjudicata.
actually no obligation. Even if you suffered an injury by
reason of something which you said is attributable to him it is not possible to impute liability to the plaintiff who obtained
but if you cannot site the source, the damage is damage the judgment and the execution thereof, when the same was
not disputed nor alleged to be null or illegal, and much less to
without injury or what we call damnum absque injuria.
compel the payment of damages to the person who was
defeated in the action and sentenced to be ejected from the
CASE: NAVALES vs RIAS land which he improperly occupied with his house.
In this case, Navales said that he suffered damages No proof has been submitted that a contract had been entered
because of the demolition and destruction on his house. into between the plaintiff and the defendants, or that the latter
So, when your house is demolished and destroyed, you had committed illegal acts or omissions or incurred in any kind of
fault or negligence, from any of which an obligation might have
would really suffer damages. You suffered losses. It can
arisen on the part of the defendants to indemnify the plaintiff.
be quantified into a sum of money. For this reason, the claim for indemnity, on account of acts
performed by the sheriff while enforcing a judgment, can not
But can the other party which ordered the demolition be under any consideration be sustained. (Art. 1089, Civil Code.)
held liable? No. The complaining party here, Navales,
could not point to on any source of obligation. Can he The illegality of the judgment of the justice of the peace, that of
point to a particular law saying that if your house is the writ of execution thereunder, or of the acts performed by the
demolished by virtue of a court order, you will be entitled sheriff for the enforcement of the judgment, has not been
to damages? No, you are not. shown. Therefore, for the reasons hereinbefore set forth, the
judgment appealed from is hereby reversed, and the complaint
for damages filed by Vicente Navales against Eulogia Rias and
Was there a contract between Navales and Rias? There is Maximo Requiroso is dismissed.
no contract.
Case: HOSPICIO vs DAR
There is no quasi-contract because the application here
in quasi-contract is different. This is an example of an They complained because PD 27 and RA 657 mandated
obligation; an example of damage without injury. the compulsory acquisition of agriculture land. If you are
Although he suffered damages because his house was the land owner, an agricultural land, even without your
demolished, that is not the kind of damage consent or even if you are against it. The government will
contemplated by law. So he will suffer his own damage take your property although upon payment of just
because the demolition was by reason of a court order. compensation. So you are forced to sell your property to
the government for distribution to the qualified
Navales vs Rias beneficiaries. They were claiming that you cannot do
that because under Section 4 of Act No. 3239, the real
FACTS:Vicente Navales filed a complaint against Eulogia Rias
and personal properties donated to the Hospicio by its
and Maximo Requiroso, claiming that the latter should be
sentenced to pay him the sum of 1,200 pesos, Philippine
foudners cannot be sold under any consideration. And
currency, as damages. He alleged that the said defendants, that would violate Section 1 of Article 3 of the
without due cause, ordered the pulling down and destruction of Constitution provising that no law impairing the obligation
his house which was 6 meters in height with an area of 8.70 of contracts shall be passed.What was the ruling of the
square meters, built of wood with a nipa roof, and worth 1,000 Supreme Court?
pesos, which amount he expended in its construction. He further
alleged that the destruction took place in the month of April,
1904, and that, notwithstanding his efforts, he had not obtained Because Act No. 3239 is created by the legislature
any reimbursement from the defendants, and that by reason of although PD 27 also was enacted by the legislature so
their refusal he had been prejudiced to the extent of 200 pesos, they could always repeal/amend their own enactments.
Philippine currency.
As to the sale mentioned under RA 3239, what kind of
After considering the proofs submitted by both parties and the
sale is contemplated here? Which cannot be entered
proceedings upon the trial, the judge, on the 17th of January,
1906, rendered judgment declaring that the decision entered by into? Because it prohibits the sale under any
the justice of the peace of Naga, and the order given by virtue consideration of the land. What kind of sale is being
thereof were illegal, as well as the action of the deputy sheriff contemplated here?
Luciano Bacayo, that the defendant were thereby liable for the
damages caused to the plaintiff, which amounted to 500 pesos,
If you base on the sources of obligation, under what
and that the defendants were sentenced to pay the said sum to
the plaintiff, with costs.
source would the sale mentioned under section 4 fall?
Consensual sale.
RULING:It is undeniable that, in order to remove from the land of
Eulogia Rias, situated within the jurisdiction of the town of Naga, When you say consensual, it contemplates what?
the house which Vicente Navales had constructed thereon, by Contract. So the sale mentioned under Section 4 of Act
virtue of the decision of the justice in the action instituted by the
No. 3239 is a sale which arises out of a contract. It is a
said Eulogia Rias against the owner of the house , Vicente

conventional sale, mutually agreed upon by the parties. contract that is to serve ultimately as the basis for the transfer of
What kind of sale is contemplated under PD 27? It is ownership of the subject lands.Instead, the obligation to transfer
compulsory. Again, as I mentioned, whether the owner arises by compulsion of law, particularly P.D. No. 27.
likes it or not, he has to sell his land to the government.
Agrarian reform is justified under the State‘s inherent power of
eminent domain that enables it to forcibly acquire private lands
What would be the basis of the exercise of the DAR of its intended for public use upon payment of just compensation to
power to compulsorily acquire the properties of private the owner. It has even been characterized as beyond the
individuals? The power of eminent domain. traditional exercise of eminent domain, but a revolutionary kind
of expropriation.
Is there a conflict between PD 27 and Act 3239? There is No séance is required to discern the intent of Section 4. It ensures
no conflict because the sale contemplated under Act. that the properties received by the Hospicio are not alienated
3239 is a conventional sale, a private sale meaning the for profit by the officers or administrators, in contravention of the
Hospicio cannot sell properties donated to it. It cannot charitable purpose for which the Hospicio was created. To an
enter into a private transaction concerning individuals to extent, it makes possible the perpetual operation of the
sell properties donated to it because it would defeat the Hospicio, which was empowered by law to operate for an
indefinite period, by assuring the existence of the property on
very purpose why Hospicio was created.
which the Hospicio could operate. We also do not doubt that
whatever fruits of the forcibly retained property would also serve
But it does not prohibit a compulsory sale made to the a source of funding for the operations of the Hospicio.
state in the exercise of the state‘s power of eminent
domain. There is a distinction because the sale which is Was it the intent of the framers of Act No. 3239 to exempt the
Hospicio from all judicial processes, even those arising from civil
mentioned under Act 3239 is a sale which arises out of a
transactions? We do not think so. The contemporaneous
contract; the sale mentioned in PD 27 is a sale that arises construction of Section 4 indicates that the prohibition intended
as an obligation from law. So there is no conflict. by the crafters of the law pertained only to conventional sales,
and not forced sales. The law was promulgated in 1925, or when
You have to know the different sources of obligations so the Spanish Civil Code of 1889 was in effect.
that you can resolve that issue here. What is prohibited
Evidently, the word "sale," as contemplated by the framers of the
here is a sale or an obligation arising from a contract. But
law in 1925, pertains to its concept in civil law, with the requisite
it does not prohibit a sale or an obligation to sell as of consent being present. It cannot refer to sales or dispositions
compelled by law because it is already the law which that arise by operation of law, such as through judicial
states that it is beyond the control of the Hospicio. What is execution, or, as in this case, expropriation.
regulated here is a sale coming from the own volition of
Hospicio. Thus, we can hardly characterize the acquisition of the subject
properties from the Hospicio for the benefit of the tenants as a
sale, within the contemplation of Section 4 of Act No. 3239. The
HOSPICIO DE SAN JOSE DE BARILI, CEBU CITY vs DEPARTMENT OF transfer arises from compulsion of law, and not the desire of any
AGRARIAN REFORM parties. Even if the Hospicio had voluntarily offered to surrender
its properties to agrarian reform, the resulting transaction would
FACTS:Petitioner Hospicio de San Jose de Barili ("Hospicio") is a not be considered as a conventional sale, since the obligation is
charitable organization created as a body corporate in 1925 by created not out of the mandate of the parties, but the will of the
Act No. 3239. Section 4 of Act No. 3239 provides that "the law.
personal and real property donated to the Hospicio by its
founders or by other persons shall not be sold under any The DARRO Order did note that Section 4 of Act No. 3239 is not
consideration." applicable in this case, since the transfer is compulsory on the
part of the landowner, unlike in ordinary sale. Regrettably, the
On 10 October 1987, the Department of Agrarian Reform DAR Secretary and the Court of Appeals failed to apply that
Regional Office (DARRO) Region VII issued an order ordaining sound principle, preferring to rely instead on the conclusion that
that two parcels of land owned by the Hospicio be placed Section 4 was repealed by P.D. No. 27 and the CARL.
under Operation Land Transfer in favor of twenty-two (22) tillers
thereof as beneficiaries. Presidential Decree (P.D.) No. 27, a land Should we construe Section 4 of Act No. 3239 as barring forced
reform law, was cited as legal basis for the order. The Hospicio sales through expropriation of the properties of the Hospicio,
filed a motion for the reconsideration of the order with the such prohibition would irreconcilably countermand both P.D. No.
Department of Agrarian Reform (DAR) Secretary, citing the 27 and the CARL and their mandate to subject the properties to
aforementioned Section 4 of Act No. 3239. It argued that Act agrarian reform. The general repealing clauses of the two later
No. 3239 is a special law, which could not have been repealed laws would then sufficiently repeal Section 4 of Act No. 3239, to
by P.D. No. 27, a general law, or by the latter‘s general repealing the extent that it may prohibit expropriation of agricultural lands
clause. for agrarian reform.
RULING:Section 4 of Act No. 3239 prohibits the sale "under any Still, in light of our earlier determinative pronouncement that
consideration" of the lands donated to the Hospicio. But the land Section 4 of Act No. 3239 does not contemplate forced sales as
transfers mandated under P.D. No. 27 cannot be considered a part of the prohibition therein, there ultimately is no need to
conventional sale under our civil laws. make an abject declaration that Section 4 has indeed been
repealed. Indeed, the Court considers the prohibition on Section
Generally, sale arises out of a contractual obligation. Thus, it 4 as still effectual, but only insofar as it relates to conventional
must meet the first essential requisite of every contract that is the sales under the Civil Code.
presence of consent. Consent implies an act of volition in
entering into the agreement. The absence or vitiation of consent
renders the sale either void or voidable. This case illustrates the distinction between an obligation
arising from a contract and an obligation arising from
In this case, the deprivation of the Hospicio‘s property did not law.
arise as a consequence of the Hospicio‘s consent to the transfer.
There was no meeting of minds between the Hospicio, on one
hand, and the DAR or the tenants, on the other, on the When we say law, we have several obligations arising
properties and the cause which are to constitute the from law. For example, we have the New Civil Code: the

obligation to give support. That is an obligation arising that mandate that you should not collect anything or you
from law. The obligation to pay taxes; that is an should provide that for free.
obligation arising from law. It is the law itself which gives
the obligation. Can the government justify the mandate to provide
parking spaces for free on the declaration of policy
Contracts, as we will discuss in the second phase of our rights? Is this tantamount to taking private property? Why
subject, basically, is one where there is a meeting of the can it be justified under the police power?
minds between two parties. Example: a contract of sale,
so there is an obligation arising from that contract. The It cannot be justified in the exercise of this power
seller has the obligation to deliver the property subject of because by compelling the mall owners to provide the
the contract; the buyer has the obligation to pay the parking space for free, it is actually taking of private
price of the thing. property because you compel them to give up a certain
portion of their property for the use of the general public
Quasi-contracts – we will discuss that in the subsequent without payment or any compensation. It is not police
articles. But basically, quasi-contract: there are two kinds: power because in police power usually the property is
we have solutio indebiti and negotorium gestio. The not taken for the benefit of the public. Usually, when it‘s
underlying reason for that, there is need to indemnify the police power, it is not taking for the benefit of another. So
other or there is a need to return what has been paid if we allow this, the mall owners will be compelled to
otherwise it would result in unjust enrichment on the part provide free parking spaces,it will violate the law on
of the other party. eminent domain because you can only exercise that
upon payment of just compensation. That is the case of
Acts or omissions punished by law or we call delict/crime SolGen vs Ayala.
– we have to distinguish the obligation which arises from
the crime itself because when a crime is committed, THE OFFICE OF THE SOLICITOR GENERAL vs AYALA LAND
there are two aspects/consequences arising from that INCORPORATED, et al.
act: the accused person if he is convicted, he will be
criminally and civilly liable. So the obligation which we FACTS: Respondents Ayala Land, Robinsons, and Shangri-la
are referring to here is the civil obligation, the civil aspect maintain and operate shopping malls in various locations in
arising from a crime. The penalty of imprisonment or fine is Metro Manila. Respondent SM Prime constructs, operates, and
on your Revised Penal Code. leases out commercial buildings and other structures.
The shopping malls operated or leased out by respondents have

Quasi-delicts – this gives a duty to pay damages from parking facilities for all kinds of motor vehicles, either by way of
injuries arising from negligence. parking spaces inside the mall buildings or in separate buildings
and/or adjacent lots that are solely devoted for use as parking
spaces. Respondents Ayala Land, Robinsons, and SM Prime
spent for the construction of their own parking facilities.
Respondent Shangri-la is renting its parking facilities, consisting of
land and building specifically used as parking spaces, which
Article 1158. Obligations derived from law are not
were constructed for the lessor‘s account.
presumed. Only those expressly determined in this
Code or in special laws are demandable, and shall Respondents expend for the maintenance and administration of
be regulated by the precepts of the law which their respective parking facilities. They provide security personnel
establishes them ; and to what has been foreseen, to protect the vehicles parked in their parking facilities and
by the provisions of this Book. (1090) maintain order within the area. In turn, they collect parking fees
from the persons making use of their parking facilities, regardless
of whether said persons are mall patrons or not.
Under this article, we have to note that when the source After three public hearings Senate Committees on Trade and
from obligation is under the law, it should be expressly Commerce and on Justice and Human Rights jointly issued
provided for in the law. We cannot presume thatbecause Senate Committee Report No. 225 in which they concluded that
the law says this, it follows that the law will also require the collection of parking fees by shopping malls is contrary to the
this. It should be clearly spelled out in the law that there is National Building Code and is therefore illegal. While it is true that
the Code merely requires malls to provide parking spaces,
such an obligation otherwise you cannot presume from
without specifying whether it is free or not, both Committees
the law.
believe that the reasonable and logical interpretation of the
Code is that the parking spaces are for free.
CASE: OSG vs AYALA LAND
In light of the foregoing, the Committees on Trade and
The national building code just mandates that the malls Commerce and Justice and Human Rights recommended that
should have parking slots so one slot for every 100 meters The Office of the Solicitor General should institute the necessary
action to enjoin the collection of parking fees as well as to
and it also mentions the area of the parking space but is
enforce the penal sanction provisions of the National Building
there any mention here of collection or non-collection of Code.
parking fees? It is silent as to the collection or non-
collection of parking fees.
RULING: The explicit directive of the afore-quoted statutory and
regulatory provisions, garnered from a plain reading thereof, is
So, based on Article 1158, we cannot presume this that respondents, as operators/lessors of neighborhood shopping
obligation not to collect parking fees because the law centers, should provide parking and loading spaces, in
just says that you have to have a parking area of one slot accordance with the minimum ratio of one slot per 100 square
for every 100 meters. That‘s all. You cannot presume from meters of shopping floor area. There is nothing therein pertaining
to the collection (or non-collection) of parking fees by

respondents. In fact, the term "parking fees" cannot even be it is not considered by the law as a crime then it is not
found at all in the entire National Building Code and its IRR. punishable. There is no crime of there is no law punishing
the crime. Actually, basically, it‘s the same. You cannot
The explicit directive of the afore-quoted statutory and consider it that as an obligation arising from law when the
regulatory provisions, garnered from a plain reading thereof, is law does not expressly provide for it. It has to be clearly
that respondents, as operators/lessors of neighborhood shopping spelled out in the law.
centers, should provide parking and loading spaces, in
accordance with the minimum ratio of one slot per 100 square
meters of shopping floor area. There is nothing therein pertaining CASE:SERRANO vs CENTRAL BANK
to the collection (or non-collection) of parking fees by
respondents. In fact, the term "parking fees" cannot even be
Central Bank has a duty to supervise and it was alleged
found at all in the entire National Building Code and its IRR.
that it failed to supervise that‘s why the bank became
insolvent. Failing that, should Central Bank be held liable
The National Building Code regulates buildings, by setting the
for the deposits of the depositors in the insolvent bank?
minimum specifications and requirements for the same. It does
not concern itself with traffic congestion in areas surrounding the
building. It is already a stretch to say that the National Building The Central Bank has no obligation even if it has
Code and its IRR also intend to solve the problem of traffic supervision over banks but if the banks become insolvent,
congestion around the buildings so as to ensure that the said the Central Bank has no obligation to pay the depositors
buildings shall have adequate lighting and ventilation. of the insolvent bank simply because there is no law
Moreover, the Court cannot simply assume, as the OSG has which requires Central Bank to pay. So there is no
apparently done, that the traffic congestion in areas around the obligation on the part of Central Bank.
malls is due to the fact that respondents charge for their parking
facilities, thus, forcing vehicle owners to just park in the streets. How about now? If you are a depositor and then you
The Court notes that despite the fees charged by respondents,
deposited money in the bank and then the bank
vehicle owners still use the mall parking facilities, which are even
fully occupied on some days. become insolvent, will you get anything from the bank?
From your deposit? Under what law?
Without using the term outright, the OSG is actually invoking
Your deposits are actually insured with the PDIC but not
police power to justify the regulation by the State, through the
DPWH Secretary and local building officials, of privately owned
the full amount. It depends. Your deposits are insured up
parking facilities, including the collection by the to P500, 000. That is per bank, that‘s not per deposit. So
owners/operators of such facilities of parking fees from the for example: if you have a time deposit, current account
public for the use thereof. The Court finds, however, that in and savings account with HSBC and it becomes
totally prohibiting respondents from collecting parking fees from insolvent, you can only recover up to P500, 000. That is
the public for the use of the mall parking facilities, the State not per account. So, if you have millions, what will you
would be acting beyond the bounds of police power. do? You deposit with several banks. So, that is the case of
Serrano vs Central Bank
Police power is the power of promoting the public welfare by
restraining and regulating the use of liberty and property. It is SERRANO vs CENTRAL BANK OF THE PHILIPPINES
usually exerted in order to merely regulate the use and
enjoyment of the property of the owner. The power to regulate, FACTS: Petitioner made a time deposit, for one year with 6%
however, does not include the power to prohibit. interest, of P150, 000.00 with the respondent Overseas Bank of
Manila. Concepcion Maneja also made a time deposit, for one
When there is a taking or confiscation of private property for year with 6-½% interest, of (P200, 000.00) with the same
public use, the State is no longer exercising police power, but respondent Overseas Bank of Manila.Concepcion Maneja,
another of its inherent powers, namely, eminent domain. married to Felixberto M. Serrano, assigned and conveyed to
Eminent domain enables the State to forcibly acquire private petitioner Manuel M. Serrano, her time deposit of P200, 000.00
lands intended for public use upon payment of just with respondent Overseas Bank of Manila.
compensation to the owner.
Notwithstanding series of demands for encashment of the
aforementioned time deposits from the respondent Overseas
Although in the present case, title to and/or possession of the Bank of Manila, not a single one of the time deposit certificates
parking facilities remain/s with respondents, the prohibition was honored by respondent Overseas Bank of Manila.
against their collection of parking fees from the public, for the
use of said facilities, is already tantamount to a taking or Respondent Central Bank admits that it is charged with the duty
confiscation of their properties. The State is not only requiring that of administering the banking system of the Republic and it
respondents devote a portion of the latter‘s properties for use as exercises supervision over all doing business in the Philippines, but
parking spaces, but is also mandating that they give the public denies the petitioner's allegation that the Central Bank has the
access to said parking spaces for free. Such is already an duty to exercise a most rigid and stringent supervision of banks,
excessive intrusion into the property rights of respondents. Not implying that respondent Central Bank has to watch every move
only are they being deprived of the right to use a portion of their or activity of all banks, including respondent Overseas Bank of
properties as they wish, they are further prohibited from profiting Manila.
from its use or even just recovering therefrom the expenses for
the maintenance and operation of the required parking Respondent Central Bank also denied that it is guarantor of the
facilities. permanent solvency of any banking institution as claimed by
petitioner. It claims that neither the law nor sound banking
In conclusion, the total prohibition against the collection by supervision requires respondent Central Bank to advertise or
respondents of parking fees from persons who use the mall represent to the public any remedial measures it may impose
parking facilities has no basis in the National Building Code or its upon chronic delinquent banks as such action may inevitably
IRR. The State also cannot impose the same prohibition by result to panic or bank "runs". In the years 1966-1967, there were
generally invoking police power, since said prohibition amounts no findings to declare the respondent Overseas Bank of Manila
to a taking of respondents‘ property without payment of just as insolvent.
compensation.
You remember your Criminal Law? When can the act be RULING: By the very nature of the claims and causes of action
against respondents, they in reality are recovery of time deposits
considered as a crime? When the law provides for it. So if

plus interest from respondent Overseas Bank of Manila, and him that right. Although there is a law (PD 1517) but that is
recovery of damages against respondent Central Bank for its not applicable to him because he was not the one who
alleged failure to strictly supervise the acts of the other built the house. Again, there is no obligation on the part
respondent Bank and protect the interests of its depositors by
of the lessor because there is no source of obligation that
virtue of the constructive trust created when respondent Central
Bank required the other respondent to increase its collaterals for
the lesee can point to as the basis of the obligation.
its overdrafts said emergency loans, said collaterals allegedly
acquired through the use of depositors money.
Article 1159. Obligations arising from contracts have
Bank deposits are in the nature of irregular deposits. They are
really loans because they earn interest. All kinds of bank the force of law between the contracting parties
deposits, whether fixed, savings, or current are to be treated as and should be complied with in good faith. (1091a)
loans and are to be covered by the law on loans. Current and
savings deposit are loans to a bank because it can use the
same. The petitioner here in making time deposits that earn
interests with respondent Overseas Bank of Manila was in reality
a creditor of the respondent Bank and not a depositor. The So ―obligations arising from contracts.‖ Kindly read Article
respondent Bank was in turn a debtor of petitioner. Failure of the 1305 of the New Civil Code. What is the meaning of a
respondent Bank to honor the time deposit is failure to pay said contract?
obligation as a debtor and not a breach of trust arising from
depositary's failure to return the subject matter of the deposit. Article 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to
give something or to render some service. (1254a)
CASE: SANTOS vs CA
A contract is an act of private individuals and not by law
What was the subject of the contract of lease here? Who so ―agreement of the parties.‖ That agreement itself has
built the house? Who is the private respondent, the lessor the force of law. So even if A obtained a loan from B and
or the lessee? It was the lessor, the one who built the then you executed a loan agreement. That loan
house. agreement already has the force of law between them.
You don‘t have to have special authority to be able to
So what was the contention of the lessee here? tell the other to comply with the contract. As long as
there is an agreement which you entered into and all the
Why did the lessor want to terminate the contract of requisites of a contract are present, that has the force of
lease? law between them
What do we mean by preferential right of purchase? When we say ―force of law,‖ if one does not comply, you
can go to court, file a case and have a judgment
For example: if the lessor would like to sell the leased rendered in your favor.
premises. The preemptive right of the lessee gives him
priority over any other prospective buyers. So before the Example:
lessor would offer to sell the premises to any other person,
he should offer it first to the lessee. And if the lessee and The judge says ―A, based on this loan agreement, you
the lessor cannot agree upon the terms, he can offer it to have a debt against B. This agreement was entered into
some other persons but on the same terms and voluntarily, without any force, violence, intimidation and
conditions offered to the lessee. He might offer the you really received the money and have not paid
property to the lessee for P1million and the lessee turns it despite demand, so you are bound to pay.‖ Now, if A will
down because it is too expensive but to another person, not pay then the sheriff will execute the decision. The
he offers it for only P500, 000. No. The terms are supposed sheriff will go to A and collect the money from A.
to be the same as not to circumvent the preemptive right
of the lessee. If A refuses to pay voluntarily or A does not have cash but
he has properties, what will the court do? It will garnish
What is the right of redemption? In this particular case, bank deposits and receivables of A. Para katong na-ay
how would the right of redemption apply? utang kay A, kay creditor na mubayad or ang bank dili
magerelease ug kwarta kayy A kay pambayad na siya
For example: The lessor and the lessee do not come to sa utang.If he has no cash, his properties will be levied
terms and the lessee refused the P1million selling price of upon execution, sold at public auction and then the
the lessor. The land and the house was sold to another proceeds will be used to pay that debt.
person. The right of redemption gives the lessee the right
to redeem that house from the buyer. The lessee still has So that is the consequence of the contract having the
an additional right after the sale to redeem, within that force of law between the parties. As long as they have
particular period. the legal capacity to enter into a contract, that contract
will have to be respected and can be enforced by the
Preemption – before the sale courts.
Redemption – after the sale
And it should be complied with in good faith.
Does the lessee have the right of preemption or
redemption in PD 1517, under this particular case? No. As a consequence also of the contract having the force
Why will this not apply? of law between them, neither party can terminate the
contract without the consent of the other. Neither of
So, here, the lessee cannot invoke an obligation on the them can add certain conditions nor do away with the
part of the lessor to give him the right of preemption or conditions mentioned in the contract without mutual
redemption simply because there is no law which grants agreement of the parties. So whatever is written in the

contract should be respected until it is complied with or of fact, which is final and binding upon us. It is apparent also that
until the contract expires. the conclusion does not depend upon the question of whether
or not the justice of the peace court before whom it was made
Article 1159 says that the contract has the force of law had jurisdiction over the main case, is correct, it being a fact
that the parties to the compromise agreement signed and
between the parties. So, are we saying now that the
executed the same willingly and voluntarily, and should,
contract is superior to the law? therefore, be bound by its terms. A person cannot repudiate the
effects of his voluntary acts simply because it does not fit him, or
No. Even if the contract has the force of law but before it simply because the judge before whom he executed the act
can have the force of law, it should first comply with the did not have jurisdiction of the case. In a regime of law and
provisions of the law. It should not contravene any order, repudiation of an agreement validly entered into cannot
existing provision of the law. be made without any ground or reason in law or in fact for such
repudiation. The conclusion of the trial court in respect to the
Example: validity of the compromise agreement and its binding effect
upon Feliciano Martin cannot be questioned.
The Dangerous Drugs Act prohibits the sale, cession and
any transaction related to prohibited drugs. So even if
both parties voluntarily enter into a contract but that So Article 1159 says “Obligations arising from contracts
contract is not valid because it is against the law. have the force of law between the contracting parties
and should be complied with in good faith.‖
But if there is no particular law which governs the
contract, is the contract valid? So, in the absence of any Contracts have the force of law between the parties and
direct provision of law governing that contract, the because of that, in case of noncompliance by one, he
contract will be governed by the terms and stipulations of may be compelled by court or judicial process.
the parties in the contract.
CASE: INOCENCIO vs CA
Under Article 1159, we have certain limitations. Please
read Article 1306. A compromise agreement is an agreement whereby the
parties give reciprocal concessions to end a pending
Article 1306. The contracting parties may establish such litigation.
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good Example:
customs, public order, or public policy. (1255a)
There is a case between A and B. A is claiming for
P1million.B is saying ―No, my debt is only P500, 000.‖ So,
This reinforces our discussion that even if the contract has when you go through a full blown litigation, you will have
the force of law between the parties, there is a limitation to present evidence, you will have to expend money and
in the right to contract. That is a limitation under Article time and effort. And cases take so long to conclude. You
1306. are lucky if your case is resolved in one year. Because
there are several remedies available and we have
Martin vs Martin several courts and stages of actions. You can move for
reconsideration, you can appeal, all the way up to the
FACTS: Jose Balagui and Dorotea Balagui, brother and sister, sold Supreme Court. So, it really takes long for cases to finish.
the two parcels of land subject of the action, to Feliciano Martin
That is why; when the parties realize that even in the end,
and Florentino Martin for P1,200. On April 17, 1923, Jose Balagui
brought an action against said Feliciano and Florentino Martin I will still gain nothing because my claim is P1million but
for damages arising from failure of the Martins to comply with my attorney‘s fees are P2million. Therefore, in that case, it
some conditions agreed upon in the sale. The said action was would be better for the parties to enter into a
terminated by a compromise agreement between Feliciano compromise agreement.
Martin, Florentino Martin and Isidro Martin, on the one hand, and
the above-named spouses, on the other, who were plaintiffs, So, in a compromise agreement, if you are the plaintiff,
submitted to and approved by the court. you can‘t expect to get the entire claim. If you are the
defendant, you cannot expect to just pay what you
The Court of Appeals, notwithstanding the claim of Feliciano
allege to be your liability. In that case, usually, the parties
Martin that he had not known of such agreement and did not
sign it, found that Feliciano Martin did in fact the sign would meet at the middle.
agreement. The court also found that the intention of the parties
in the execution of the compromise set forth above, was to Now, compromise agreement, once entered into by the
transform the original sale made in favor of Feliciano and parties and approved by the court, has the effect of a
Florentino Martin on September 12, 1919, into an equitable final judgment. So, it is now final and executory. The only
mortgage, as contended by the spouses and their transferees, reason to annul a compromise agreement would be
the defendant Prudencio Martin and intervenor Ignacio de la vices of consent, meaning one of the parties was forced
Cruz. The court also found that on January 8, 1946, Jose Balagui to enter into the agreement or there was mistake,
sold the parcels of land in question to Ignacio de la Cruz for the
violence, intimidation or undue influence. So that would
sum of P2,500, with the understanding that the purchaser would
redeem the lands from Feliciano Martin and Florentino Martin by be a ground to annul a compromise agreement but
paying to them the sum of P1,200. without that, it will stand as the final determination of the
case with the parties
Petitioner contends that the Court of Appeals erred in declaring
that the compromise had the effect of converting the previous In this particular case, there was a period within which
contract of sale into one of loan secured by a mortgage. the respondents should deliver the titles to the petitioner.
It was 6 months. But even after the lapse of that period,
RULING: We cannot reverse or modify the conclusion made by
no delivery was made. But after that, there was delivery.
the Court of Appeals that petitioner Feliciano Martin had
actually signed the compromise agreement, this being a finding
So this time, the petitioners already refused to receive.
The respondents wanted petitioners to accept the titles

because there was an obligation on the part of petitioners refused to accept the same or execute an instrument
petitioners to accept the titles. But that has to be done for the resale, reconveyance or redemption of the property
within 6 months. The time lapsed already. covered by TCT No. RT-6652. Consequently, TCT No. RT-6652 was
cancelled and in lieu thereof, TCT No. T-47229 was issued in the
names of petitioners.
Then it was error for the court to compel the petitioners to
accept. Even if the issuance of a writ of execution and RULING: A compromise agreement, once approved by final
there is alreadya compromise agreement, it is ministerial order of the court, has the force of res judicata between the
and the enforcement should be in accordance with the parties and should not be disturbed except for vices of consent
tenor of the compromise agreement. The court has no or forgery.9 In this case, the compromise agreement clearly
authority to vary the terms of a compromise agreement. provided private respondents six months, i.e., from August 25,
The court cannot make an agreement for the parties. The 1993 to February 25, 1994, to deliver the titles to the three parcels
court will merely enforce what has been agreed upon by of land described in the agreement. If after the lapse of the said
period and no delivery is yet made by private respondents,
the parties.
ownership over the land covered by TCT No. RT-6652 would be
transferred to petitioners.
In this case, the compromise agreement is a contract
because there is a meeting of the minds between the As the facts of this case show, private respondents failed to
parties and as such, has the force of law between the deliver the titles on February 25, 1994, as it was only on March 4,
parties and must be complied with in good faith. 1994, when they gave the titles to petitioners. Hence, pursuant to
the terms of the compromise agreement, petitioners could
SPOUSES INOCENCIO vs COURT OF APPEALS rightfully refuse acceptance of the titles. It was error therefore for
the trial court to grant the writ of execution in favor of private
FACTS: Private respondents spouses Mario and Gregoria respondents because it effectively compelled petitioners to
Geronimo obtained a loan in the amount of P1,028,000 from accept delivery of the three titles in exchange for the release of
petitioners, the spouses Inocencio and Adoracion San Antonio. the land covered by TCT No. RT-6652 even after the lapse of the
To secure the loan, private respondents mortgaged two parcels six-month period.
of landCovered by TCT No. RT-6653 with an area of 10,390
square meters and TCT No. RT-6652 with an area of 2,556 square In this case, it will be unjust to petitioners if we compel them to
meters, both situated in Barrio Tabe, Guiguinto, Bulacan. accept the three titles despite the lapse of the agreed period.
Contractual obligations between parties have the force of law
Subsequently, private respondents obtained an additional loan between them and absent any allegation that the same are
of P991,859 with an interest of 3.33% per month, thus making their contrary to law, morals, good customs, public order or public
total obligation in the amount of P2,019,859, payable on or policy, they must be complied with in good faith.
before February 15, 1991. Private respondents failed to pay the
loan and the interest on the due date, hence, the mortgage Both the trial court and the Court of Appeals attributed to the
was extra-judicially foreclosed. During the auction sale, Register of Deeds private respondents' delay in the delivery of
petitioners, being the highest bidder bought the two parcels of the three titles. But as shown in their decisions, private
land. respondents submitted to the Register of Deeds the pertinent
documents for registration of the three titles in petitioners' name
Before the one-year redemption period expired, private only on March 2, 1994, beyond the six-month period. Private
respondents filed a complaint for annulment of extra-judicial respondents could have done so earlier, but they did not. This
foreclosure with preliminary mandatory injunction with the RTC. only shows that private respondents did not intend to truly
After the parties presented their respective evidence, they comply with their obligations.
submitted to the court a compromise agreement dated August
25, 1993, the terms and conditions of which are quoted as
follows: CASE: GOLANGCO vs PCIB
Within six (6) months from signing of this compromise
agreement simultaneous to which delivery of the title to The Supreme Court actually said that by the nature of the
the afore-mentioned properties in the names of the
obligation in such contract, the provision limiting liability
defendants San Antonio, the defendants San Antonio
will execute the corresponding instrument of for defect and fixing specific guarantee periods is not
resale/reconveyance/redemption over that properly only fair and equitable, it was also necessary. Why?
together with its improvements covered by TCT No. RT- Because without such limitation, the contractor would be
6652 (T-296744), for the purpose of the cancellation of expected to make a perpetual guarantee in all materials
the annulment of the sale in the title subject to the and workmanship.
condition that should plaintiffs fail to deliver the titles to
the three lots heretofore mentioned to the defendants So, actually, this guarantee defects liability period is
San Antonio, the said plaintiffs shall be deemed to actually necessary. It is not contrary to law, morals, good
have waived and renounced any all rights, claims and
custom and public policy. It is even found to be of
demands whatsoever they may have over that
property covered by TCT No. RT-6652 (T-296744) established usage in the government. They could fix two
including its improvements and thenceforth bind years or three years but in this case, PCIB agreed to 1
themselves to respect the right of ownership, and year. It just so happened that some defects occurred
possession of the defendants San Antonio over said after the one-year period.
property, or to pay Two Million Pesos (P2,000,000.00)
within the same period. But again, the Supreme Court said, we cannot
countenance an interpretation that undermines a
Petitioners executed a Certificate of Redemption and
contractual stipulation freely and validly agreed upon.
Cancellation of Sale covering TCT No. RT-6653 after private
respondents paid them P2,000,000.
The courts will not relieve a party from the effects of an
unwise or unfavorable contract entered into.
Private respondents, however, failed to transfer the ownership
and deliver the titles of the three parcels of land or to pay 2 So, even if the 1-year period proved to be
Million Pesos within the six-month period from August 25, 1993. It disadvantageous to PCIB, is this a ground for annulling a
was only on March 4, 1994, after the lapse of six months that contract? No, because it was freely and voluntarily
private respondents delivered the three titles to petitioners. agreed upon by PCIB. So, the law does not protect you
As the delivery was beyond the agreed six-month period, from stupid decisions; only if you have been compelled

to enter into a contract by fraud, violence, intimidation; binding and valid agreement.
so there were vices of consent or you were
incapacitated to enter into a contract then that would The provision in the construction contract providing for a defects
be a ground to annul but not if you were just unwise in liability period was not shown as contrary to law, morals, good
entering into the contract. customs, pubic order or public policy. By the nature of the
obligation in such contract, the provision limiting liability for
WILLIAM GOLANGCO CONSTRUCTION CORPORATION vs defects and fixing specific guaranty periods was not only fair
PHILIPPINE COMMERCIAL INTERNATIONAL BANK and equitable; it was also necessary. Without such limitation, the
contractor would be expected to make a perpetual guarantee
on all materials and workmanship.
FACTS: William Golangco Construction Corporation (WGCC) and
the Philippine Commercial International Bank (PCIB) entered into
a contract for the construction of the extension of PCIB Tower II The adoption of a one-year guarantee, as done by WGCC and
on. The project included, among others, the application of a PCIB, is established usage in the Philippines for private and
granitite wash-out finish on the exterior walls of the building. government construction contracts. The contract did not specify
a different period for defects in the granitite wash-out finish;
hence, any defect therein should have been brought to
PCIB, with the concurrence of its consultant TCGI Engineers WGCC‘s attention within the one-year defects liability period in
(TCGI), accepted the turnover of the completed work by WGCC the contract.
in a letter dated June 1, 1992. To answer for any defect arising
within a period of one year, WGCC submitted a guarantee
bond dated July 1, 1992 issued by Malayan Insurance Company, We cannot countenance an interpretation that undermines a
Inc. in compliance with the construction contract. contractual stipulation freely and validly agreed upon. The
courts will not relieve a party from the effects of an unwise or
unfavorable contract freely entered into.
The controversy arose when portions of the granitite wash-out
finish of the exterior of the building began peeling off and falling
from the walls in 1993. WGCC made minor repairs after PCIB The purpose of the defects liability period was precisely to give
requested it to rectify the construction defects. In 1994, PCIB PCIB additional, albeit limited, opportunity to oblige WGCC to
entered into another contract with Brains and Brawn make good any defect, hidden or otherwise, discovered within
Construction and Development Corporation to re-do the entire one year.
granitite wash-out finish after WGCC manifested that it was "not
in a position to do the new finishing work," though it was willing to Contrary to the CA‘s conclusion, the first sentence of the third
share part of the cost. PCIB incurred expenses amounting paragraph of Article XI on guarantee previously quoted did not
to P11,665,000 for the repair work. operate as a blanket exception to the one-year guarantee
period under the first paragraph. Neither did it modify, extend,
The controversy pivots on a provision in the construction contract nullify or supersede the categorical terms of the defects liability
referred to as the defects liability period: period.
Unless otherwise specified for specific works, and Under the circumstances, there were no hidden defects for
without prejudice to the rights and causes of action of which WGCC could be held liable. Neither was there any other
the OWNER under Article 1723 of the Civil Code, the defect for which PCIB made any express reservation of its rights
CONTRACTOR hereby guarantees the work stipulated in against WGCC. Indeed, the contract should not be interpreted
this Contract, and shall make good any defect in to favor the one who caused the confusion, if any. The contract
materials and workmanship which [becomes] evident was prepared by TCGI for PCIB.
within one (1) year after the final acceptance of the What do we mean by ―in good faith?‖ In the case of
work. The CONTRACTOR shall leave the work in perfect Martin vs Martin, good faith is the interpretation not by
order upon completion and present the final certificate the letter but by the spirit. In this case, the subject was still
to the ENGINEER promptly. a compromise agreement and they entered into the
compromise agreement freely, voluntarily and willingly so
If in the opinion of the OWNER and ENGINEER, the there were no vices of consent. However, the problem is
CONTRACTOR has failed to act promptly in rectifying that the court had no jurisdiction. The court, when the
any defect in the work which appears within the period case was pending and where the compromise
mentioned above, the OWNER and the ENGINEER may,
agreement was made, actually had no jurisdiction.
at their own discretion, using the Guarantee Bond
amount for corrections, have the work done by
another contractor at the expense of the Jurisdiction basically is the authority of the court to hear
CONTRACTOR or his bondsmen. and decide cases. Jurisdiction is provided for by law.
Under our laws, we have different courts having different
However, nothing in this section shall in any way affect jurisdictions. For example: for money claims not
or relieve the CONTRACTOR’S responsibility to the exceeding P 300, 000 you have the MTC(Municipal Trial
OWNER. Court) or Metropolitan Trial Court. For over P 300, 000 you
have the Regional Trial Court. If your claim is only P 100,
RULING: The autonomous nature of contracts is enunciated in 000 you file with the MTC. You cannot say that you will file
Article 1306 of the Civil Code. your P200, 000 claim in the RTC. The RTC has no
jurisdiction. If your claim is P 500, 000 you should file it with
Article 1306. The contracting parties may establish such the RTC. If you file it with the MTC, they have no
stipulations, clauses, terms and conditions as they may deem jurisdiction.
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. So, if the court has no jurisdiction, even if the court itself
made a mistake, erroneously the court took cognizance
Obligations arising from contracts have the force of law of the case and then there was hearing and then 5 years
between the parties and should be complied with in good already lapsed and then the Court realizes that it has no
faith. In characterizing the contract as having the force of law jurisdiction so the case will be dismissed. All you effort is
between the parties, the law stresses the obligatory nature of a wasted. For example, the parties enter into a compromise

agreement and it was approved by the court but the consent and also in quasi-delicts, it does not presuppose
court had no jurisdiction over the case. or it does not require mutual consent.
So, would that compromise agreement be binding?
Yes. Because in a compromise agreement, what matters Article 1160. Obligations derived from quasi-
is that it was entered into by the parties, they had contracts shall be subject to the provisions of Chapter
consent in entering into that agreement, and there were 1, Title XVII, of this Book. (n)
no vices of consent and both of them were capacitated.
So, that constitutes as the law between the parties. The
compromise agreement would even be valid; any
agreement would be valid even if it is not in court. What do we mean by quasi-contracts?
What makes it different from a compromise agreement For example, we are talking of a bus fare. The bus fare is
entered into during litigation? Although it so happened P100. A pays B P200 and B gives A the change of P150.
that the court where the case was filed had no Supposedly, the change is P100. Where is the obligation
jurisdiction. So, as long as the contract is entered into in in that case? When does the obligation arise?
good faith then it has the force of law between the
parties. So, approval of the court is immaterial. What is There is an obligation on the part of
important is the mutual consent to the compromise. A to return the P50. Why? So the underlying principle in
quasi-contract is to prevent unjust enrichment on the part
In Article 1159, we discussed that the contracts have the of the other.
force of law between the parties. So, between the
parties, the contract is the law between them. But you What kind of quasi-contract is that? Solutio indebiti or we
also mentioned that the contract is not superior to the call that as ―payment by mistake.‖
law because before a contract can be valid, it has to be
This is defined under Article 2154. It is a juridical relation
in accordance with law.
which takes place when somebody receives something
What is the difference between an obligation and a from another without any right to demand for it and the
contract? Are these two the same? Is obligation thing was unduly delivered by mistake.
synonymous to a contract?
Article 2154. If something is received when there is no right to
demand it, and it was unduly delivered through mistake, the
What are the five sources of obligations? Law, contract, obligation to return it arises. (1895)
quasi-contract, delict and quasi-delict. So, obligations
can arise from a contract. Obligation is the result of a
contract and a contract always results in an obligation So, the essence of solutio indebiti is payment by mistake
but not all obligations come from contracts. Because, as and the payment was not supposedly due. So the one
we mentioned, there are five sources of obligations. who received that payment has the obligation to return
Contract is just one of the sources of an obligation. But a the payment.
contract always results into an obligation. So that is one
distinction. The other kind of quasi-contract is negotiorum gestio. This
takes place when a person voluntarily takes charge of
Another distinction is that a contract always presupposes another‘s abandoned business or property without the
a meeting of the minds of the parties. There can be no owner‘s authority (Paras).
contract without the meeting of the minds, even if you‘re
saying that there is a unilateral contract. Actually, we are not talking here of a business as a going
concern which is being managed by another.
When you say unilateral, only one in obliged but it is not
equivalent to saying that―ina unilateral contract, there is Example:
no mutual consent‖ because before that contract is
perfected, before that obligation even arises, there has A is the owner of a farm. In this farm, he has cattle but he
to be a meeting of the minds between the parties. is away on a trip and B is his neighbor. Then there is a
Contract always results from a meeting of the minds. typhoon and there is lightning, it is raining so there is a
There is no contract if there is no meeting of the minds. danger also that the place will flood. Because of that, B is
Although, again, in a contract it is not really necessary concerned; he took charge of the property of A. He
that both parties have obligations. The obligation may be brought the cattle to a higher place to save them from
unilateral or bilateral. We are referring to the party who is the flood and in doing so, B incurred expenses. The cattle
bound to perform but as to the party who should was saved. A returned home.
consent, both parties should consent to enter into the
contract. Can B claim from A? Yes. On what basis?The law on
quasi-contract. So even if A did not consent but the law
How about in an obligation? Is there a necessity of supplies the missing consent. So, in quasi-contract, we
meeting of the minds before there can be an obligation? have what we call the presumptive consent supplied by
No. An obligation arising from law: like you are obliged to the law. A cannot just say thank you; he has to pay
pay your taxes. Most of us even refuse, we do not agree otherwise he would be unjustly enriched at the expense
to that, but we have to follow it because that is the law. It of B.
does not require our consent. There is still an obligation. In
quasi-contract, there is no actual consent but consent is You remember your Persons and Family Relations? You
supplied by law. In delicts, still again, there is no mutual discussed Article 22 of the New Civil Code. What does
Article 22 provide?

Article 22. Every person who through an act of performance by person criminally liable for a felony is also civilly liable. So if
another, or any other means, acquires or comes into possession you commit a crime, you have two liabilities: you have
of something at the expense of the latter without just or legal criminal liability that consists of imprisonment, fine and/or
ground, shall return the same to him.
disqualification (the accessory penalties. Aside from that,
Is this the same as solutio indebiti? Article 22 is what we you also have a civil liability.
call accion in rem verso. In Article 22, there is also
acquisition by another through an act or performance of And then it is also regulated under Chapter 2, the
another person and that acquisition is without just or legal Preliminary Title on Human Relations of the Civil Code and
ground. The one who acquired possession without just Title XVIII, Book 4 of the Civil Code on damages.
and legal ground has to return the thing to the one who
delivered. Generally, when a person commits a crime he is also
civilly liable. Both criminal and civil liabilities. Although
It is like solutio indebiti because in solutio indebiti, there is there are crimes where there is no civil liability like
also delivery and the one to whom the thing is delivered treason, rebellion,gambling, illegal possessionog firearms;
has no right or legal ground to receive it and he has to meaning you are only criminally liable because in these
return the thing. particular crimes, there are no private offended parties,
only the state. What usually happens is it will only consist
The only difference between solutio indebiti and accion in confiscation, destruction of the articles of the crime so
in rem verso is that in solutio indebiti, the payment was by there is no civil liability.
mistake. In accion in rem verso, there is no mistake but
the delivery is without just or legal ground. F As a consequence of that (Article 100 – every person
criminally liable is also civilly liable), once you file a
Example: criminal case, it carries with it the institution of the civil
aspect. So you don‘t really have to file 2 cases because
The debtor already paid his debt but then subsequently,
usually in civil, you are asking for indemnity; monetary
creditor demanded again because he claims that
indemnity for damages. So you don‘t have to file two
debtor never paid. The debtor claims that he already
cases because automatically. When you institute a
paid. Creditor asks, to whom did you pay? The debtor
criminal action the civil aspect is deemed impliedly
claims that he paid to the creditor‘s agent, his authorized
instituted. So that is the general rule.
agent because the creditor‘s agent has a Special Power
of Attorney (SPA). Payment to the agent is actually There are exceptions:
payment to the principal. But the creditor would not
acknowledge that because according to him, the agent 1. When the offended party has filed the civil action
says that the debtor did not pay. So, debtor paid. ahead of the criminal case.
But in reality, debtor no longer has the obligation to pay If you file a civil case first, and then you
because he already paid. So in that case, the subsequently file a criminal case, there is no more
performance or the receipt by the creditor is without civil aspect. It doesn‘t follow that once you file a
legal ground. So what is the obligation of creditor? He civil action, it carries with it the criminal aspect.
has to return it otherwise he would be unjustly enriched at No. But when you file a criminal action, it carries
the expense of the debtor who already paid. with it the civil aspect. If file the civil case first and
then later on you file a criminal case of the same
If the debtor can prove in any manner that he already
act, then it is purely criminal; there is no more civil
paid, the creditor has to confirm what he received. There
aspect.
is no mistake. The debtor here paid not because of
mistake. He even voluntarily paid because of the
2. When an independent civil action is pursued
circumstances but again that act or performance is no
separately.
longer due because he already paid in the first place. So
that is the concept if accion in rem verso
If you already reserve the filing of a civil action
then the criminal case no longer has the civil
aspect.
3. When the offended party waived the civil liability
Article 1161. Civil obligations arising from criminal
offenses shall be governed by the penal laws,
Take note that when a person commits a crime,
subject to the provisions of article 2177, and of the he is criminally liable and civilly liable. The
pertinent provisions of Chapter 2, Preliminary Title, offended party may waive the civil aspect, your
on Human Relations, and of Title XVIII of this Book, civil liability, but such waiver will not carry with it
regulating damages. (1092a) that of the criminal aspect.
So it doesn‘t follow that when a criminal case is

filed and there is already a compromise
So another source of obligation is a criminal offense or a agreement between the accused and the
delict or culpa criminal. complainant, the criminal case would be
dismissed. No. It is only the civil aspect that would
So we are talking here of the civil liability arising from the be dismissed.
commission of the criminal offense. Under Article 1161,
that is subject to the provision of the Revised Penal Code But in practice, whatever may be the crime, like
and other penal laws subject to the provision of Article theft, estafa, B.P. 22, murder, what happens is the
2177 of the New Civil Code and that is also under Article accused will enter into a compromise with the
100 of the Revised Penal Code which says that every private complainant. The private complainant

asks for damages and then they enter into a This will constitute the civil aspect: restitution, reparation
compromise agreement. The judge will only and indemnification for consequential damages.
dismiss the civil aspect. He/She will not dismiss the
criminal case based on that agreement. But the What if the accused is acquitted in the case? What is the
criminal case will still be dismissed. Why? effect of acquittal? Would it follow the extinguishment of
the civil liability?
Usually, aside from the compromise agreement,
the private complainant will execute an affidavit If there is finding of innocence, in that case the acquittal
of resistance. Will that be reason enough for the of the accused would also mean the non-imposition of
judge to dismiss the case? Again, no. But when the civil liability.
there is an affidavit of resistance, the judge will
see that the private complainant no longer has What is the quantum of proof in criminal cases? You
any interest to prosecute the case and there is should be found guilty beyond reasonable doubt, there
no one who will act as a witness anymore. In a should be moral certainty. What if the judge says there is
crime, the private complainant is actually just a evidence against you but I‘m not sure. There is a doubt.
witness for the state. But if the witness manifests The reason for acquittal is reasonable doubt.
his refusal to witness, so the state cannot prove
the case. Usually, the judge, he will dismiss the Can the accused still be held civilly liable? What is the
case on the ground that there is no more private quantum of proof required in civil cases? Preponderance
complainant who will testify on the case and it of evidence. Which is heavier? Proof beyond reasonable
now becomes difficult for the state to prove the doubt or preponderance of evidence? Proof beyond
case. reasonable doubt.
Or the complainant won‘t appear in the So, even if there is reasonable doubt, the civil case would
hearings. When the complainant doesn‘t appear still prosper because it merely requires preponderance of
for three consecutive hearings, the accused will evidence which has a lesser quantum than proof beyond
invoke his right to speedy trial. So the court will still reasonable doubt.
dismiss the case because of the invocation of the
accused to speedy trial. That is how it is in In that case, can there still be civil liability if the acquittal
practice. So it‘s not really because of the is based on reasonable doubt? Yes, there can still be a
compromise agreement although in reality, there possible civil liability because the mere evidence required
is a compromise agreement between the parties in a civil case is preponderance of evidence. So even if
so the civil aspect is settled, but theoretically, the there is reasonable doubt as to the criminal aspect but
criminal action will not be dismissed on the basis again, the proof presented in the criminal case could
of that compromise agreement. But in reality, it possibly be equated to preponderance of evidence.
will be dismissed for the reasons I mentioned Even if in the criminal case, the moral certainty is not
before. satisfied, and you have a lot of evidence but there is still
doubt in the mind of the court, but if you file a civil case,
As we mentioned, every criminal action carries with it the your evidence is enough to constitute preponderance of
civil aspect. So what is the civil aspect? What is included evidence.
in the civil liability? That is under Article 104 of the Revised
Penal Code. Like one glass of water; in a criminal case, you need one
glass of water to convict the accused but you only
Article 104. What is included in civil liability. - The civil liability presented ¾ cup of water so the accused is acquitted. In
established in Articles 100, 101, 102, and 103 of this Code a civil case, the ¾ cup of water is enough to constitute
includes: preponderance of evidence. So, you can still prove civil
1. Restitution;
liability even if in a criminal case, it is not enough
2. Reparation of the damage caused;
3. Indemnification for consequential damages. because the quantum of proof required in a civil case is
lesser compared to the quantum of proof required in a
Article 105. Restitution; How made. - The restitution of the thing criminal case.
itself must be made whenever possible, with allowance for any
deterioration, or diminution of value as determined by the court. If the acquittal was based on an exempting
circumstance like the accused was acquitted because
The thing itself shall be restored, even though it be found in the he was insane at the time he committed the offense, can
possession of a third person who has acquired it by lawful means,
there be civil liability? Yes, because as you have learned
saving to the latter his action against the proper person, who
may be liable to him. before in your Criminal Law, there is still civil liability in
exempting circumstance.
This provision is not applicable in cases in which the thing has
been acquired by the third person in the manner and under the How about the death of the accused?
requirements which, by law, bar an action for its recovery.
CASE: PEOPLE vs PANITERCE
Article 106. Reparation; How made. - The court shall determine
the amount of damage, taking into consideration the price of Pending the trial for the criminal case, the accused died.
the thing, whenever possible, and its special sentimental value to What will happen to his civil liability and as to his criminal
the injured party, and reparation shall be made accordingly.
liability also?
Article 107. Indemnification; What is included. - Indemnification
for consequential damages shall include not only those caused
Of course, the criminal liability will be extinguished by
the injured party, but also those suffered by his family or by a death because it would be impossible for him to serve his
third person by reason of the crime. sentence. How about his civil liability? Is his civil liability
extinguished by his death? Remember we have 5 sources

of obligation: law, contract, quasi-contract, delict and a result of the same act or omission:
quasi-delict. So the civil liability arising from the delict
itself, what happens to it? a) Law
b) Contracts
c) Quasi-contracts
When you are convicted of a crime, your civil liability is
xxxx
the one which arises from the crime. So, an act or e) Quasi-delicts
omission punished by law or delict; that is the civil liability
arising from the crime itself. Before it can be decreed, Clearly, it is unnecessary for the Court to rule on Paniterce‘s
there has to be conviction by final judgment. appeal. Whether or not he was guilty of the crimes charged has
become irrelevant since, following Article 89(1) of the Revised
So, in that case, there is no final judgment because Penal Code and our disquisition in Bayotas, even assuming
Paniterce appealed so it was still on review. Because of Paniterce had incurred criminal liabilities, they were totally
his death, the civil liability arising from the crime itself was extinguished by his death. Moreover, because Paniterce‘s
appeal was still pending and no final judgment of conviction
already extinguished. Because there can be no more
had been rendered against him when he died, his civil liabilities
conviction in that case; he already died so he cannot be arising from the crimes, being civil liabilities ex delicto, were
convicted anymore. As a consequence, there can be no likewise extinguished by his death.
finding also of the civil aspect arising from the crime itself.
PEOPLE OF THE PHILIPPINES vs DOMINGO PANITERCE But there are other sources of obligation, of civil liabilities.
So if you could base your claim for civil liability on the
FACTS: In four Informations, all dated February 11, 2002,
Paniterce was charged with four counts of rape of his daughter other sources aside from the delict, you could still recover
AAA, a 10-year old minor. civilly.
In two Amended Informations, both dated December 3, 2002, What did the Supreme Court say here as summarized in
Paniterce was charged again with two counts of rape of his the guidelines in People vs Bayotas?
other daughter BBB, a 12 year-old minor.
So, in this particular case, the ruling of the Supreme Court
When arraigned, Paniterce pleaded not guilty to all the charges. is that the civil liability arising from the crime itself is
He was found guilty. extinguished if the accused dies pending the case
because for the civil liability arising from the crime itself to
Paniterce filed an appeal with the Court of Appeals. The
appellate court rendered a Decision on August 22, 2008 be recovered there is a need for conviction by final
affirming the RTC judgment with modifications. judgment. If the accused dies already pending the case,
he can no longer be convicted. So, as a consequence,
On 16 September 2008, Paniterce, through counsel, filed a there can be no finding of civil liability. That is an
Notice of Appeal with the Court of Appeals conveying his obligation arising from a delict; it is already extinguished.
intention to appeal to us the aforementioned Decision. But if you could still predicate your case upon another
source, like for example: we have Article 33 of the New
However, in a letter dated October 12, 2009, Julio A. Arciaga,
Civil Code:
the Assistant Director for Prisons and Security of the Bureau of
Corrections, informed us that Paniterce had died on August 22,
2009 at the New Bilibid Prison Hospital. Paniterce‘s Death Article 33. In cases of defamation, fraud, and physical injuries a
Certificate was attached to said letter. civil action for damages, entirely separate and distinct from the
criminal action, may be brought by the injured party. Such civil
RULING: Paniterce‘s death on August 22, 2009, during the action shall proceed independently of the criminal prosecution,
pendency of his appeal, extinguished not only his criminal and shall require only a preponderance of evidence.
liabilities for the rape and acts of lasciviousness committed
against his daughters, but also his civil liabilities solely arising from So in this case, for example: he is a respondent in a case
or based on said crimes. for physical abuse or physical injury and before
conviction he died. Therefore, because of his death,
According to Article 89(1) of the Revised Penal Code, criminal there is no longer any civil liability arising from the crime
liability is totally extinguished: itself that could arise. But even if he dies, you could still file
another case, a civil case for damages, for the same
1. By the death of the convict, as to the personal penalties; and
as to pecuniary penalties, liability therefor is extinguished only physical injuries but your basis is no longer Article 100 of
when the death of the offender occurs before final judgment. the Revised Penal Code but Article 33 of the New Civil
Applying the foregoing provision, we laid down the following Code, allowing for a separate civil action for the crime of
guidelines in People v. Bayotas: physical injuries.
Or for example: your car hit another car and a case
1. Death of the accused pending appeal of his against you was filed, reckless imprudence resulting to
conviction extinguishes his criminal liability as well homicide. That is a criminal case but if the accused dies
as the civil liability based solely thereon. As opined
prior to conviction, there can be no civil liability arising
by Justice Regalado, in this regard, "the death of
the accused prior to final judgment terminates his from the crime.
criminal liability and only the civil liability directly
arising from and based solely on the offense But can a civil case still be filed to recover for damages?
committed, i.e., civil liability ex delicto in senso Yes. On what basis?Under the law on quasi-
strictiore." delict.Because that‘s also a quasi-delict. You could still
have another basis for your civil action but not the delict
2. Corollarily, the claim for civil liability survives since the accused is already dead. Delict requires prior
notwithstanding the death of (the) accused, if the
conviction.
same may also be predicated on a source of
obligation other than delict. Article 1157 of the Civil
Code enumerates these other sources of
You can still file but now based on quasi-delict and your
obligation from which the civil liability may arise as case would merely require preponderance of evidence,

not proof beyond reasonable doubt because proof here was an employee, but insofar as the act was
beyond reasonable doubt is required only in a criminal concerned, that was his own act. You cannot ascribe
case. But it affects your civil claim because for him to be that to the employer.
convicted, you need to present proof beyond
reasonable doubt and only then can you recover the So, you cannot file a criminal case against the employer
civil aspect because there is a need for prior conviction. but once the employee is convicted (so he will be
sentenced to imprisonment, for example, plus there will
So, if you file another case even based on the same act be determination on his civil liability), as to the civil liability
but you can base it on law or on delict, you can still (restitution, reparation, indemnification), that is also the
recover even if he dies. Now, since he is dead, against primary liability of the employee.
whom do you file the civil action? Against his estate or
against his administrator, depending on the kind of But if the employee is insolvent, to whom or against who
action. can the victim go? He can proceed against the
employer. Does he need to file another case against the
How about the statute of limitation, the prescriptive employer? Actually, no, because once there is
period? Once you already filed a criminal case before, conviction, it carries with it also the civil aspect. Once
the prescriptive period is already interrupted. there is a determination of the civil liability of the
employee and if he is insolvent and the requisites are
For example: As the case is ongoing, the prescriptive present, the employer can be held subsidiary liable. So,
period no longer runs; it is interrupted. When the accused he is the one who pays for the damages caused by his
dies, that is when the prescriptive period begins to run employee. That is the subsidiary employee.
again. So that is the rule with respect to the death of the
accused pending the trial of the civil case. He will not go directly against the employer, only when it
is proved that, first, the employee had acted in the
We discussed that a criminal offense to a civil liability and performance of his duty and, second, he is insolvent. Only
the civil liability may include restitution, reparation and then can you ask for damages from the employer.
indemnification for consequential damages. We also
discussed the effect of acquittal of the accused insofar In this case, what was the separate civil action filed?
as the civil liability is concerned and the death also of the Damages to recover the subsidiary liability of the
accused pending the trial of his case. So the accused employer. The Supreme Court said it could not be
was not convicted with finality because either the trial is recovered because the criminal case is still pending.
still ongoing or maybe there was a decision by the lower When you are seeking to enforce the subsidiary liability of
court and it is on appeal. the employer, which is the civil aspect arising from the
crime itself there has to be prior conviction. Here, the
So just remember that we have 5 sources of obligations. case was still on appeal, and there was no conviction
When we talk of delict or acts and omissions punished by yet. Therefore, it was premature to ask for the subsidiary
law as a source of an obligation, that obligation arises liability of the employer.
from the crime itself. It is really connected with the crime
and in that sense, there has to be conviction by final How about Article 33 cited here?
judgment first before we can hold the accused civilly
liable for that crime. But it doesn‘t mean that if he is not Article 33. In cases of defamation, fraud, and physical injuries a
convicted (maybe because he was acquitted because civil action for damages, entirely separate and distinct from the
of reasonable doubt or he died pending the trial of the criminal action, may be brought by the injured party. Such civil
action shall proceed independently of the criminal prosecution,
criminal case) then he cannot be held civilly liable at all.
and shall require only a preponderance of evidence.
He can still be held civilly liable but not arising from the
crime itself because there is no conviction but based on
other sources of obligation. If we can base the civil So, it says physical injuries and that the civil action can
obligation on those other sources then the civil liability proceed independently of the criminal case and it needs
can still be recovered. only preponderance of evidence. So, based on that
provision, we can conclude that there‘s actually no need
That was also discussed in the case of Paniterce. In the
of a prior action because the civil action can subsist
civil case, you no longer need proof beyond reasonable
independently of the criminal case and it needs merely
doubt. You only need preponderance of evidence.
preponderance of evidence. So why was the case
dismissed? What does Article 33 contemplate? How do
CASE: JAOQUIN vs ANICETO
you distinguish s subsidiary liability from a primary liability?
Can the subsidiary liability be enforced pending appeal
When you say primary, there is no requisite. You can file
of his criminal conviction?
directly against the employer. But when you say
Example: subsidiary, we need to secure first conviction of the
employee before you can proceed against the
This employee in this particular case committed a crime, employer. Article 33 contemplates the primary liability.
the crime of physical injuries as a result of reckless Article 33 is another source of obligation. This is not the
imprudence. So, in that case, the criminal case filed civil liability arising from the crime itself but another from
against the employee is only against the employee. obligation arising from law. So, take note that what was
filed here was a civil action to enforce the subsidiary
Can you file a criminal case also against the employer for liability of the employer. That was the wrong action.
reckless imprudence resulting in physical injuries? No,
because it is personal to the accused (Aniceto). So that If you were the lawyer, you should have filed a civil
crime is personal to the accused. Even if the accused action arising from Article 33, enforcing not the subsidiary
liability of the employer but his primary liability. So, you file

a case directly against the employer based on Article 33. civil action even while the criminal case against the employee is
Article 33 does not require prior conviction. Even if the still pending?
case was still on appeal, this case, if it was based on
RULING: It is now settled that for an employer to be subsidiarily
Article 33, could actually proceed independently. But the
liable, the following requisites must be present: (1) That an
case that was filed was specifically for the enforcement employee has committed a crime in the discharge of his duties;
of the subsidiary liability of the employer which was not (2) that said employee is insolvent and has not satisfied his civil
proper at that point in time precisely because the liability; (3) that the employer is engaged in some kind of
criminal case was still pending, in fact, it was still on industry.
appeal.
Without the conviction of the employee, the employer cannot
Although we are talking of the same act but it could give be subsidiarily liable.
rise to several causes of action. Also, if he chooses an
Now, it is no reason to bring such action against the employer on
action for quasi-delict under Article 2180 of the New Civil
the ground that in cases of defamation, fraud and physical
Code, he may also hold the employer liable; this time for injuries, Article 33 of the Civil Code authorizes a civil action that is
the negligent act of the employee. This does not require "entirely separate, and distinct from the criminal action,"
prior conviction; you can proceed directly against the What this article 33 authorizes is an action against the employee
employer. on his primary civil liability. It cannot apply to an action against
the employer to enforce his subsidiary civil liability as stated
Based on this case, can you file different civil actions above, because such liability arises only after conviction of the
arising from the same act or omission? employee in the criminal case. Any action brought against him
before the conviction of his employee is premature.
For example: there was already conviction here. In this
In cases of negligence, the injured party or his heirs has the
case, he reserved the filing of a separate civil action. So,
choice, between an action to enforce the civil liability arising
once there is conviction, he could already enforce the from crime under Article 100 of the Revised Penal Code and an
subsidiary liability of the employer if the employee is action for quasi-delict under Articles 2176-2194 of the Civil Code.
insolvent. Aside from that, he could also, even during the
pendency of the criminal case, file an independent civil If he chooses an action for quasi-delict, he may hold an
action for damages based on Article 33 of the New Civil employer liable for the negligent act of the employee subject,
Code or based on quasi-delict based on Article 2180 of however, to the employer's defense of exercise of the diligence
the New Civil Code. A single act or omission can give rise of a good father of the family. (Art. 2180, Civil Code)
to several causes of action.
On the other hand, should he choose to prosecute his action
under Article 100 of the Penal Code, he can hold the employer
Can you recover twice? What is the rule with respect to subsidiarily liable only upon prior conviction of the employee.
recovery? Even if you can file several actions based on While a separate and independent civil action for damages
the same act or omission, you can only recover once. may be brought against the employee under Article 33 of the
You cannot recover twice for the same act or omission. Civil Code, no such action may be filed against the employer on
the latter's subsidiary civil liability because such liability is
JOAQUIN, ET AL. vs ANICETO, ET AL governed not by the Civil Code but by the Penal Code, under
which conviction of the employee is a condition sine qua non for
FACTS: While Pilar Joaquin was on the sidewalk of Aviles Street, the employer's subsidiary liability. If the court trying the
Manila, a taxicab driven by Felix Aniceto and owned by Ruperto employee's liability adjudges the employee liable, but the court
Rodelas bumped her. As a result, she suffered physical injuries. trying the criminal action acquits the employee, the subsequent
insolvency of the employee cannot make the employer
Aniceto was charged with serious physical injuries through subsidiary liable to the offended party or to the latter's heirs.
reckless imprudence in the Municipal Court of Manila. He was
subsequently found guilty and sentenced to imprisonment.
However, no ruling was made on his civil liability to the offended Article 1162. Obligations derived from quasi-delicts
party in view of the latter's reservation to file a separate civil shall be governed by the provisions of Chapter 2,
action for damages for the injuries suffered by her.
Title XVII of this Book, and by special laws. (1093a)
While the criminal case was thus pending appeal, Pilar Joaquin,
the injured party, filed this case for damages in the Court of First
Instance of Manila, in accordance with the reservation which Quasi-delict is another source of civil obligation. What do
she had earlier made. Felix Aniceto and Ruperto Rodelas, driver
we mean by quasi-delict? It is the act or omission which
and owner, respectively, of the taxicab were made party
defendants. causes damage to another there being fault or
negligence and there is no pre-existing contractual
At the trial of this case, the plaintiff blocked all attempts of relationship between the parties.
Rodelas to prove that, as employer, he had exercised due
diligence in the selection and supervision of his employee, on What you have cited is Article 2176 of the New Civil Code
the ground that such a defense is not available in a civil action on Torts and Damages.
brought under the Penal Code to recover the subsidiary civil
liability arising from the crime. The lower court sustained plaintiff's Article 2176. Whoever by act or omission causes damage to
objection. another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-
However, it dismissed the case on the ground that in the existing contractual relation between the parties, is called a
absence of a final judgment of conviction against the driver in quasi-delict and is governed by the provisions of this Chapter.
the criminal case, any action to enforce the employer's (1902a)
subsidiary civil liability would be premature. Such liability, the trial
court added, may only be enforced on proof of the insolvency
of the employee. Hence, this appeal.
Now, what is the basis of liability on quasi-delicts? Does
ISSUE: May an employee's primary civil liability for crime and his everyone have the right to be negligent? Because of
employer's subsidiary liability therefor be proved in a separate your negligence, you caused damage to another, can

you just apologize? No. What is therefore the basis of the going at the rate of about ten or twelve miles per hour. As the
liability in quasi-delict? Who should bear the defendant neared the bridge he saw a horseman on it and blew
consequences of the negligence? Should it be the his horn to give warning of his approach. He continued his
course and after he had taken the bridge he gave two more
victim, the one who was damaged, or the one who was
successive blasts, as it appeared to him that the man on
negligent? horseback before him was not observing the rule of the road.
Of course, it would be the victim. Based on the principle The plaintiff, it appears, saw the automobile coming and heard
of equity, it would be unfair that you are the one who did the warning signals. However, being perturbed by the novelty of
not exercise the proper care and as a consequence of the apparition or the rapidity of the approach, he pulled the
your act, another person is damaged and then you just pony closely up against the railing on the right side of the bridge
apologize. You should be held liable for your act or instead of going to the left. As the automobile approached, the
negligence. defendant guided it toward his left, that being the proper side of
the road for the machine. In so doing the defendant assumed
that the horseman would move to the other side. The pony had
What are the elements of quasi-delict?
not as yet exhibited fright, and the rider had made no sign for
Art 1173 the automobile to stop. Seeing that the pony was apparently
1. There should be fault or negligence. quiet, the defendant, instead of veering to the right while yet
some distance away or slowing down, continued to approach
What do we mean by fault or negligence? When directly toward the horse without diminution of speed.
there is fault or negligence, is the act voluntary or
involuntary? For example: you went hunting with When he had gotten quite near, there being then no possibility
a friend and then you accidentally shot him. You of the horse getting across to the other side, the defendant
cannot justify to the court that he looked like a quickly turned his car sufficiently to the right to escape hitting the
deer, that‘s why you shot him. Between you and horse alongside of the railing where it as then standing; but in so
doing the automobile passed in such close proximity to the
the person who was shot, the burden is with you
animal that it became frightened and turned its body across the
because you are the one who had the bridge with its head toward the railing. In so doing, it as struck on
opportunity to check if it really was a deer and the hock of the left hind leg by the flange of the car and the
you could have prevented the injury. It is a limb was broken. The horse fell and its rider was thrown off with
voluntary act, it is not involuntary. some violence. As a result of its injuries the horse died. The
plaintiff received contusions which caused temporary
If it was involuntary, for example: you were unconsciousness and required medical attention for several
insane, that‘s involuntary. But when you say fault days.
or negligence, there is voluntariness although
ISSUE: Whether or not the defendant in maneuvering his car in
there is no criminal intent.
the manner above described was guilty of negligence such as
gives rise to a civil obligation to repair the damage done
CASE: PICART vs SMITH
RULING: We are of the opinion that he is so liable.
So you cannot say that it was the fault of the horse; that
it‘s his fault for jumping. It could only be the fault of, in this As the defendant started across the bridge, he had the right to
case, Smith. assume that the horse and the rider would pass over to the
proper side; but as he moved toward the center of the bridge it
What did the Supreme Court say here about the test of was demonstrated to his eyes that this would not be done; and
negligence? What is the test of negligence? he must in a moment have perceived that it was too late for the
horse to cross with safety in front of the moving vehicle. In the
Just place yourself in the position of a prudent man. If you nature of things this change of situation occurred while the
automobile was yet some distance away; and from this moment
are a prudent man, would you have done the same
it was not longer within the power of the plaintiff to escape
thing? Or would you have done otherwise? So in this being run down by going to a place of greater safety.
case, if you were Smith, what would you have done in
that particular situation? Knowing the nature of the horse The control of the situation had then passed entirely to the
that it does not understand the traffic rules and defendant; and it was his duty either to bring his car to an
regulations. Smith should have understood the nature of immediate stop or, seeing that there were no other persons on
the beast and the possible consequences of his actions. the bridge, to take the other side and pass sufficiently far away
So failing in that, he did not satisfy the test of due from the horse to avoid the danger of collision. Instead of doing
this, the defendant ran straight on until he was almost upon the
diligence. He was negligent because he fell short of the
horse.
proper diligence that should have been required of the
circumstances of the person, place and time. He was, we think, deceived into doing this by the fact that the
horse had not yet exhibited fright. But in view of the known
We also have the concept of contributory negligence nature of horses, there was an appreciable risk that, if the animal
which you will discuss in your Torts and Damages. Under in question was unacquainted with automobiles, he might get
the concept of contributory negligence, if the exited and jump under the conditions which here confronted
negligence of the plaintiff was not the proximate cause him. When the defendant exposed the horse and rider to this
of the damage then it would not free the defendant from danger he was, in our opinion, negligent in the eye of the law.
liability.
The test by which to determine the existence of negligence in a
PICART vs SMITH, JR. particular case may be stated as follows: Did the defendant in
doing the alleged negligent act use that person would have
FACTS: The occurrence which gave rise to the institution of this used in the same situation? If not, then he is guilty of negligence.
action took place on December 12, 1912, on the Carlatan
Bridge, at San Fernando, La Union. It appears that upon the The existence of negligence in a given case is not determined
occasion in question the plaintiff was riding on his pony over said by reference to the personal judgment of the actor in the
bridge. Before he had gotten half way across, the defendant situation before him. The law considers what would be reckless,
approached from the opposite direction in an automobile, blameworthy, or negligent in the man of ordinary intelligence

and prudence and determines liability by that. more reason with respect to those guns that are
entrusted for repair because of the fact that these guns
The question as to what would constitute the conduct of a are for repair, so naturally they would be defective.
prudent man in a given situation must of course be always
determined in the light of human experience and in view of the Aside from that, when it comes to employers, they can
facts involved in the particular case.Reasonable men govern be held liable for the acts of their employees because of
their conduct by the circumstances which are before them or what we call precarious liability. The employers in the
known to them. They are not, and are not supposed to be, hiring, selection and supervision of their employees are
omniscient of the future. Hence they can be expected to take
supposed to exercise due diligence. So that is the basis
care only when there is something before them to suggest or
warn of danger. also for holding the employer liable primarily, even if the
act what committed by the employee. Because we are
talking here not really of the act of the employee (even if
Could a prudent man, in the case under consideration, foresee
harm as a result of the course actually pursued? If so, it was the
the employee is negligent) but also of the act of the
duty of the actor to take precautions to guard against that employer because he failed to exercise due diligence in
harm. Reasonable foresight of harm, followed by ignoring of the the selection and supervision of his employees.
suggestion born of this prevision, is always necessary before
negligence can be held to exist. PACIS vs MORALES
FACTS: Alfred Dennis Pacis, then 17 years old, died due to a

Stated in these terms, the proper criterion for determining the
gunshot wound in the head which he sustained while he was at
existence of negligence in a given case is this: Conduct is said to
the Top Gun Firearms and Ammunitions Store. The gun store was
be negligent when a prudent man in the position of the
owned and operated by defendant Jerome Jovanne Morales.
tortfeasor would have foreseen that an effect harmful to another
With Alfred Pacis at the time of the shooting were Aristedes
was sufficiently probable to warrant his foregoing conduct or
Matibag and Jason Herbolario. They were sales agents of the
guarding against its consequences.
defendant, and at that particular time, the caretakers of the gun
store.
Applying this test to the conduct of the defendant in the present
case we think that negligence is clearly established. A prudent The bullet which killed Alfred Dennis Pacis was fired from a gun
man, placed in the position of the defendant, would in our brought in by a customer of the gun store for repair.
opinion, have recognized that the course which he was pursuing The gun was left by defendant Morales in a drawer of a table
was fraught with risk, and would therefore have foreseen harm located inside the gun store.
to the horse and the rider as reasonable consequence of that
course. Under these circumstances the law imposed on the Defendant Morales was in Manila at the time. His employee
defendant the duty to guard against the threatened harm. Armando Jarnague, who was the regular caretaker of the gun
store was also not around. He left earlier and requested sales
It goes without saying that the plaintiff himself was not free from agents Matibag and Herbolario to look after the gun store while
fault, for he was guilty of antecedent negligence in planting he and defendant Morales were away. Jarnague entrusted to
himself on the wrong side of the road. But as we have already Matibag and Herbolario a bunch of keys used in the gun store
stated, the defendant was also negligent; and in such case the which included the key to the drawer where the fatal gun was
problem always is to discover which agent is immediately and kept.
directly responsible. It will be noted that the negligent acts of the
two parties were not contemporaneous, since the negligence of It appears that Matibag and Herbolario later brought out the
the defendant succeeded the negligence of the plaintiff by an gun from the drawer and placed it on top of the table.
appreciable interval. Under these circumstances the law is that Attracted by the sight of the gun, the young Alfred Dennis Pacis
the person who has the last fair chance to avoid the impending got hold of the same. Matibag asked Alfred Dennis Pacis to
harm and fails to do so is chargeable with the consequences, return the gun. The latter followed and handed the gun to
without reference to the prior negligence of the other party. Matibag. It went off, the bullet hitting the young Alfred in the
head.
From what has been said it results that the judgment of the lower A criminal case for homicide was filed against Matibag before
court must be reversed, and judgment is her rendered that the branch VII of this Court. Matibag, however, was acquitted of the
plaintiff recover of the defendant the sum of two hundred pesos charge against him because of the exempting circumstance of
(P200), with costs of other instances. The sum here awarded is "accident" under Art. 12, par. 4 of the Revised Penal Code.
estimated to include the value of the horse, medical expenses of By agreement of the parties, the evidence adduced in the
the plaintiff, the loss or damage occasioned to articles of his criminal case for homicide against Matibag was reproduced
apparel, and lawful interest on the whole to the date of this and adopted by them as part of their evidence in the instant
recovery. case.
The trial court rendered its decision in favor of

CASE: PACIS vs MORALES petitioners.Respondent appealed to the Court of Appeals. In its
Decision, the Court of Appeals reversed the trial court‘s Decision
What is the nature of the liability of the employer; is it and absolved respondent from civil liability under Article 2180 of
subsidiary or primary? It is primary. When you say primary, the Civil Code.
you can file directly the case against the employer. What
RULING: This case for damages arose out of the accidental
is the rationale for allowing the case to be filed directly shooting of petitioners‘ son. Under Article 1161 of the Civil Code,
against the employer? Here, the basis for filing the case petitioners may enforce their claim for damages based on the
directly against the employer is the negligence of the civil liability arising from the crime under Article 100of the Revised
employer himself. So the ground here would be quasi- Penal Code or they may opt to file an independent civil action
delict. for damages under the Civil Code. In this case, instead of
enforcing their claim for damages in the homicide case filed
What should have been done by the employer in this against Matibag, petitioners opted to file an independent civil
case, with respect to the guns in his store? It should have action for damages against respondent whom they alleged was
Matibag‘s employer. Petitioners based their claim for damages
been incumbent upon the owner of the gun store to
under Articles 2176 and 2180 of the Civil Code.
make sure that the guns in his store are not loaded. With

Unlike the subsidiary liability of the employer under Article 103 of 3. There should be a direct causal relation between
the Revised Penal Code, the liability of the employer, or any the fault or negligence and the resulting damage
person for that matter, under Article 2176 of the Civil Code is or injury.
primary and direct, based on a person‘s own negligence.
In other words, the fault or negligence should be
This case involves the accidental discharge of a firearm inside a
gun store.1avvphi1 Under PNP Circular No. 9, entitled the "Policy
the proximate cause of the damage. What do
on Firearms and Ammunition Dealership/Repair," a person who is we mean by proximate cause? The doctrine of
in the business of purchasing and selling of firearms and proximate cause is such adequate and efficient
ammunition must maintain basic security and safety cause as in the natural order of events under the
requirements of a gun dealer, otherwise his License to Operate particular circumstances surrounding the case
Dealership will be suspended or canceled. would necessarily produce the event.
Indeed, a higher degree of care is required of someone who has CASE: RODRIGUEZA vs MANILA RAILROAD COMPANY
in his possession or under his control an instrumentality extremely
dangerous in character, such as dangerous weapons or
The proximate cause here was really the negligence of
substances. Such person in possession or control of dangerous
instrumentalities has the duty to take exceptional precautions to the railroad company. We could not say that the
prevent any injury being done thereby. Unlike the ordinary affairs proximate cause is that you put up your house there
of life or business which involve little or no risk, a business dealing because they were there even before the railroad
with dangerous weapons requires the exercise of a higher company established its line in the area. So, they could
degree of care. not be held to have been negligent in remaining in the
premises and constructingtheir houses in the premises.
As a gun store owner, respondent is presumed to be
knowledgeable about firearms safety and should have known What was the concept of proximate cause as applied in
never to keep a loaded weapon in his store to avoid
this particular case? What was the ruling of the Supreme
unreasonable risk of harm or injury to others. Respondent has the
duty to ensure that all the guns in his store are not loaded. Court with respect to the determination of what is the
Firearms should be stored unloaded and separate from proximate cause of the loss here?
ammunition when the firearms are not needed for ready-access
defensive use. The Supreme Court said that the proximate and only
cause of the damage that occurred was the negligent
With more reason, guns accepted by the store for repair should act of the defendant in causing this fire. The
not be loaded precisely because they are defective and may circumstance that the house was partly on the property
cause an accidental discharge such as what happened in this of the defendant and therefore in danger of proximity to
case. Respondent was clearly negligent when he accepted the
the passing locomotives was an antecedent condition
gun for repair and placed it inside the drawer without ensuring
first that it was not loaded. In the first place, the defective gun that may in fact have made the disaster possible but that
should have been stored in a vault. Before accepting the circumstance cannot impleaded to him as contributory
defective gun for repair, respondent should have made sure negligence destructive of his right to action because that
that it was not loaded to prevent any untoward accident. condition was not created by himself.
Indeed, respondent should never accept a firearm from another
person, until the cylinder or action is open and he has personally Secondly, because his house remained on this ground by
checked that the weapon is completely unloaded. For failing to the toleration and therefore with the consent of the
insure that the gun was not loaded, respondent himself was
railroad company.
negligent. Furthermore, it was not shown in this case whether
respondent had a License to Repair which authorizes him to
repair defective firearms to restore its original composition or
Thirdly, because even supposing the house was
enhance or upgrade firearms. improperly there, this path would not justify the
defendant in negligently destroying it. The house was
Clearly, respondent did not exercise the degree of care and already there. It was dangerous and risky for the house to
diligence required of a good father of a family, much less the be there but the cause of the loss was not the presence
degree of care required of someone dealing with dangerous of the house in that location but the sparks that were
weapons, as would exempt him from liability in this case. emitted from the locomotives of the defendant. So, you
cannot fault the houses for being there because they
were not the reason why they were burned. The reason
2. Damages or injury suffered by the other person. why the houses were burned was because of the
negligence of the Manila Railroad Company. So, even
For there to be a cause of action for a quasi-
the fact that the houses were in that location could not
delict, there has to be damage or injury caused
be attributed to them as contributory negligence
to another person. For example: you discussed in
because in the first place, it was not negligence on their
your criminal law the concept of justifying
part. So, that was the case of Manila Railroad.
circumstance. In that particular case, there
could be damage but because the act is Just remember here the concept of proximate cause.
justified, you could not recover for civil liability. So Even if the presence of the house was an antecedent
the damage caused in that particular cause condition (meaning we can say it really was part of the
would be damnum abque injuria or damage fact that it was burned because it was in that location)
without injury. So the damage here should be the but it was not the proximate cause of the loss. The
damage that is really recoverable under the law, proximate cause of the loss was the negligence of the
not the damage that is justifiable. Like in the case defendant. So, it could still be a ground to recover
we discussed before where his house was damages from the defendant.
demolished by virtue of a writ of execution. There
was damage but it was justified because of the RODRIGUEZ, ET AL. vs THE MANILA RAILROAD COMPANY
court order. The damage caused here must be
the consequence of a fault or negligence. FACTS: The defendant Railroad Company operates a line
through the district of Daraga in the municipality of Albay. As

one of its trains passed over said line, a great quantity of sparks CASE: VIRATA vs OCHOA
were emitted from the smokestack of the locomotive, and fire
was thereby communicated to four houses nearby belonging to We are talking here of the civil liability of the employer
the four plaintiffs respectively, and the same were entirely and the recovery of civil liabilities arising from the same
consumed. All of these houses were of light construction with the
act or omission. So, a single act or omission can give rise
exception of the house of Remigio Rodrigueza, which was of
strong materials, though the roof was covered with nipa and
to different caused of actions but we can only recover
cogon. The fire occurred immediately after the passage of the once. We cannot recover twice for the same act or
train, and a strong wind was blowing at the time. omission.
It is alleged that the defendant Railroad Company was No we go to the effect of the plaintiff‘s own negligence.
conspicuously negligent in relation to the origin of said fire, in the So, the plaintiff here is the one who suffered damages,
following respects, namely, first, in failing to exercise proper he/she is the offended party, he/she is the victim. So what
supervision over the employees in charge of the locomotive; if the plaintiff also contributed to the loss because of his
secondly, in allowing the locomotive which emitted these sparks
own negligence? What is the rule with respect to
to be operated without having the smokestack protected by
some device for arresting sparks; thirdly, in using in its locomotive negligence?
upon this occasion Bataan coal, a fuel of known inferior quality
which, upon combustion, produces sparks in great quantity. 1. If the plaintiff’s own negligence is the proximate
cause of his damage, he cannot recover
The sole ground upon which the defense is rested is that the damages.
house of Remigio Rodrigueza stood partly within the limits of the
land owned by the defendant company, though exactly how For example: In the jeep, there is a passenger and
far away from the company's track does not appear. It further he really wants fresh air so he rode on the roof.
appears that, after the railroad track was laid, the company And then it so happened that the driver is also
notified Rodrigueza to get his house off the land of the company
negligent so let‘s say the speed limit is 60
and to remove it from its exposed position. Rodrigueza did not
comply with this suggestion, though he promised to put an iron kilometers per hour but he drove faster than that.
roof on his house, which he never did. Upon this fact it is The passengers in the car are, of course, still safe
contended for the defense that there was contributory but the passenger on the roof fell. So he filed a
negligence on the part of Remigio Rodrigueza in having his case. In that case, who is the proximate cause of
house partly on the premises of the Railroad Company, and that the loss? The driver or the passenger?
for this reason the company is not liable.
In that case, all the passengers inside the jeep did
RULING: What really occurred undoubtedly is that the company, not incur any damage and there was still an
upon making this extension, had acquired the land only, leaving
available seat for the other passenger so why
the owner of the house free to remove it. Hence he cannot be
considered to have been a trespasser in the beginning. Rather, would you ride on the roof? In that way, it can be
he was there at the sufferance of the defendant company, and argued that the proximate cause of your
so long as his house remained in this exposed position, he damage was your own negligence.
undoubtedly assumed the risk of any loss that might have
resulted from fires occasioned by the defendant's locomotives if If the negligence is merely contributory, what is the rule?
operated and managed with ordinary care. If the negligence of the plaintiff is merely contributory,
and the proximate cause of the damage being that of
But he cannot be held to have assumed the risk of any damage
the defendant, the plaintiff may recover damages but
that might result from the unlawful negligence acts of the
the court shall mitigate the damages to be awarded. So,
defendant. Nobody is bound to anticipate and defend himself
against the possible negligence of another. Rather he has a right the proximate cause of the loss would be the negligence
to assume that the other will use the care of the ordinary prudent still of the defendant but the plaintiff was also negligent.
man. The court can mitigate the damages that he incurred.
The court can reduce it. So that is the rule with respect to
In the situation now under consideration the proximate and only contributory negligence.
cause of the damage that occurred was the negligent act of
the defendant in causing this fire. The circumstance that Remigio VIRATA vs OCHOA
Rodrigueza's house was partly on the property of the defendant
company and therefore in dangerous proximity to passing FACTS: Arsenio Virata died as a result of having been bumped
locomotives was an antecedent condition that may in fact have while walking along Taft Avenue, Pasay City by a passenger
made the disaster possible, but that circumstance cannot be jeepney driven by Maximo Borilla and registered in the name Of
imputed to him as contributory negligence destructive of his right Victoria Ochoa. Borilla is the employer of Ochoa.
of action, because, first, that condition was not created by
himself; secondly, because his house remained on this ground by For the death of Arsenio Virata, an action for homicide through
the toleration, and therefore with the consent of the Railroad reckless imprudence was instituted on September 25, 1975
Company; and thirdly, because even supposing the house to be against Maximo Borilla docketed as C Case No. 3162-P.
improperly there, this fact would not justify the defendant in
negligently destroying it. The heirs of Arsenio Virata again reserved their right to institute a
separate civil action. On July 19, 1977 the heirs of Arsenio Virata,
The circumstance that the defendant company, upon planting petitioners herein, commenced Civil Case No. B-134 for
its line near Remigio Rodrigueza's house, had requested or damages based on quasi-delict against the driver Maximo Borilla
directed him to remove it, did not convert his occupancy into a and the registered owner of the jeepney, Victorio Ochoa.
trespass, or impose upon him any additional responsibility over
and above what the law itself imposes in such situation. In this Subsequently, Maximo Borilla was acquitted in Criminal Case No.
connection it must be remembered that the company could at 3612-P on the ground that he caused an injury by name
any time have removed said house in the exercise of the power accident. On January 31, 1977, the Court of First Instance of
of eminent domain, but it elected not to do so. Cavite at Bacoor granted the motion to Civil Case No. B-134 for
damages.
ISSUE: Whether or not the heirs of Arsenio Virata can prosecute

an action for the damages based on quasi-delict against

Maximo Borilla and Victoria Ochoa, driver and owner, for a service fee of 2.5%. The amount of the check was $
respectively on the passenger jeepney that bumped Arsenio 300, 000 payable to cash. And according to Adelina, she
Virata. has no dollar account so she asked Ofelia if she could
accommodate the request of Filipino because Ofelia
RULING: It is settled that in negligence cases the aggrieved
parties may choose between an action under the Revised Penal
had a dollar savings account with her Malaysian
Code or of quasi-delict under Article 2176 of the Civil Code of husband. So, Ofelia accommodated the request.
the Philippines. What is prohibited by Article 2177 of the Civil
Code of the Philippines is to recover twice for the same On that same day, Ofelia and Adelina went to PNB. They
negligent act. discussed the process of clearing the check. They were
told that it normally takes 15 days for the check to be
The Supreme Court has held that: cleared. Because of that, Ofelia deposited the check in
her joint savings account with her husband. But 5 days
According to the Code Commission: 'The foregoing
provision (Article 2177) though at first sight startling, is not so
later, PNB received a credit advice from the Philadelphia
novel or extraordinary when we consider the exact nature National Bank that the proceeds of the check had been
of criminal and civil negligence. The former is a violation of credited to PNB‘s account. PNB immediately called
the criminal law, while the latter is a 'culpa aquiliana' or Ofelia to inform her that the check had already cleared.
quasi-delict, of ancient origin, having always had its own And then Ofelia also informed Filipina that the check can
foundation and individuality, separate from criminal already be encashed. So, Ofelia encashed the check
negligence. Therefore, under the proposed Article 2177, then withdrew then gave the money to Filipina.
acquittal from an accusation of criminal negligence,
whether on reasonable doubt or not, shall not be a bar to a
subsequent civil action, not for civil liability arising from
Subsequently, a few days after, PNB received another
criminal negligence, but for damages due to a quasi-delict advice that the check actually wasn‘t good. So, the
or 'culpa aquiliana'. But said article forestalls a double check bounced. Ofelia and Adelina were informed that
recovery. the proceeds were to be returned because there is no
funding. But they already gave the proceeds to Filipina
And considering that the preliminary chapter on human who can no longer be found.
relations of the new Civil Code definitely establishes the
separability and independence of liability in a civil action
Who was the proximate cause of the loss? Who was the
for acts criminal in character (under Articles 29 to 32) from
the civil responsibility arising from crime fixed by Article 100
one negligent? Was it the bank? Was it Ofelia?
of the Penal Code, and, in a sense, the Rules of Court,
under Sections 2 and 3(c), Rule 111, contemplate also the The Supreme Court here actually said that both are
same separability, it is 'more congruent' with the spirit of law, negligent. The bank is negligent because the normal
equity and justice, and more in harmony with modern process was 15 days for the check to clear but only 5
progress that Article 2176, where it refers to 'fault covers not days had passed when they allowed the check to be
only acts 'not punishable by law' but also criminal in encashed. So, they did not follow the normal procedure.
character, whether intentional and voluntary or
consequently, a separate civil action lies against the in a
criminal act, whether or not he is criminally prosecuted and
Therefore, they fell short of the due diligence required of
found guilty and acquitted, provided that the offended them. PNB‘s act of releasing the proceeds of the check
party is not allowed, if he is actually charged also criminally, prior to the lapse of the 15-day clearing period was the
to recover damages on both scores, and would be entitled proximate cause of the loss.
in such eventuality only to the bigger award of the, two
assuming the awards made in the two cases vary. Here, the Supreme Court defined the meaning of
proximate cause. It is that cause which, in the natural
In other words the extinction of civil liability referred to in Par.
and continuous sequence, unbroken by any efficient
(c) of Section 13, Rule 111, refers exclusively to civil liability
founded on Article 100 of the Revised Penal Code, whereas
intervening cause produces the injury and without which
the civil liability for the same act considered as a quasi- the result would not have occurred.
delict only and not as a crime is not extinguished even by a
declaration in the criminal case that the criminal act To determine the proximate cause of the controversy, the
charged has not happened or has not been committed by question that needs to be asked is ―if the event did not
the accused. happen, would the injury have resulted?‖ If the answer is
no, then the event was the proximate cause.
The petitioners are not seeking to recover twice for the same
negligent act. Before Criminal Case No. 3162-P was decided,
they manifested in said criminal case that they were filing a
Had PNB not cleared the check prior to the 15-day
separate civil action for damages against the owner and driver clearing period, they would have been no withdrawal
of the passenger jeepney based on quasi-delict. The acquittal of that could have occurred. If there had been no
the driver, Maximo Borilla, of the crime charged in Criminal Case withdrawal, there could have been no loss. The
No. 3162-P is not a bar to the prosecution of Civil Case No. B-134 sequence is continuous: the approval of the bank, the
for damages based on quasi-delict The source of the obligation withdrawal and then the subsequent loss of the money. It
sought to be enforced in Civil Case No. B-134 is quasi-delict, not was the proximate cause of the loss.
an act or omission punishable by law. Under Article 1157 of the
Civil Code of the Philippines, quasi-delict and an act or omission
punishable by law are two different sources of obligation.
The Supreme Court also said that the Spouses Cheah are
guilty of contributory negligence and are bound to share
the loss with the bank.
CASE: PHILIPPINE NATIONAL BANK vs SPOUSES CHEAH
CHEE CHONG
The Supreme Court here defined what contributory
negligence is. It is the conduct on the part of the injured
This case involves checks. Ofelia and her friend Adelina
party contributing as a legal cause to the harm he has
were having a conversation in Adelina‘s office. Then
suffered which falls below the standard to which he is
Adelina‘s friend Filipina Tuazon approached her to ask if
required to perform for his own protection.
she could have Filipina‘s check cleared and encashed

advice, followed by a letteron November 24, 1992, from
What was the contributory negligence of the spouses Philadelphia National Bank.nformed about the bounced check
here? They readily trusted Filipina who was not even their and upon demand by PNB Buendia Branch to return the money
withdrawn, Ofelia immediately contacted Filipina to get the
friend. Filipina was the friend of Adelina who was also the
money back. But the latter told her that all the money had
friend of Ofelia. So as to them, Filipina was a stranger. already been given to several people who asked for the check‘s
Normally, a person would not readily trust a stranger, encashment.
much more to accommodate the check worth $ 300,000.
Ofelia failed to observe caution in giving her full trust in Subsequently, PNB sent a demand letter to spouses Cheah for
accommodating a complete stranger and this led her the return of the amount of the check, froze their peso and
and her husband to be swindled. Considering that Filipina dollar deposits in the amounts of P275,166.80 and $893.46, and
was not personally known to her and the amount of the filed a complaint against them for Sum of Money.In said
complaint, PNB demanded payment of around P8,202,220.44,
foreign check to be encashed was $ 300, 000, a higher
plus interestsand attorney‘s fees, from the spouses Cheah.
degree was expected of Ofelia whichshe however failed
to exercise under the circumstances. As their main defense, the spouses Cheah claimed that the
proximate cause of PNB‘s injury was its own negligence of
Another circumstance which should have goaded Ofelia paying a US dollar denominated check without waiting for the
to be more circumspect with her dealings was when the 15-day clearing period, in violation of its bank practice as
bank officer called her up to inform her that the Bank of mandated by its own bank circular. ecause of this, spouses
America had already been cleared way earlier that the Cheah averred that PNB is barred from claiming what it had lost.
They further averred that it is unjust for them to pay back the
15-day clearing period. So, she knew that the clearing
amount disbursed as they never really benefited therefrom. As
period is 15 days and then she did not wonder why the counterclaim, they prayed for the return of their frozen deposits,
check cleared so fast. She relied on the bank. She should the recoupment of P400,000.00 representing the amount they
have first verified the regularity of such easy clearance had so far spent in recovering the value of the check, and
considering that if something goes wrong with the payment of moral and exemplary damages, as well as
transaction, it is she and her husband who would be put attorney‘s fees.
at risk and not the obligated party.
RULING: PNB‘s act of releasing the proceeds of the check prior to

In this case, both actually were held negligent: the bank
the lapse of the 15-day clearing period was the proximate cause
as the proximate cause of the loss and the spouses as of the loss.
having contributed to the loss because they were also
negligent. "Proximate cause is ‗that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause,
PHILIPPINE NATIONAL BANK vs SPOUSES CHEAH CHEE CHONG produces the injury and without which the result would not have
occurred.‘ x x x To determine the proximate cause of a
FACTS: Ofelia Cheah (Ofelia) and her friend Adelina Guarin controversy, the question that needs to be asked is: If the event
(Adelina) were having a conversation in the latter‘s office when did not happen, would the injury have resulted? If the answer is
Adelina‘s friend, Filipina Tuazon (Filipina), approached her to ask no, then the event is the proximate cause."
if she could have Filipina‘s check cleared and encashed for a
service fee of 2.5%. The check is Bank of America Check No. It is worthy of notice that the 15-day clearing period alluded to is
190under the account of Alejandria Pineda and Eduardo construed as 15 banking days.Ofelia deposited the subject
Rosales and drawn by Atty. Eduardo Rosales against Bank of check on November 4, 1992. Hence, the 15th banking day from
America Alhambra Branch in California, USA, with a face the date of said deposit should fall on November 25, 1992.
amount of $300,000.00, payable to cash. Because Adelina does However, what happened was that PNB Buendia Branch, upon
not have a dollar account in which to deposit the check, she calling up Ofelia that the check had been cleared, allowed the
asked Ofelia if she could accommodate Filipina‘s request since proceeds thereof to be withdrawn on November 17 and 18,
she has a joint dollar savings account with her Malaysian 1992, a week before the lapse of the standard 15-day clearing
husband Cheah Chee Chong (Chee Chong). period.
That same day, Ofelia and Adelina went to PNB Buendia Branch. It bears stressing that "the diligence required of banks is more
They met with Perfecto Mendiola of the Loans Department who than that of a Roman pater familias or a good father of a family.
referred them to PNB Division Chief Alberto Garin (Garin). Garin The highest degree of diligence is expected." PNB miserably
discussed with them the process of clearing the subject check failed to do its duty of exercising extraordinary diligence and
and they were told that it normally takes 15 days. Assured that reasonable business prudence. The disregard of its own banking
the deposit and subsequent clearance of the check is a normal policy amounts to gross negligence, which the law defines as
transaction, Ofelia deposited Filipina‘s check. PNB then sent it for "negligence characterized by the want of even slight care,
clearing through its correspondent bank, Philadelphia National acting or omitting to act in a situation where there is duty to act,
Bank. Five days later, PNB received a credit advice from not inadvertently but wilfully and intentionally with a conscious
Philadelphia National Bank that the proceeds of the subject indifference to consequences in so far as other persons may be
check had been temporarily credited to PNB‘s account as of affected."
November 6, 1992. On November 16, 1992, Garin called up
Ofelia to inform her that the check had already been cleared. With regard to collection or encashment of checks, suffice it to
The following day, PNB Buendia Branch, after deducting the say that the law imposes on the collecting bank the duty to
bank charges, credited $299,248.37 to the account of the scrutinize diligently the checks deposited with it for the purpose
spouses Cheah. Acting on Adelina‘s instruction to withdraw the of determining their genuineness and regularity. "The collecting
credited amount, Ofelia that day personally withdrew bank, being primarily engaged in banking, holds itself out to the
$180,000.00. Adelina was able to withdraw the remaining public as the expert on this field, and the law thus holds it to a
amount the next day after having been authorized by Ofelia. high standard of conduct." A bank is expected to be an expert
Filipina received all the proceeds. in banking procedures and it has the necessary means to
ascertain whether a check, local or foreign, is sufficiently funded.
In the meantime, the Cable Division of PNB Head Office in Incidentally, PNB obliges the spouses Cheah to return the
Escolta, Manila received a SWIFTmessage from Philadelphia withdrawn money under the principle of solutio indebiti, which is
National Bank informing PNB of the return of the subject check laid down in Article 2154 of the Civil Code.
for insufficient funds. PNB Buendia Branch learned about the
bounced check when it received on November 20, 1992 a debit In the case at bench, PNB cannot recover the proceeds of the

check under the principle it invokes. In the first place, the gross Ramos further claimed that he was not in the vehicle when the
negligence of PNB, as earlier discussed, can never be equated mishap occurred. He asserted that he exercised the diligence of
with a mere mistake of fact, which must be something excusable a good father of a family in the selection and supervision of his
and which requires the exercise of prudence. No recovery is due driver, Rodel.
if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and ISSUE: Whether petitioner can be held solidarily liable with his
are bound to share the loss with the bank. "Contributory driver, Rodel Ilustrisimo, to pay respondent C.O.L. Realty the
negligence is conduct on the part of the injured amount of P51,994.80 as actual damages suffered in a vehicular
party,contributing as a legal cause to the harm he has suffered, collision.
which falls below the standard to which he is required to
conform for his own protection." RULING: There is no doubt in the appellate court‘s mind that
Aquilino‘s violation of the MMDA prohibition against crossing
Indeed, Ofelia failed to observe caution in giving her full trust in Katipunan Avenue from Rajah Matanda Street was the
accommodating a complete stranger and this led her and her proximate cause of the accident. Respondent does not dispute
husband to be swindled. Considering that Filipina was not this; in its Comment to the instant petition, it even conceded that
personally known to her and the amount of the foreign check to petitioner was guilty of mere contributory negligence.
be encashed was $300,000.00, a higher degree of care is
expected of Ofelia which she, however, failed to exercise under C.O.L. Realty admitted that there were barricades along the
the circumstances. Another circumstance which should have intersection of Katipunan Avenue and Rajah Matanda Street.
goaded Ofelia to be more circumspect in her dealings was The barricades were placed thereon to caution drivers not to
when a bank officer called her up to inform that the Bank of pass through the intersecting roads. This prohibition stands even
America check has already been cleared way earlier than the if, as C.O.L. Realty claimed, the "barriers were broken" at that
15-day clearing period. The fact that the check was cleared point creating a small gap through which any vehicle could
after only eight banking days from the time it was deposited or pass. What is clear to Us is that Aquilino recklessly ignored these
contrary to what Garin told her that clearing takes 15 days barricades and drove through it. Without doubt, his negligence is
should have already put Ofelia on guard. She should have first established by the fact that he violated a traffic regulation.
verified the regularity of such hasty clearance considering that if
something goes wrong with the transaction, it is she and her Accordingly, there ought to be no question on C.O.L. Realty‘s
husband who would be put at risk and not the accommodated negligence which resulted in the vehicular mishap.
party. However, Ofelia chose to ignore the same and instead
actively participated in immediately withdrawing the proceeds However, it also declared Ramos liable vicariously for Rodel‘s
of the check. contributory negligence in driving the Ford Expedition at high
speed along a busy intersection.
All told, the Court concurs with the findings of the CA that PNB
and the spouses Cheah are equally negligent and should As a professional driver, Rodel should have known that driving his
therefore equally suffer the loss. The two must both bear the vehicle at a high speed in a major thoroughfare which was then
consequences of their mistakes. subject of an on-going construction was a perilous act. He had
no regard to the safety of other vehicles on the road. Because of
the impact of the collision, Aquilino‘s sedan made a 180-degree
CASE: RAMOS vs C.O.L. REALTY CORPORATION turn as Ramos‘ Ford Expedition careened and smashed into its
rear door and fender. We cannot exculpate Rodel from liability.
GR NO. 184905 August 28, 2009
Having thus settled the contributory negligence of Rodel, this
created a presumption of negligence on the part of his
RAMOS vsC.O.L. REALTY CORPORATION employer, Ramos. For the employer to avoid the solidary liability
(G.R. No. 184905 August 28, 2009) for a tort committed by his employee, an employer must rebut
the presumption by presenting adequate and convincing proof
FACTS: A vehicular accident took place between a Toyota Altis that in the selection and supervision of his employee, he or she
Sedan owned by petitioner C.O.L. Realty Corporation and driven exercises the care and diligence of a good father of a family.
by Aquilino Larin, and a Ford Expedition owned by Lambert Employers must submit concrete proof, including documentary
Ramos (Ramos) and driven by Rodel Ilustrisimo ("Rodel"). A evidence, that they complied with everything that was
passenger of the sedan, one Estela Maliwat ("Estela") sustained incumbent on them.
injuries. She was immediately rushed to the hospital for
treatment. Ramos feebly attempts to escape vicarious liability by averring
that Rodel was highly recommended when he applied for the
C.O.L. Realty averred that its driver, Aquilino, was slowly driving position of family driver by the Social Service Committee of his
the Toyota Altis car at a speed of five to ten kilometers per hour parish.
along Rajah Matanda Street and has just crossed the center
lane of Katipunan Avenue when Ramos‘ Ford Espedition violently Regrettably, Ramos‘ evidence which consisted mainly of
rammed against the car‘s right rear door and fender. With the testimonial evidence remained unsubstantiated and are thus,
force of the impact, the sedan turned 180 degrees towards the barren of significant weight. There is nothing on the records
direction where it came from. which would support Ramos‘ bare allegation of Rodel‘s 10-year
unblemished driving record. He failed to present convincing
The Office of the City Prosecutor of Quezon City found probable proof that he went to the extent of verifying Rodel‘s
cause to indict Rodel, the driver of the Ford Expedition, for qualifications, safety record, and driving history.
Reckless Imprudence Resulting in Damage to Property. In the
meantime, petitioner demanded from respondent So too, Ramos did not bother to refute C.O.L. Realty‘s stance
reimbursement for the expenses incurred in the repair of its car that his driver was texting with his cellphone while running at a
and the hospitalization of Estela in the aggregate amount of high speed and that the latter did not slow down albeit he knew
P103,989.60. The demand fell on deaf ears prompting C.O.L. that Katipunan Avenue was then undergoing repairs and that
Realty to file a Complaint for Damages based on quasi-delict the road was barricaded with barriers. The presumption juris
before the MeTC. tantum that there was negligence in the selection of driver
remains unrebutted. As the employer of Rodel, Ramos is solidarily
Ramos denied liability for damages insisting that it was the liable for the quasi-delict committed by the former.
negligence of Aquilino, C.O.L. Realty‘s driver, which was the
proximate cause of the accident. Ramos maintained that the Certainly, in the selection of prospective employees, employers
sedan car crossed Katipunan Avenue from Rajah Matanda are required to examine them as to their qualifications,
Street despite the concrete barriers placed thereon prohibiting experience and service records. In the supervision of employees,
vehicles to pass through the intersection. the employer must formulate standard operating procedures,

monitor their implementation and impose disciplinary measures delict; civil liability arising from quasi-delict.
for the breach thereof. These, Ramos failed to do. Actually, as against D, P can file a case for
reckless imprudence resulting into physical injuries
Applying the foregoing principles of law to the instant case,
which is a criminal case and consequently
Aquilino‘s act of crossing Katipunan Avenue via Rajah Matanda
constitutes negligence because it was prohibited by law.
recover civil liability arising from the crime
Moreover, it was the proximate cause of the accident, and thus (delict). He can also file a case for damages
precludes any recovery for any damages suffered by based on quasi-delict.
respondent from the accident.
He cannot file a case based on breach of
Proximate cause is defined as that cause, which, in natural and contract against the driver because the driver is
continuous sequence, unbroken by any efficient intervening not the owner of the bus. There is no contract
cause, produces the injury, and without which the result would
between the passenger and the driver. The
not have occurred. And more comprehensively, the proximate
legal cause is that acting first and producing the injury, either
contract exists between the passenger and the
immediately or by setting other events in motion, all constituting owner of the bus or the bus company.
a natural and continuous chain of events, each having a close
causal connection with its immediate predecessor, the final 2. He can file a case against O, the owner. He can
event in the chain immediately effecting the injury as a natural file a case for breach of contract; culpa-
and probable result of the cause which first acted, under such contractual. The basis here is because there is a
circumstances that the person responsible for the first event contract of carriage between P and O. Under
should, as an ordinary prudent and intelligent person, have
the contract of carriage, the obligation of the
reasonable ground to expect at the moment of his act or
default that an injury to some person might probably result
owner is to deliver the passenger safely, in one
therefrom. piece; not just to deliver but to deliver the
passenger safely. So, P can file a case against O,
If Aquilino heeded the MMDA prohibition against crossing the owner, for breach of contract because not
Katipunan Avenue from Rajah Matanda, the accident would only did P not arrive safely but that he did not
not have happened. This specific untoward event is exactly arrive at the destination at all. Breach of contract
what the MMDA prohibition was intended for. Thus, a prudent is filed directly against the employer.
and intelligent person who resides within the vicinity where the
accident occurred, Aquilino had reasonable ground to expect
that the accident would be a natural and probable result if he
P cannot file the criminal case against the
crossed Katipunan Avenue since such crossing is considered employer because the criminal action was
dangerous on account of the busy nature of the thoroughfare committed by the driver; it was not committed by
and the ongoing construction of the Katipunan-Boni Avenue the employer. It is personal. But if the driver
underpass. becomes insolvent, then the employer can be
held subsidiary liable. The employer is not the
Hence, we find it unnecessary to delve into the issue of Rodel‘s defendant, respondent, or accused. It‘s just that if
contributory negligence, since it cannot overcome or defeat
D, the driver, is held civilly liable and he cannot
Aquilino‘s recklessness which is the immediate and proximate
cause of the accident. Rodel‘s contributory negligence has
pay then the employer is subsidiarilly liable in
relevance only in the event that Ramos seeks to recover from delict, civil liability arising from the crime. But you
respondent whatever damages or injuries he may have suffered do not file a case based on delict against the
as a result; it will have the effect of mitigating the award of employer, although in your complaint you allege
damages in his favor. In other words, an assertion of contributory that he is the employer.
negligence in this case would benefit only the petitioner; it could
not eliminate respondent‘s liability for Aquilino‘s negligence Another liability of the employer is quasi-delict.
which is the proximate result of the accident.
This is based on the responsibility of the employer
that he should exercise due diligence in the
selection and supervision of his employees. If you
Let‘s go back to the liability of the employer. hire someone, you have to make sure that the
person you are hiring (especially if you are
Example: engaged in public transportation) is careful,
competent and trustworthy. For example: You
P is a passenger in a bus. The bus is driven by D and carelessly hire anyone like drug addicts, then you
owned by O, the owner. So, O is the owner of the bus, D is are placing the public in great danger because
the driver so he is the employee of O and P is a of your negligence in insuring that your
passenger in the bus. X, a stranger, is also driving a car. employees are properly selected and supervised.
While D was driving the bus, the driver and X were racing. The nature of the liability of the employer is
Subsequently, the two vehicles met an accident. So, both primary because we are dealing with the direct
are negligent. D and X are both negligent. By reason of responsibility of the employer. In this case, he was
the accident, P was injured. P wants to file a case. negligent because he failed to exercise due
Against whom can he file a case and what are the diligence. The liability of the employer is direct
causes of action available to P? and primary.
1. Can he file a case against D, the driver? Yes. We 3. X is also liable. X can also be criminally liable for
discussed 5 sources of obligations. He can file a reckless imprudence resulting to serious physical
criminal case and in the same case, he can injuries. You can file that case against both D, the
recover civil liability arising from the crime itself driver and X because the act of X can also fall
(delict). under the definition of a crime under the Revised
Penal Code. In that case, you can claim civil
He can also file a case for quasi-delict. When you liability arising from the crime itself (delict). P
file a case for quasi-delict, you only ask for cannot file a case of breach of contract against
damages. Your basis will be the law on quasi-

X because there is no contract against X and P. P How about in the criminal case? What is the defense of
is a passenger in the bus so X is a stranger. P can the employer?
file a case for quasi-delict because X failed to
exercise due diligence in his act of racing against While the criminal case is being tried, the employer
the bus knowing that there are passengers in the should not intervene because he is not the accused. But
bus who could be harmed, not in the selection if the employer is convicted with finality and the
and supervision because he is not the employer. subsidiary liability is now being enforced against the
Again, he can file a case for quasi-delict employer, the possible defense would be that it was not
because it is not prudent for a person to that. done in the performance of the employee‘s duty.
Another defense would be that the employee is not
insolvent. Another defense would be that he is not
CASES P CAN FILE CASES P CANNOT engaged in any business or industry; he is not the
FILE employer.
D (driver)  criminal case  breach of
with civil contract DEFENSES OF EMPLOYER
liability Breach of contract (culpa Employee was not
 quasi-delict contractual) negligent at all.
O (owner)  breach of  criminal case Quasi-delict Employer exercised due
contract (but if driver is diligence in the selection
 quasi-delict insolvent, O is and supervision of his
subsidiarily employees.
liable) Criminal case (as to If employee is convicted:
X (stanger)  criminal case  breach of subsidiary liability)  it was not done in the
 quasi-delict contract performance of the
employee‘s duty
Can P file all the cases?  employee is not
insolvent
Yes, P can file all cases but he cannot recover twice for  employer is not
the same act or omission. engaged in any
business or industry.
With respect to O, the owner, what are his possible
defenses in culpa contractual or breach of contract?
Can he raised the defense that he exercise due diligence As to the quantum of proof, in the criminal case, it
in the selection and supervision of his employees? requires proof beyond reasonable doubt. The degree of
proof is higher. That is why even if it would be good to file
No, it is not a proper defense. In culpa contractual or a criminal case because it would also entail the issuance
breach of contract, the only defense that you have is of a warrant of arrest, it is more difficult to convict. In civil
that the employee was not negligent at all because we cases, it is mere preponderance of evidence.
are not talking about the hiring of the driver but the
contract that was breached. It just so happened that it So we already discussed the different sources of
was the negligence of the driver which breached the obligations. We have: law, contract, quasi-contract,
contract but actually, the contract can be breached by delicts and quasi-delicts. Yesterday we also made a
any other case; it can be possible that there is no preliminary discussion on the distinction between the
negligence on the part of the driver like the employer different causes of actions like an action arising from
told the driver to unload the passengers at culpa contractual or breach of contract, an action
Toril even if their destination is Tagum. There is no arising from delict or culpa criminal, and an action arising
negligence on the part of the driver in that case but still from quasi-delict or culpa aquiliana. Now, let‘s again go
there is breach of contract. to the different distinctions.
So, it is not a defense that you exercised due diligence. In How do we distinguish quasi-delict from a crime? Like
that case, it was the negligent act of the driver which yesterday, we illustrated that a single incident may give
breached the contract, so the only defense is that the rise to different causes of action. So it may be that it will
driver was not actually negligent. If you can prove that give rise to a criminal action, or an action for recovery of
there was no negligence on the part of the driver, then civil liability arising from crime, quasi-delict or contract.
you can be absolved in you civil liability.
So first, as to the LEGAL BASIS OF LIABILITY:
How about in quasi-delict? What is the defense of the
employer? 1. Quasi-delict - the basis here is the fault or
negligence. So that is the basis for the action.
The defense of the employer is that he exercised due
diligence in the selection and supervision of his 2. Crimes or delict - the basis is the law which
employees because the basis of the liability of the punishes the act. So it may be the Revised Penal
employer is what we call his precarious liability. Because Code or a special law.
he is responsible for the acts of his employees, if his
employees commit injury or damage to another, the As to the CRIMINAL INTENT:
employer being the one directly responsible for those
1. Quasi –delict – criminal intent is not necessary; as
acts, should likewise be held responsible for the damage
long as the act is voluntary.
or injury. That is precarious liability.
2. Delicts - criminal intent is essential.

As to the NATURE OF RIGHTS VIOLATED: SUMMARY:
1. Quasi-delict, the right violated is actually just a DISTINCTIONS QUASI-DELICT CRIME/DELICT

private right. So the offense here is actually just
against a private individual. Legal basis of Fault/negligence Law
liability
2. Crime - it is a public right that is violated because
a crime is considered an offense against the Criminal intent Not necessary It is essential.
State. but the act has
to be voluntary
As we have discussed before, criminal liability
cannot be made a subject to a compromise. If Nature of rights Private right; Public right;
you settle in a criminal case, you are settling not violated offense is against offense against
the criminal aspect but the civil aspect. So you a private the State
can settle the civil liability whether it is arising individual
from a contract, quasi-contract, delict, quasi-
delict but as to the criminal offense itself, the Liability for There is always Not all cases
criminal liability cannot be a subject to a damages liability for have liability for
compromise because it is a wrong committed damages. damages.
against the State. The individual here is just
considered as a witness for the state, he cannot Proof needed Preponderance Proof beyond
compromise in behalf of the state. of evidence reasonable
doubt
Now as to LIABILITY FOR DAMAGES:
Sanction/penalty Restitution, Imprisonment,
1. Quasi-delict - there is always damage that is the Reparation, fines, accessory
reason why one would file a case for quasi-delict Indemnification penalties
because he incurred damages, so he would like
to recover.
2. Crimes - generally, there is also liability for Now, we should also distinguish quasi-delict from culpa
damages but not in all cases. contractual or culpa aquiliana from culpa contractual,
as we discussed yesterday.
So there are crimes where there is no civil liability
because there is no private offended party. Like Can there be quasi-delict without negligence? No. So
what we have discussed before in gambling, insofar as quasi-delict is concerned, what is the nature of
treason, illegal possession of firearms, there are negligence? Is it merely incidental in a quasi-delict? So it
no private offended parties. is not incidental. So it is direct. Actually, it is the very
source of quasi-delict. Without negligence, there is no
As to PROOF NEEDED: quasi-delict. So it is substantive, it is the foundation of
quasi-delict.
1. Quasi-delict -because quasi-delict is just a civil
action, all we need is the preponderance of How about in culpa contractual? When you say
evidence. incidental, what do you mean by that? Can there be
breach of contract without negligence?
2. In crimes, you need to prove the crime by proof
beyond reasonable doubt; the quantum of proof So in culpa contractual, although we are talking here of
is higher. breach of contract, it doesn‘t follow that there is fault or
negligence. There can still be breach of contract without
Lastly, as to the SANCTION OR PENALTY: negligence. So, negligence in culpa contractual is merely
incidental to the performance of the obligation. In fact, in
1. Quasi-delict - once the offender is found liable, the definition of quasi-delict, it says, ―There being no pre-
he shall be ordered to make reparation or existing contractual relations between the parties.‖ In
indemnification of the damage. that particular definition, do we mean to say that if there
is a contract, there can be no quasi-delict?
2. Crimes - aside from the civil aspect, we have
imprisonment, fines, and then there are the Like in our example yesterday, the passenger in the bus.
accessory penalties like civil interdiction, There is a pre-existing contractual relation there, the
suspension. contract of carriage. But, as we discussed, we could file
several actions, not only culpa contractual. In fact, we
Okay so these are the distinctions between quasi-delict could file quasi-delict. In that particular example, even if
and delict or crime. there is a contract, a passenger can file an action based
on quasi-delict. It does not follow that if there is a
contract, quasi-delict is not available. Actually, you can
file a case based on breach of contract or culpa
contractual. You can file a case directly for quasi-delict
based on the negligence itself. Even if there is a contract
but it is negligence which causes the breach of contract,
there could also be quasi-delict.

Now, as to the defense, what are the possible defenses? What is an obligation to give, what‘s the legal term for
that? – Real obligation.
The defense of a good father of the family is available in
a quasi-delict. Meaning, it is a complete and proper So we‘re talking here of a real obligation. So when you‘re
defense. If you are the person who is the defendant, you obliged to give something, you are also obliged to take
can actually prove that you acted with due diligence. care of the thing with the proper diligence of a good
When you say defese of a good father of the family, father of the family.
meaning, you exercise the ordinary diligence of a good
father of the family. If you are the employer, you can What is the proper diligence of a good father of the
raise the defense that you exercised due diligence in the family? - Ordinary diligence; the usual kind of diligence or
selection of your employees. prudence, which a person exercises over his contractual
affairs. If you are a good father of the family, the usual
In culpa contractual, is this available? What would be the diligence. Example, if you‘re talking of raising your kids,
proper defense in culpa contractual? you shall provide them with the basic necessities, shelter,
education. If you have a home, you should take care of
Defense of a good father of the family is not a complete the home, nothing extraordinary. So that is the diligence
and proper defense in culpa contractual. You really have of a good father of the family. That is the general rule.
to prove that, for example, if negligence was the reason
for the breach, you have to prove that there is really no Is this true in all circumstances? No. Like in a common
negligence. carrier, what is required is the diligence of a cautious
person. That is extraordinary diligence. So, there are
As to the presumption, in quasi-delict, what is the exceptions to the general rule. There are two.
presumption? There is no presumption of negligence in
quasi-delict. The first is if the law provides for another standard of care,
one example would be in common carriers. They are
How about in culpa contractual? In culpa contractual, expected to exercise extraordinary diligence, taking into
negligence is presumed. If there is a presumption, what account the lives that are at stake.
would be the defense? In that case, it is easier for the
plaintiff because he does not have the burden of proof; The second is stipulation, what about it? So the parties
he only has to prove that there was a breach of contract can stipulate that they must exercise extraordinary
since the law presumes that the defendant was diligence? Can they stipulate that they exercise less than
negligent. The burden is on the defendant to show that extraordinary diligence? So the parties may stipulate
he was not negligent. another degree of diligence other than ordinary
diligence. So, they can stipulate extraordinary diligence.
DISTINCTION QUASI-DELICT CULPA How about something which is less than ordinary? Yes, so
CONTRACTUAL it depends upon the stipulation of the parties. The
stipulation, that is always limited: not contrary to the law,
NEGLIGENCE Substantive; it is Incidental to the goof morals, public order and public policy. So that‘s the
the foundation performance of limitation.
the obligation
CASE: JARO vs DELA PEÑA
DEFENSE Good father of There is really no
the family negligence What if he was instructed not to place the funds in his
personal account but he still did otherwise, will he be
PRESUMPTION No presumption Negligence is liable?
of negligence presumed
(burden is on the What will be the basis now of his liability? Ordinarily a
defendant to person is obliged to observe ordinary diligence or the
show that he was diligence of a good father of the family. If there was an
not negligent) instruction given to him not to mix the money with his
personal account, then there is a stipulation, which
provides for another standard of care. If he did not
observe that kind of diligence, then he would be liable.
But, absent any law or stipulation, he was just obliged to
Article 1163. Every person obliged to give something
observe ordinary diligence.
is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law Jaro vs. dela Peña
or the stipulation of the parties requires another
FACTS: In 1898, Father De la Peña, as trustee, showed that he
standard of care. (1094a)
had on hand as such trustee the sum of P6,641, collected by him
for the charitable purposes aforesaid. He deposited in his
personal account P19,000 in the Hongkong and Shanghai Bank
So under Article 1163, the law says ―every person.‖ So at Iloilo.
every person obliged to give something, we‘re talking
Shortly thereafter and during the war of the revolution, Father De
here of a debtor or obligor. He has the obligation to take la Peña was arrested by the military authorities as a political
care of the thing with the proper diligence of a good prisoner. The arrest of Father De la Peña and the confiscation of
father of the family. the funds in the bank were the result of the claim of the military
authorities that he was an insurgent and that the funds thus
What kind of obligation is being contemplated under deposited had been collected by him for revolutionary
Article 1163? – Obligation to give. purposes. The money was taken from the bank by the military

authorities. the land, with the growing crops, to B. And he is
supposed to deliver in February but when February
RULING: Although the Civil Code states that "a person obliged to arrived, he did not yet deliver to the property to B and
give something is also bound to preserve it with the diligence then A allowed X to harvest the crops on the property.
pertaining to a good father of a family" (art. 1094), it also So, B learned of the sale. Now, of course, the land was
provides that "no one shall be liable for events which could not already sold to him together with the crops, di ba?
be foreseen, or which having been foreseen were inevitable,
with the exception of the cases expressly mentioned in the law In my example, can B (the buyer) complain that A
or those in which the obligation so declares." (Art. 1105.)
allowed X to harvest the crops? Common sense, ikaw
daw gibaligyaan ka ug yuta, apil na ang crops,
By placing the money in the bank and mixing it with his personal supposedly i-deliver na siya February pero wala gi-deliver,
funds De la Peña did not thereby assume an obligation different
instead gipa-harvest pa gani ni seller si X didto sa yuta. So
from that under which he would have if such deposit had not
been made, nor did he thereby make himself liable to repay the
ikaw, ang yuta imoha ng gipalit, pero gipa-harvest
money at all hazards. The fact that he placed the trust fund in anguban, do you have a right to complain? On what
the bank in his personal account does not add to his legal basis? Do you have a right over the fruits?
responsibility. Such deposit did not make him a debtor who must
respond at all hazards. His obligation arose in February, he was supposed to
deliver. So according to Article 1164, the creditor has the
While it may be true that one who is under obligation to do or right to the fruits from the time the obligation to deliver it
give a thing is in duty bound, when he sees events approaching arises. So B, in that case, has the right to complain.
the results of which will be dangerous to his trust, to take all
reasonable means and measures to escape or, if unavoidable,
Can B file a case against X for the recovery of the fruits or
to temper the effects of those events, we do not feel
constrained to hold that, in choosing between two means damages? On what basis? The law says ―he shall acquire
equally legal, he is culpably negligent in selecting one whereas no right over it until the same has been delivered to him.
he would not have been if he had selected the other. So how do you explain that in relation to my question?
No.
The court, therefore, finds and declares that the money which is
the subject matter of this action was deposited by Father De la Why can‘t he file a case against X? The law says he has
Peña in the bank; that said money was forcibly taken from the the right to the fruits from the time the obligation to
bank by the armed forces of the United States during the war of deliver it arises. So why can‘t he file a case directly
the insurrection; and that said Father De la Peña was not
against X? It is X who harvested so the fruits are now with
responsible for its loss.
X. As we said, B now has the rights over the fruits and X
now has the fruits. What kind of right does B, the creditor
Article 1164. The creditor has a right to the fruits of the have prior to the delivery of the thing? – He has a
thing from the time the obligation to deliver it arises. personal right. What is the meaning of that?
However, he shall acquire no real right over it until the
When we say personal right, it is a right directed against
same has been delivered to him. (1095) only a specific person. In that case, he could only file
against A, the seller, because even if he has rights over
Again, what is the nature of the obligation contemplated the fruits, that right is only demandable against A, the
under Article 1164? - Real obligation because it involves obligor in our example. He cannot file a case against X
an obligation to give. because this right, in our example, is not demandable
against the whole world. Kung kinsa lang imong ka-
The law says, the creditor has a right to the fruits of a thing kontrata o kasabot, siya lang imong pwede i-compel if it
from the time the obligation to deliver it arises. However, is a personal right.
he shall acquire no real right over it until the same has
been delivered to him. Now, what if the land was already delivered to him and
then, subsequently, X harvested with the consent of A. So,
Example: what are the rights of B? Can B recover the fruits from X or
should B still go to A for recovery? Nganong moagi pa
A sold a parcel of land with growing crops to B. A is the man siya kay A? Kay si A ang nagsugot? Can he not go
seller and B is the buyer. They entered into a Contract of directly to X? Against whom shall he file that case? –
Sale. The same is already perfected because there was Against X.
already a meeting of the minds. But, according to the
contract, the delivery would be, for example, the Why can he now proceed against X? What‘s the
contract was entered into in January and delivery would difference between you right before the delivery and
be in February, so it is allowed in February. It doesn‘t your right after the delivery?
follow that is there is already a perfected contract, there
is already transfer of ownership. As we will learn in this So before the delivery, your right is only personal, a right
article, it is tradition or delivery, which transfers ownership. which is enforceable against a specific person who is, in
So you can perfect the contract now, but the transfer of this case, the debtor.
the ownership will happen only later.
After the delivery, what is your right? – A real right. What is
So, in January, A and B entered into a Contract of Sale, a real right? What is the consequence of that? When you
so there are growing crops. Now, prior to the delivery have a real right, your right is now enforceable against
(February), the seller has no obligation to deliver. But the whole world. Whoever may come to the possession of
once February arrives, there is an obligation to deliver. the thing or its fruits, you can recover it from them or
But A has not yet delivered. During that period, A allowed against anybody. That right is not only demandable
X, a stranger, to harvest from the land. But, as we have against the debtor or a particular person but against the
already mentioned, as early as January, A already sold whole world.

Okay, so remember the principle under Article 1164. creditor has no right at all. He does not have a right over
Once the obligation to deliver arises, before the delivery, the fruits. Although, as we will discuss later, he may have
the creditor already has a personal right over the fruits. So the right to compel the debtor to preserve the fruits or the
meaning, he can demand for the delivery of the thing thing. He may file such actions for the reservation of his
and the fruits. rights.
But, if the fruits have now come into the hands of the Example:
stranger, he cannot proceed against the stranger
because his right is only demandable over the person of The creditor already wants to sell the house to another
the debtor. What he can demand is against the debtor person but you already have an agreement with the
to deliver, to perform or probably for damages because creditor that when you pass the bar exam, you will have
he allowed a third person to harvest the fruits. But, again, this house but, in the meantime, the creditor is
that remedy is only against the debtor. Once there is negotiating with another person for the sale of the house,
delivery, then, his right (creditor‘s) becomes a real right. you can file an action for injunction. Even if it is
Such right is demandable against the whole world. So conditional, but, the effect of the fulfillment of the
kung kinsa man ang manghilabot sa fruits, anybody, that condition will retroact to the perfection of the contract.
person can be proceeded against because by delivery,
the creditor now becomes the owner of the thing. So, in the meantime that the conation has not yet
happened, the creditor has the right to preserve. He may
It is delivery that transfers ownership. Because of that file such action for the preservation of his right. Kay tan-
(delivery), he now becomes the owner so he can aw nimo, mopasar man gyud ko ani, it‘s just a matter of
demand for the recovery of the fruits, for damages, etc. taking the bar exam. Okay? So, karon ibaligya nimo sa
against anybody, against the whole world. lain tao, wala kay salig sa akoa? So mo-file ka ug
injunction.So these are thecases when the obligation to
Now, take note that under Article 1164, the law says that deliver arises. So you have to remember.
he has the right over the fruits from the time the
obligation to deliver it arises. We mentioned about delivery. So, it is delivery that
transfers ownership; delivery or tradition.
When does the obligation to deliver arise? It depends. If
the obligation is based on law, quasi-contract, delict and What are the two basic kinds of delivery?
quasi-delict, the specific provision of the law determines
when the delivery should be made. So depende kung 1. Actual delivery - the normal kind of delivery
unsa ang iingon sa law kung kanus-a i-deliver. which we know. There is the exchange of hands.
Like Article 203 of the Family Code on the duty to give 2. Constructive delivery - where physical transfer is
support. When is support due? So the law says that it is to implied. There are different kinds of constructive
be given upon demand. So upon demand, there is now delivery:
an obligation to deliver. Again, that is if the obligation
depends upon the law, contract, quasi-contract, delict, a. Traditio Symbolica – example: the giving
quasi-delict. of the key would already imply the
delivery of the house. Of course, you
If the obligation is based on contract, when does the cannot physically give the house. You
obligation to deliver it arise? General rule, from the need really a constructive delivery.
perfection or creation. So upon that, there is already a
right to demand for the deliveryand there is an obligation b. Traditio Longa Manu - delivery by the
on the part of the debtor to deliver. long hand. Itudlo lang nimo. “Kana siya,
mao na ang farm na akong gibaligya sa
Now, if the obligation, based on the contract, if it is imoha.” Again, it would be impossible
subject to a suspensive condition, what do we mean by also to physically deliver the thing. So, in
that? that case, the pointing to the object of
the sale or any kind of transaction would
We will discuss later but, when we say suspensive be equivalent to delivery.
condition, the happening of the condition gives rise to
the obligation. So, you have to wait for the happening of c. Traditio Brevi Manu - there is no need of
the condition. Like, ―I will deliver this house to you if you delivery because you are already in
will pass the bar exam.‖ So of course, if you will not pass possession of the thing. But now, your
the bar exam, there is no obligation to deliver. But once possession is already in the concept of
you pass the bar exam, the condition is fulfilled so the an owner.
obligation to deliver arises.
d. Tradition Constitutum Possessorium- that
If the obligation is subject to a suspensive term, as
will happen when you are the owner (of
distinguished from a condtion, a condition may or may
a thing), then you sold it but after selling,
not happen, a term is sure to happen although it may not
you still remain in possession.
be known when. Like ―Christmas, this December 25,‖ it‘s
sure to happen. Or ―upon the death of X,‖ it is sure to
happen although you do not know when. So it is a term. Example: in the capacity of a lessee. You
were the owner before but then you you
The obligation to deliver arises in that case, when the sold it but after you sold it, you remained
term arrives. So prior to the arrival of the term, there is no in the place because you are already
obligation. Before the obligation to deliver arises, the paring rentals. So, in that case, there is

still delivery.Of course, you will not deliver Example:
the house to the buyer because for the
meantime, you are renting it. A person who is not the owner of a
house and lot, sold the house and lot to
e. Tradition Instrumental – Example: a seller X. Such sale is not valid because the
and buyer entered into a Contract of person cannot sell what he does not
Sale, by the fact that they signed the own. Now, assuming that X is already in
contract, there is still no delivery. Without possession. So, even if he is already in
notarization, it is a private document, so possession, he does not become the
you cannot imply delivery. But, once you owner because the seller is not the
observe the legal forms and solemnities owner. He cannot transfer ownership, he
like having it notarized, that will have the cannot transfer what he does not have.
effect of constructive delivery. Even if the seller allows the buyer to be in
So,general rule, that can still be the possession of that property, the
considered as delivery. buyer does not acquire ownership, the
sale is not valid.
Again, just like parcels of land, you
cannot deliver the land. So, what will After that, the real owner of the thing, for
happen in that case is when the example, the seller was the administrator
notarization is finished, the buyer will now of the property and he just tricked the
go to the land because he is already the buyer into thining that he was the owner
owner. and then he sold it to the buyer but
subsequently, the real owner donated
f. Quasi-Tradition - that is under Article the property to the seller (who is the
1501. administrator). Now, realizing that the
property now belongs to him, can he
Article 1501. With respect to incorporeal recover? Can he say na“Uy, ambi na na
property, the provisions of the first paragraph ang yuta. Gibaligya nako na pero at
of article 1498 shall govern. In any other case that time, dili man ako ang tag-iya ato.
wherein said provisions are not applicable,
So karon, ambi na na ang yuta.”? Can
the placing of the titles of ownership in the
possession of the vendee or the use by the
he recover that?
vendee of his rights, with the vendor's consent,
shall be understood as a delivery. (1464) No, because the law on tradition by
operation of law would now operate. By
provision of law, when the seller in that
What do you mean by incorporeal case acquires ownership, automatically,
properties? Incorporeal, intangible, what the sale he made earlier becomes
are these properties? Okay, these effective. He will now be estopped from
properties do not have physical existence claiming back the land. So he cannot
but they actually exist. Their existence is recover that anymore. From the moment
evidenced only by papers but they are that the seller acquired ownersip over
properties and they exist.They have legal that property, that ownership is also
consequences. automatically transferred to the buyer.
That is traditon by operation of law.
So, under Article 1501, of course, you
cannot deliver the rights, the spirit, the CASE: NORKIS vs COURT OF APPEALS
share, but the placing of the Titles of
Ownership, so the Tax Certificate, that In this case, it was discussed by the Supreme Court that in
would be understood as delivery of the all forms of delivery, whether actual or constructive, it is
right as evidenced by the paper itself. So necessary that the delivery should be coupled with the
kung tagaan ka ug pael, dili ka intention of the one who made the delivery of the thing.
makaingon na “Unsa man ni uy, ang
In this case, there was no intention yet on the part of the
value aning papel P5 ra ni siya,” but the
DBP to transfer the title kay kinahanglan pa nila ang
right behind that paper is actually what
transaction para ma-facilitatae ang chattel mortgage
you are buying or dealing with.
and after that, for the release of the loan. Norkis would
The law says the use of the vendee of not even consider transferring ownership to Nepaleskung
these rights with the vendor‘s consent. So, wala pa siya nabayran. Kinahanglan to niya para
even if the title is not delivered, but with mabayran siya. Once nabayran na siya, diha pa to niya
the consent of the vendor, the vendee is totally i-transfer ang ownership. So, remember the
allowed to use the right, then that is principle in the case of Norkis.
equivalent to delivery.
g. Tradition by operation of law

NORKIS vs COURT OF APPEALS
What is that? How is delivery effected? FACTS: Norkis is the distributor of Yamaha motorcycles in Negros
When you say tradition by operation of Occidental. Private respondent Alberto Nepales bought from
law, it is by law that we have transfer of the Norkis-Bacolod branch a brand new Yamaha Wonderbike
ownership. motorcycle.

now bear the risk of loss but you will also have the
The price of P7,500.00 was payable by means of a Letter of advantage over the thing if the thing increases in value, it
Guaranty from the Development Bank of the Philippines (DBP), appreciates, you also benefit from that. If the thing
Kabankalan Branch, which Norkis' Branch Manager Labajo
deteriorates, or perishes, that is your risk because you are
agreed to accept. Hence, credit was extended to Nepales for
the price of the motorcycle payable by DBP upon release of his
now the owner. That is another consequence of delivery
motorcycle loan. As security for the loan, Nepales would or transfer of ownership.
execute a chattel mortgage on the motorcycle in favor of DBP.
In the case of Cruzado vs. Bustos and Escaler, I think we
Branch Manager Labajo issued sales invoice showing that the already discussed this. Prior to delivery, what you have, in
contract of sale of the motorcycle had been perfected. Nepales relation to Article 1164, is merely a personal right. You are
signed the sales invoice to signify his conformity with the terms of not yet the owner of the thing. If you file a case for
the sale. In the meantime, however, the motorcycle remained in recovery of ownership, that case cannot prosper.
Norkis' possession.
Because again, prior to the delivery, you stil do not have
On January 22, 1980, the motorcycle was delivered to a certain
ownership. You cannot recover in the sense that you
Julian Nepales who was allegedly the agent of Alberto Nepales have not yet acquired ownership. The proper case to file
but the latter denies it. would be an action for specific performance; an accion
reinvidicatoria presupposes ownership over the thing.
The motorcycle met an accident. An investigation conducted
by the DBP revealed that the unit was being driven by a certain If prior to delivery, a parcel of land was sold to you but it
Zacarias Payba at the time of the accident. The unit was a total has not been delivered, you cannot file an accion
wreck, was returned, and stored inside Norkis' warehouse. reinvidicatoria. Because it has not been delivered to you,
you are not yet the owner so there is no ownership
On March 20, 1980, DBP released the proceeds of private
respondent's motorcycle loan to Norkis in the total sum of P7,500.
torecover. But, you have to file an action for specific
As the price of the motorcycle later increased to P7,828 in performance to compel the seller to deliver to you. That is
March, 1980, Nepales paid the difference of P328 and the proper action.
demanded the delivery of the motorcycle. When Norkis could
not deliver, he filed an action for specific performance with Last meeting, we discussed Article 1164. I hope you still
damages against Norkis. He alleged that Norkis failed to deliver remember the important concepts in Article 1164: the
the motorcycle which he purchased, thereby causing him concept of personal right as distinguished form a real
damages. right.
Norkis answered that the motorcycle had already been
Recap, prior to the delivery but after the obligation to
delivered to private respondent before the accident, hence, the
risk of loss or damage had to be borne by him as owner of the deliver arises, the creditor can already demand because
unit. there is now an obligation to deliver, the creditor may
now demand for the delivery.
ISSUE: Who should bear the loss?
Prior to that, even if the thing has not yet been delivered,
the creditor has rights to the fruits of the thing and that
RULING: The issuance of a sales invoice does not prove transfer right is a personal right. Meaning, it is demandable as
of ownership of the thing sold to the buyer. An invoice is nothing against the debtor. So, his right to action is only as against
more than a detailed statement of the nature, quantity and cost
the debtor.
of the thing sold and has been considered not a bill of sale.
In all forms of delivery, it is necessary that the act of delivery After delivery, there is already transfer of ownership
whether constructive or actual, be coupled with the intention of because it is tradition that transfers ownership. After
delivering the thing. The act, without the intention, is insufficient. delivery, the right becomes a real right. That means he
can enforce his right against the whole world.
When the motorcycle was registered by Norkis in the name of
private respondent, Norkis did not intend yet to transfer the title We also discussed the different kinds of delivery and the
or ownership to Nepales, but only to facilitate the execution of a consequences of delivery as discussed in the case of
chattel mortgage in favor of the DBP for the release of the
Norkis vs CA. Upon delivery, there is already a passing of
buyer's motorcycle loan.
ownership. However, it should be coupled with the
The critical factor in the different modes of effecting delivery, intention of transferring ownership. In the case of Norkis,
which gives legal effect to the act, is the actual intention of the there was no intention to transfer ownership even if the
vendor to deliver, and its acceptance by the vendee. Without motorcycle was already registered in the name of the
that intention, there is no tradition. supposed buyer which was done to facilitate the chattel
Hence, the risk of loss should be borne by the seller, Norkis, which mortgage. So there being no transfer of ownership and
was still the owner and possessor of the motorcycle when it was under the concept of res perit domino, the owner bears
wrecked.
the risk of loss. The loss of the motorcycle or the damage
would be borne by Norkis because it remained to be the
owner.
Now, as a consequence, before delivery, there is still no
transfer of ownership. Under Article 1164, one In the case of Cruzado vs. Bustos, wherein we discussed
consequence of the delivery of the thing is that the that again, prior to delivery, there is no transfer of
owner now has the real right over the fruits as ownership so you cannot file an action for reinvidicatoria
distinguished from his personal rights over the fruits prior to because an action for reinvidicatoria presuppoes
delivery. ownership on the part of the plaintiff. But, precisely
because the thing was not yet delivered, his remedy
Another consequence of transfer of ownership, which is
would be an action to compel delivery or specific
also a consequence of delivery, is discussed in the case
performance.
of Norkis. What is that principle? The owner bears the risk
of loss.So, res perit domino. If you are the owner, you will

CASE: EQUATORIAL REALTY, INC. vs MAYFAIR Manila (Branch 7) for (a) the annulment of the Deed of Absolute
Sale between Carmelo and Equatorial, (b) specific
As held by the Supreme Court, the execution of a performance, and (c) damages.
Contract of Sale as a form of a constructive delivery is a
After trial on the merits, the lower court rendered a Decision in
legal fiction. Meaning, it only gives us a legal fiction; it is
favor of Carmelo and Equatorial. The Court of Appeals (CA)
something created by law. It holds true only when there is completely reversed and set aside the judgment of the lower
impediment that may prevent the passing of the property court. The Supreme Court sustained the findings of the Court of
from the hands of the vendor into those of a vendee. Appeals and rescinded the contract between Equatorial and
Carmelo. The latter is director to return to Equatorial the
Execution of a public document, actually, would transfer purchase price.
ownership equivalent to delivery when there is no
impediment for the passing of the ownership from the Meanwhile, barely five months after Mayfair had submitted its
seller to the buyer. But, if there is an impediment, like in Motion for Execution before the RTC, Equatorial filed with the RTC
an action for the collection of a sum of money against Mayfair,
this case, there is a claimant who should be given a
claiming payment of rentals or reasonable compensation for the
better and prior right over the property. So, in this case, defendant's use of the subject premises after its lease contracts
the Supreme Court said that when there is such an had expired.
impediment, fiction heeds to reality. So, delivery has not
been effected. Equatorial alleged among other things that the Lease Contract
covering the premises occupied by Maxim Theater expired on
When Mayfair demanded that it should be given priority May 31, 1987, while the Lease Contract covering the premises
over the property because of its right to first refusal, that occupied by Miramar Theater lapsed on March 31,
doesn‘t mean that Mayfair already became the owner of 1989. Representing itself as the owner of the subject premises by
reason of the Contract of Sale on July 30, 1978, it claimed rentals
the property. By the right to first refusal, it means that they
arising from Mayfair's occupation thereof.
should have been offered the property and they should
be given the priority whether to accept or refuse the
offer. So in that case, Mayfair should still pay the rentals RULING: We hold that under the peculiar facts and
because there was no sale yet consummated between circumstances of the case at bar, no right of ownership was
Mayfair and (?) but it does not mean that Mayfair transferred from Carmelo to Equatorial in view of a patent failure
already acquired title over Equatorial. That was merely to to deliver the property to the buyer.
prevent its eviction from the property. Rent is a civil fruitthat belongs to the owner of the property
producing it by right of accession.
Remember the case of Equatorial. Even if there is already
Consequently and ordinarily, the rentals that fell due from the
a public document executed and ordinarily, it already time of the perfection of the sale to petitioner until its rescission
amounts to a constructive delivery, but if in reality, by final judgment should belong to the owner of the property
delivery cannot be made because of an impediment, during that period.
like in this case there was an objection because Mayfair
claimed that it should be given the first priority to the By a contract of sale, "one of the contracting parties obligates
land, or in other cases where there is already a possessor himself to transfer ownership of and to deliver a determinate
of a property claiming ownership over the land even if thing and the other to pay therefor a price certain in money or
its equivalent."
there was already a Deed of Sale executed by the seller
and was notarized, and when they go to the property Ownership of the thing sold is a real right, which the buyer
and there are occupants there, gigukod ka ug sundang, acquires only upon delivery of the thing to him "in any of the
in that case, delivery is not effected. That is the principle ways specified in articles 1497 to 1501, or in any other manner
that you have to remember. signifying an agreement that the possession is transferred from
the vendor to the vendee." This right is transferred, not merely by
Equatorial Realty vs. Mayfair contract, but also by tradition or delivery.
FACTS: Carmelo & Bauermann, Inc. used to own a parcel of And there is said to be delivery if and when the thing sold "is
land, together with two 2-storey buildings constructed thereon. placed in the control and possession of the vendee." Thus, it has
Carmelo entered into a Contract of Lease with Mayfair Theater been held that while the execution of a public instrument of sale
Inc. ("Mayfair") for a period of 20 years. The lease covered a is recognized by law as equivalent to the delivery of the thing
portion of the second floor and mezzanine of a two-storey sold, such constructive or symbolic delivery, being merely
building with about 1,610 square meters of floor area, which presumptive, is deemed negated by the failure of the vendee to
respondent used as a movie house known as Maxim Theater. take actual possession of the land sold.
Two years later, on March 31, 1969, Mayfair entered into a Delivery has been described as a composite act, a thing in
second Contract of Lease with Carmelo for the lease of another which both parties must join and the minds of both parties
portion of the latter's property — namely, a part of the second concur. It is an act by which one party parts with the title to and
floor of the two-storey building, with a floor area of about 1,064 the possession of the property, and the other acquires the right
square meters; and two store spaces on the ground floor and to and the possession of the same. In its natural sense, delivery
the mezzanine, with a combined floor area of about 300 square means something in addition to the delivery of property or title; it
meters. In that space, Mayfair put up another movie house means transfer of possession.
known as Miramar Theater. The Contract of Lease was likewise
for a period of 20 years. From the peculiar facts of this case, it is clear that petitioner
never took actual control and possession of the property sold, in
Both leases contained a provision granting Mayfair a right of first view of respondent's timely objection to the sale and the
refusal to purchase the subject properties. However, on July 30, continued actual possession of the property. The objection took
1978 — within the 20-year-lease term — the subject properties the form of a court action impugning the sale which, as we
were sold by Carmelo to Equatorial Realty Development, Inc. for know, was rescinded by a judgment rendered by this Court in
the total sum of P11,300,000, without their first being offered to the mother case. It has been held that the execution of a
Mayfair. contract of sale as a form of constructive delivery is a legal
fiction. It holds true only when there is no impediment that may
Mayfair filed a Complaint before the Regional Trial Court of prevent the passing of the property from the hands of the

vendor into those of the vendee. When there is such from the rest. Like an obligation to deliver a car with a
impediment, "fiction yields to reality — the delivery has not been particular plate number or chassis number. Wala na gyud
effected." lain na car, kana lang siya. It is the very same thing to be
delivered. You cannot deliver another car in substitution.
Hence, respondent's opposition to the transfer of the property by
way of sale to Equatorial was a legally sufficient impediment that
effectively prevented the passing of the property into the latter's
An indeterminate thing refers only to a genus, to a class,
hands. and cannot be pointed out with particularity.
The execution of a public instrument gives rise, therefore, only to Example: Your obligation is to deliver a car. It‘s only the
a prima facie presumption of delivery. Such presumption is kind, which is being specified. You can deliver any car,
destroyed when the instrument itself expresses or implies that even if you lost it deliberately, you cannot be held liable
delivery was not intended; or when by other means it is shown by the creditor because your obligation is to deliver a
that such delivery was not effected, because a third person was car, which may be any car.
actually in possession of the thing. In the latter case, the sale
cannot be considered consummated.
How about the remedies? What are the remedies of the
However, the point may be raised that under Article 1164 of the creditor under Article 1165? Specific performance, that is
Civil Code, Equatorial as buyer acquired a right to the fruits of one remedy of the creditor. Also, an obligation may be
the thing sold from the time the obligation to deliver the property complied with the expense of the debtor. There is no
to petitioner arose. That time arose upon the perfection of the substitution in an obligation to deliver a specific thing. In
Contract of Sale on July 30, 1978, from which moment the laws all cases of violation, you can claim for damages. You
provide that the parties to a sale may reciprocally demand can claim damages for both the obligations to deliver a
performance. Does this mean that despite the judgment determinate and an indeterminate thing.
rescinding the sale, the right to the fruits belonged to, and
remained enforceable by, Equatorial?
For example, if you are the creditor, you may choose to
Article 1385 of the Civil Code answers this question in the really compel the debtor to deliver the car or you may
negative, because "[r]escission creates the obligation to return ask that the obligation be complied with at the expense
the things which were the object of the contract, together with of the debtor or you can claim for damages. These are
their fruits, and the price with its interest; x x x" Not only the land some of the rights of the creditor.
and building sold, but also the rental payments paid, if any, had
to be returned by the buyer. The third paragraph mentions ―If the obligor delays or has
promised the same thing to two or more persons who do
The Decision in the mother case stated that "Equatorial x x x has not have the same interest. He shall be responsible for
received rents" from Mayfair "during all the years that this
any fortuitous event until he has effected the delivery.‖
controversy has been litigated." The rental payments made by
Mayfair should not be construed as a recognition of Equatorial
as the new owner. They were made merely to avoid imminent The general rule is, when the thing is lost by reason of a
eviction. fortuitous event, the obligation is extinguished. When you
say thing, you are referring to a specific or determinate
At bottom, it may be conceded that, theoretically, a rescissible thing. So if your obligation is to give a Honda Civic with
contract is valid until rescinded. However, thisgeneral principle is plate number ABC 123, with engine number specified,
not decisive to the issue of whether Equatorial ever acquired the and by reason of, for example, Typhoon Pablo, nawala
right to collect rentals. What is decisive is the civil law rule that
siya, natabunan ug mud, so, the obligation is
ownership is acquired, not by mere agreement, but by tradition
or delivery. Under the factual environment of this controversy as
extinguished.
found by this Court in the mother case, Equatorial was never put
in actual and effective control or possession of the property If it is an obligation to deliver a generic or indeterminate
because of Mayfair's timely objection. thing, you are not really obligated to deliver ―this car‖ but
you can deliver any other car. Thus, it is capable of
substitution. Remember the principle “genus never
Article 1165. When what is to be delivered is a perishes.‖ Therefore, even if you are already thinking of
determinate thing, the creditor, in addition to the delivering ―this car‖ and that is lost, your obligation is not
right granted him by article 1170, may compel the extinguished because you just have to give any car. You
debtor to make the delivery. can buy or you can look for another car to deliver. But, if
it is specific and it is lost by a fortuitous event, then the
If the thing is indeterminate or generic, he may ask obligation is extinguished.
that the obligation be complied with at the expense
of the debtor. The third paragraph gives us the exceptions that even if
the thing is lost by reason of a fortuitous event, the
If the obligor delays, or has promised to deliver the obligation is not extinguished.
same thing to two or more persons who do not
have the same interest, he shall be responsible for 1. When the obligor is in delay; or
any fortuitous event until he has effected the
delivery. (1096) 2. When the obligor has promised the same thing to two
or more persons who do not have the same interest.
Article 1165 talks of delivery of a thing. Thus, it involves We will discuss delay, fortuitous event and bad faith in the
real obligations. In addition to the right granted to him by subsequent articles.
Article 1170, the creditor may compel the debtor to
make the delivery. That is specific performance. Take note, if the specific thing is lost by reason of a
fortuitous event, the obligation is extinguished. We will
Take note here, the law says ―determinate thing‖. When discuss fortuitous event in Article 1174. But you do know
you say determinate, it is capable of particular that a fortuitous event is something, which is beyond the
designation; something which is particularly segregated

control of the debtor or obligor. We don‘t necessarily say Damages can be claimed with any form of remedy. If the
beyond the act of man because there are fortuitous obligation is to deliver a generic thing, the creditor may
events which are acts of man. Fortuitous events, compel delivery. So, specific performance but the
technically speaking, there are two kinds: fortuitous event compliance may be by the obligor himself or by another
or caso fortuito and force majeure. at the expense of the obligor. The remedy of damages is
also available to the creditor in rescission and resolution.
When we say fortuitous event or caso fortuito, we are
referring to acts of god like typhoon, earthquake, or Vda. De Lacson vs. Diaz
volcanic eruption.
FACTS: In 1939, Rosario Vda. De Lacson leased to Abelardo Diaz
When we talk of force majeure, strictly speaking, we refer two parcels of sugar-cane lands.
to acts of man like war or strike. These are examples of
The term of the lease was for five crop years beginning with the
force majeure but loosely speaking, they can be lumped crop year 1940-41; with an option in favor of the defendant for
under the category of fortuitous event. another two years, after the expiration of the original period. The
contract provided that the defendant was to pay to the
There is delay if the debtor promised to deliver a specific plaintiffs an annual rental of 1,000 piculs of export sugar, of
car on January 1, 2013 and after which, still did not which 500 piculs were to be paid in the month of January of
deliver and the thing is lost by reason of a fortuitous every year and the rest at the end of every milling season.
event. Say for example, on February 1, there was a
typhoon and the ar was lost. Is he already in delay? The defendant took possession of the haciendas in question
beginning with the crop year 1940-41. In that year he paid to the
Remember, there is no delay when there is no demand.
plaintiffs the corresponding rental of 1,000 piculs of sugar.
So, in that example, if we apply the general rule, the
debtor was not yet in delay because there was still no On December 8, 1941, the war broke out. The defendant claims
demand. that due to the unsettled conditions which follows, he was
unable to mill all his sugar canes so that during the crop year
The fact that the period lapsed does not automatically 1941-42 he produced only the total amount of 966.42 piculs of
mean that there is already delay; without demand, there sugar from the two haciendas, of which 579.86 piculs went to
is no delay. That is the general rule. If nag-demand na him as his planter's share. It appears that the defendant failed to
ang creditor then wala gihatag ni debtor, there is already pay the plaintiffs the rentals of 1,000 piculs of export sugar for
said crop year.
delay or mora. If the car is subsequently lost when he
already incurred delay, that obligation will subsist. If he is The defendant also failed to pay the plaintiffs the stipulated
to deliver a specific car and the car is already lost, of rentals for the remaining crop years up to the present time,
course, you cannot give that specific car. So, you just although the plaintiffs had made several demands for their
have to give the monetary equivalent plus damages. payment, so that on September 17, 1946, this action was
commenced by the plaintiffs for the rescission of the lease
How about bad faith? It happens if the creditor has contract.
promised the same thing to two or more persons who do
not have the same interest. ISSUE: Is the obligation of the respondent extinguished by reason
of a force majeure?
Example:
RULING: In binding himself to deliver centrifugal sugar, the
defendant promised a generic thing. It could be any centrifugal
You are to deliver a specific land to A and subsequently, sugar without regard to origin or how he secured it. Hence, his
you sold the same land to X and they are not in any way, inability to produce sugar, irrespective of the cause, did not
related. A is not and agent of X, so wala. They have an relieve him from his commitment. War, like floods and other
adverse interest. Meaning, both of them are claiming the catastrophes, was a contingency, acollateral incident, which he
land from the seller. In that case, there is bad faith on the could have provided for by proper stipulation.
part of the seller.
In reality there was no fortuitous event which interfered with the
exploitation of the leased property in the form and manner the
If for example, the thing is lost by reason of a fortuitous
defendant had intended. We refer to the agricultural years 1945-
event, the seller cannot be excused from the obligation. 46 and 1946-47. It should be observed that the defendant was
Why? Because even if the thing was not lost by reason of not bound to keep the lands during those years; it was entirely
a fortuitous event, still, he cannot deliver because he has optional on his part to put an end to the lease after the 1944-45
promised the same thing to two persons. He is not sure crop year. When he decided to exercise the option he was fully
whether or not he will perform. He cannot profit from his aware that there were no sugar mills in operation and he did not
own bad faith. Therefore, even if the thing is lost by except to produce sugar, He must have had an object other
reason of a fortuitous event, he will not be excused. than to plant sugar cane when he chose to retain the lands for
two more years. it was established that during the years 1943
and 1944 the haciendas in question were worked and cultivated
Let us summarize. When we talk of an obligation to
by the tenants of the defendant who planted cereal crops
deliver a specific thing, these are the remedies of the thereon like corn and rice but there was no evidence as to how
creditor. much was really produced on the land. His purpose was,
beyond doubt, to plant other crops, which he did.
1. He may compel the debtor to make the
delivery(specific performance); If those crops did not bring good return he can not, under any
principle of law or equity, shift the loss to the lessor. Performance
2. He may also claim for damages (Article 1170); is not excused by the fact that the contract turns out to be hard
and improvident, unprofitable or impracticable, ill-advised, or
3. Rescission (Article 1380); and even foolish.
4. Resolution (Article 1191).

You are the owner of the additional
Article 1166. The obligation to give a determinate area, however, that is not included in
thing includes that of delivering all its accessions and your title. But you are the owner. When
accessories, even though they may not have been you say ownership, it does not mean na
mentioned. (1097a) dapat naa kay papel, certificate of title
is just an evidence of ownership. So,
kadto siya, pa-titulohan to nimo para
naa na gyud sa imohang pangalan. The
When you have an obligation to deliver a thing, you will danger is if you don‘t have it titled under
have to deliver the thing itself as well as the fruits, the the Torrens System, if someone will
accessions and the accessories even if the obligation occupy the land and occupies it for a
may have been silent to this point. period of 30 years, for example,
exclusively, adversely, publicly, he may
Example:
acquire that land by prescription. So
ikaw ang tag-iya but you may lose title
Your obligation is to deliver a car, would that mean that
by prescription. So, dapat you have it
you will also deliver the steering wheel of the car, the tires
titled.
and the chairs? Yes, that will include everything that is
contemplated in the concept of a car. The stereo, for
b. Accession Industrial - those which are
example, kung naa na siya’y stereo pagbaligya nimo, of
planted or sold. Those are also included
course, yes. Dili pwede na moingon ka na since ang
as part of the thing.
nakabutang sa contract car lang, pwede tanggalon ang
stereo.
Accessories defined under Article 467 are those for the
ornament, better use or perfection.
When you say accession, that is defined under Article 440
of the New Civil Code. They are additions to, or
Article 467. The principal thing, as between two things
improvements upon the thing. You will discuss that more incorporated, is deemed to be that to which the other has been
exhaustively on your Law on Property. united as an ornament, or for its use or perfection. (376)
Article 440. The ownership of property gives the right by

accession to everything which is produced thereby, or which is
Like for example, the stereo, included na siya. Part na siya
incorporated or attached thereto, either naturally or artificially.
(353)
sa accessories.
For example, your obligation is to deliver a house, you

have to include the door in the delivery. If it is expressly
There are two kinds of accession in general:
mentioned that the stereo may be excluded, then the
1. Accession discrete - which is the right to the fruits. seller, before delivery, may remove the stereo. That is, if it
is expressly mentioned. However, if the obligation is silent,
That means if your obligation is to deliver a parcel it means that the accessions and accessories are
of land that is planted, then the obligation included along with the thing.
includes that of delivering the plants, the trees
and everything growing in the land.
Article 1167. If a person obliged to do something fails
2. Accession continua - right to those incorporated to do it, the same shall be executed at his cost.
or attached to the thing. There are two kinds of
accession continua:
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
a. accession natural like alluvial deposits,
Furthermore, it may be decreed that what has been
kanang nadugang sa imohang yuta.
poorly done be undone. (1098)
Like for example, you have a land near
the bank of the river, and by the action
of the river over time, you land increased
in area. Article 1167 speaks of a personal obligation or an
obligation to do; a positive personal obligation.
Under the law on accession, the owner
of the land to which the additional land What are the remedies of the creditor in case of a
is attached, is also the owner of the positive personal obligation, which is not fulfilled by the
accretion. So, kadtong nadugang na debtor? There are three remedies mentioned in Article
yuta, for example, 1 hectare lang imong 1167.
yuta then naa’y nadugang na 300 sq.
meters kay sige ug baha, so 1. If the obligor fails to do it, the creditor may have
nadugangan imohang yuta, ang tag-iya the obligation executed at the cost or expense of
sa yuta is also ang tag-iya sa accession the obligor.
or alluvium. Pero if the land is titled, the
title does not cover the accession. You You cannot force the debtor to perform the
will learn that in your land registration. obligation against his will but you can have the
obligation performed by another at the expense
Exazmple: of the debtor.

2. If the obligation was done in contravention of the
Article 1168. When the obligation consists in not
tenor thereof, the creditor can have the
obligation done by a third person at the expense doing, and the obligor does what has been
of the debtor. forbidden him, it shall also be undone at his
expense. (1099a)
3. If the performance is poor, the creditor may undo
the same at the expense of the debtor.
In all these three cases, whether there is no performance, A negative personal obligation is what is referred to in
the performance is in contravention of the tenor of the Article 1168; an obligation not to do. The law says the
obligation, or the performance is poor, you can also ask obligation consists in not doing and the obligor does
for damages. what is forbidden him, it shall be undone at his expense.
Example: Fajardo, Jr. vs. Freedom to Build
Facts: Freedom To Build, Incorporated, an owner-developer and

The obligation is to sing in a concert. So, you hired a
seller of low- cost housing, sold to petitioner-spouses, a house
singer to sing in a concert which you produced. What if and lot. The Contract to Sell executed between the parties,
he refuses to sing? What if you asked a specific person to contained a Restrictive Covenant providing certain prohibitions
perform in the concert.Sarah Geronimo, for example? including the observance of a two-meter easement in front. No
Can it be done by another even if you already structure of any kind (store, garage, bodega, etc.) may be built
advertised that it is Sarah Geronimo who will perform? In on the front easement.
this case, no. If the personal obligation is something which
can be done only by the debtor and it will be impossible The above restrictions were also contained in TCT covering the
lot issued in the name of petitioner-spouses. The controversy
to have the obligation done by another at the expense
arose when petitioners, despite repeated warnings from
of the debtor, your remedy would be to claim for respondent, extended the roof of their house to the property line
damages. and expanded the second floor of their house to a point directly
above the original front wall.
Respondent filed an action to demolish the unauthorized

CASE: CONTINENTAL CEMENT CORPORATION vs PHILIPPINE structures.
SYSTEMS
Issue: WON demolition can be done absent that specific
This involves Continental Cement Corporation (CCC) and provision in the covenant the parties entered into.
Phil Systems. There were delays by Phil System in finishing
Held: Yes, demolition can be done.
the construction work in accordance with the
construction contract. Because there was already a Article 1168 of the New Civil Code states:
delay, Continental was forced to have the construction
be completed by another contractor. At that time, Phil "When the obligation consists in not doing and the obligor does
Systems was already able to accomplish 92.83% of the what has been forbidden him, it shall be undone at his expense."
work. Because of the failure of Phil Systems to finish, as I Even if the restrictive covenant did not mention the penalty of
said, CCC had the job done by another contractor and demolition, still the remedy of demolition is available since it is
provided under Art. 1168.
they claimed from Phil Systems the value of the contract
entered into with another contractor. In sum, the Court holds that –
The issue here is whether or not Phil Systems is liable for (1)...The provisions of the Restrictive Covenant are valid;
the value of the contract CCC was constrained to enter
into with another contractor for the completion of the (2)....Petitioners must be held to be bound thereby; and
work.
(3)....Since the extension constructed exceeds the floor area
Yes, under Article 1167, Phil Systems only finished 92.83% limits of the Restrictive Covenant, petitioner-spouses can be
and the rest was done by another contractor. Phil required to demolish the structure to the extent that it exceeds
the prescribed floor area limits.
Systems had the obligation to complete the project but it
did not finish. So, when CCC was constrained to secure
the services of another contractor that would be at the
expense of Phil Systems.
However, the Supreme Court said that since Phil Systems

already completed 92.83% of the work, it should be liable
only for the remaining 7.17% of the project because to
make it answer would unjustly enrich CCC since CCC has
already benefited from the work of Phil Systems. Even if
Phil Systems would be liable because of its failure to
complete the work, they are liable only to the
corresponding value of the project which they did not
complete. So, kung nagpa-dugang pa to ang CCC sa
other contractor, that would be at their own cost.

the approaching so-called deadline. However, no demand after
Article 1169. Those obliged to deliver or to do April 23, 1984, was ever made by the Vasquez spouses for Ayala
something incur in delay from the time the obligee to sell the 4 lots.
judicially or extrajudicially demands from them the By early 1990 Ayala finished the development of the vicinity of
fulfillment of their obligation. the 4 lots to be offered for sale. The four lots were then offered to
be sold to the Vasquez spouses at the prevailing price in 1990.
This was rejected by the Vasquez spouses who wanted to pay at
However, the demand by the creditor shall not be 1984 prices, thereby leading to the suit.
necessary in order that delay may exist:
ISSUE: WON the letters sent by the Vasquez spouses amounted to
demand letters thus placing Ayala in default.
(1) When the obligation or the law
expressly so declare; or RULING: Ayala Corporation cannot be declared to have been in
delay. At best, petitioners' letters can only be construed as mere
(2) When from the nature and the reminders which cannot be considered demands for
circumstances of the obligation it appears performance because it must appear that the tolerance or
benevolence of the creditor must have ended.
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 This is another example of exception to the general rule
the establishment of the contract; or that there is no delay when there is no demand.
Another exception: when demand would be useless as

(3) When demand would be useless, as when the obligor has rendered it beyond his power to
when the obligor has rendered it beyond perform.
his power to perform.
Example:
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready When the obligation is to deliver a specific thing, and the
to comply in a proper manner with what is debtor already sold the same thing to some other person
incumbent upon him. From the moment one of the or he already destroyed the thing. Even if there is no
parties fulfills his obligation, delay by the other demand, he is already in delay if he does not perform on
begins. (1100a) the date specified for payment or performance. Why?
Because even if there was a demand, he would still be
unable to comply with the obligation because the
We already mentioned before the concept of delay. already destroyed the thing or alienated the thing to
some other person. In this case, demand would be
Article 1169 says there is already delay when the obligee useless.
fails to perform his obligation upon demand. So there is a Article 1169 discusses the concept of delay. The general
general rule that for there to be delay, there has to be rule is: There is no delay when there is no demand and
demand. Again, this is what we call extraordinary delay that demand would either be judicial or extrajudicial.
or the legal delay, mora, or default. Again, delay begins
after demand is made. We are talking ehre of legal delay or extraordinary delay.
Default or mora.
Demand is made judicially or extrajudicially. When you
say judicially, a case is filed in court for performance.
As a consequence of delay, what would be the liability of
Extrajudicially, something which is not done in the courts.
the debtor?
Like when you sent a demand letter, that is already a
demand although, extrajudicial. Still, it would already
place the debtor in default. That is the general rule. He would be liable for damages, the damages could be
in the form of interest like if the obligation constists in the
CASE: Vasquez vs. Ayala Corporation payment of money.
FACTS: In 1981, spouses Vasquez entered into a MOA with Ayala

By reason of delay also, the debtor in an obligation to
Corporation for the purchase of the spouses‘ shares of stock in
the Conduit Development, Inc. deliver a specific thing, his obligation is not extinguished
ieven if the thing is lost by reason of a fortuitous event, if
The main asset of Conduit was a 49.9 hectare property which there was delay.
was then being developed by Conduit under a development
plan where the land was divided into Villages. The development What are the exceptions? Are there instances where
was then being undertaken for Conduit by G.P. Construction
even if there is no demand, there is still delay?
and Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less 1. When the obligation expressly so declares.
what was defined as the "Retained Area" consisting of 18,736
square meters. This "Retained Area" was to be retained by the
Vazquez spouses. The area to be developed by Ayala was If in the obligation, in the contract, it is stated that
called the "Remaining Area". In this "Remaining Area" were 4 lots no demand is necessary to place the debtor in
adjacent to the "Retained Area" and Ayala agreed to offer default then as long as the maturity date lapses
these lots for sale to the Vazquez spouses at the prevailing price and there is no payment or performance then
at the time of purchase. the debtor or obligor is already in default.
Taking the position that Ayala was obligated to sell the 4 lots
adjacent to the "Retained Area" within 3 years from the date of So, remember this becauseif and when you
the MOA, the Vasquez spouses sent several "reminder" letters of become lawyers, you will be asked to draft

contracts for your clients. So if your client is the came, the gown did not arrive. So, you just
creditor, be sure to include a stipulation in the rented a gown instead.
contract which provides that upon the arrival of
the date of maturity, the debtor is already in So, you went to your designer and aksed, ―Why
default without need of any further demand on didn‘t you deliver the gown on February 14?‖
the part of the creditor if the debtor fails to You file a case against him for damages and
perform or pay his obligation. ―Immediately then can he allege that he is not in default
without need of demand,‖ if that phrase is because you did not demand? Is that argument
included in the contract then you cannot invoke, correct?
if you are the debtor, the general principle that
there is no delay if there is no demand.
No, because in this particular case, time is of the
essence. Time is a controlling motive for the
But if your client is also the debtor and you are establishment of the obligation. It‘s not like a
asked to draft that contract, be sure also not to hearing that you can file a resetting. The designer
include that phrase. You should act in cannot ask you to reset your wedding because
accordance with what is beneficial to your he is not yet done with the gown. Time is of the
client. Even if it is not beneficial to the creditor, essence so there is no need of a prior demand
but your client is the debtor. for him to be placed in default.
2. When the law so declares. CASE: RODRIGUEZ vs BELGICA
If the law says there is no need of prior demand So, here, the defendant committed to pay P35,000.00 but
for you to be placed in default then even without the money will be taken from the proceeds of the sale of
prior demand, you will be placed in default. a certain portion of a property. That property was co-
owned by the plaintiff and the defendat. So, plaintiff
Example: owned 86% while defendant owned 14%.
Under the law, if the property is under co-ownership, the
Your obligation to pay taxes. Let‘s say, to pay consent of both owners must be given for a property to
income tax. Under the law, you should pay your be sold. Defendant alone cannot sell the entire property
income tax and file your income tax return not ans plaintiff alone cannot sell the entire property. There
later thatn April 15 of each calendar year. On has to be authority from the plaintiff for the defendant to
April 15, you did not file until in August of that negotiate the sale or mortgage of the property.
year, the Bureau of Internal Revenue sent a
notice that you should already pay penalty and It was contended from the plaintiff that there was no
charges. You invoked that you are not liable demand or even request from the defendant for the
because under the law, the general rule under plaintiff to give the authority.
Article 1169 is that there is no delay when there is
no demand and because there was no demand, Under that circumstance, it was understood that the
I should not be held liable for the interest and plaintiff should give the authority, otherwise, no
charges. transaction could be entered into by the defendant over
the property without that authority. So, demand would
not be necessary because the nature of the obligation
That is not correct because under the National
requires the plaintiff to act even without a prior demand.
Internal Revenue Code, there is no need of prior
demand from the BIR before you will be held
Because there was no authority given then it would be
liable for penalties and surcharges. Remember,
impossible for the defendant to sell the property and the
there are millions of taxpayers in the Philippines so
70-day period should not also begin to run because
you cannot expect that the BIR will send a
precisely, how can the defendant deal with the property
demand letter to each and every taxpayer. The
when it did not have the authority yet?
law says you shold pay on or before April 15 and
if you fail to pay, you will be held liable for
This is another example of an exception to the general
interest, penalties and surcharges.
rule that there is no delay when there is no demand.
3. When from the nature and circumstances of the RODRIGUEZ vs BELGICA

obligation it appears that the designation of the
time when the thing is to be delivered or the FACTS:This was originally a partition case, instituted in the Court
service is to be rendered was a controlling of First Instance of Rizal, Quezon City Branch. After a series of
motive for the establishment of the contract. pleadings filed by the parties, and on one of the hearings held,
the defendants made a verbal offer to compromise. Pursuant to
the said offer, the plaintiffs, on August 27, 1955, filed a "Motion re
Example:
Offer to Compromise."
You contracted a designer to create for you your The parties have discussed and considered the terms and
wedding gown. The wedding is on February 14, conditions set forth in said Offer of Compromise submitted by the
2013. So, I will use the gown on February 14 and attorney for the plaintiffs and as a result thereof they have
you(the designer) should deliver it in the arrived at an amicable settlement, the terms of which were
moerning because my wedding is in the dictated in open court by the attorneys of both parties in the
afternoon. So, you had the gown made in presence of their clients.
January. And then when February came 14

The terms and conditions of said Compromise oblgitaion because he already destroyed the
Agreement dictate that with regards to the length of time given thing or alienated the thing to another person.
to the defendants to pay the plaintiffs of P35,000.00 is thirty (30) So, in this case, demand would be useless.
days, the defendants requested that said period be seventy (70)
days counted from today, August 30, 1955. The plaintiffs agreed
to grant authority to defendant Porfirio Belgica to negotiate the 5. When the debtor expressly admits that he has
sale or mortgage of the 36% which is proposed to be conveyed been in default.
to him, for the purpose of raising the P35,000.00 to be paid to the
plaintiffs.
Take note that mere asking for extension by the
debtor is not equivalent to admission of default; it
After the lapse of the seventy (70) day period stipulated in the should be clearly stated that the debtor admits
compromise agreement, and upon the failure of the defendants
the fact of his being in default already.
to pay, the plaintiffs presented a motion praying that the
defendants be ordered to deliver to the plaintiffs the Certificates
of the Titles so that 14% of the property pertaining to the Example:
defendant could be segregated. An opposition was registered
by the defendants, contending that the inability to meet the
obligation to pay the P35,000.00 was due to the deliberate
There is doubt as to the tenor of the statement
refusal of the plaintiffs to grant the authority to defendant Porfirio made be the debtor. You are not sure if he is
Belgica to negotiate the sale or mortgage of the 36%; and that asking for an extension or he is admitting that he
since the decision had created reciprocal obligations, the is in default. How do we resolve the doubt?
refusal or failure on the part of one to comply did not make the Should he be construed to be in default or not in
other in default. default?
RULING:On the plaintiffs-appellees was imposed the obligation of He is not in default because the general rule is
granting to defendants-appellants the requisite authority to
there is not default when there is no demand. In
negotiate either the sale or mortgage of the 36% interest in the
property. This is understandable, because on the face of the two
case of doubt in that case, you follow the
certificates of the title covering the properties, defendants general rule. There should be demand. The
owned only 14%, while plaintiffs owned 86%. Without such statement should not be construed as an
authority executed by plaintiffs in favor of the defendants, it was admission of default; there should have been a
difficult, not to say impossible for the latter to affect a prior demand to be sure. That is how we resolve
negotiation. the doubt
This the plaintiffs the fully knew, because in the compromise, they
CASE: TRANS-ASIA SHIPPING LINES
acknowledged that the amount of P35,000.00 due to them
would be paid within 70 days from the August 30, 1953, with
money to be delivered from the sale of mortgage of the TRANS-ASIA SHIPPING LINES, INC. vs CA
property. It was, therefore, incumbent upon the plaintiffs "to
grant authority" to defendants to negotiate the sale or mortgage FACTS:Private respondent Atty. Renato Arroyo bought a ticket
of the 36% of the property. Considering that the reciprocal petitioner, a corporation engaged in inter-island shipping, for the
obligation has been established by the compromise agreement, voyage of M/V Asia Thailand vessel to Cagayan de Oro City
the sequence in which the reciprocal obligations of the parties from Cebu City on November 12, 1991.
are to be performed, is quite clear.
At around 5:30 in the evening of November 12, 1991, Arroyo
The giving of the authority to sell or mortgage precedes the boarded the M/V Asia Thailand vessel. At that instance, plaintiff
obligation of the defendants to pay P35,000.00(Martinez vs. noticed that some repair works were being undertaken on the
Cavives, 25 Phil. 581). Until this authority is granted by the plaintiff, engine of the vessel. The vessel departed at around 11:00 in the
the 70 day period for payment will not commence to run. The evening with only one engine running.
plaintiffs insinuated that defendant did not ask for the authority.
There was, however the statement or allegation by the After an hour of slow voyage, the vessel stopped near Kawit
defendants to the effects that they made verbal request for Island and dropped its anchor thereat. After half an hour of
such authority but plaintiffs refused to give, a statement or stillness, some passengers demanded that they should be
allegation discredited by the lower court. But even without a allowed to return to Cebu City for they were no longer willing to
request, from the very nature of the obligation assumed by continue their voyage to, Cagayan de Oro City. The captain
plaintiffs, demand by defendants that it be performed, was not acceeded to their request and thus the vessel headed back to
necessary (Article 1169, par. 2, Civil Code). Cebu City.
At Cebu City, Arroyo together with the other passengers who

requested to be brought back to Cebu City, were allowed to
4. When demand would be useless as when the disembark. Thereafter, the vessel proceeded to Cagayan de
obligor has rendered it beyond his power to Oro City. Arroyo, the next day, boarded the M/V Asia Japan for
perform. its voyage to Cagayan de Oro City, likewise a vessel of
defendant.
Exmaple: On account of this failure of petitioner to transport him to the

place of destination on November 12, 1991, Arroyo filed before
The obligation is to deliver a specific thing and the trial court a complaint for damages against defendant.
the debtor already sold the same thing to some
Private respondent alleged that the engines of the M/V Asia
other person or he already destroyed the thing so Thailand conked out in the open sea, and for more than an hour
even if there is no demand, he is already in delay it was stalled and at the mercy of the waves, thus causing fear in
if he does not perform on the expected time for the passengers. It sailed back to Cebu City after it regained
payment or performance. power, but for unexplained reasons, the passengers, including
the private respondent, were arrogantly told to disembark
without the necessary precautions against possible injury to
Why? Because even if there was a demand, he them. They were thus unceremoniously dumped, which only
would still be unable to comply with his

exacerbated the private respondent's mental distress. He further
alleged that by reason of the petitioner's wanton, reckless, and Anent a breach of a contract of common carriage, moral
willful acts, he was unnecessarily exposed to danger and, having damages may be awarded if the common carrier, like the
been stranded in Cebu City for a day, incurred additional petitioner, acted fraudulently or in bad faith.
expenses and loss of income.
Exemplary damages are imposed by way of example or
The private respondent asserted that his complaint was "an correction for the public good, in addition to moral, temperate,
action for damages arising from bad faith, breach of contract liquidated or compensatory damages. In contracts and quasi-
and from tort," with the former arising from the petitioner's "failure contracts, exemplary damages may be awarded if the
to carry him to his place of destination as contracted," while the defendant acted in a wanton, fraudulent, reckless, oppressive or
latter from the "conduct of the petitioner resulting in the infliction malevolent manner. It cannot, however, be considered as a
of emotional distress" to the private respondent. matter of right; the court having to decide whether or not they
should be adjudicated. Before the court may consider an award
The trial court dismissed the case but upon appeal, the Court of for exemplary damages, the plaintiff must first show that he is
Appeals reversed the trial court's decision and, accordingly, entitled to moral, temperate or compensatory damages; but it is
awarded compensatory, moral, and exemplary damages. not necessary that he prove the monetary value thereof.
The Court of Appeals did not grant the private respondent
It did not, however, allow the grant of damages for the delay in actual or compensatory damages, reasoning that no delay was
the performance of the petitioner's obligation as the incurred since there was no demand, as required by Article 1169
requirement of demand set forth in Article 1169 of the Civil Code of the Civil Code. This article, however, finds no application in this
had not been met by the private respondent. Besides, it found case because, as found by the respondent Court, there was in
that the private respondent offered no evidence to prove that fact no delay in the commencement of the contracted voyage.
his contract of carriage with the petitioner provided for liability in If any delay was incurred, it was after the commencement of
case of delay in departure, nor that a designation of the time of such voyage, more specifically, when the voyage was
departure was the controlling motive for the establishment of the subsequently interrupted when the vessel had to stop near Kawit
contract. Island after the only functioning engine conked out.
On the latter, the court a quo observed that the private As to the rights and duties of the parties strictly arising out of such
respondent even admitted he was unaware of the vessel's delay, the Civil Code is silent. However, as correctly pointed out
departure time, and it was only when he boarded the vessel that by the petitioner, Article 698 of the Code of Commerce
he became aware of such. Finally, the respondent Court found specifically provides for such a situation. It reads:
no reasonable basis for the private respondent's belief that
demand was useless because the petitioner had rendered it In case a voyage already begun should be interrupted,
beyond its power to perform its obligation; on the contrary, he the passengers shall be obliged to pay the fare in
even admitted that the petitioner had been assuring the proportion to the distance covered, without right to
passengers that the vessel would leave on time, and that it recover for losses and damages if the interruption is
could still perform its obligation to transport them as scheduled. due to fortuitous event or force majeure, but with a
The petitioner then instituted this petition right to indemnity if the interruption should have been
caused by the captain exclusively. If the interruption
RULING:Undoubtedly, there was, between the petitioner and the should be caused by the disability of the vessel and a
private respondent, a contract of common carriage. passenger should agree to await the repairs, he may
not be required to pay any increased price of passage,
Under Article 1733 of the Civil Code, the petitioner was bound to but his living expenses during the stay shall be for his
observe extraordinary diligence in ensuring the safety of the own account.
private respondent. That meant that the petitioner was, pursuant
to Article 1755 of the said Code, bound to carry the private This article applies suppletorily pursuant to Article 1766
respondent safely as far as human care and foresight could of the Civil Code.
provide, using the utmost diligence of very cautious persons, with
due regard for all the circumstances. In this case, we are in full Of course, this does not suffice for a resolution of the case at
accord with the Court of Appeals that the petitioner failed to bench for, as earlier stated, the cause of the delay or
discharge this obligation. interruption was the petitioner's failure to observe extraordinary
diligence. Article 698 must then be read together with Articles
Before commencing the contracted voyage, the petitioner 2199, 2200, 2201, and 2208 in relation to Article 21 of the Civil
undertook some repairs on the cylinder head of one of the Code.
vessel's engines. But even before it could finish these repairs, it
allowed the vessel to leave the port of origin on only one So read, it means that the petitioner is liable for any pecuniary
functioning engine, instead of two. Moreover, even the lone loss or loss of profits which the private respondent may have
functioning engine was not in perfect condition as sometime suffered by reason thereof. For the private respondent, such
after it had run its course, it conked out. This caused the vessel to would be the loss of income if unable to report to his office on
stop and remain a drift at sea, thus in order to prevent the ship the day he was supposed to arrive were it not for the delay. This,
from capsizing, it had to drop anchor. Plainly, the vessel was however, assumes that he stayed on the vessel and was with it
unseaworthy even before the voyage began. The failure of a when it thereafter resumed its voyage; but he did not. As he and
common carrier to maintain in seaworthy condition its vessel some passengers resolved not to complete the voyage, the
involved in a contract of carriage is a clear breach of its duty vessel had to return to its port of origin and allow them to
prescribed in Article 1755 of the Civil Code. disembark. The private respondent then took the petitioner's
other vessel the following day, using the ticket he had
Actual or compensatory damages represent the adequate purchased for the previous day's voyage.
compensation for pecuniary loss suffered and for profits the
obligee failed to obtain. Any further delay then in the private respondent's arrival at the
port of destination was caused by his decision to disembark. Had
In contracts or quasi-contracts, the obligor is liable for all the he remained on the first vessel, he would have reached his
damages which may be reasonably attributed to the non- destination at noon of 13 November 1991, thus been able to
performance of the obligation if he is guilty of fraud, bad faith, report to his office in the afternoon. He, therefore, would have
malice, or wanton attitude. lost only the salary for half of a day.
Moral damages include moral suffering, mental anguish, fright,

serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, or similar injury.

CASE: DIÑO VS JARDINES damages.
In this case, there was no stipulation on the agreement Petitioner filed an Amended Complaint adding allegations that
she suffered actual and moral damages. Thus, she prayed that
that the debtor would be placed in default even without
she be declared the absolute owner of the property and/or that
need of further demand. The general rule would apply: respondent be ordered to pay her P165,000.00 plus the agreed
there is not delay when there is no demand. monthly interest of 10%; moral and exemplary damages,
attorney‘s fees and expenses of litigation.
Was there a demand made? Yes, it was an extrajudicial
demand. The Trial Court rendered judgment in favor of
petitioner.Respondent then appealed to the CA which reversed
Take note: if the obligation consists in payment of money, the RTC judgment. The CA held that the true nature of the
contract between herein parties is one of equitable mortgage,
a loan or forbearance of money, good or credits, the
as shown by the fact that (a) respondent is still in actual physical
interest would be 12% per annum. That‘s the legal rate. possession of the property; (b) respondent is the one paying the
real property taxes on the property; and (c) the amount of the
Example: supposed sale price, P165,000.00, earns monthly interest.
If the parties did not stipulate as to the rate of interest, RULING: The CA‘s finding that there was no gross inadequacy of
generally, no interest can be demanded. A stipulation to the price of respondent‘s residential house as stated in the
pay interest is a formal contract; it would not be valid if it contract, was based on respondent‘s own evidence, which
stated that the actual market value of subject residential house
is not stipulated in writing. But if the debtor is already in
in 1986 was only P93,080.00.
default, he will be liable fir interest by way of damages.
Even if there is no stipulation in writing, the law says if he is The fact that respondent has remained in actual physical
in default and there is a demand, he will be liable for possession of the property in question, and that respondent has
damages by way of interest. How much will be the rate? been the one paying the real property taxes on the subject
If that is for forbearance of money, goods or credit, the property was established by the admission made by petitioner.
rate will be 12% per annum.
The finding that the purchase price in the amount ofP165,000.00
earns monthly interest was based on petitioner‘s own testimony
If in other obligations not a forbearance of money, goods
and admission in her appellee‘s brief that the amount
or credit (like you got into a vehicular accident, then the of P165,000.00, if not paid on July 29, 1987, shall bear an interest
one you hit had to go to the hospital and he demanded of 10% per month.
from you the payment of damages), you will be liable for
interest from the time of demand but the rate will not be The Court sees no reversible error with the foregoing findings of
12%. The rate would be 6% per annum because that does fact made by the CA. The CA correctly ruled that the true
not involve a forbearance of money, goods or credit. nature of the contract entered into by herein parties was one of
equitable mortgage.
Here, even if the parties stipulated for an interest rate, the
In the present case, the RTC‘s award for actual damages is a
Court said it was unconscionable, excessive and plain error because a reading of said trial court‘s Decision readily
iniquitous. So the Court reduced; the Court cannot delete discloses that there is no sufficient evidence on record to prove
but it can reduce. The Court reduced the interest to the that petitioner is entitled to the same. Petitioner‘s only evidence
legal rate of interest which is 12% per annum. to prove her claim for actual damages is her testimony that she
has spentP3,000.00 in going to and from respondent‘s place to
DIÑO vs JARDINES try to collect payment and that she spent P1,000.00 every time
she travels from Bulacan, where she resides, to Baguio in order to
FACTS: Leonides C. Diño (petitioner) filed a Petition for attend the hearings.
Consolidation of Ownership with the RTC. She alleged that Lina
Jardines (respondent) executed in her favor a Deed of Sale The appellate court was also correct in ordering respondent to
with Pacto de Retro over a parcel of land with improvements pay "legal interest" on the amount of P165,000.00.
thereon the consideration for which amounted to P165,000.00; it
was stipulated in the deed that the period for redemption would Both parties admit that they came to an agreement whereby
expire in six months or on July 29, 1987; such period expired but respondent shall pay petitioner interest, at 9% (according to
neither respondent nor any of her legal representatives were respondent) or 10% (according to petitioner) per month, if she is
able to redeem or repurchase the subject property; as a unable to pay the principal amount of P165,000.00 on July 29,
consequence, absolute ownership over the property has been 1987.
consolidated in favor of petitioner.
One of the issues for resolution of the trial court was "whether or
Respondent countered in her Answer that: the Deed of Sale not the interest to be paid under the agreement is 10% or 9% or
with Pacto de Retro did not embody the real intention of the whether or not this amount of interest shall be reduced equitably
parties; the transaction actually entered into by the parties was pursuant to law."
one of simple loan and the Deed of Sale withPacto de Retro was
executed just as a security for the loan. The factual milieu of Carpo vs. Chuais closely analogous to the
present case. In the Carpo case, petitioners therein contracted
It was never the intention of respondent to sell her property to a loan in the amount of P175,000.00 from respondents therein,
petitioner; the value of respondent‘s residential house alone is payable within six months with an interest rate of 6% per month.
over a million pesos and if the value of the lot is added, it would The loan was not paid upon demand. Therein petitioners
be around one and a half million pesos; it is unthinkable that claimed that following the Court‘s ruling in Medel vs. Court of
respondent would sell her property worth one and a half million Appeals, the rate of interest of 6% per month or 72% per annum
pesos for only P165,000.00; respondent has even paid a total as stipulated in the principal loan agreement is null and void for
of P55,000.00 out of the amount borrowed and she is willing to being excessive, iniquitous, unconscionable and exorbitant. The
settle the unpaid amount, but petitioner insisted on Court then held thus:
appropriating the property of respondent which she put up as
collateral for the loan; respondent has been the one paying for In a long line of cases, this Court has invalidated similar
the realty taxes on the subject property; and due to the stipulations on interest rates for being excessive, iniquitous,
malicious suit filed by petitioner, respondent suffered moral unconscionable and exorbitant. There is no need to unsettle the

principle affirmed in Medel and like cases. From that pay one sack of 7 tonner rice, the debtor
perspective, it is apparent that the stipulated interest in the cannot deliverNFArice. The creditor has
subject loan is excessive, iniquitous, unconscionable and every right to refuse because it does not
exorbitant. Pursuant to the freedom of contract principle
consist of the very same thing which is
embodied in Article 1306 of the Civil Code, contracting parties
may establish such stipulations, clauses, terms and conditions as
due.
they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy. In the c. Payment must be in full. If the debt is P 1
ordinary course, the codal provision may be invoked to annul million and you offered to pay only P 9,
the excessive stipulated interest. 999, 999, still the creditor may refuse
because it is not in full. So, payment must
In the case at bar, the stipulated interest rate is 6% per month, or be full.
72% per annum. By the standards set in the above-cited cases,
this stipulation is similarly invalid.
The refusal by the creditor should be unjustifiable
Applying the afore-cited rulings to the instant case, the for the creditor to be considered in mora
inescapable conclusion is that the agreed interest rate of 9% per accipiendi. What is the consequence if the
month or 108% per annum, as claimed by respondent; or 10% creditor is in default? Should he be held liable
per month or 120% per annum, as claimed by petitioner, is from damages?
clearly excessive, iniquitous, unconscionable and exorbitant.
Although respondent admitted that she agreed to the interest Example:
rate of 9%, which she believed was exorbitant, she explained
that she was constrained to do so as she was badly in need of
money at that time.
If the obligation is to deliver a specific thing and it
is delivered by the debtor and the creditor
As declared in the Medel case and Imperial vs. Jaucian, refuses, what happens to the obligation of the
"iniquitous and unconscionable stipulations on interest rates, debtor? It still subsists but if the car is lost, what will
penalties and attorney‘s fees are contrary to morals." Thus, in the happen to the obligation?
present case, the rate of interest being charged on the principal
loan ofP165,000.00, be it 9% or 10% per month, is void. The CA You have to determine the cause of the loss. If it
correctly reduced the exhorbitant rate to "legal interest."
lost through the fault of the debtor, will his
Since the agreed interest rate is void, the parties are considered
obligation e extinguished? No.
to have no stipulation regarding the interest rate. Thus, the rate
of interest should be 12% per annum to be computed from If it is lost by reason of a fortuitous event, the
judicial or extrajudicial demand, subject to the provisions of obligation will be extinguished. This is one
Article 1169 of the Civil Code. consequence of mora accipiendi: if the thing is
lost by reason of a fortuitous event then the
The records do not show any of the circumstances enumerated debtor no longer has an obligation.
in Article 1169. Consequently, the 12% interest should be
Example:
reckoned from the date of extrajudicial demand.
Petitioner testified that she went to respondent‘s place several The debtor stole the cellphone of the creditor. The
times to try to collect payment, but she (petitioner) failed to creditor filed a case for theft against the debtor.
specify the dates on which she made such oral demand. The The debtor is convicted so he is sentenced to
only evidence which clearly shows the date when petitioner imprisonment for two years and also to return the
made a demand on respondent is the demand letter dated cellphone.
March 19, 1989. Hence, the interest of 12% per annum should
only begin to run from March 29, 1989, the date respondent
If the cellphone is lost by reason of a fortuitous
received the demand letter from petitioner.
event, is the obligation extinguished? Take note, if
the obligation to return or to deliver proceeds
from a crime, general rule: even if the thing is lost
We now go to the different kinds of default/mora.
by reason of a fortuitous event, the obligation is
not extinguished.
1. Mora Solvendi – default on the part of the
debtor. This is the usual default that we discussed.
What if from the order of the court, the debtor
The debtor would be liable for damages, interests
now offered to return the thing to the creditor but
and penalties in case of default.
the creditor refuses? Is the creditor in mora
accipiendi? Yes, because his refusal is not
2. Mora Accipiendi – default on the part of the
justifiable. Then subsequently, the cellphone is lost.
creditor. There will be default on the part of the
Is the obligation extinguished?
creditor if the creditor did not accept payment.
If the creditor is already in mora accipiendi and
We have to remember that for a creditor to be
the thing is subsequently lost by reason of a
considered in mora accipiendi or in default:
fortuitous event, the obligation of the debtor is
extinguished. That is one consequence if the
a. The debt must be due and demandable
creditor is in default/ mora.
and the creditor did not accept. If the
debt is not yet due and demandable,
But if he is not in default, even if the thing is lost by
the creditor has every right to refuse
reason of a fortuitous event, the obligation of the
payment. You cannot compel him to
debtor is not extinguished.
accept payment.
b. The payment must be of the very same

thing which is due. If the obligation is to

3. Compensatio Morae – when in a reciprocal The agreement was not reduced into writing. To get the
obligation both parties are in default; here it is as production underway, petitioner deposited, on March 31, 1998,
if netiher is in default. (Paras) US$40,150.00 in respondent‘s US Dollar Savings Account with
Westmont Bank, as full payment for the ordered boxes.
You should not confuse a reciprocal obligation and a Despite such payment, petitioner did not receive any boxes from
bilateral obligation. Both obligations entail a bilateral respondent. On January 3, 2001, petitioner wrote a demand
obligation. A reciprocal obligation is also a bilateral letter for reimbursement of the amount paid. On February 19,
obligation because both parties are bound. The 2001, respondent replied that the boxes had been completed as
difference is that when you say reciprocal, the early as April 3, 1998 and that petitioner failed to pick them up
performance should be simultaneous. When you say from the former‘s warehouse 30 days from completion, as
bilateral, both parties are bound but not necessarily agreed upon. Respondent mentioned that petitioner even
placed an additional order of 24,000 boxes, out of which, 14,000
that the performance should be simultaneous. In
had been manufactured without any advanced payment from
reciprocal obligations, both parties are bound and petitioner. Respondent then demanded petitioner to remove the
performance should be simultaneous. boxes from the factory and to pay the balance of US$15,400.00
for the additional boxes and P132,000.00 as storage fee.
Example:
Petitioner filed a Complaint for sum of money and damages
In a contract of sale, both parties are bound. The against respondent. The Complaint averred that the parties
seller has an obligation to deliver the thing and the agreed that the boxes will be delivered within 30 days from
payment but respondent failed to manufacture and deliver the
buyer has the obligation to pay. If the seller is now
boxes within such time.
able, ready and willing to deliver the land, the buyer
should pay the price. Or if the buyer is now able, RULING: Petitioner‘s claim for reimbursement is actually one for
ready and willing to pay the price, the seller should rescission (or resolution) of contract under Article 1191 of the Civil
deliver the land. In a reciprocal obligation, as long as Code.
one of them is not yet able, ready and willing to
comply with his own obligation, then the other is not
also expected to perform. But once one of the The right to rescind a contract arises once the other party
parties is already ready, able and willing to perform, defaults in the performance of his obligation. In determining
then delay by the other begins. when default occurs, Art. 1191 should be taken in conjunction
with Art. 1169 of the same law, which provides:
Take note, under the concept of reciprocal
obligations discussed in Article 1169, demand is not Art. 1169. Those obliged to deliver or to do something incur in
actually needed for the other party to be placed in delay from the time the obligee judicially or extrajudicially
default. As long as the seller is ready to deliver the demands from them the fulfillment of their obligation.
thing and the buyer is not yet ready to pay, then the
buyer is already in default. That is the general rule in a However, the demand by the creditor shall not be necessary in
reciprocal obligation. order that delay may exist:
CASE: SOLAR HARVEST INCORPORATED vs DAVAO (1) When the obligation or the law expressly so
CORROGATED CARTON CORPORATION declares; or
GR NO. 176868 JULY 26, 2010
(2) When from the nature and the circumstances of the
This also involves a reciprocal obligation. Take note here obligation it appears that the designation of the time
that the period for the fulfillment of the obligation was when the thing is to be delivered or the service is to be
rendered was a controlling motive for the
fixed.
establishment of the contract; or
Example:
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to perform.
In a contract of sale, ordinarily it entails a reciprocal
obligation. But if it is stipulated in the agreement that the
seller will deliver the thing and then the buyer will have to In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
pay not later than one year from the execution of the
with what is incumbent upon him. From the moment one of the
contract of sale, in that case, you cannot expect parties fulfills his obligation, delay by the other begins.
simultaneous performance. There should be a demand to
the debtor before the debtor can be placed in default.
In reciprocal obligations, as in a contract of sale, the general rule
Even in reciprocal obligations, if the period for the
is that the fulfillment of the parties‘ respective obligations should
fulfillment of the obligation is fixed, demand is necessary be simultaneous. Hence, no demand is generally necessary
before the obligor can be considered in default and because, once a party fulfills his obligation and the other party
before a cause of action for rescission will accrue. does not fulfill his, the latter automatically incurs in delay. But
when different dates for performance of the obligations are
That‘s another principal that you have to remember in fixed, the default for each obligation must be determined by the
reciprocal obligations. rules given in the first paragraph of the present article, that is, the
other party would incur in delay only from the moment the other
party demands fulfillment of the former‘s obligation. Thus, even in
SOLAR HARVEST, INC.,vsDAVAO CORRUGATED CARTON
reciprocal obligations, if the period for the fulfillment of the
CORPORATION
obligation is fixed, demand upon the obligee is still necessary
before the obligor can be considered in default and before a
FACTS: Petitioner, Solar Harvest, Inc., entered into an agreement
cause of action for rescission will accrue.
with respondent, Davao Corrugated Carton Corporation, for the
purchase of corrugated carton boxes, specifically designed for
petitioner‘s business of exporting fresh bananas, at US$1.10 each. Evident from the records and even from the allegations in the

complaint was the lack of demand by petitioner upon Unless, again, if the obligation expressly provides that
respondent to fulfill its obligation to manufacture and deliver the default in the payment of one installment would
boxes. The Complaint only alleged that petitioner made a automatically make all installments due and the debtor
"follow-up" upon respondent, which, however, would not qualify
would automatically be placed in default even without
as a demand for the fulfillment of the obligation. Petitioner‘s
witness also testified that they made a follow-up of the boxes,
need of demand. So, again, before we can say that the
but not a demand. Note is taken of the fact that, with respect to debtor would be in default without need of a demand
their claim for reimbursement, the Complaint alleged and the there should be a:
witness testified that a demand letter was sent to respondent.
Without a previous demand for the fulfillment of the obligation, 1. Stipulation in the contract;
petitioner would not have a cause of action for rescission
against respondent as the latter would not yet be considered in 2. A law which states that there is no need of a prior
breach of its contractual obligation. demand; and
We discussed yesterday the concept of delay. The kinds 3. The essence or the debtor makes an express
of delay: delay on the part of the debtor, delay on the admission of his default.
part of the creditor and delay on the part of both parties
in reciprocal obligations. It should fall under the exceptions before you can claim
that you no longer have to make a demand.
For example, the obligation of the debtor is to pay
monthly. For example, he is to pay Php120, 000 and that
120, 000 shall be paid within one year at Php10, 000 per
month starting January. So, his obligation is to pay in Article 1170. Those who in the performance of their
installment. Every 15th day of the month, he should pay obligations are guilty of fraud, negligence, or delay,
Php10, 000. What if in February, he failed to pay? Would and those who in any manner contravene the tenor
he already be in default by the fact that he failed to pay thereof, are liable for damages. (1101)
in the 15th of February? General rule, there is no delay
when there is no demand. If the creditor now demands
for the payment of the second installment, he is now We discussed Article 1170 before when we discussed
already in default but is he already in default also for the remedies on the breach of an obligation if an obligation
subsequent installments (March, April)? No, only for the is to give or to do. So, damages.
installment which falls due on February because if that is
an installment, each installment is separate and distinct Article 1170 falls on the four instances when damages
from each other. If the debtor also defaults for the may be demanded:
payment of the March installment, then another demand
would be made upon him. So, the demand on the 1. Guilty of fraud or dolo
February installment would not operate to place the
fraud – the intentional evasion of the proper
debtor in default for the subsequent installments.
performance of the obligation.
What if there is an acceleration clause? What do we
Two kinds of fraud:
mean by an acceleration clause? It is a clause in the
contract which states that failure or default in one
a. fraud in the performance (Article 1170) –
installment will make pay all the installments also due and
committed after the valid execution of the
demandable. So for example, you are to Php10, 000 in
contract.
one year and there is an acceleration clause, so if the
debtor fails to pay in February, all the other installments b. fraud in the execution (Article 1338) –
from March, April, May, up to December, shall become committed at the time of the execution of
due and demandable. Nawala na ang iyahang term, the contract where the consent of one party
tanan na, everything becomes due and demandable. was obtained due to the employment of
So, if the debtor fails to pay for the February installment, machination.
the debtor should first make a demand before the debtor
be placed in default. Take note, if there is an Fraud in the performance vs. fraud in the
acceleration clause in the contract, failure to pay one execution:
installment would also make the other installments due
and demandable. But, to place the debtor in default for When we say fraud in the execution, that is
these installments, the creditor should make a demand the fraud that is committed to get the
for these installments. The acceleration clause does not consent of the other party to agree in the
automatically place the debtor in default. It only makes contract.
the installments due and demandable. That is the case of
Price Stabilization, Inc. vs. Relloraza. 2. Negligence
negligence – omission of that diligence required

with the nature of the obligation and
commensurate with the demands of the
subsisting circumstances of time, place, and
condition of the persons involved.
Example:
In a contract of carriage, if you are driving your

car at 100kph in the highway, for example going

to Tagum, naa’y dako kaayo na dalan diha na when the plaintiff is found to have suffered
dili kaayo busy, so dili ka negligent. For example, pecuniary loss but its amount cannot be proved
you are in Claveria and you are running at with certainty.
100kph, sa kadaghan pedestrian diha and traffic
kaayo, it would be negligent. So, it would
depend upon the circumstances of persons, Example: Nahospital ka, and ang mga recibo dili
pace and time. na ma-recover kay nasunog pa gyud imong
balay. It remains a fact na nahospital ka
-When the debtor commits negligence in the because of the acts of the obligor so, the court
performance of his obligation, he will be liable for will allow damages.
damages.
 Liquidated damages – those which are agreed
3. Delay upon between the contracting parties. In case of
fraud, negligence, delay or violation of the
The delay contemplated in Art. 1170 is contract, there is no need for the aggrieved
extraordinary or legal delay, default or mora. party to prove the amount of damages he
Again, the general principle, there is no delay suffered. He only has to prove that there was
when there is no demand unless the violation, negligence, fraud and he sustained
circumstances would fall under the recognized injuries but as to the amount, no need because it
exceptions. is already agreed upon in the contract. This is
also related to the concept of penal clause
4. Violation of the terms of the contract which we will discuss in the subsequent articles.
-an act of contravening the terms or conditions

of the contract.  Actual damages – there is a contract and there is
a violation so the actual damages or amount.
Example:
Example:
Your obligation is to construct a house and paint
it white. Instead, you used fuchsia, dili puti imong You organized a concert. You paid for the singer
gigamit. Gibuhat gihapon nimo nag balay, dili ka but he did not show up 1 hour before the
negligent, wala ma’y fraud, pero, there is concert, he said I will not show up. The money
contravention of the tenor of the obligation. You that you paid him, you have to recover that.
should be liable for damages because you did Also, the probable amount that you could have
not perform the contract in accordance with the earned in that concert. You would be entitled to
terms and conditions agreed upon. recover that from the singer by reason of his
violation of the contract.
What are the damages that may be recovered?
 Moral damages – damages which include

physical suffering, mental anguish, fright, serious CASE: YHT REALTY CORPORATION vs COURT OF APPEALS
anxiety, wounded feelings, moral shock, and
similar injury as a result of fraud, negligence, The basis of the hotel‘s liability is negligence. The
delay or violation of the tenor of the obligation. employees of the hotel were negligent but the hotel
should also be liable because they failed to exercise due
Example: I flunked you in the exam. You got 40 diligence in the selection and supervision of their
and because of that, you suffered mental employees. Even if the employees were the one who
anguish, serious anxiety, I even posted the result were negligent, the hotel should still be liable because
in the bulletin board, so, besmirched reputation, they failed to exercise diligence. That is also based onthe
moral shock, will I be liable for damages? No, the vicarious liability of the employer based on Art. 258 of the
case does not fall under Art. 1170, dili mo maka- Civil Code which we will discuss later. Take note of that.
file ug kaso sa akoa. Bisan pa ug feeling nimo nga close kaayo sila, you should
still investigate, especially in this case where property is
 Exemplary damages – refers to the corrective involved. Delikado kaayo, naa’y mga feeling close diha,
damages imposed in addition to compensatory, moingon diay ka asawa na niya? You should not assume.
moral, temperate, or liquidated damages for the
purpose of setting an example. Usually, if a YHT Realty Corporation vs. Court of Appeals
person is held liable for moral damages, he shall
also be held liable for exemplary damages. FACTS:Private respondent McLoughlin, an Australian
businessman- philanthropist, used to stay at Sheraton Hotel
during his trips to the Philippines prior to 1984 when he met Tan
 Nominal damages – Take note of the concept of who eventually became his friend.
nominal damages. Here, the emphasis is on the
Tan convinced McLoughlin to transfer from Sheraton Hotel to
vindication of a right that has been violated; it is
Tropicana where Lainez, Payam and Danilo Lopez were
not for the purpose of indemnifying the loss. Even employed. Lopez served as manager of the hotel while Lainez
if you have not proven a violation of a right, you and Payam had custody of the keys for the safety depositboxes
can still obtain damages. of Tropicana. Tan took care of McLoughlin's booking at the
Tropicana where he started staying during his trips to the
Philippines from December 1984 to September 1987.
 Temperate damages or moderate – more than
nominal, less than compensatory and imposed In October 1987, McLoughlin arrived from Australia and

registered with Tropicana. He rented a safety deposit box as then agreed that the tape would be ready upon private
it was his practice. The safety deposit box could only be opened respondents' return.
through the use of two keys, one of which is given to the
registered guest, and the other remaining in the possession of When private respondents came home from their honeymoon,
the management of the hotel. however, they found out that the tape had been erased by
petitioners and therefore, could no longer be delivered.
During his stay in Tropicana at two separate occasions, he
discovered that some cash contained in the envelopes paced Furious at the loss of the tape which was supposed to be the only
inside the safety deposit box went missing. During one of his stays record of their wedding, private respondents filed a complaint
in the hotel, he also noticed that the jewelry he stored in the for specific performance and damages against petitioners
safety deposit box was likewise missing. before the RTC.
When McLoughlin discovered the loss, he immediately The trial court ordered the rescission of the agreement ntered
confronted Lainez and Payam who admitted that Tan opened into between plaintiff Hermogenes Ong and defendant Nancy
the safety deposit box with the key assigned to him. McLoughlin Go and the award of damages to private respondent.
went up to his room where Tan was staying and confronted her.
Tan admitted that she had stolen McLoughlin's key and was able Dissatisfied with the decision, petitioners elevated the case to
to open the safety deposit box with the assistance of Lopez, the Court of Appeals which, on September 14, 1993, dismissed
Payam and Lainez. Lopez also told McLoughlin that Tan stole the the appeal and affirmed the trial court's decision.
key assigned to McLoughlin while the latter was asleep.
RULING: Petitioners claim that for the video coverage, the
McLoughlin requested the management for an investigation of cameraman was employed by Pablo Lim who also owned the
the incident. Lopez got in touch with Tan and arranged for a video equipment used. They further assert that they merely get a
meeting with the police and McLoughlin. When the police did commission for all customers solicited for their principal.
not arrive, Tan executed a promissory note binding herself to pay
McLoughlin of the loss. Petitioners' argument that since the video equipment used
belonged to Lim and thus the contract was actually entered into
Despite the execution of promissory note by Tan, McLoughlin between private respondents and Lim is not deserving of any
insisted that it must be the hotel who must assume responsibility serious consideration. In the instant case, the contract entered
for the loss he suffered. into is one of service, that is, for the video coverage of the
wedding. Consequently, it can hardly be said that the object of
However, Lopez refused to accept the responsibility relying on the contract was the video equipment used. The use by
the conditions for renting the safety deposit box stipulating that petitioners of the video equipment of another person is of no
the hotel shall be held free and blameless from any liability consequence.
arising from any loss.
As regards the award of damages, petitioners would impress
ISSUE: WON the hotel may evade liability for the loss of the items upon this Court their lack of malice or fraudulent intent in the
of its guest. erasure of the tape. They insist that since private respondents did
not claim the tape after the lapse of thirty days, as agreed upon
RULING: The evidence reveals that two keys are required to open in their contract, the erasure was done in consonance with
the safe deposit boxes of Tropicana. One key is assigned to the consistent business practice to minimize losses.
guest while the other remains in the possession of the
management. If the guest desires to open his safety deposit box, As correctly observed by the Court of Appeals, it is contrary to
he must request the management for the other key to open the human nature for any newlywed couple to neglect to claim the
same. In other words, the guest alone cannot open the safety video coverage of their wedding; the fact that private
deposit box without the assistance of the management or its respondents filed a case against petitioners belies such assertion.
employees. With more reason that access to the safety deposit Clearly, petitioners are guilty of actionable delay for having
box should be denied if the one requesting for the opening of failed to process the video tape. Considering that private
the safety deposit box is a stranger. Thus, in case of loss of any respondents were about to leave for the United States, they took
item deposited in the safety deposit box, it is inevitable to care to inform petitioners that they would just claim the tape
conclude that the management had at least a hand in the upon their return two months later. Thus, the erasure of the tape
consummation of the taking, unless the reason for the loss is after the lapse of thirty days was unjustified.
forcemajeure.
In this regard, Article 1170 of the Civil Code provides that "those
Therefore, Tropicana should be held responsible for the damage who in the performance of their obligations are guilty of fraud,
suffered by McLoughlin by reason of the negligence of its negligence or delay, and those who is any manner contravene
employees. the tenor thereof, are liable for damages."
In the instant case, petitioners and private respondents entered

CASE: GO vs COURT OF APPEALS into a contract whereby, for a fee, the former undertook to
cover the latter's wedding and deliver to them a video copy of
said event. For whatever reason, petitioners failed to provide
There was really a violation of the obligation. Pursuant to
private respondents with their tape. Clearly, petitioners are guilty
Article 1170, they should be liable for damages. Even if of contravening their obligation to said private respondents and
there was no fraud, delay or negligence, they really are thus liable for damages.
erased it knowingly. It was a violation so they should be
liable for damages. Petitioners' act or omission in recklessly erasing the video
coverage of private respondents' wedding was precisely the
Nancy Go and Alex Go vs Court of Appeals cause of the suffering private respondents had to undergo.
Considering the attendant wanton negligence committed by
FACTS: Private respondents spouses Hermogenes and Jane Ong petitioners in the case at bar, the award of exemplary damages
were married on June 7, 1981, in Dumaguete City. The video by the trial court is justified to serve as a warning to all entities
coverage of the wedding was provided by petitioners at a engaged in the same business to observe due diligence in the
contract price of P1,650.00. Three times thereafter, the conduct of their affairs.
newlyweds tried to claim the video tape of their wedding, which
they planned to show to their relatives in the United States where
they were to spend their honeymoon, and thrice they failed
because the tape was apparently not yet processed. The parties

CASE: LEGASPI OIL vs COURT OF APPEALS and OSERAOS Under Article 1170 of the Civil Code of the Philippines, those who
in the performance of their obligation are guilty of fraud,
The fact that the private respondent deliberately and negligence, or delay, and those who in any manner contravene
knowingly did not deliver the remaining balance of the the tenor thereof, are liable for damages. Pursuant to said
article, private respondent is liable for damages.
copra because they intended to profit or sell it to the
open market. That is considered as fraud therefore they
should be liable for the damages suffered by the
petitioner. Article 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an
Legaspi Oil vs. Court of Appeals and Oseraos action for future fraud is void. (1102a)
FACTS:Private respondent Bernard Oseraos, acting through his

authorized agents, had several transactions with Legaspi Oil Co.
for the sale of copra to the latter. Article 1171 talks of fraud in the performance. So the law
says it is demandable in all obligations if it arises from
One of private respondent‘s authorized agents had previous fraud.
transactions with Legaspi Oil for the sale and delivery of copra.
The price at which Legaspi sells the copra varies from time to Can there be a waiver in an action for fraud? Can you
time depending on the prevailing market price. Sometime in stipulate in the contracts that in case there is fraud, the
1975, another agent of Osetaos signed a contract in his behalf
other party waives his right in advance to proceed
for the sale of copra. At this point, the price of copra had been
fluctuating, indicating its unsteady position in the market.
against the other and he renders the party who commits
fraud free from any and all liability and cause of action
In 1976, Llover, respondent‘s agent, sugned a contract for the rising from any damages that may have been caused by
sale of 100 tons of copra with delivery terms of 20 days. As such fraud?
compared to the 1975 transaction, such price is slightly higher
than the last contract. In all these contracts though, the selling No, the law does not allow. Any waiver of an action for
price had always been stated as "total price" rather than per 100 future fraud would be void. It will defeat the very purpose
kilos. However, the parties had understood the same to be per of the obligation, it will render the obligation illusory. Why
100 kilos in their previous transactions.
would you proceed with the obligation in the first place if
After the period to deliver had lapsed, appellant (Legaspi Oil)
it would be violated? So, such waiver will necessarily
sold only 46,334 kilos of copra thus leaving a balance of 53,666 render the obligatory force of contracts illusory.
kilos. Accordingly, demands were made upon appellant to
deliver the balance with a final warning embodied in a letter The law says future fraud, do we mean that there can be
dated October 6,1976, that failure to deliver will mean an action for past fraud? Yes, because that was already
cancellation of the contract, the balance to be purchased at committed in the past. The parties already had a full
open market and the price differential to be charged against understanding and comprehension of the extent and
appellant. On consequences of the fraud and if he wants to waive that,
October 22, 1976, since there was still no compliance, appellee
he may do so. There is a different legal consequence of
exercised its option under the contract and purchased the
undelivered balance from the open market at the prevailing
past and future fraud. So, past fraud may be waived but
price of P168.00 per 100 kilos, or a price differential of P86.00 per future fraud cannot be.
100 kilos, a net loss of P46,152.76 chargeable against appellant.
Article 1172. Responsibility arising from negligence in
Subsequently, Legaspi Oil filed a complaint against Oseraos for
the performance of every kind of obligation is also
breach of contract and damages.
demandable, but such liability may be regulated by
ISSUE:WON private respondent is guilty of fraud in the the courts, according to the circumstances. (1103)
performance of his obligation in deliberately breaching the
contract. Article 1172 talks of responsibility arising from negligence.
Like fraud, it is also demandable according to Article
RULING:Yes, private respondent is guilty of fraud in the
1172. But, unlike fraud, there is a provision here, which
performance of his obligation.
says that such liability may be regulated by the courts
His obligation was to deliver 100 metric tons of copra within 20 according to certain circumstances.
days. However, within the delivery period, he failed to deliver the
complete obligation leaving a considerable balance. In negligence, liability can be mitigated or reduced. In
fraud, can it be mitigated or reduced? It cannot be. How
Petitioner made a final demand with a warning that should about waiver? Can there be a waiver of an action to
respondent fail to complete the delivery, petitioner would enforce an action for future negligence? There can be, in
purchase the balance at the open market and charge the price
certain situations. As directly provided for by law, there
differential to respondent. Still, the latter failed to fulfill his
contractual obligation.
can be no waiver for future fraud.
Under the foregoing undisputed circumstances, the actuality of The Concept of Contract of Adhesion
private respondent's fraud cannot be gainsaid. In general, fraud
may be defined as the voluntary execution of a wrongful act, or In case there is doubt as to the stipulation limiting the
a wilfull omission, knowing and intending the effects which liability for negligence, how do we resolve the doubt?
naturally and necessarily arise from such act or omission; the
fraud referred to in Article 1170 of the Civil Code of the For example, nisakay ka ug eroplano, and you will have
Philippines is the deliberate and intentional evasion of the to refer to the provision in the ticket for the liability in case
normal fulfillment of obligation; it is distinguished from negligence of negligence, but there is a doubt, dili klaro kung unsa
by the presence of deliberate intent, which is lacking in the
ang pasabot. Unsaon nato pag-resolve sa doubt? It will
latter. The conduct of private respondent clearly manifests his
deliberate fraudulent intent to evade his contractual obligation. be strictly resolved in favor of the passenger.

Remember the principle in the contract of adhesion, the Gross negligence – You cannot make a stipulation in the
parties are not in the same bargaining position, one party contract excusing liability for future gross negligence. It is
dictates the terms, the other merely has to adhere. That is already contrary to public policy, bisan unsaon ka-
why it is called a contract of adhesion because you can danghag dili gyud siya liable, that would be equivalent
just adhere to the contract or reject it. So, in this case, in to fraud. It would not be allowed.
the absence of equal bargaining power between the
parties, in stipulations limiting liability for negligence, the Simple negligence – can be excused in certain cases, or
doubt shall be construed limiting liability strictly against may be mitigated. Basic example for that is ang liability
the party who prepares the contract or who is in a better kung mawala ang baggage.
bargaining position. It should be liberally construed in
favor of the party who just accepted or adhered to the CASE: PHILAM CARE HEALTH SYSTEMS, INC vs COURT OF
contract. That is the principle in a contract of adhesion. APPEALS
So kung ikaw nag pasahero and then there is a doubt in Philam Care health Systems, Inc. vs. Court of Appeals
the contract and you suffered damages, ang doubt i-
FACTS:Ernani Trinos, deceased husband of respondent Julita
resolve nimo in favor of the passenger kay sila (the
Trinos, applied for a health care coverage with petitioner
carrier) man ang nagbuhat atong kontarata. So ilaha ng Philamcare Health Systems, Inc. In the standard application
risk kung naa’y doubt. It should be strictly construed form, he answered no to the question of whether he or any
against the party who prepared the contract. member of his family have been treated for high blodd pressure,
heart trouble, diabetes, cancer, asthma, liver disease or peptic
We also have to remember the effect of good faith or ulcer.
bad faith of the obligor in Article 1172.
The application was approved for a period of one year.
Example: Accordingly, he was issued a Health Care Agreement. Under
which, the respondent‘s husband was entitled to avail of
hospitalization benefits whether ordinary or emergency, listed
The obligor acted in good faith, what would be the
therein.
extent of his liability for damages in case of negligence?
The law says he is responsible for the natural and Upon the termination of the agreement, the same was extended
probable consequences of the breach of contract in for another year.
which the parties have foreseen or could have
reasonably foreseen at the time of the constitution of the During the period of his coverage, Ernani suffered a heart attack
obligation. So, liability niya, up to lang sa mga and was confined.
consequences na na-foresee, na nakita nila, ma-predict
While her husband was in the hospital, respondent tried to claim
or ma-expect or those which could be reasonably
the benefits under the health care agreement. However,
foreseen. petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a
But if the obligor is in bad faith, like he is guilty of fraud, concealment regarding Ernani‘s medical history. Doctors at the
bad faith, malice or wanton attitude, he shall be MMC allegedly discovered at the time of Ernani‘s confinement
responsible for all damages which may be reasonably that he was hypertensive, diabetic and asthmatic, contrary to
attributed for the nonperformance of the obligation even his answer in the application form.
if it is not foreseen. So, mas dako ilahang liability. Bisan pa
ug wala niya na-foresee na mahitabo gihapon ni, liable Respondent instituted an action for damages against petitioner.
She asked for the reimbursement of her expenses plus damages.
gihapon siya because it could be attributed to the
nonperformance of the obligation. ISSUE:WON there was concealment on the part of the
respondent‘s husband for the petitioner to avoid liability.
Example:
RULING:The fraudulent intent on the part of the insured must be
It is a contract of carriage and you were in bad faith. So, established to warrant rescission of the insurance contract.
unsa man ang consequences ana? Diba ang pasahero, Concealment as a defense for the health care provider or
ma-hospital, naa’y injuries, ma-hospital siguro, kana, ma- insurer to avoid liability is an affirmative defense and the duty to
foresee man na siya. What if pag-abot sa hospital, naa establish such defense by satisfactory and convincing evidence
diay nabilin na gunting sa iyahang tiyan? Naa baya’y rests upon the provider or insurer.
ing-ana na cases, daghan namatay na pasahero. Dili
In any case, with or without the authority to investigate,
gud unta to mamatay, pero nabilin man ang gunting. petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is
The one who caused that would be the doctor or the bound to answer the same to the extent agreed upon. In the
medical staff. They would be liable. Ang naka-bangga, end, the liability of the health care provider attaches once the
can he be held liable for that? It is not foreseen but can it member is hospitalized for the disease or injury covered by the
be attributed to the nonperformance of the obligation? agreement or whenever he avails of the covered benefits which
Kung wala nimo siya gibangga, wala unta siya sa he has prepaid.
operating room. So, it could be attributed. Dili lang ka
Being a contract of adhesion, the terms of an insurance contract
yang dili lang ma-foresee, but also those which can be
are to be construed strictly against the party which prepared the
attributed if the obligor is in bad faith. That is, pag-bad contract – the insurer. By reason of the exclusive control of the
faith. If good faith, only those which cannot be foreseen insurance company over the terms and phraseology of the
at the time of the constitution of the obligation. insurance contract, ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured, especially
Now, we go to specific obligations regarding future to avoid forfeiture.
negligence. We have gross negligence and simple
negligence.

breach because in the first place, slight diligence
Article 1173. The fault or negligence of the obligor lang ang gi-require.
consists in the omission of that diligence which is
required by the nature of the obligation and 2. Culpa levis or the ordinary kind of negligence. If
corresponds with the circumstances of the persons, of an ordinary diligence is required, when will an
the time and of the place. When negligence shows obligation be breached? It is breached also by
bad faith, the provisions of articles 1171 and 2201, ordinary negligence.
paragraph 2, shall apply.
3. Culpa levisima or slight negligence, unsa man
If the law or contract does not state the diligence ang consequence ana? If the contract provides
which is to be observed in the performance, that for grave diligence or extraordinary diligence,
which is expected of a good father of a family shall even slight negligence will breach the contract.
be required. (1104a)
So, take note of the effect:
Article 1173 defines what is fault or negligence. It is the If the contract requires only slight diligence, it is grave
omission of that diligence which is required by the nature negligence that is required to breach the contract.
of the obligation and corresponds with the circumstances
of the person, time and place which I already explained. If it requires grave diligence, even a slight negligence will
breach the contract. So, those are the kinds of
Now, what is diligence? Diligence is the opposite of negligence under Roman Law.
negligence. So, diligence is the attention and care
required of a person in a given situation.
Article 1174. Except in cases expressly specified
Under the second paragraph, the law says generally, we
by the law, or when it is otherwise declared by
have to observe the diligence of a good father of the
family. That is the kind of diligence required as a general stipulation, or when the nature of the obligation
rule. requires the assumption of risk, no person shall be
responsible for those events which could not be
Exceptions: foreseen, or which, though foreseen, were
inevitable. (1105a)
1. If the law otherwise provides; or
2. If the contract or stipulation otherwise provides. It is actually a defense for the performance of an
obligation. Generally, the existence or occurrence of a
Even if ordinarily, you are expected to observe the fortuitous event will constitute an excuse for the
diligence of a good father of the family, and the performance of an obligation. Fortuitous event, as
contract says na dapat extraordinary, you should follow defined, is the occurrence or happening which cannot
the contract. be foreseen, or even if foreseen, is inevitable.
Also, even if the contract does not specify the degree of Example, lightning, an earthquake, tsunami. Or even if
diligence required, even if the contract is silent, like in a foreseen, is inevitable. Like the typhoon; it was foreseen,
contract of carriage, the ticket would not say ―the carrier but can you stop it? No, it will happen. That is a fortuitous
will observe extraordinary diligence,‖ dili na siya makita event.
sa ticket but the law says common carriers have to
observe extraordinary diligence. That would be the Technically, there are two kinds of fortuitous event:
diligence required.
1. fortuitous event or caso fortuito - refers to an
Insofar as the diligence of a good father of the family is event that is absolutely independent of human
required, the law defines it as the abstract standard used intervention. For example, the typhoon. Even if
to correspond to a normal, dependable person, dictated you prayed for that to happen, you cannot really
by a good conscience that would seem to do good and say that it happened because God answered
avoid evil. Anyone who acts below this standard is your prayer. It is really beyond human
considered negligent. intervention. That is fortuitous event or caso
fortuito.
How do we know whether a person is negligent or not?
Again, it depends upon the nature of the obligation and 2. force majeure - it is an event caused by the
the circumstances of persons, place or time. Negligence legitimate or illegitimate acts of persons other
is not an absolute concept; it depends upon the than the obligor. So, this is an act of man while
situation. fortuitous event or caso fortuito is an act of god;
so, legitimate or illegitimate. Like for example,
We have the different degrees of negligence under war. It is an act of man but as long as it is not due
Roman Law. to the act of the obligor. For example, there are
restrictions imposed by the government; such
1. Culpa nata or grave negligence. In contracts that, you could not possibly deliver.
stipulating only for slight diligence, when will that
obligation be considered as breached? Ma- Now, when we examine the Civil Code, it does not
breach lang na siya if there is grave negligence. actually define fortuitous event separately from force
Kung slight negligence lang, dili man na siya ma- majeure. There is really, in application, no substantial
difference between the two. But when you are asked to

define strictly or technically, they have distinctions but of god but not all the requisites are present. If one
they all fall into the category of fortuitous event whether it requisite is absent, that would no longer qualify as a
is an act of man or an act of god, loosely speaking. fortuitous event. All the requisites must be present.
We are talking here of an obligation to deliver a specific If you are the creditor and if for example, the debtor is
thing or a real obligation. able to prove that all the four requisites are present, you
could still hold the debtor liable for failure to conform if
How about an obligation to do or an obligation not to the case falls under the exceptions. What are the
do? Are these covered by the concept of fortuitous exceptions? The exceptions are those events which
event? We have a separate provision for that in would render the obligor liable, even if the loss is by
obligations to do or not to do a personal obligation. That reason of a fortuitous event.
would be under a separate article.
Philippine Realty and Holding vs. Ley Construction and
This article (1174) would refer to an obligation to give a Development Corporation
specific thing. As we already discussed before, if an
obligation consists of a delivery of a generic or FACTS: Ley Construction and Development Corporation (LCDC)
was the project contractor for the construction of several
indeterminate thing, even if the thing you contemplate
buildings for Philippine Realty & Holdings Corporation (PRHC), the
on the delivery is lost by reason of a fortuitous event, your project owner. Engineer Dennis Abcede (Abcede) was the
obligation is not extinguished because you can always project construction manager of PRHC, while Joselito Santos
deliver something of the same kind and quality; genus (Santos) was its general manager and vice-president for
never perishes. So, an obligation, to be exempted from operations.
performance by reason of a fortuitous event should be
an obligation to deliver a specific thing. Sometime between April 1988 and October 1989, the two
corporations entered into four major construction projects, as
For the concept of fortuitous event to be applicable as a evidenced by four duly notarized ―construction agreements.‖
LCDC committed itself to the
defense on the part of the obligor, there are requisites
construction of the buildings needed by PRHC, which in turn
that must all concur. All of these requisites must concur, committed itself to pay the contract price agreed upon.
otherwise, the event cannot be considered as fortuitous.
RULING: Article 1174 of the Civil Code provides:
Because the case of LCDC does not fall under the
exceptions, the general rule is: No person shall be liable ―Except in cases expresslyspecified by the law, or when it is
for the nonperformance of his obligation in case of otherwise declared by stipulation orwhen the nature of the
fortuitous event. obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or
Now, there are exceptions. If the exceptions are present, which though foreseen, were inevitable.‖
even if the case is considered as force majeure or
A perusal of the construction agreements shows that the parties
fortuitous event, the debtor would still be liable. never agreed to make LCDC liable even in cases of force
majeure. Neither was the assumption of risk required. Thus, in the
Here, the SC said that the event cited, the shortage of occurrence of events that could not be foreseen, or though
cement, typhoon, power interruption, those were foreseen were inevitable, neither party should be held
fortuitous events because they actually qualified as responsible.
fortuitous event. So, there is also nothing in the contract
which states that LCDC shall be liable in all cases. Under Article 1174 of the Civil Code, to exempt the obligor from
liability for a breach of an obligation due to an ―act of God‖ or
This is a case where the obligor is excused from the forcemajeure, the following must concur:
nonperformance of his obligation on time. Remember if
(a) the cause of the breach of the obligation must be
you are the debtor and you allege fortuitous event or independent of the will of the debtor;
force majeure in your defense, you must prove that the
four requisites are present. It is necessary that you prove. (b) the event must be either unforseeable or unavoidable;
Otherwise, if any one of the requisites is not present, like (c) the event must be such as to render it impossible for the
for example, your obligation is to deliver a specific car debtor to fulfill his obligation in a normal manner; and
and you live in a place prone to flooding. So, a day
before, you learned on the news that there is a typhoon (d) thedebtor must be free from any participation in, or
coming and there would be heavy rains. Knowing that aggravation of theinjury to the creditor.
your place is prone to flooding, due diligence would
The shortage in supplies and cement may be characterized as
have dictated that you should transfer the car to a safer
force Majeure.
place, but you did not. You just left it in your garage
thinking it‘s not going to be your car anymore after In the present case, hardware stores did not have enough
having sold it to X. The typhoon came and there was cement available in their supplies or stocks at the time of the
flood so your car was destroyed by reason of the construction in the 1990s. Likewise, typhoons, power failures and
typhoon and the flood. Thus, it was rendered useless. interruptions ofwater supply all clearly fall under force majeure.
Since LCDC could not possibly continue constructing the
Now, is the typhoon an act of god? Is it inevitable? Yes, building under the circumstances prevailing, it cannot be held
but is the breach without any participation in or liable for any delay that resulted from the causes
aforementioned.
aggravation in of the injury by the debtor? No, the
debtor actually participated; he aggravated especially
when he did not transfer the car. So, there was really no
participation on the part of the debtor in the destruction
of the thing, which is to be delivered. It is actually an act

Exceptions (debtor is still liable even if the loss is by such event will occur even if beyond control. By
reason of a fortuitous event): engaging in that kind of business, you assume the risk. Of
course, you cannot put the risk on the owners of the
1. When it is expressly provided by law. houses as it was not there fault that you passed by the
vicinity. It should be the one who engaged in that kind of
It means that even if the loss was by reason of a fortuitous business or undertaking who should bear the loss.
event, the debtor would still be liable because the law so
provides. What are those cases? CASE: YOBIDO vs COURT OF APPEALS
For example, when the obligor is in delay. So even if it was The Supreme Court said that if due to a factory defect,
beyond his control but he was already in default, there improper mounting, excessive tire pressure, that would
was already a prior demand and he did not perform, he not be considered as a fortuitous event because it would
will still be liable. That is under Article 1165. not be an unavoidable event. It could have been
prevented by the exercise of due diligence.
Also, under Article 1165, when the obligor has promised
the same thing to two more persons who do not have the The SC said here that there may have been adverse
same interest. Meaning, the debtor was already in bad conditions in the road that were enforceable which
faith even before the loss of the thing by reason of a could make the blowout caso fortuito.
fortuitous event. Even if the thing was not lost by reason of
a fortuitous event, he would still be unable to deliver For example, you did not know. Halimbawa, nag-travel
because he already committed the very same thing to pa ka from Davao to Tagum and then naa ka sa Panabo
two persons. and didto sa may Carmen, naa’y mga nag-strike na
nagbutang ug bildo sa dalan and nagkataon pud na
Under Article 552 of the New Civil Code, when the ikaw lang ang niagi didto. Niagi ka didto without knowing
possessor is in bad faith and the thing is lost or the possible tire blow-out.Can you be held liable for that?
deteriorated due to a fortuitous event, essentially it is the
same with Article 1165. In this case, no. Even if it is not an act of god but it is an
act of man which is beyond the control of the debtor
2. When it is otherwise declared by stipulation. and without his participation and aggravation. For
example, sa terminal pa lang sa Davao, gi-warningan na
If the parties agree in the contract, like for example, in ka na mag-travel pa gani ka ug padayon, naa’y
the case of LCDC, had it agreed in the contract that it mahitabo sa dalan. And then you proceeded, it was not
will still finish within 300 days, for example, notwithstanding unforeseeable. You foresaw that, you were warned of
any shortage of cement, typhoon or power interruption, not proceeding with the transportation or the travel. For
then it would be liable. example, you traveled and your tires were hit by a
lightning, siyempre, it is really beyond your control.
It is not against public policy to stipulate that a person
would still be liable even if by reason of a fortuitous event, Because what is being filed here is culpa contractual,
if it is agreed upon. It can be validly agreed upon. there is already a presumption here against the bus
company that it was negligent. The passengers did not
3. When the nature of the obligation requires the really have to prove the cause of the tire blow-out or that
Assumption of Risk. the transportation company was negligent because
negligence is presumed.
This is actually lifted from the Mexican Code; the Doctrine
of Created Risk, which provides that when a person On the other hand, the burden of proving that it was not
makes use of machinery, instruments, apparatus, or negligent fell upon the owner of the transportation
substances, which are dangerous in themselves by company. So, it failed to discharge the burden of proof.
reason of their speed, of their explosive or inflammable Even the defense that it exercised due diligence in the
nature, of the electric power they carry, or of other selection of employees is not available. It should really
analogous causes, he is bound to indemnify for the prove that the cause was a fortuitous event. But then
injuries they may cause even if he does not act unlawfully again, the cause was not identified. Hence, the
unless the injury is caused by the inexcusable fault or presumption would stand. Take note of the case of
neglect of the victim. Yobido.
The classic example here is a train or a vehicle that carry Yobido vs. Court of Appeals
dynamites or explosives. So, there is really a high danger
that such explosives would explode. So, halimbawa FACTS:In 1988, spouses Tumboy and their minor children boarded
habang naga-travel siya, nag-explode siya. Therefore, a Yobido Liner bus bound for Davao City. The left front tire of the
houses nearby were also affected. They were damaged, bus exploded. The incident resulted in the death of Tito Tumboy
destroyed, razed by the fire. and physical injuries to other passengers.
Leny and her children filed a complaint for breach of contract of

Can the owners of these houses hold the owner of the
carriage against Alberta Yobido, the owner of the bus and
train or vehicle liable for the damages? Can the owner of Crescensio Yobido, the bus driver. As an answer to the
the thing allege that it was a fortuitous event and it complaint, they raised the defense of caso fortuito or fortuitous
cannot even be foreseen, it was an act of god and event.
cannot be controlled. Can that be alleged as a
defense? Tumboy asserted that the accident was brought about by the
driver‘s failure to excersie the diligence required of the carrier in
No, because by the very nature of his obligation, this is transporting passengers safely to their destination. According to
really inherent in the transaction. So, you cannot be her, the bus left Mangagoy at 3:00 o‘clock in the afternoon. The
winding road it traversed was not cemented and was wet due
excused by invoking fortuitous event. It is expected that

to the rain; it was rough with crushed rocks. The bus which was LPG tank. So, that could be considered as a fortuitous
full of passengers had cargoes on top. Since it was ―running event. Even if it is an act of man, it is not the act of the
fast,‖ she cautioned the driver to slow down but he merely obligor. So, again, with respect to fire, it also depends on
stared at her through the mirror. At around 3:30 p.m., in Trento,
what caused the fire.
she heard something explode and immediately, the bus fell into
a ravine.
What if negligence concurred with a fortuitous event? I a
For their part, the defendants tried to establish that the accident case decided by the Supreme Court, there was an
was due to a fortuitous event. Abundio Salce, who was the bus information from PAG-ASA that there would be a
conductor when the incident happened, testified that the 42- typhoon. So, signal no. 1, no. 2, no.3 na. He was informed
seater bus was not full as there were only 32 passengers. He that in the route that he was going to take, it was
affirmed that the left front tire that exploded was a ―brand new already signal no.3 but still, he proceeded with the
tire‖ that he mounted on the bus on April 21, 1988 or only five (5) voyage, thinking that his vessel would be strong enough
days before the incident. to withstand the typhoon. So it proceeded. But again, on
the way, because of the force of nature, the vessel sank
ISSUE: WON the tire blow-out was a caso fortuito to exempt and many of the passengers perished. So, would the
Yobido from liability. owner of the vessel be held liable for the deaths and
damages caused by that typhoon or the sinking of the
RULING: No, the tire blow-out was not a caso fortuito. vessel. Can the owner allege as a defense that the
sinking of the vessel was caused by an act of god? The
A fortuitous event is possessed of the following characteristics: sinking of the vessel was caused by the typhoon over
(a) the cause of the unforeseen and unexpected occurrence, or which the owner of the vessel had no control. Could he
the failure of the debtor to comply with his obligations, must be
allege that as a defense? No, because he was already
independent of human will; (b) it must be impossible to foresee
the event which constitutes the caso fortuito, or if it can be forewarned of the impending typhoon. Due diligence,
foreseen, it must be impossible to avoid; (c) the occurrence must again, would have cautioned the owner of the vessel not
be such as to render it impossible for the debtor to fulfill his to proceed with its voyage. Despite that, it was really
obligation in a normal manner; and (d) the obligor must be free negligent for the owner of the vessel to still proceed and
from any participation in the aggravation of the injury resulting to test the strength of the typhoon against its vessel and risk
the creditor. the lives of his passengers. In that case, the proximate
cause of the loss was the negligence because the
As Article 1174 provides, no person shall be responsible for a
typhoon would always be there, you could not stop it but
fortuitous event which could not be foreseen, or which, though
foreseen, was inevitable. In other words, there must be an entire you could have stopped going to the place where the
exclusion of human agency from the cause of injury or loss. typhoon was. It was really the negligence of the owner of
the vessel which was the proximate cause of the loss. You
Under the circumstances of this case, the explosion of the new cannot invoke force majeure. If the fortuitous event was
tire may not be considered a fortuitous event. There are human the proximate cause and not the fortuitous event, the
factors involved in the situation. The fact that the tire was new obligation would be extinguished. Even if you did not act
did not imply that it was entirely free from manufacturing defects with negligence, even if you acted diligently, but
or that it was properly mounted on the vehicle. Neither may the
because of the strength of the typhoon, you will still
fact that the tire bought and used in the vehicle is of a brand
name noted for quality, resulting in the conclusion that it could sustain damages, ang imong diligence is immaterial,
not explode within five days‘ use. Be that as it may, it is settled negligent ka or dili, mahitabo gihapon to and ing-ato
that an accident caused either by defects in the automobile or gihapon ang damage na ma-sustain. So in that case, the
through the negligence of its driver is not a caso fortuito that proximate cause of the loss would be the fortuitous event.
would exempt the carrier from liability for damages. SO, the obligation of the debtor would be extinguished.
Take note, the law says participation or aggravation.
Moreover, a common carrier may not be absolved from liability Meaning, it will really contribute to the loss. If your
in case of force majeure or fortuitous event alone. The common
negligence would not contribute to the loss and the thing
carrier must still prove that it was not negligent in causing the
death or injury resulting from an accident.
is lost by reason of a fortuitous event, you will not be held
liable.
Real vs. Belo

CASE: REAL vs BELO
Facts: Petitioner owned and operated the Wasabe Fastfood stall
located at the food center of Philippine Women‘s University
What is the responsibility of the employer insofar as the (PWU). Belo (respondent) owned and operated the BS Masters
employees are concerned? He failed to do that and fastfood stall, also located at the Food Center of PWU.
they did not prove that the LPG tank was mounted In January 1995, a fire broke out at petitioner's Wasabe Fastfood
properly and checked for defects. So, in that particular stall. The fire spread and gutted other fastfood stalls in the area,
case, the consequence would be that particular including respondent's stall. An investigation on the cause of the
management shall be made liable. In this case, the fire revealed that the fire broke out due to the leaking fumes
action was for culpa aquiliana. In the culpa aquiliana coming from the Liquefied Petroleum Gas (LPG) stove and tank
installed at petitioner's stall. For the loss of his fastfood stall due to
case, t would be a defense on the part of the employer
the fire, respondent demanded compensation from petitioner.
that he exercised due diligence in the selection and
supervision of his employees but, he failed to prove that. Respondent alleged that petitioner failed to exercise due
Aside from that the liability of the employer would be diligence in the upkeep and maintenance of her cooking
solidary with the employees. So, anyone there can be equipments, as well as the selection and supervision of her
held liable; that would be in culpa aquiliana. employees; that petitioner's negligence was the proximate
cause of the fire that gutted the fastfood stalls.
Halimbawa lang, naigo ug lightning or naa’y
nagpinusilay sa mall, naigo ug bala imong LPG tank, due Issue: WON the fire was a fortuitous event.
diligence does not require you na i-bullet proof imong
RULING: Jurisprudence defines the elements of a "fortuitous

event" asfollows: retaining Php3,000 as advance interest for one month as 6% per
(a) the cause of the unforeseen and unexpected month.
occurrence must be independent of human will;
Servado and Leticia executed a promissory note for P50,000.00,
(b) it must be impossible to foresee the event which to evidence the loan, payable on January 7, 1986.
constitutes the caso fortuito, or if it can be foreseen, it must Franco and Medel obtained two other loans on separate
be impossible to avoid; occasions. Like the previous loans, Franco and Medel failed to
pay the third loan on maturity.
(c) the occurrence must be such as to render it impossible
for the debtor to fulfill his obligation in a normal manner; In 1986, Franco and Medel, with the latter‘s husband,
and consolidated all their previous unpaid loans totaling Php440, 000
and sought from Gonzales another loan bringing their
(d) the obligor must be free from any participation in the indebtedness to Php500, 000. They executed a promissory note.
aggravation of the injury resulting to the creditor. On maturity of the loan, the borrowers failed to pay the
indebtednessofP500,000.00, plus interests and penalties,
Article 1174 of the Civil Code provides that no person shall be evidenced by the above-quoted promissory note.
responsible for a fortuitous event which could not be foreseen, or
which, though foreseen, was inevitable. In other words, there In 1990, Gonzales filed a complaint for the collection of the full
must be an entire exclusion of human agency from the cause of amount of the loan including interests and other charges.
injury or loss.
ISSUE:WON the stipulated interest rate of 5.5% per month is
It is established by evidence that the fire originated from leaking usurious.
fumes from the LPG stove and tank installed at petitioner's (Also: is the Usury Law still effective, or has it been repealed by
fastfood stall and her employees failed to prevent the fire from Central Bank Circular No. 905, adopted on December 22, 1982,
spreading and destroying the other fastfood stalls, including pursuant to its powers under P.D. No. 116, as amended by P.D.
respondent's fastfood stall. Such circumstances do not support No. 1684?)
petitioner's theory of fortuitous event.
RULING:The stipulated rate of interest at 5.5% per month is
excessive, iniquitous, unconscionable and exorbitant. However,
Article 1175. Usurious transactions shall be governed the rate cannot be considered usurious because it has been
by special laws. (n) consistently held by the SC that Circular No. 905 of the Central
Bank, adopted on December 22, 1982, has expressly removed
the interest ceilings prescribed by the Usury Law and that the
Usury Law is now "legally inexistent".
Contracting for, or receiving something in excess of the
amount provided by law for the loan or forbearance of
money, goods or chattels; that is usury. You impose an In the case of Corazon Ruiz vs. Court of Appeals, the
amount higher than what the law allows. That would be interest rate stipulated here was 10% compounded
considered usurious. monthly. So mas dako siya kaysa sa Medel. Obviously,
excessive gyud siya and compounded monthly pa gyud.
Do you know what is compounded monthly? The interest
CASE: MEDEL vs COURT OF APPEALS for this month, for example, January, if unpaid, would be
added to the principal so that in February,for example,
Only a law can repeal a law. Thus, the Usury Law was not
ang principal is 10, 000, by February, ang principal na is
repealed by the Central Bank circular. It only suspended
10, 100. So, you compute the interest based on 10, 100.
the effectivity of the usury law. So magkadako ang interest.The Supreme Court said,
reiterating the case of Medel, that this is already
We are saying that the interest of 5.5% per month is
excessive and unconscionable.
excessive, exorbitant, shocking, iniquitous,
unconscionable. Therefore, are we saying that the
SaMedel lang gani, 5.5% per month, how much more in
interest is now deleted? this case, 10% per month, compounded monthly pa
gyud.
Even if the Usury Law had already been suspended and
technically, we could say that the parties can stipulate Also, in the case of Investment and Development
any rate of interest, there are several cases decided by Corporation.Actually, based on the cases decided by the
the Supreme Court, one of which was the case of Medel, Supreme Court, the only interest rate which is beyond
and several other cases that if the interest would be
12% per annum that was not considered unconscionable
excessive, iniquitous, unconscionable, shocking to the
by the Supreme Court was the 2% interest per month
morals and conscience, the Court has the authority to
because that particular case was decided in a very short
reduce the interest rates. Even if technically, we no
period of time.
longer have the ceilings, it (the interest rate) can still be
reduced by the Supreme Court on the ground that it is There was also a case that even if the interest was 2% per
shocking, etc. and the Court would apply the legal month, the Supreme Court considered it iniquitous
interest. What is the legal interest? It is 12% per annum or because the case took how many years to conclude
1% per month. That interest is for forbearance of money, and by that time, the principal had already been
goods or chattels. In other cases, the interest rate would multiplied 4 times because of the interest. 25, basta dili
be 6% per annum. lang pud compounded. Kung compounded, as decided
in a case, the Supreme Court said it was iniquitous or
Medel vs. Court of Appeals
unconscionable.
FACTS:In 1985, Servando Franco and Letecia Medel obtained a
loan from Veronica Gonzales who was engaged in the money But, of course, even if the Supreme Court would say that
lending service in the amount of Php50, 000 payable in two the interest stipulated was unconscionable, the Court has
months. Gonzales gave only Php47, 000 to the borrowers,

no authority to delete the interest because it is stipulated like for example, the debt was to start in January and end
by the parties and it is valid to stipulate a rate of interest. in December 2012, you were issued a receipt like for
example, July. Gibutang didto na ―July installment,
Of course, it would be understandable for the creditor to PhP10, 000.‖
impose interest because he will be deprived of the use of
the money for a long period of time. So, in the meantime, What is now the consequence of that issuance by the
the value of the money would fluctuate and that would creditor? It gives rise to the presumption that the
answer for the value of the money since in the meantime, installments due for January, February, March, April, May
he would be deprived of the possession of the money. had already been paid. It is because when you pay, you
normally would apply your payment to the first installment
So that is a valid stipulation. But, to delete the interest due. So that is the presumption.
would be to make a new contract for the parties which is
not within the authority of the courts. The courts though
have the authority to reduce only the interest. You would
Article 1178. Subject to the laws, all rights acquired
still be held to pay for the interest of 12% per annum.
in virtue of an obligation are transmissible, if there
has been no stipulation to the contrary. (1112)
Article 1176. The receipt of the principal by the creditor
without reservation with respect to the interest, shall The general rule is, all rights acquired by virtue of an
give rise to the presumption that said interest has been obligation are transmissible. Except as provided for by
paid. law or if there has been a stipulation to the contrary or if
the rights are purely personal, in these cases, there will be
The receipt of a later installment of a debt without no transmission of rights even if the rights are acquired as
reservation as to prior installments, shall likewise raise a result of an obligation.
the presumption that such installments have been
paid. (1110a) Example:
In a Contract of Lease, we have the lessee and the lessor.

What are the rights and obligations entailed in that
Take note that this article is composed of two parts. The contract? The lessor has the rights to collect rental, and
first is receipt of principal without reservation with respect he also have the obligation to allow the lessee to remain
to the interest. It presupposes that the interest has been in the premises. So, peaceful occupation; that is his
paid. obligation. On the part of the lessee, the obligation is to
pay rentals. The rights of the lessee is to remain in
Example: peaceful possession of the premises. So, baliktad sila. Ang
right sa isa, obligation sa isa.
Your debt is 10, 000 bearing an interest of 1% per month,
PhP100 per month. If you issued a receipt for Php10, 000, What happens if the lessor dies? Can the heirs of the
what is the presumption? General rule, can the creditor lessor demand from the lessee to vacate the premises?
say, “Kulangan pa ka ug 100 ha, 10, 000 lang sa akong May the heirs of the lessor say ―Yes, you had a lease
gi-resibo.” The presumption is, the receipt was for 10, 000 contract but that was with my parents.Ako lahi ko, I am
because the Php100 interest was already paid. not bound by that obligation.‖? No. The heirs of the lessor
have to observe the obligation which is to allow the
Why do we have that presumption? This is related to
lessee to remain in the premises,
Article 253 of the New Civil Code. If the debt produces
interest, payment of the principal shall not be deemed to Generally, all rights acquired in virtue of an obligation are
have been made until the interest shall have been transmissible except when provided for by law that the
recovered. right is not transmissible.
So, take note, when you pay the creditor, the application For example, the right arising out of a Contract of
of the payment, for example, what you paid is not for the Usufruct. In Contract of Usufruct, the person has the right
full amount, the principal is PhP10, 000, the interest is PhP to use the property subject of the Usufruct. Like the right
100 and you only have PhP 10, 000, the application of to harvest the fruits, but under the law, unless otherwise
payment would be first to the interest, and then to the provided, the death of the other party to the usufruct
principal. extinguish the usufruct. So, there will be no transmission.
That‘s one example.
In that case, kung PhP 10, 000 lang imonggibayad, ang
PhP 100 adto, gi-apply sa interest then ang PhP 9,900, gi- Or unless otherwise stipulated, Let‘s go back to the
apply sa principal. So, naa pa ka’y PhP 100 na kulang sa Contract of Lease. If in the Contract of Lease, the lessor
principal. But if you issued a receipt for Php 10, 000, it was and the lessee have an agreement that this contract will
for the payment of the principal, there is now the end upon the death of either the lessor or the lessee. In
presumption that the interest was already paid. that case, when the lessor dies, the contract will be
extinguished. There is no more right or obligation that is
The second paragraph, the receipt of a later installment
being passed on to the successors or the heirs. So, that is
of a debt without reservation as to prior installments, shall
another example. Again, general rule, all rights acquired
likewise raise the presumption that such installments have
in virtue of an obligation are transmissible.
been paid.
Another example, in a Contract of Marriage, the
So, your obligation to pay installments of PhP 10, 000
husband and wife enter into a contract, right? When the
every month, if you pay and you were issued a receipt,

wife dies, can the husband demand that the sister of the How about the phrase which says, ―upon a past event
wife assume her obligations? No, because the rights unknown to both parties‖? Where is the futurity when we
entailed in marriage are purely personal; that is not are talking of a past event? Di ba, ang elements sa
transmissible. If the sister would want to assume the condition, futurity and uncertainty. The futurity here refers
obligation, that‘s another story; that is not because of the to the future knowledge of a past event.
transmission.
Example:
B was in a plane and the plane crashed. Nobody knows

Article 1179. Every obligation whose performance yet whether B survived in that plane crash. A promised to
does not depend upon a future or uncertain event, deliver to X his land if B survived the crash or if B died in
or upon a past event unknown to the parties, is the plance crash.As of now, wala pa ta kabalo
demandable at once. kungnabuhi ba siya o namatay. So in the future, kung
mahibal-an gyud kung nabuhi or namatay siya, then the
Every obligation which contains a resolutory obligation will arise. A will deliver to X his parcel of land if
condition shall also be demandable, without B died in the plane crash. If B died in the plane crash,
prejudice to the effects of the happening of the even if the death happened before, pero future pa siya
event. (1113) mahibal-an, so it is a past event unknown to the parties.
Again, the futurity here refers to the future knowledge of
that past event. Essentially, that is the meaning of a
condition.
First, we have pure obligations and conditional
obligations.
We mentioned about suspensive condition, we also have
a resolutory condition. What is a resolutory condition? It is
A pure obligation is defined in the first paragraph of
a condition, the happening or fulfillment of which, will
Article 1179. ―Every obligation whose performance does
extinguish an obligation. So kabaliktaran ni. Suspensive,
not depend upon a future or uncertain event or upon a
when that happens, the obligation arises, resolutory,
past event unknown to both parties. ― When you say pure
when that happens, the obligation is extinguished. So,
and simple, that is an obligation which is demandable at
that is the second paragraph which talks about a
once.
resolutory condition.
For example, A promised to deliver to B his car. That
If the obligation is subject to a resolutory condition, the
obligation is demandable at once. He can already or
obligation is not demandable at once because we have
immediately compel the obligor to perform. It is not
to wait first for the fulfillment of the condition. But, if the
subject to any condition or any term, it is pure and simple.
obligation is subject to a resolutory condition, it is
The second paragraph, which is actually a part of the first demandable at once.
paragraph mentions about conditional obligations. What
Example:
are the different kinds of conditional obligations?
Conditions may be suspensive, resolutory, potestative,
A will give to X his land until X is separated from his wife.
casual or mixed.
So, what kind of condition is the separation from the wife?
A will give to X his (A‘s) land, until X is separated from his
When you say conditional-suspensive, that is the kind of
wife. So when will A give to X his land? Upon separation
an obligation where the fulfillment depends upon the
or now? Now, but, when X is separated from his wife,
happening of the condition. Until the condition is fulfilled,
what will happen to the land? It will be returned to A. Is
until the event happens, the obligor has no obligation yet
separation from the wife a condition? Is it future? Yes. Is it
to perform.
certain? No, it may or may not happen. That is why it is a
For example, A will deliver to B his car if B will pass the bar condition. It is a resolutory condition because it is used in
exam. Is passing the bar exam a condition? Yes, because such a manner that if it will happen, it will extinguish an
the happening of that will give rise to the obligation. But, obligation.
if B will not pass the bar, is A obligated to deliver the car?
Let‘s go to potestative conditions. A potestative condition
What if B graduated Summa Cum Laude and he is really
is dependent upon the will of either party. It is not correct
intelligent and in all probability, he will really pass the bar
to say that a potestative condition is dependent upon
exam, can B say ―Sure na man na A, ihatag na lang na
the sole will of the debtor. A potestative condition is
sa akoa ang car, it’s just a matter of me taking the bar
dependent upon the will of either the debtor or the
exam.”? Can B force A to deliver? No, the obligation is
creditor.
subject to a condition and until the condition is fulfilled,
there is no obligation to perform yet. So there has to be
We will discuss later on the consequences and nuances
fulfillment of the condition before you can compel the
of a potestative condition. Next, casual conditions. A
debtor to deliver or perform. That is a suspensive
casual condition is one which is dependent upon
condition, the happening of which will give rise to the
chance. For example, ―if it rains‖, so it is beyond the
obligation.
control of either party.
Generally, what is a condition? It is also mentioned in
Lastly, Mixed conditions. A mixed condition is a condition
Article 1179. It is a future or uncertain event or a past
which is dependent partly on the will of either party and
event unknown to both parties. When you say condition,
partly on chance. These are the kinds of conditions.
it hasthe element of futurity, meaning it will happen in the
future, AND uncertainty, meaning, we are not sure Aside from a pure and simple obligation and an
whether it will happen or not. It may or may not happen. obligation subject to a condition, we also have an

obligation which is subject to a term or period. When it is Article 1181. In conditional obligations, the acquisition
a term or period, it is sure to happen although it may not of rights, as well as the extinguishment or loss of those
be known when. already acquired, shall depend upon the happening
of the event which constitutes the condition. (1114)
When you say term, it is future and certain as opposed to
condition which is uncertain. A term is certain. Therefore,
it will really happen. Again, Article 1181 talks of conditional obligations.
Example: Actually, it talks of two kinds of conditional obligations: a

suspensive and resolutory. When we say the acquisition of
A will pay B P5M on January 1, 2013. That is an obligation rights will depend upon the happening of the event, that
subject to a term. It will arrive. Unless the world would is the suspensive condition.
end. But, in the normal and natural course of things, it will
arrive. That day will arrive. Thus, it is an obligation subject When we say the extinguishment or loss of those already
to a term or period. acquired shall depend upon the happening of the event
that is a resolutory condition.
A will pay B upon the death of X. Is that an obligation
subject to a condition or a term? The death of X is a term. CASE: CHUA vs VALDES-CHOY
Why? Because it will happen. Who is sure na dili siya
mamatay? Wala’y sure.So it is a period or a term, it will The full payment of the purchase price is the suspensive
happen but it may not be known when. condition. If the condition is not fulfilled, there is no
obligation on the part of the vendor to transfer ownership
If the obligation is A will pay X P1M if B dies in 2012. Is that and go through with the sale.
obligation subject to a term or a condition? It is a
condition. Why? Because although a person may die, it is CHUA vs VALDES-CHOY
not certain if he will die by 2012.
FACTS:Valdes-Choy advertised for sale her paraphernal house
and lot. The Property is covered by a TCT issued by the Register
of Deeds of Makati City in the name of Valdes-Choy. Chua
Article 1180. When the debtor binds himself to pay responded to the advertisement. After several meetings, Chua
when his means permit him to do so, the obligation and Valdes-Choy agreed on a purchase price o P10,800,000.00
shall be deemed to be one with a period, subject to to be paid on July 15, 1989. On June 30, 1989, Valdes-Choy
received from Chua a check for P100, 000 as earnest money for
the provisions of article 1197. (n)
the sale of the said property. The receipt evidencing such
payment stated that failure to pay the balance on the date
stipulated forfeits the money paid.
If A says, ―I will pay you, X, if my means will permit me to
do so.‖ What is this obligation, conditional or one with a On July 13, Valdes-Choy executed two Deeds of Absolute Sale
for the house and lot and for the movable properties therein.
period? The law says it is one with a period. You cannot
Chua required that the Property be registered first in his name
say that it is subject to the pure discretion of the debtor. It before he would turn over the check representing the balance
is not one which is potestative; it is one with a period. of the purchase price to Valdes-Choy. This angered Valdes-Choy
who tore up the Deeds of Sale, claiming that what Chua
So what is the consequence if you say that it is with a required was not part of their agreement.
period? The debtor really has the obligation to pay
because when you say it is conditional, the debtor‘s On 17 July 1989, Chua filed a complaint for specific
obligation may or may not arise. So, pwede pa na dili performance against Valdes-Choy.
diay siya mobayad. It is with a period, meaning, he
ISSUE: a) Whether the transaction between is a perfected
should really pay.
contract of sale or a mere contract to sell;
Because it says, ―when my means permit me to do so,‖ b) Whether Chua can compel Valdes-Choy to cause the
how do we know when the debtor has now the means to issuance of a new TCT in Chua's name even before payment of
pay? In that case, the court will fix the period. That the full purchase price.
obligation is with a period. It is the same as saying ―When
I can already afford it,‖ or ―When I have the money.‖ Of RULING:The agreement between Chua and Valdes-Choy, as
course here, there is already a commitment to pay. evidenced by the receipt, is a contract to sell and not a
Although, as to the time element, it is not yet certain contract of sale.
when. But, there is the certainty of payment.
A perusal of the receipt shows that the true agreement between
the parties was a contract to sell. Ownership over the Property
The same with death, there is the certainty of dying, was retained by Valdes-Choy and was not to pass to Chua until
although it may not be known when. So here, before you full payment of the purchase price.
can demand the payment form the debtor if you are the
creditor, your remedy is to ask the court to fix the period. Since the agreement between Valdes-Choy and Chua is a mere
You cannot just say ―I‘m demanding you to pay the P1M contract to sell, the full payment of the purchase price partakes
now,‖ because the obligation is with a term. You have to of a suspensive condition. The non-fulfillment of the condition
fix the period first but it has to be done by the court. That prevents the obligation to sell from arising and ownership is
retained by the seller without further remedies by the buyer.
is under Article 1180.
Chua acquired no right to compel Valdes-Choy to transfer
ownership of the Property to him because the suspensive
condition - the full payment of the purchase price - did not
happen. There is no correlative obligation on the part of Valdes-
Choy to transfer ownership of the Property to Chua.

Contract to Sell vs. Contract of Sale Article 1182. When the fulfillment of the condition
depends upon the sole will of the debtor, the
In a contract of sale, the title to the property passes to the conditional obligation shall be void. If it depends
vendeeupon the delivery of the thing sold; in a contract upon chance or upon the will of a third person, the
to sell, ownershipis, by agreement, reserved in the vendor obligation shall take effect in conformity with the
and is not to pass to thevendee until full payment of the provisions of this Code. (1115)
purchase price.
Article 1182 mentions of a potestative condition, casual
Otherwise stated, in a contract of sale, the vendor loses condition, and mixed condition.
ownership over the property and cannot recover it until
and unless the contract isresolved or rescinded; whereas, Again, as we mentioned, a potestative condition
in a contract to sell, title isretained by the vendor until full depends upon the will of either party in an agreement or
payment of the price. In the lattercontract, payment of obligation. If the condition is potestative on the part of
the price is a positive suspensive condition,failure of the debtor, and it is also suspensive, Article 1182 says it
which is not a breach but an event that prevents shall be void. When the fulfillment of the condition
theobligation of the vendor to convey title from depends upon the sole will of the obligation, the
becoming effective. condition shall be void.
Example: Here, it is suspensive because the fulfillment of which is

supposed to give rise to the obligation. It is potestative
You are buying a car and you would like to think about it because it is dependent upon the will of the debtor.
for say, a couple of weeks. You are really interested and
you want to have the right to purchase the car once you Example:
have decided. So, you go to Toyota and pay P20, 000.
For that amount, you have the right within two weeks to I will pay you if I feel like paying you. So, that depends
purchase the car. But, if you decide not to go with the merely upon the will of the debtor. Why is this void?
purchase, the money will be forfeited. Because it will make the obligation illusory. As the debtor,
the natural disposition of human beings, is to really
Usually, that is the option money. Meaning, it give you the escape an obligation. Bisan kinsa man siguro dili gusto na
option to buy but not the obligation to buy. Option is a naa’y obligation. So, as much as possible, kung ikaw nag
buying privilege conferred upon you to exercise a right magbuot, dili ka gusto na naa kay utang. So kung imong
within a given period. Earnest money has the same utang mag-arise, ang imong pagbayad depende lang
concept although earnest money can be considered sa imong gusto. Naturally, a debtor would not want an
part of the purchase price once you decide to buy as obligation. Chances are, the debtor will not fulfill the
opposed to option money which is different from the obligation and consequently, the obligation will not arise.
purchase price.
Take note, the law says the conditional obligation shall be
Under the law, option money does not signify a void. Meaning, it is not just the condition that is void but
perfected contract of sale. An option contract is different also the obligation because it becomes illusory.
form a contract of sale. But, earnest money is an
indication that there is already a perfected contract of What about when it is potestative on the part of the
sale. In this case, there was mention of an earnest money. debtor but resolutory? Meaning, the fulfillment of the
condition will extinguish the obligation. Example, I will pay
Is it indicative of the fact that there was really a contract you 1M until I decide to discontinue paying. This is valid
of sale and not just a contract to sell. As mentioned in this because the obligation here already arises; it is
case, if the sale is not consummated, what will happen to demandable at once but it is just the extinguishment of
the earnest money? It will be forfeited, based on the the obligation which will depend upon the will of the
nature of the transaction, even if the party called the debtor. And of course, the condition will really be fulfilled.
payment an ―earnest money‖, in reality, it was more of Because, as the debtor, you would like to end the
an option money because it will be forfeited. If it were an obligation. This will not render the obligation illusory.
earnest money, it will form part of the price of the sale
and if the sale is not consummated, the vendor has to What if it is potestative on the part of the creditor whether
return the money, meaning, mutual restitution. it is suspensive or resolutory? Either suspensive or
resolutory, if it is potestative on the part of the creditor,
Just remember that whatever the parties may term the the obligation is valid. So, isa lang ang void: potestative
money here, what will really govern is the nature of the suspensive on the part of the debtor.
agreement of the parties. Even if they called this an
earnest money, it was not really the earnest money Please remember that because a lot of students commit
contemplated by law. So, the mere fact that this was the mistake of thinking that once it is potestative, it is
called earnest money should not lead to the conclusion automatically void. Only when the condition is
that it was a Contract of Sale. This was just merely a potestative and suspensive on the part of debtor that it is
Contract to Sell. So, take note of the meaning of a void; all others are valid.
Contract to Sell.
If it depends upon chance or upon the will of the third
person, that is what we call casual condition. Say, I will
deliver a car to you if it will rain tomorrow. So that is
dependent upon chance; it is beyond the control of
either party. It is valid.

Also, ―upon the will of a third person.‖ For example, I will This contention is likewise untenable. The Code prohibits purely
give you P1M if X will agree to marry you. It is a mixed potestative, suspensive, conditional obligations that depend on
condition, X agreeing to marry B. How about passing the the whims of the debtor, because such obligations are usually
not meant to be fulfilled.Indeed, to allow the fulfillment of
bar exam? As we discussed before, B passing the bar is a
conditions to depend exclusively on the debtor‘s will would be to
condition, what kind of condition? It is also mixed. sanction illusory obligations.The Kasulatan does not allow such
thing. First, nowhere is it stated in the Deed that payment of the
DEL CASTILLO VDA. DE MISTICA vs SPOUSES NAGUIAT purchase price is dependent upon whether respondents want to
pay it or not. Second, the fact that they already made partial
FACTS:Eulalio Mistica is the owner of a parcel of land. A portion payment thereof only shows that the parties intended to be
thereof was leased to respondent Bernardino Naguiat sometime bound by the Kasulatan.
in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with

respondent Bernardino Naguiat over a portion of the
aforementioned lot. The parties entered into a Kasulatan that Article 1183. Impossible conditions, those contrary
the balance of the purchase price shall be paid within ten years.
to good customs or public policy and those
Pursuant to said agreement, respondent gave a downpayment
prohibited by law shall annul the obligation which
of P2,000.00. He made another partial payment of P1,000.00 on depends upon them. If the obligation is divisible,
February 7, 1980. He failed to make any payments thereafter. that part thereof which is not affected by the
Eulalio Mistica died sometime in October 1986. impossible or unlawful condition shall be valid.
Petitioner filed a complaint for rescission alleging that the failure

The condition not to do an impossible thing shall be
and refusal of respondents to pay the balance of the purchase
price constitutes a violation of the contract which entitles her to considered as not having been agreed upon.
rescind the same. (1116a)
Petitioner claims that she is entitled to rescind the Contract

under Article 1191 of the Civil Code, because respondents
committed a substantial breach when they did not pay the We also have an impossible or illegal condition. What is
balance of the purchase price within the ten-year period. She the consequence if an impossible or illegal condition is
further avers that the proviso on the payment of interest did not attached to an obligation?
extend the period to pay. To interpret it in that way would make
the obligation purely potestative and, thus, void under Article
Example:
1182 of the Civil Code.
ISSUE:WON the stipulation allowing the debtors to pay even after A promised to deliver to B his land if B will kill X.
the ten-year period is potestative.
What is the consequence of that? That will annul the
obligation.
RULING:The Court disagreed. The transaction between Eulalio
Mistica and respondents, as evidenced by the Kasulatan, was Why does it annul the obligation? Why do we not just
clearly a Contract of Sale.
disregard the impossible condition and then we just treat
In a contract of sale, the remedy of an unpaid seller is either
the obligation as a simple and pure obligation without
specific performance or rescission. Under Article 1191 of the Civil the impossible or illegal condition? Why do we annul?
Code, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a You have to remember that the condition in an
breach of faith by one of them. Rescission, however, is allowed obligation is part of the consideration; it is attached to a
only where the breach is substantial and fundamental to the consideration of an obligation. As we know,
fulfillment of the obligation. ―consideration‖ is also one of the essential elements of an
obligation. If an essential element of an obligation is
In the present case, the failure of respondents to pay the
balance of the purchase price within ten years from the
tainted by an impossibility or illegality, then the existence
execution of the Deed did not amount to a substantial breach. of the obligation is itself affected. That is why when an
In the Kasulatan, it was stipulated that payment could be made obligation is subject to an impossible or illegal condition,
even after ten years from the execution of the Contract, the conditional obligation becomes void. It is as id there is
provided the vendee paid 12 percent interest. The stipulations of no obligation.
the contract constitute the law between the parties; thus, courts
have no alternative but to enforce them as agreed upon and When you go to succession, an institution of an heir;
written.
meaning you are given certain properties in the will; ―I
Moreover, it is undisputed that during the ten-year period,
hereby give to A my land in Davao City.‖ That is in a will &
petitioner and her deceased husband never made any demand testament. That is what we call a testamentary
for the balance of the purchase price. Petitioner even refused disposition. It will be effective upon the death of the
the payment tendered by respondents during her husband‘s testator (the one who makes the will and who dies). If he
funeral, thus showing that she was not exactly blameless for the places in his will, ―I hereby give to A my house and lot in
lapse of the ten- year period. Had she accepted the tender, Davao City provided that A will jump from the 5 th floor
payment would have been made well within the agreed period. from the law school building and survive.‖
If petitioner would like to impress upon this Court that the parties
intended otherwise, she has to show competent proof to support What kind of condition is that? Can you consider that as
her contention. Instead, she argues that the period cannot be an impossible condition? Are we sure that if you jump
extended beyond ten years, because to do so would convert from the 5th floor, you will still live?
the buyer‘s obligation to a purely potestative obligation that
would annul the contract under Article 1182 of the Civil Code. It can be considered as an impossible condition.

What is the effect of that condition in the institution of the
Article 1185. The condition that some event will not
heir?
happen at a determinate time shall render the
obligation effective from the moment the time
Under the law on Succession, it will not affect the
indicated has elapsed, or if it has become evident
institution. The testamentary disposition will still be
that the event cannot occur.
effective but we just disregard the illegal or impossible
condition. In that case, the heir will still receive the land.
If no time has been fixed, the condition shall be
deemed fulfilled at such time as may have
Why is this different in Succession? Why is it that in
probably been contemplated, bearing in mind the
obligations, the conditional obligation itself is annulled?
nature of the obligation. (1118)
In Succession, the underlying consideration for the grant is
the liberality or generosity of the testator. The condition is
just an accessory. It‘s not really part of the consideration Example:
because the disposition can survive without that
condition because we have a separate consideration A will give to B his land if by 2013 B is not yet married to his
which is the love, affection and generosity of the testator. girlfriend, X.
But in Obligation and Contracts, we cannot say that the
underlying consideration is the affection. What happens if in 2012, B‘s girlfriend X dies? What
happens to the obligation?
So, if in an obligation, a condition is attached, it is
understood that the condition should be fulfilled first It is now effective. It shall render the obligation effective
before the obligation may arise. It is necessarily from the moment the time indicated has elapsed or it has
connected with the consideration. If the condition is become evident that the event cannot occur. It is really
impossible or illegal, that would affect the consideration evident that B will never marry in 2013 because X is
and therefore, the obligation becomes void. already died in 2012. The obligation to deliver the land
now becomes effective.
If no time has been fixed, how do we know the time of

Article 1184. The condition that some event fulfillment?
happen at a determinate time shall extinguish the
obligation as soon as the time expires or if it has It shall be deemed fulfilled at such time as may have
become indubitable that the event will not take probably been contemplated, bearing in mind the
place. (1117) nature of the obligation.
How do we know what is being contemplated by the

We are talking here of a suspensive condition: the parties?
condition that some event happen at a determinate
time. In that case, it will be the court who will fix the period,
bearing in mind the circumstances when the obligation
Example: was entered into.
A will deliver a car to B if B will become a lawyer by 2013.

What if it‘s already 2014 and B is still not a lawyer? What Article 1186. The condition shall be deemed fulfilled
happens to the obligation? when the obligor voluntarily prevents its fulfillment.
(1119)
It is already extinguished.
Article 1186 gives us the principle of constructive
Or it is 2013 but prior to that, in 2012, B already took the fulfillment or presumed fulfillment.
bar for the 3rd time and failed. So definitely he would not
be able to take the bar exam in 2013 anymore. Even if It says here that even if the condition is not fulfilled, it is
2013 will arrive, B will not become a lawyer because he is deemed fulfilled when the obligor himself voluntarily
already disqualified from taking the bar exam. It has prevents the fulfillment.
become indubitable that the event will not take place;
that B will not become a lawyer. CASE: LABAYEN vs TALISAY
Insofar as the law is concerned, there was constructive

fulfillment.
LABAYEN vs TALISAY
FACTS: Labayen, on or before August 27, 1919 until the

year 1928, were the undivided owners of the hacienda known as
Dos Hermanos.
Sometime in 1929, Labayen and Talisay-Silay Co. entered into a

milling contract.
The delivery of the sugar cane shall be made on the wagons of
the railway of the Central (Talisay-Silay) at the places and time
agreed upon by the Manager of the Central and the

Committee of Planters. passed the bar in June 2013. So it will retroact as to the
time of the fulfillment of the obligation. As to the
The defendant, in violation of the milling contract, did not ownership of the car, the right of B over the car will
construct the railway until a convenient place on the hacienda
retroact to January 2012.
Dos Hermanos, as a result of which the sugar cane produced
during the said agricultural years were not brought to and milled
by the defendant's central; that for this reason the plaintiffs What will be the possible effect of that? For example,
suffered a loss amounting to P28,620 for the recovery of which between January 2012 and June 2013, A also promised
they brought a complaint. the same car to X. He made that promise on June 2012,
so 6 months after he promised to B. Now, who has the
On the execution of the judgment in favor of the defendant in better tight over the car? Halimbawa, ang kadtong kay
said case and on foreclosure of the mortgage of the hacienda
X, dili gyud to siya subject to any condition, niingon na ni
Dos Hermanos, the sheriff sold the same at public auction and
adjudicated it in favor of the defendant; that immediately after siya na ihatag nako ni sa imoha ang car; so it is a pure
it became the owner of the hacienda, the defendant and simple obligation.
constructed the railway which, at the trial of the case, it had
maintained was impossible to construct due to the curves and As to B, conditional siya, subject to B‘s passing the bar
grades found on the hacienda, thereby showing that the exam. But, both did not get the possession of the car until
defense which it put up to this effect was false and fraudulent. B passed the bar and he now demanded the delivery of
the car. But, X opposed on the ground that that car was
ISSUE: WON Labayen‘s action for the recovery of the loss would already given to him. And, according to X, he has a
prosper.
better right because Bonly passed the bar exam in June
RULING: No, Labayen voluntarily prevented compliance by not 2013 whereas, the car was promised to X in June 2012
allowing Talisay-Silay to construct a railroad through his and that was not subject to any condition therefore, it
hacienda. was immediately effective.
The obligation to deliver sugar could not be complied with if the So, who has a better right over the car? If that‘s the
railroad would not be constructed. situation, no other circumstances like taking possession,
registration, it is B. Because, the effect of the fulfillment of
the obligation will retroact to the time of the constitution
of the obligation. So, if will retroact, it will retroact to
Article 1187. The effects of a conditional obligation January 2012, prior to the promise made by A to X. So first
to give, once the condition has been fulfilled, shall in time, priority in right.That is one consequence of the
retroact to the day of the constitution of the retroactive effect of the fulfillment of the condition.
obligation. Nevertheless, when the obligation
imposes reciprocal prestations upon the parties, How about if the obligation imposes reciprocal
the fruits and interests during the pendency of the prestations upon the parties?
condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the Like for example, Contract of Sale. In a Contract of Sale,
debtor shall appropriate the fruits and interests A, the buyer, will pay the price and B, the seller, will
received, unless from the nature and deliver the property. Assuming again that A and B
circumstances of the obligation it should be entered into a Contract of Sale and the contract was
inferred that the intention of the person entered into in January 2012 but it was agreed that
constituting the same was different. payment and delivery will be made only in June 2013
and it is also subject to a condition; it is a conditional sale.
In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of Example, the seller should first have, in his name, title to
the condition that has been complied with. (1120) the property. Is it possible that you are the owner but the
title is not yet under your name? For example, you
inherited the property from your parents, so ang titulo
ana naa pa sa imong parents. You still have to take
Remember Article 1187, what are the consequences of appropriate steps like extrajudicial settlement or self-
the fulfillment of a conditional obligation to give once the adjudication, etc. para ma-transfer sa imong pangalan.
condition has been fulfilled. So, mao na siya ang condition for example. Na diha pa
magbayranay ug delivery kung na-transfer na sa
Example: pangalan ni seller ang title over the land.
A promised that he will give his car to B if B passes the bar Eventually, nahitabo na siya on June 2013. Gi-habol gyud
exam. The agreement was entered into in January 2012. siya sa seller. So, how about the fruits and interest?
This was the time that A promised that he will give B a car Meaning, kadting land niya, in the meantime, by January
when B passes the bar exam and B agreed to that. Here, 2012 to June 2013, naa to’y mga mangga na namunga,
the obligation was constituted in January 2012. June of mga humay na dapat i-harvest, and kadtongkwarta pud
2013, B passed the bar exam. So, the obligation to deliver ni buyer, diba naga-earn man na siya ug interest over
now arises. From the time that B did not yet pass the bar time, magbayad ba ug interest si buyer in addition to the
exam, did A have the obligation to deliver the car? No, amount? I-account ba gyud ni seller angmga fruits na gi-
the condition has to be fulfilled first before A will give the harvest para sa yuta?
car. What is the consequence of that fulfillment?
The law says no. The fruits and interest shall be deemed to
The law says it shall retroact to the day of the constitution have been mutually compensated. Ang obligation lang
of the obligation.First, as to the ownership over the car. ni seller is to deliver the land together with the growing
The obligation was made in January 2012 but prior to B‘s crops and sa buyer, is to pay the purchase price agreed
passing the bar, A has no obligation to deliver. But B

upon. That is a conditional obligation which imposes effect of the condition. So, it depends upon the court
reciprocal prestations. kung unsa ang retroactive effect.
How about if the obligation is unilateral, meaning only Actually, what I want to discuss in the case of Coronel vs.
one party has an obligation? Like in my example, A CA, in relation to Article 1187, is the distinction between a
promised to deliver to B a land if B will pass the bar exam. Contract to Sell and a conditional Contract of Sale. That
B passed the bar in June 2013. From January 2012 until was discussed in the case of Coronel.
June2013, there were fruits from the land.
As we already explained before, in a Contract to Sell,
So, who will own the frutis? Maka-claim ba si B? B would there is still no contract of sale. There is already an
say, according to Article 1187, the effects of the agreement; there is already a contract but it is not the
conditional obligation, if, once fulfilled, shall retroact to Contract of Sale. It is the Contract to Sell; a contract to
the day of the constitution of the obligation. So, meaning, enter into a future Contract of Sale. So, wala pa’y sale na
I became the owner of the land not from the time of nahitabo. Usually, in a Contract to Sell, the condition
fulfillment of the condition but from the time that we would be full payment of the purchase price. In the
agreed; as of the time of the agreement. As a meantime that the buyer has not yet fully paid the price
consequence, dapat ihatag nimo sa akoa ang fruits, ako of the sale, ownership over the property shall remain with
na man ang tag-iya as of January 2012. All fruits the seller. Even if the property is already delivered to the
harvested from January 2012, until the condition is buyer, there is no transfer of the ownership. So, that is the
fulfilled, should likewise pertain to B. Tama ba? exception to the rule that it is tradition which transfers
ownership. Ownership can be reserved even if there is
The law says if the obligation is unilateral, the debtor shall delivery.
appropriate the fruits and interests. How do we co-relate
this with Article 1164?According to Article 1164, the So, in a Contract to Sell, even if there might have been
creditor has the right to the fruits. delivery of the subject matter, there is yet no transfer of
ownership to the buyer. Once the condition, which is the
What is the distinction between 1164 and 1187? Wherein, payment of the purchase price, is fulfilled, does the buyer
the law says the debtor shall appropriate the fruits. automatically become the onwer of the property? No,
Nagsabot sila in January 2012 na ihatag ni A ang not yet. There is a need to execute the Deed of Sale or
iyahang yuta kay B ang yuta kung makapasa siya sa bar Contract of Sale because as a consequence of that,
exam in June 2013. B passed the bar. The law says the there would be transfer of ownership. So, dili automatic,
effect of that will retroact to January 2012. So, what kinahanglan pa ka mo-execute ug Contract of Sale.
about the fruits harvested from January 2012 to June
2013? In a Contract of Sale, if there is already agreement and
delivery, there is already transfer of ownership.
Article 1187 says if the obligation is reciprocal, the fruits
and interest should be deemed to have been mutually How about the effect of the full payment of the purchase
compensated. If unilateral, the debtor shall appropriate price? The parties entered into a Contract to Sell in
the fruits. January 2012, with the condition which is the full payment
of the purchase price. The price was fully paid in June
Now, 1164, is there any conflict between Article 1164 and 2013, so, will the ownership over the property sold
Article 1187? Article 1164 says the creditor has the rights retroact to January 2012? Is there retroactivity?
to the fruits.
Wala. Why? Because, wala pa’y Contract of Sale as of
You have to remember, in Article 1164,it says ―from the January 2012, what they entered into was a mere
time the obligation to deliver arises‖ When does the Contract to Sell; to enter into a future Contract of Sale.
obligation to deliver arise in this case? It is only in June of The Contract of Sale was entered only after the payment
2013 because it was the time when the condition was of the purchse price made in June 2013. There would be
fulfilled. no retroactivity because ang ginatan-aw nato is kanus-a
ang Contract of Sale, ang agreement as to the sale.
If you still remember, in Article 1164, we discussed, if the
obligation is pure and simple, it arises from the time of the How about a conditional Contract of Sale?
constitution of the obligation.
Example:
If the obligation arises from law, it depends upon what
the law provides. January 2012, A and B entered into a conditional
Contract of Sale over a parcel of land. In June 2013, B
If the obligation is subject to a condition, the obligation to finally paid the purchase price in full. So, what is the
deliver will arise only after the fulfillment of the condition. effect of the payment?
So, there is no conflict between Article 1164 and Article Assuming that after the agreement made in January
1187 because the right to the fruits of the creditor will only 2012, A already delivered the land to B but, again,
arise from the time the obligation to deliver arises and subject to the condition that B should fully pay the price.
that would be when the condition is fulfilled. Although, In the meantime, wala pa’y transfer of ownership kay wla
the law says that his right will retroact to the moment of pa na-fulfill ang condition until June 2013.
the constitution of the obligation. But, with respect to the
fruits and interest, there is a different rule. What is the consequence of that? This time, the
ownership will retroact to January 2012, the time of the
In obligations to do or not to do, meaning personal constitution of the obligation. What they entered into in
obligations, the court shall determine the retroactive January 2012 is a Contract of Sale already although it

was conditional. Kadtong sa Contract to sell, it was not such that if B passes the bar and the car is no longer
Contract of Sale. Kung Contract to Sell, again, naa nay there, then the security will answer for his obligation. So, it
contract pero dili pa Contract of Sale In the future, kung is not correct to say that prior to the fulfillment of the
mabayran nimo, ibaligya nako sa imo ang property. condition, the creditor has no rights at all. He can stop
Whereas, in a Contract of Sale, gibaligya na nako sa the debtor from doing things which may prejudice his
imoha ang property pero dapat bayaran nimo ug full rights.
bag-o nimo makuha ang ownership.
Once the condition is fulfilled, under Article 1187, it will
So, in a conditional Contract of Sale, once there is retroact to the date of the constitution of the obligation.
fulfillment of the condition, it will retroact to the date of Of course, if dili ma-fulfill ang condition, halimbawa if dili
the constitution of the obligation. In a conditional gyud makapasa si B sa bar, then ma-dissolve ang
Contract of Sale, there is no need for a Deed of Sale injunction, pwede na ibaligya ni A ang car.
because it was already sold in January 2012.
Second paragraph, the debtor may recover what during
Now, what happens if in the meantime, the seller sold the the same time he has paid by mistake in case of a
very same land after the agreement in January 2012? suspensive condition.
Who has a better right? If it is a Contract to Sell entered
into January 2012, tapos gibaligya napud ni A ang very So, assuming wala pa na-fulfill ang condition then gi-
same land to X. So, in June 2013, fully paid na ni B ang deliver na ni A ang car, thinking na abogado na si B, not
land. So, who has a better right? knowing na wala diay siya nakapasar. What are the
rights of A? Can he recover the car?
If what was entered into with X in March was a Deed of
Absolute Sale, X can claim a better right although A may Yes, because that is a case of Solutio indebiti, payment
be liable to B for damages because there was a breach by mistake. But, in case A knew fully welll that B did not
of the Contract to Sell. B cannot say, ―I have a better yet pass the bar exam but he still delivered the car
right because our contract was entered into.‖ Naa siya’y voluntarily to B, then he can no longer recover. In that
right but under the law on Human Relations. case, A is deemed to have waived the condition. He
cannot recover anymore. Unless he did not know, then
Under the Contract of Sale, B can claim the land and he he can recover by mistake.
has a better right even against X if X had in his favor the
contract of absolute sale because B‘s rights retroacted to
January 2012 which Is prior to the deed of sale made by
A to X. Remember the distinction between a Contract to
Sell and a conditional Contract of Sale. That was the
case of Coronel.
Article 1188. The creditor may, before the fulfillment of

the condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time

he has paid by mistake in case of a suspensive
condition. (1121a)
Before the fulfillment of the condition, the creditor cannot

yet demand the performance of the obligation, again,
because the effectivity of the obligation is subordinated
to the fulfillment of the condition.
Now, what if in the meantime, the debtor is performing

acts, which will prejudice the rights of the creditor once
the condition is fulfilled?
Example:
A promised to give to B his car if B will pass the bar exam,

now what happens if, sige na ug study si B,nanigkamot
gyud siya ug study para makuha niya ang car, and then
ibaligya na dayon ni A to X ang car. Unsa man ang
remedy ni B? Wala ba siya’y mabuhat?Naa.
The law says B may bring the appropriate actions for the
preservation of his rights. What are these appropriate
actions?
B may file an action for injunction to enjoin A from selling

the car or he may require that A will furnish a security

Article 1189. When the conditions have been (2) If the thing is lost through the fault of the
imposed with the intention of suspending the efficacy debtor, he shall be obliged to pay damages; it is
of an obligation to give, the following rules shall be understood that the thing is lost when it perishes,
observed in case of the improvement, loss or or goes out of commerce, or disappears in such
deterioration of the thing during the pendency of the a way that its existence is unknown or it cannot
condition: be recovered;
(1) If the thing is lost without the fault of the In case of loss with the fault of the debtor, here, the
debtor, the obligation shall be extinguished; obligation is not extinguished but because the thing is
already lost and it is a specific thing, it is now converted
to an obligation to pay damages. The law defines what is
(2) If the thing is lost through the fault of the ―loss‖.
debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it
perishes, or goes out of commerce, or “Loss” means when it perishes; kung nahanaw siya like
disappears in such a way that its existence is kung mag-deliver ka ug asin then naulanan; nawala siya
unknown or it cannot be recovered; Or, dry ice na nag-evaporate.
Goes out of commerce. Even if the thing is still there but it

(3) When the thing deteriorates without the cannot be delivered because it goes out of commerce,
fault of the debtor, the impairment is to be like marijuana. Nagsabot mo so nag-garden gyud ka ug
borne by the creditor; marijuana. Eventually, gi-pass ang law na bawal na ang
marijuana, it‘s still there pero it is now outside the
(4) If it deteriorates through the fault of the commerce of man.
debtor, the creditor may choose between
the rescission of the obligation and its It is prohibited.Or, it disappears in such a way that its
fulfillment, with indemnity for damages in existence is unknown. Wala gyud ka kabalo, maybe, naa
either case; lang gihapon siya pero wala lang ka kabalo kung asa or
it cannot be recovered. Meaning, maski kabalo ka na
(5) If the thing is improved by its nature, or by naa siya pero dili na siya ma-recover. Like, for example,
time, the improvement shall inure to the nag-cruise mo and naghatag ka ug diamond ring,
benefit of the creditor; nahulog siya sa Pacific Ocean, maski kabalo ka where
exactly siya nahulog, dili na siya ma-reocver kay
mamatay na kung kinsa man ang mokuha didto. That is
(6) If it is improved at the expense of the also considered as loss.
debtor, he shall have no other right than that
granted to the usufructuary. (1122) Take note that in Article 1189, the condition should be
fulfilled ha. The condition is fulfilled, and from the time of
the agreement until the condition is fulfilled, there is loss,
You have to remember Article 1189. That would apply in deterioration, or improvement.
case of loss, deterioration or improvement prior to the
fulfillment of the cndition. (3) When the thing deteriorates without the fault
of the debtor, the impairment is to be borne by
This applies to an obligation to give a specific thing.
the creditor;
When the obligation is to give a generic thing, Article
1189 will not apply because, when the obligation, for (4) If it deteriorates through the fault of the
example, is to deliver a car, then the condition is fulfilled, debtor, the creditor may choose between the
so the debtor will just have to deliver any car. There is no rescission of the obligation and its fulfillment, with
loss, impairment, improvement, deterioration kay wala indemnity for damages in either case;
may specific na thing na atong gina-storyahan. So this
will apply to an obligation to deliver a specific thing. If there is deterioration without the fault of the debtor. The
impairment shall be borne by the creditor.
(1) If the thing is lost without the fault of the
debtor, the obligation shall be extinguished; Example:
To deliver a specific car, by the passage of time. In the

Number 1, loss without the fault of the debtor. So, the example, A will give to B a specific car if B will pass the
obligation is extinguished. We can apply here the rule of bar. Wala pa man ta’y mabuhat, 10 years pa man gyud
fortuitous event. ang nilabay before eventually nakapasar si B sa bar.
Gwapo kaayo ang car pagsugod pero overtime, nalain
na siya, wala’y mabuhat si B. B has to bear the
impairment. If it deteriorates through the fault of the
debtor; wala niya ginagarahe, ginapa-ulanan niya,
pasagdahan lang, so the creditor may choose between
rescission or fulfillment pero, with damages. So ang value
na lang sa car plus damages. Or, fulfillment, sige na lang
kay naa man nay sentimental value, but plus damages.
Damages in both cases.

(5) If the thing is improved by its nature, or by not to do, so the court shall determine what shall be the
time, the improvement shall inure to the benefit of effect.
the creditor; Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
(6) If it is improved at the expense of the debtor, obligors should not comply with what is incumbent
he shall have no other right than that granted to upon him.
the usufructuary.
The injured party may choose between the
If the thing is improved by nature or by time, siyempre the fulfillment and the rescission of the obligation, with
improvement will go to the creditor. If it improves at the the payment of damages in either case. He may
expense of the debtor, then he has no other right than also seek rescission, even after he has chosen
that granted to the usufructuary. fulfillment, if the latter should become impossible.
That would be the rule in case of loss, deterioration or
improvement. Take note here, the general rule is the The court shall decree the rescission claimed,
owner bears the risk of loss; res perit domino. If there is unless there be just cause authorizing the fixing of a
improvement, the owner also bears the improvement. period.
That is, if it is without the fault of the debtor. If it is with the
fault of the debtor, of course, he will be responsible for This is understood to be without prejudice to the
the loss or deterioration. rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the
Article 1190. When the conditions have for their Mortgage Law. (1124)
purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions, You have to internalize, if not memorize Article 1191. This is
shall return to each other what they have received. a very important provision and this has been the subject
of several bar questions.
In case of the loss, deterioration or improvement of
the thing, the provisions which, with respect to the Article 1191 speaks of rescission but the proper term
debtor, are laid down in the preceding article shall be actually is resolution. Rescission is the term used in Article
applied to the party who is bound to return. 1381. Actually, they both have the same effect. When
you say rescission or resolution, we are referring to the
As for the obligations to do and not to do, the cancellation/extinguishment of an obligation. But there
provisions of the second paragraph of Article 1187 are several requisites that distinguish Article 1191 (which is
shall be observed as regards the effect of the properly called resolution) from Article 1381 which is the
extinguishment of the obligation. (1123) rescission proper.
You have to remember that Article 1191 applies only to

We are talking here of an obligation which is subject to a reciprocal obligations. When we say reciprocal
resolutory condition, meaning the obligation is obligations, both parties have their corresponding
demandable at once but when the condition is fulfilled, obligations and they are expected to perform
the obligation is extinguished. simultaneously.
What will happen to the subject matter which before the Example:
happening of the condition was already delivered to the
creditor? Contract of sale. That is a reciprocal obligation because
the seller has the obligation to deliver and the buyer has
The law says ―the parties, upon the fulfillment of said the obligation to pay. So, it entails reciprocal obligations
conditions, shall return to each other what they have between the parties. They both have obligations and
received.‖ So if debtor gives land to creditor and then they both have to perform simultaneously.
the resolutory condition is fulfilled, the creditor will return As we have discussed before in delay, the concept of
the land. They will return to each other what they have compensateo morae. In compensateo morae, both
received. parties are in default. This applies in reciprocal obligations
wherein if one party is ready, able and willing to comply
What if in the meantime, before the fulfillment of the with his obligation and the other is not then delay by the
resolutory condition, there was loss, deterioration or other begins. There is not nee of demand to place the
improvement? What will be the rule that will apply? other party in default. That‘s the rule in reciprocal
obligations. If one party is not ready and the other is also
not ready, then delay of one party will compensate that
The rule will be the one in Article 1189. So, here, the one
of the other so there is no delay technically.
who is bound to return shall be considered as the debtor.
So the rule of the debtor in Article 189 will now apply to
Reciprocal obligations – both parties are bound and they
the party who is bound to return.
are both debtors and creditors of each other.
For obligations to do and not to do, what will apply? The Now the reciprocity here has arisesfrom the identity of
provisions of Article 1187 which provide what are the cause. There is only one cause.
retroactive effect of the fulfillment of a conditional
obligation. Here, we are talking of obligations to do and Example:

In a contract of sale again, the obligations of the seller Article 1191 applies only to obligations which are already
and the buyer who are reciprocally debtors and creditors existing. Here, the obligation in thefirst place did not arise
to each other arise from the contract of sale. So there is because it is dependent upon the fulfillment of a
only one cause. It should arise only from one source of suspensive condition, or in this case, the full payment of
obligation. the purchase price. But because the condition is not
fulfilled then the obligastion did not arise. When the
For example, A owes B Php 1 Million. So in that case, A obligation did not arise, what is there no rescind? There is
has the obligation to pay B Php 1 Million. But in another nothing to rescind because the obligation did not come
contract, a contract of deposit, B is the depositary of a into existence.So, that‘s the reason why Article 1191 will
necklace owned by A which is also worth Php 1 Million. not apply to a Contract to Sell.
So, in that concept of deposit, the depositary has to
return that necklace to A upon the period stipulated or Take note, that the basis of Article 1191 is the breach of
upon the demand of A. So, in that contract of deposit, it faith committed by the guilty party. Just because there is
is B who has the obligation to return the necklace. In the violation of the agreement, that will already give rise to a
contract of loan, which I mentioned earlier, it is A who right to file a case for rescission under Article 1191.
has the obligation to pay the Php 1 Million. Both of them,
actually, are debtors and creditors of each other but will
This has to be emphasized because in Article 1380, there
rescission apply here?
is also rescission as a remedy but that is based on lesion.
What do you mean by lesion? Economic injury, meaning,
No, because this does not involve a reciprocal obligation.
for example, the property is wirth Php 1 Million and then it
This does not arise from the same cause. This transaction
was sold only for Php 200, 000 so there is lesion of Php 800,
involves two agreements: a contract of loan and a
000. This means you were short of the proper value that
contract of deposit. So the obligation of A in the contract
should have derived from the property; economic injury.
of loan is separate and distinct from the obligation in the
You suffered shortage/economic injury because of that
contract of deposit. The reciprocity mentioned in Article
transaction and it can be rescinded on the ground of
1191 is not mentioned in my example.
lesion.
Is Article 1191 applicable to a Contract to Sell?
In Article 1191, you don‘t compute whether or not there is
lesion but just take note if there is breach of faith. That is
CASE: CORDERO vs F.S. MANAGEMENT
the basis of Article 1191.
What was the contract involved here? It was a Contract

CORDERO vs F.S. MANAGEMENT
to Sell.
FACTS:Petitioner Belen Cordero (Belen), in her own behalf and as
What was the nature of a Contract to Sell? Usually, if you attorney-in-fact of her co-petitioners Darrel Cordero, Egmedio
enter into a Contract to Sell, what would be our Bautista, Rosemay Bautista, Marion Bautista, Danny Boy Cordero
agreement? For the payment of the purchase price, and Ladylyn Cordero, entered into a contract to sell with
respondent, F.S. Management and Development Corporation,
what would be the tenor of the Contract to Sell?
through its chairman Roberto P. Tolentino over five (5) parcels of
land.
For example, we enter into a Contract to Sell a parcel of
land, what would be the usual agreement with respect to Pursuant to the terms and conditions of the contract to sell,
the payment of the purchase price and transfer of respondent paid earnest money in the amount ofP500,000 on
October 27, 1994. She likewise paid P1,000,000 on June 30, 1995
ownership?
and another P1,000,000 on July 6, 1995. No further payments
were made thereafter.
In a Contract to Sell, usually the condition is the full
payment of the purchase price. Petitioners thus sent respondent a demand letter dated
November 28, 1996 informing her that they were
revoking/canceling the contract to sell and were treating the
So, when the purchase price is fully paid, will the buyer payments already made as payment for damages suffered as a
now be the owner automatically? result of the breach of contract, and demanding the payment
of the amount of P10 Million Pesos for actual damages suffered
No, there is a requirement that they have to execute o due to loss of income by reason thereof. Respondent ignored
the demand, however.
Deed of Sale, an Absolute sale because what they
entered into in the first place was just merely a Contract Hence, on February 21, 1997, petitioner Belen, in her own behalf
to Sell which is an agreement to enter into a future and as attorney-in-fact of her co-petitioners, filed before the RTC
Contract of Sale. So, ownership can only be transferred of Parañaque a complaint for rescission of contract with
as a consequence of delivery if there was a previous damages alleging that respondent failed to comply with its
Contract of Sale. obligations under the contract to sell, specifically its obligation to
pay the downpayment ofP3.5 Million by April 30, 1995, and the
balance within 18 months thereafter; and that consequently
Now, why won‘t Article 1191 apply to a Contract to Sell? petitioners are entitled to rescind the contract to sell as well as
demand the payment of damages.
Remember, in a Contract to Sell, the full payment of the
purchase price is a suspensive condition. The fulfillment of Respondent alleged that petitioners have no cause of action
considering that they were the first to violate the contract to sell
which will give rise to the obligation of the seller to
by preventing access to the properties despite payment of P2.5
convey title. So, if the suspensive condition is not fulfilled Million Pesos; petitioners prevented it from complying with its
then the obligation will not arise. The obligation of the obligation to pay in full by refusing to execute the final contract
seller to convey title will not arise because of the non- of sale unless additional payment of legal interest is made; and
fulfillment of the suspensive condition. petitioners‘ refusal to execute the final contract of sale was due

to the willingness of another buyer to pay a higher price. Now, take note that the right to rescind under Article
1191 has limitations as mentioned in the article itself. There
The trial court issued its decision finding for petitioners and are limitatins that you must remember before you can
ordering respondent to pay damages and attorney‘s fees.The
oinvoke Article 1191.
Court of Appeals set aside the contract to sell, it finding that
petitioners‘ obligation thereunder did not arise for failure of
respondent to pay the full purchase price. It also set aside the Take note that Article 1191 is an implied power to rescind.
award to petitioners of damages for not being duly proven. And When you say ―implied power to rescind,‖ the right to
it ordered petitioners to return "the amount received from rescind does not exist in the contract itself. It is not written
respondent. or stipulated in the contract. But just because that right to
rescind is not mentioned in the contract, you cannot say
In any event, petitioners claim that the contract to sell involves
reciprocal obligations, hence, it falls within the ambit of Article that it is no longer applicable. It exists and what is the
1191. reason? Because we have Article 1191. In reciprocal
obligations, the power to rescind is implied. It exists even if
ISSUE: Whether or not a contract to sell may be subject to it is not written. So the provision of law is deemed written
rescission under Article 1191 of the Civil Code. into all contracts. That implied power to rescind is also
what we call tacit resolutory condition. The power to
RULING:In the present case, the nature as well as the rescind in Article 1191 is the tacit resolutory condition in
characteristics of a contract to sell is determinative of the
reciprocal obligations.
propriety of the remedy of rescission and the award of
damages. As will be discussed shortly, the trial court committed
manifest error in applying Article 1191 of the Civil Code to the Why is it called tacit resolutory condition?
present case, a fundamental error which "lies at the base and
foundation of the proceeding, affecting the judgment
necessarily," or, as otherwise expressed, "such manifest error as
―Tacit‖ because it is not express. It is not written. IT is not
when removed destroys the foundation of the judgment." mentioned. It is just implied. So, it still exists, it is available
although it is not written.
Hence, the Court of Appeals correctly ruled on these matters
even if they were not raised in the appeal briefs. Why resolutory condition?
Under a contract to sell, the seller retains title to the thing to be
sold until the purchaser fully pays the agreed purchase price. You know what the concept of a resolutory condition is?
The full payment is a positive suspensive condition, the non- The fulfillment of a condition will extinguish the obligation.
fulfillment of which is not a breach of contract but merely an Article 1191 is akin to a resolutory condition. What is the
event that prevents the seller from conveying title to the resolutory condition? The breach of faith. Once the
purchaser. The non-payment of the purchase price renders the
breach of faith occurs, the party aggrieved has the right
contract to sell ineffective and without force and effect.
to terminate or rescind the contract. So it has the effect
Since the obligation of petitioners did not arise because of the of a resolutory condition. Once the breach occurs, the
failure of respondent to fully pay the purchase price, Article 1191 contract can be terminated.
of the Civil Code would have no application.
This is an implied/tacit resolutory condition. If you are
Rayos v. Court of Appeals explained:
asked what you understand by the concept of tacit
Construing the contracts together, it is evident that the resolutory condition, it is the one mentioned under Article
parties executed a contract to sell and not a contract 1191: the implied power to rescind in reciprocal
of sale. The petitioners retained ownership without oblgiations.
further remedies by the respondents until the payment
of the purchase price of the property in full.
What are the limitations on the tacit resolutory condition
Such payment is a positive suspensive condition, failure
of which is not really a breach, serious or otherwise,
which is Article 1191?
but an event that prevents the obligations of the
petitioners to convey title from arising, in accordance 1. You have to observe due process.
with Article 1184 of the Civil Code. x x x
Example:
The non-fulfillment by the respondent of his obligation
to pay, which is a suspensive condition to the
obligation of the petitioners to sell and deliver the title
There is no performance yet on both parties, of
to the property, rendered the contract to sell ineffective course, there is no problem. The parties can just
and without force and effect. The parties stand as if the actually forget about their agreement but if the
conditional obligation had never existed. Article 1191 other party does not agree to end the contract
of the New Civil Code will not apply because it (there is already performance), one party says
presupposes an obligation already extant. There can that, for example, A and B enter into a contract
be no rescission of an obligation that is still non-existing, and then A alleges that B committed a breach
the suspensive condition not having happened.
of that contract so A would like to rescind or
The subject contract to sell clearly states that "title will be terminate the contract. Can A, for himself, just
transferred by the owner (petitioners) to the buyer (respondent) say ―I‘ll just forget about the contract. It‘s
upon complete payment of the agreed purchase price." Since terminated?‖ What if B says ―No, I did not commit
respondent failed to fully pay the purchase price, petitioners‘ a breach.‖ Who should be believed, A or B?
obligation to convey title to the properties did not arise. While
rescission does not apply in this case, petitioners may Due process means rescission under Article 1191
nevertheless cancel the contract to sell, their obligation not is essentially judicial. It is the court which declares
having arisen.
that there is rescission. The party aggrieved
cannot declare, on his own, the rescission. If he

insists on the rescission, judicial action must be ALUMCO cut and removed timber therefrom but, as of 8
resorted to. December 1964, it had incurred an unpaid account of
P219,362.94, which, despite repeated demands, it had failed to
pay.
CASE: TAN vs CA
After it had received notice that UP would rescind or terminate
Was there anything in the contract which authorized the the logging agreement, ALUMCO executed an instrument,
insurance company to rescind the contract? entitled "Acknowledgment of Debt and Proposed Manner of
Payments," dated 9 December 1964, which was approved by
the president of UP and which stipulated:
Are the parties allowed to rescind the contract? In case
of breach by the other party, the aggrieved party by In the event that the DEBTOR fails to comply with any of its
mere notice of the othermay rescind the contract, would promises or undertakings in this document, the DEBTOR
that be allowed? agrees without reservation that the CREDITOR shall have the
right and the power to consider the Logging Agreement
dated December 2, 1960 as rescinded without the necessity
Yes, as mentioned in this case, nothing can prevent the of any judicial suit, and the CREDITOR shall be entitled as a
parties from that stipulation. It is not contrary to law, matter of right to Fifty Thousand Pesos (P50,000.00) by way
morals, good customs, public order or public policy. of and for liquidated damages.
ALUMCO continued its logging operations, but again incurred an

But if there is nothing in the contract which provides for a unpaid account, for the period from 9 December 1964 to 15 July
right to extra-judicially rescind the contract, what should 1965, in the amount of P61,133.74, in addition to the
be done in case of breach? indebtedness that it had previously acknowledged.
On 19 July 1965, petitioner UP informed respondent ALUMCO

The party aggrieved must go to court. It shall be the court
that it had, as of that date, considered as rescinded and of no
who shall decree the rescission. Remember, you cannot further legal effect the logging agreement that they had
decide for yourself whether or not there has indeed been entered in 1960; and on 7 September 1965, UP filed a complaint
a breach or violation. For all we know, the other party against ALUMCO, which was docketed as Civil Case No. 9435 of
also has a valid reason. So it is the court who will resolve the Court of First Instance of Rizal (Quezon City), for the
the conflict. The parties cannot take the law into their collection or payment of the herein before stated sums of
own hands unless there is a stipulation in the contract money.
allowing for extra-judicial rescission. But if there is a
Respondent ALUMCO contended that it is only after a final court
stipulation in the contract allowing for extra-judicial
decree declaring the contract rescinded for violation of its terms
rescission, we do not apply Article 1191. That stipulation in that U.P. could disregard ALUMCO's rights under the contract
the contract shall be governed by the law on contracts and treat the agreement as breached and of no force or effect.
and the limitations are not the same as the limitations in
Article 1191. ISSUE: whether petitioner U.P. can treat its contract with
ALUMCO rescinded, and may disregard the same before any
judicial pronouncement to that effect
Again, the first limitation is due process must be observed
so judicial action is necessary for there to be rescission. RULING:In the first place, UP and ALUMCO had expressly
stipulated in the "Acknowledgment of Debt and Proposed
CASE: UNIVERSITY OF THE PHILIPPINES vs DELOS ANGELES Manner of Payments" that, upon default by the debtor ALUMCO,
the creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
Here, there was a stipulation in the agreement that upon without the necessity of any judicial suit." As to such special
default by the debtor, UP has the right and the power to stipulation, and in connection with Article 1191 of the Civil Code,
consider the logging agreement of December 2, 1960 as this Court stated in Froilan vs. Pan Oriental Shipping Co., et al:
rescinded without the necessity of any judicial suit. So,
that agreement is allowed. There is nothing in the law there is nothing in the law that prohibits the parties from
that prohibits the parties from entering into an agreement entering into agreement that violation of the terms of
the contract would cause cancellation thereof, even
that violation of the terms of the contract would cause
without court intervention. In other words, it is not
cancellation thereof even without court intervention. So, always necessary for the injured party to resort to court
it is not always necessary for the injured party to resort to for rescission of the contract.
court for rescission of the contract in case that extra-
judicial rescission is mentioned in the contract. In the Of course, it must be understood that the act of party in treating
absence of that, they have to go to court. a contract as cancelled or resolved on account of infractions by
the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and
UNIVERSITY OF THE PHILIPPINES vs DELOS ANGELES review by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial action in its own
FACTS:The Land Grant was segregated from the public domain behalf, and bring the matter to court. Then, should the court,
and given as an endowment to UP, an institution of higher after due hearing, decide that the resolution of the contract was
learning, to be operated and developed for the purpose of not warranted, the responsible party will be sentenced to
raising additional income for its support, pursuant to Act 3608. damages; in the contrary case, the resolution will be affirmed,
and the consequent indemnity awarded to the party
UP and ALUMCO entered into a logging agreement under which prejudiced.
the latter was granted exclusive authority, for a period starting
from the date of the agreement to 31 December 1965, In other words, the party who deems the contract violated may
extendible for a further period of five (5) years by mutual consider it resolved or rescinded, and act accordingly, without
agreement, to cut, collect and remove timber from the Land previous court action, but it proceeds at its own risk. For it is only
Grant, in consideration of payment to UP of royalties, forest fees, the final judgment of the corresponding court that will
etc. conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require

that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to In my example, A did not annotate anything as
protect its interest. Otherwise, the party injured by the other's seller. The title is clean. B did not really pay the
breach will have to passively sit and watch its damages
purchase price so being an aggrieved party, the
accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires
seller filed an action for rescission against B, the
that he should exercise due diligence to minimize its own buyer, claiming that there was breach of faith on
damages (Civil Code, Article 2203). the part of B and because of that cancel/rescind
the Contract of Sale and return the land. Can
We see no conflict between this ruling and the previous the land be returned in that case?
jurisprudence of this Court invoked by respondent declaring that
judicial action is necessary for the resolution of a reciprocal No, because the land is now in the hands of a
obligation, 1 since in every case where the extrajudicial resolution
third party who is protected by law. So the lad
is contested only the final award of the court of competent
jurisdiction can conclusively settle whether the resolution was
cannot be returned anymore. In that case,
proper or not. It is in this sense that judicial action will be rescission is no longer possible because one
necessary, as without it, the extrajudicial resolution will remain important consequence of rescission is: if it is
contestable and subject to judicial invalidation, unless attack decreed, there shall be mutual restitution;
thereon should become barred by acquiescence, estoppel or meaning both parties will have to return to each
prescription. other what they received by virtue of the
contract. So, whatever payment the seller
Fears have been expressed that a stipulation providing for a
received from B, he will return. And whatever
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action but, as
land B received from A, he will have to return it to
already observed, in case of abuse or error by the rescinder the A. But restitution is no longer possible so in that
other party is not barred from questioning in court such abuse or case, the rescission cannot be granted.
error, the practical effect of the stipulation being merely to
transfer to the defaulter the initiative of instituting suit, instead of Of course, the remedy of A is to compel
the rescinder. payment (specific performance). If B will not pay
and he has other properties, those can be levied
upon, executed ad the proceeds will be paid to
the seller.
2. The right to rescind is subordinated to the rights of
3. The court may order the fixing of a period instead
third persons who acquired the thing in good
faith. of rescission.
Example: So, instead of rescission, the court will just fix a

period for payment. So, the court will not decree
A and B enter into a Contract of Sale.A already the rescission. In this case, it will only apply when
delivered the land to B but B has not yet fully the default is not willful or is excusable.
paid the price. By delivery of the land to B, was
ownership over the land transferred to B? Example:
Yes, tradition as a consequence of certain In a construction contract, the contractor only

contracts will transfer ownership. Unlike in a finished 98% of the project and failed to
Contract to Sell where there is no sale yet and complete the rest. He should finish the project
ownership is reserved. But in a Contract of Sale, if within a certain period, 2 years. But within that
there is no reservation of ownership, the delivery period of 2 years, he only finished 98%. The owner
of the property to the vendee will transfer the got mad and filed an action for rescission. Will
ownership to the vendee even if the vendee has the court order rescission in that case? How will
that be, the building will be destroyed? The
not yet paid or fully paid the price.
money will be returned? In that case, it would not
be equitable. In that case, the court will just
So, B has not yet full paid the price. B sold the
oprder the contractor to finish the remaining 2%
land to X. Can be validly sell the land to X? Yes,
wihthin an additional period of time. The court
because B already acquired ownership over the
will fix the period. That is another limitation.
land. So, the sale to X is valid. X is an innocent
purchaser for value. He has no knowledge at all
of any infirmity whatsoever of the contract Although, if fixing the period would serve no
between A and B. He has no knowledge of the other purpose than to delay then the court
non-payment by B. And if the land is covered by cannot fix the period.
the Torrens system of Registration, unless you did Example:
not annotate in the title any encumbrance or
charge over the property, the property is A contract of sale and the purchase price should
considered clean so anyone dealing over be paid within 10 years. But it has been 13 years
registered lands has no obligation to go beyond already and the buyer has not yet fully paid the
the title to investigate. He only has the obligation purchase price. Will the court still give the buyer a
to look into the title and if the title is clean then period within which to pay the purchase price?
he is free from those encumbrances not
registered. But if he sees on the title that the It will no longer be equitable if the court will fix a
property is mortgaged, he is charged with notice period. Fixing the period in that example would
so he will not be considered an innocent serve no other purpose but to delay. There is no
purchaser for value. reason why the court would still give the buyer an

additional period of 5 years when in fact, he had Respondents contended that the contract cannot be rescinded
to pay in 10 years but he already allowed 13 on the ground that it clearly stipulates that in case of failure to
years to pass and did not pay. In that case, the pay the balance as stipulated, a yearly interest of 12% is to be
paid. Respondent Bernardino Naguiat likewise alleged that
rescission cannot be granted. So, the fixing of the
sometime in October 1986, during the wake of the late Eulalio
period will not be allowed. Mistica, he offered to pay the remaining balance to petitioner
but the latter refused and hence, there is no breach or violation
4. Casual or slight breaches will not justify committed by them and no damages could yet be incurred by
rescission. the late Eulalio Mistica, his heirs or assigns pursuant to the said
document.
Example:
The trial court dismissed the case and ordered respondent to
pay petitioner and the heirs of Eulalio Mistica the balance of the
You already paid 95% of the purchase price and
purchase price in the amount of P17,000.00, with interest thereon
the seller would like to rescind. Usually, in that at the rate of 12% per annum computed from April 5, 1989 until
case, the court would just order the buyer to just full payment is made, subject to the application of the
pay the balance because only 5% is left. So, it‘s consigned amount to such payment.
not considered a substantial breach. It will only
be considered as casual or slight breach. Disallowing rescission, the CA held that respondents did not
breach the Contract of Sale. It explained that the conclusion of
You have to remember that in rescission, even if the ten-year period was not a resolutory term, because the
Contract had stipulated that payment -- with interest of 12
the basis for rescission is breach of faith, not
percent -- could still be made if respondents failed to pay within
economic injury, but at least the breach of faith the period. According to the appellate court, petitioner did not
should be substantial, not merely casual or slight. disprove the allegation of respondents that they had tendered
payment of the balance of the purchase price during her
CASE: VDA. DE MISTICA vs SPOUSES NAGUIAT husband‘s funeral, which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because

The court said that, if ever there was a breach, it was just they had already transferred the land title to their names. The
casual or slight. It was not fundamental. proper recourse, the CA held, was to order them to pay the
balance of the purchase price, with 12 percent interest.
First, because the agreement precisely recognizes
RULING: Petitioner claims that she is entitled to rescind the
payment beyond 10 years. It was stipulated, only that Contract under Article 1191 of the Civil Code, because
such payment would bear interest at 12% per annum. So, respondents committed a substantial breach when they did not
the court said that that was freely and voluntarily agreed pay the balance of the purchase price within the ten-year
upon by the parties and that constitutes the law between period.
them.
We disagree. The transaction between Eulalio Mistica and
respondents, as evidenced by the Kasulatan, was clearly a
Second, the sellers themselves did not make any Contract of Sale. A deed of sale is considered absolute in
demand within the 10-year period. nature when there is neither a stipulation in the deed that title to
the property sold is reserved to the seller until the full payment of
Third, they even refused the tender of payment made by the price; nor a stipulation giving the vendor the right to
unilaterally resolve the contract the moment the buyer fails to
the buyer within 10 years. So, they were not exactly
pay within a fixed period.
blameless when they were not paid in 10 years.
In a contract of sale, the remedy of an unpaid seller is either
So that could not be considered a substantial breach on specific performance or rescission.Under Article 1191 of the Civil
the part of the buyers. Code, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a
breach of faith by one of them.Rescission, however, is allowed
FIDELA DEL CASTILLO Vda. DE MISTICA vs SPOUSES NAGUIAT only where the breach is substantial and fundamental to the
fulfillment of the obligation.
FACTS: Eulalio Mistica, predecessor-in-interest of herein petitioner,
is the owner of a parcel of land. A portion thereof was leased to In the present case, the failure of respondents to pay the
Respondent Bernardino Naguiat sometime in 1970. balance of the purchase price within ten years from the
execution of the Deed did not amount to a substantial
―On 5 April 1979, Eulalio Mistica entered into a contract to sell breach. In theKasulatan, it was stipulated that payment could
with Respondent Bernardino Naguiat over a portion of the be made even after ten years from the execution of the
aforementioned lot containing an area of 200 square Contract, provided the vendee paid 12 percent interest. The
meters. This agreement was reduced to writing in a document stipulations of the contract constitute the law between the
entitled ‗Kasulatan sa Pagbibilihan.‘ parties; thus, courts have no alternative but to enforce them as
agreed upon and written.
Pursuant to said agreement, Respondent Bernardino Naguiat
gave a downpayment of P2,000.00. He made another partial Moreover, it is undisputed that during the ten-year period,
payment of P1,000.00 on 7 February 1980. He failed to make any petitioner and her deceased husband never made any demand
payments thereafter. Eulalio Mistica died sometime in October for the balance of the purchase price. Petitioner even refused
1986. the payment tendered by respondents during her husband‘s
funeral, thus showing that she was not exactly blameless for the
Petitioner filed a complaint for rescission alleging inter alia: that lapse of the ten-year period. Had she accepted the tender,
the failure and refusal of respondents to pay the balance of the payment would have been made well within the agreed period.
purchase price constitutes a violation of the contract which
entitles her to rescind the same and that respondents have been
in possession of the subject portion and they should be ordered Another principle that you have to remember, as
to vacate and surrender possession of the same to petitioner. discussed in the case of Angeles vs Balasan, is that if the
creditor accepted delayed payments beyond the grace

period, that would amount to a waiver of the right to the first person who possessed, he is the
rescind. Even if, ordinarily, the creditor has the right to one who registered in good faith. X
rescind because of the substantial breach committed by already registered the sale. B filed an
the debtor but if there is payment by the debtor and the action against the seller for specific
creditor still accepted payment even if it is delayed, that performance. He wants the land to be
would now be considered as a waiver of the right to delivered to him as he already paid the
rescind. So, the creditor cannot, after accepting such price.
delayed payment, be now allowed to institute an action
for rescission. In that case, the court cannot order
specific performance because the land
5. The remedy of rescission in Article 1191 is is now in the hands of X, an innocent
alternative to the remedy of specific purchaser for value. So, specific
performance. performance cannot be decreed. What
would be the other remedy of B now? B
What do we mean by alternative? This means can opt for rescission because he can
you can only institute either rescission or specific no longer have the land so at least he
performance but not both. The reason is that, could recover the purchase price. In
rescission and specific performance are mutually rescission, there is mutual restitution so
incompatible, they cannot be reconciled with the seller will return the B the purchase
each other. price.
Example: 2. The land was already delivered tot eh

buyer but the buyer did not pay the
In a Contract of sale, the buyer did not pay and purchase price. Then the buyer sold the
you want specific performance ad rescission. So, same land to another person, X who is
the contract is cancelled but the buyer will still an innocent purchaser for value. So if the
pay. Is that allowed? I can only be either seller will file an action against the buyer
rescission only (the contract is cancelled and for rescission, as we discussed before, if it
there is mutual restitution) or specific already barred by the Land Registration
performance (the buyer should pay the Law or the Mortgage Law, rescission is
purchase price) Not both. not possible. So, in that case, even if the
seller already filed a case for rescission
But even in rescission or specific performance, but it is no longer possible, he can still file
you can claim damages in both cases. a case for specific performance. That
would be another exception.
What is the consequence if you file a case both
for specific performance and rescission? Both 3. There can actually be partial rescission
cases can be dismissed on the ground of forum and partial specific performance, in
shopping. The lawyer can be administratively certain cases.
disciplined. Or it can be dismissed on the ground
of splittingon a cause of action. Or if there is Example:
already a decision I one case and you file
another, the first decision will constitute res A leased to B his building for 5 years. In
judicata. That would be a ground for the the first year, B as lessee paid rent. On
dismissal of the second case. the second year, he did not pay
anymore and despite demands made
by the lessor, B did not pay the rent.
Now, A, the lessor, does not want to
But there are exceptions.
continue with the lease of B because he
is difficult to deal with.
1. Even if you filed a case for specific In that case, A, the lessor, can file an
performance but it is no longer possible, action in court for rescission, meaning
then you can be allowed to file a case the lease contract will be cut off. In the
for rescission. second year, B did not pay any rent and
Example: A filed a case for rescission, this means
mutual restitution. You cannot turn back
In a Contract of Sale, A is the seller and B time anymore. The remedy here is
is the Buyer. In this example, A specific performance, meaning he will
committed to sell to B a parcel of land. B recover the leased rentals for the second
already paid the full purchase price. But year. In that case, there is partial specific
despite payment of the full purchase performance and there is partial
price, A did not deliver. Instead, A sold rescission.
the land to X and delivered it to him. X
did not know about the transaction of A You cannot have the contract of lease
with B. In case of double sale, the rescinded for the third year, fourth year
general rule is: first in time, priority in right. and fifth year and at the same time ask
for specific performance for the third
But in case there is already registration year, fourth year and fifth year. It is not
by the other and possession by the other,

possible. You cannot terminate the refused to make further payments because of petitioners‘ failure
contract and then at the same time ask to deliver to him a separate title in the name of Julio Garcia.
for rentals for the years na dili na nimo
Petitioners contend that the Kasunduan never made a
ipadayun. In that sense, rescission and
reference to a "title in the name of Julio Garcia" and that there
specific performance as commutative was nothing in the actuations of the parties which would
remedies would not be possible. indicate that full payment of the purchase price is conditioned
upon the delivery to respondent of said title. Petitioners allege
6. The remedy of rescission can only be filed by one that respondent refused to give further payments not because
who is not at fault. of their failure to deliver a separate title in the name of Julio
Garcia but because he simply did not have sufficient funds to
complete payment of the purchase price. Petitioners ask for
CASE: ALMIRA vs CA rescission of theKasunduan pursuant to Article 1191 of the Civil
Code on the ground that respondent failed to complete
The petitioners were the ones who wanted to rescind. payment of the purchase price.
ISSUE: whether petitioners may rescind the Kasunduan pursuant

The Supreme Court said they were not the proper party to Article 1191 of the Civil Code for failure of respondent to give
to bring the action for rescission because they were not full payment of the balance of the purchase price
the injured party. They were at fault because they did not
comply with their own obligations. The obligation of the RULING:The tenor of the correspondence between petitioners
buyer to pay the purchase price is conditioned on the and respondent shows that the parties intended that a separate
production by the petitioners of the title in the name of title to the property in the name of Julio Garcia shall be
delivered to respondent as a condition for the latter‘s payment
Julio Garcia. So, in the first place, they should not
of the balance of the purchase price.
demand because they have not yet complied with their
obligation. They were not the injured party. Respondent signified his willingness to pay the balance of the
purchase price but reminded petitioners of their obligation to
In rescission under Article 1191, only the injured party can deliver title to the property.
avail of the action; not the guilty party. In this case, just
Had the parties intended that petitioners deliver TCT No. RT-1076
because they were not paid does not mean that they
instead of a separate title in the name of Julio Garcia to
were injured. They were actually the ones who were at respondent, then there would have been no need for petitioners
fault. to ask for partial sums on the ground that this would be used to
pay for the processing of the title to the property. Petitioners had
ALMIRA vs CA only to present the existing title, TCT No. RT-1076, to respondent
and demand the balance of the purchase price. This, petitioners
FACTS:Petitioners are the wife and the children of the late Julio did not do. Instead, they were content to ask small sums from
Garcia who inherited from his mother, Maria Alibudbud, a respondent on thirty-nine occasions for two years before filing an
portion of a 90,655 square-meter property which was co-owned action in court for rescission of the Kasunduan another five years
and registered in the names of three persons with the following later. It is readily discernible from the tenor of various
shares: Vicente de Guzman (½), Enrique Hemedes (1/4), and receipts issued by petitioners that the sums given by respondent
Francisco Alibudbud, the father of Maria Alibudbud (¼). on these thirty-nine occasions were made upon request of
petitioners seeking respondent‘s indulgence.
Petitioners, as heirs of Julio Garcia, and respondent Federico
Briones entered into aKasunduan ng There is thus no basis to conclude that insufficiency of funds
Pagbibilihan (Kasunduan for brevity) over the 21,460 square- rather than failure of petitioners to deliver a separate title in the
meter portion for the sum of P150,000.00. Respondent paid name of Julio Garcia prevented respondent from completing
P65,000.00 upon execution of the contract while the balance of payment of the purchase price.
P85,000.00 was made payable within six (6) months from the
date of the execution of the instrument. That the parties agreed on delivery of a separate title in the
name of Julio Garcia as a condition for respondent‘s payment of
At the time of the execution of the Kasunduan, petitioners the balance of the purchase price is bolstered by the fact that
allegedly informed respondent that TCT No. RT-1076 was in the there was already an approved subdivision plan of the 21,460
possession of their cousin, Conchalina Alibudbud who having square-meter lot years before petitioners filed an action in court
bought Vicente de Guzman‘s ½ share, owned the bigger portion for rescission. The parties evidently assumed petitioners would be
of Lot 1642. This notwithstanding, respondent willingly entered able to deliver a separate title in the name of Julio Garcia to
into the Kasunduan provided that the full payment of the respondent within six (6) months from the time of the execution
purchase price will be made upon delivery to him of the title. of the Kasunduan since there was already a pending petition in
court for the issuance of a separate title to 21,460 square-meter
Respondent took possession of the property subject of lot at that time. Unfortunately, the petitioners were not able to
the Kasunduan and made various payments to petitioners secure a separate title in the name of Julio Garcia within the
amounting to P58,500.00. However, upon failure of petitioners to stipulated period.
deliver to him a separate title to the property in the name of
Julio Garcia, he refused to make further payments, prompting Although both parties have consistently referred to
petitioners to file a civil action before the RTC for (a) rescission of the Kasunduan as a contract to sell, a careful reading of the
the Kasunduan; (b) return by respondent to petitioners of the provisions of the Kasunduan reveals that it is a contract of sale. A
possession of the subject parcel of land; and (c) payment by deed of sale is absolute in nature in the absence of any
respondent of damages in favor of petitioners. stipulation reserving title to the vendor until full payment of the
purchase price. In such cases ownership of the thing sold passes
Petitioners alleged that respondent was bound to pay the to the vendee upon actual or constructive delivery thereof.
balance of the purchase price within six (6) months from the There is nothing in the Kasunduan which expressly provides that
date of the execution of the Kasunduan and upon delivery to petitioners retain title or ownership of the property, until full
him of TCT No. RT-1076. Petitioners claimed that they payment of the purchase price. The absence of such stipulation
approached respondent several times to deliver TCT No. RT-1076 in the Kasunduan coupled with the fact that respondent took
but respondent told them that he did not have money to pay possession of the property upon the execution of
the balance of the purchase price. Respondent, on the other the Kasunduan indicate that the parties have contemplated a
hand, filed a counterclaim for damages and averred that he contract of absolute sale.

detainer with the MTC. In addition to Article 1191, lease
Stated otherwise, there was a perfected contract of sale. The contracts are actually governed by a special provision in
parties agreed on the sale of a determinate object,i.e., 21, 460 the New Civil Code.
square meters of Lot 1642, covered by a tax declaration in the
name of Julio Garcia, and the price certain therefor, without any
reservation of title on the part of petitioners. Ownership was We have Article, 1679 and 1673 of the Revised Penal
effectively conveyed by petitioners to respondent, who was Code and we have Rule 70 of the Rules of Court.
given possession of the property. The delivery of a separate title
in the name of Julio Garcia was a condition imposed on
Under Rule 70 of the Rules of Court, the lessor may extra-
respondent‘s obligation to pay the balance of the purchase
price. It was not a condition imposed on the perfection of the judicially rescind the Contract of Lease by mere notice.
contract of sale. In Laforteza v. Machuca, we stated that the The ejectment of tenants of agricultural lands (even if not
fact that the obligation to pay the balance of the purchase agricultural lands) is governed by special law. The above
price was made subject to the condition that the seller first provision must be read in conjunction with Rule 70,
deliver the reconstituted title of the property does not make the Section 2 of the Rules of Court, which provides that a
agreement a contract to sell for such condition is not demand to pay or to comply with the conditions of the
inconsistent with a contract of sale. lease and to vacate the premises is a condition
precedent for the institution of an ejectment suit against
Addressing now the issue as to whether rescission of
the Kasunduan by petitioners may prosper, we rule in the the lessee.
negative. The power to rescind is only given to the injured party.
The injured party is the party who has faithfully fulfilled his The import of these provisions is to grant the lessor the
obligation or is ready and willing to perform with his obligation. In option of extrajudicially terminating the contract of lease
the case at bar, petitioners were not ready, willing and able to
by simply serving a written notice upon the lessee. This
comply with their obligation to deliver a separate title in the
name of Julio Garcia to respondent. Therefore, they are not in a
extrajudicial termination has the same effect as
position to ask for rescission of the Kasunduan. Moreover, rescission.
respondent‘s obligation to pay the balance of the purchase
price was made subject to delivery by petitioners of a separate So, even if Article 1191 applies to a Contract of Lease,
title in the name of Julio Garcia within six (6) months from the but there are also other provisions under our laws which
time of the execution of the Kasunduan, a condition with which
can be applied to a Contract of Lease. One of which is
petitioners failed to comply. Failure to comply with a condition
imposed on the performance of an obligation gives the other the provision under Rule 70 of the Rules of Court allowing
party the option either to refuse to proceed with the sale or to an extrajudicial rescission by mere notice.
waive that condition under Article 1545 of the Civil
Code. Hence, it is the respondent who has the option either to So, when you file an action for unlawful detainer, it is a
refuse to proceed with the sale or to waive the performance of
prerequisite that you should give a notice, demand to
the condition imposed on his obligation to pay the balance of
the purchase price.
vacate because that will not give you the rescission. That
will now rescind the lease contract and consequently,
It follows that, not having established that they were ready, able because the lessee did not vacate, you can now file an
and willing to comply with their obligation to deliver to action for unlawful detainer. So, there is no need for you
respondent a separate title in the name of Julio Garcia, to go to the RTC to rescind the Lease Contract because
petitioners may not ask for rescission of the Kasunduan nor you already rescinded it by mere notice.
recover damages.
CASE: CHUA vs VICTORIO Article 1192. In case both parties have committed a
breach of the obligation, the liability of the first
Will Article1191 apply in a Contract of Lease? In a infractor shall be equitably tempered by the courts.
Contract of Lease, if the lessee will not pay the lease If it cannot be determined which of the parties first
rental or he violates any undertaking in the lease violated the contract, the same shall be deemed
contract, he can be evicted by the lessor. The proper extinguished, and each shall bear his own
action to evict the lessee in a Contract of Lease is what damages. (n)
we call unlawful detainer.
So, here, both parties have committed a breach of the
Is there a necessity for the lessor to first rescind the obligation. So, both A and B committed a breach of their
Contract of Lease before he can eject the lessee? obligations. What is the consequence of this mutual
Actually, the jurisdiction of rescission is with the RTC breach? In this case, kung kinsa tong una nakasala, siya
because it is considered as an action which is incapable gyud and naay liability kay siya man nauna. But because
of pecuniary estimation. In unlawful detainer, jurisdiction of the fault of the other also which was committed
is with the MTC. Regardless of the value, it falls within the subsequently, his liability shall be equitably tempered.
jurisdiction of the MTC. That is, if you know who the first person at fault is.
If it cannot be determined who was first at fault, what is

So, you file a case for unlawful detainer, so with the MTC.
the rule? Each shall bear his own damage.
Can you move for a dismissal of the case on the ground
that the Contract of Lease has not yet been declared as
If you can determine who the first person at fault is, he is
rescinded?
the one liable although it will be mitigated. But if you
cannot determine who was the first party at fault, you will
Actually, the Supreme Court said yes, it will apply. A lease not know who is the one with no liability and who is the
contract also involves reciprocal obligations. But it does one with mitigated liability so the parties shall bear their
not eman to say that if there is violation on the aprt oft eh own damages.
lessee, you still have to go to the process of rescission first
with the RTC before you file an action for unlawful

Example:
Article 1193. Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only ―I will give to you a car if you get married on December
when that day comes. 25, 2013.‖
Obligations with a resolutory period take effect at Is this a period or a condition? That is a condition
once, but terminate upon arrival of the day certain. because it‘s not certain whether or not you will get
married in 2013. It is dependent upon you finding a bride
A day certain is understood to be that which must and upon the person agreeing to the marriage.
necessarily come, although it may not be known
when. CASE: BERG vs MAGDALENA ESTATE
If the uncertainty consists in whether the day will With respect to this agreement, that assuming it was
come or not, the obligation is conditional, and it shall correct, that payment shall be made until defendant has
be regulated by the rules of the preceding Section. obtained a loan of 400, 000 from the National City Bank
(1125a) of New York or after it has obtained funds from other
sources; under that arrangement, did the obligation to
sell by the plaintiff arise in this case?
Article 1193 talks of an obligation subject to a period or
term. It is not a term because there is uncertainty whether the
event will happen.
The period may be a suspensive period, as defined in the
first paragraph of Article 1193. ―Obligations for whose Another reasoning given by the Supreme Court here, for
fulfillment a day certain has been fixed, shall be example, it will be dependent after the defendant has
demandable only when that day comes.‖ This is subject obtained funds from other sources. So, according to the
to a suspensive period or ex die. agreement, can the defendant say ―as of now, I have
not yet obtained funds from other sources, therefore, I still
So, meaning, until the arrival of the period, the obligation have the time to obtain the finds and because we have
will not be performed yet. But there is certainty. Unlike in a an agreement, you cannot sell to others your interest; you
condition where the obligation may or may not arise have to give me time so that I can purchase your share
because the condition may or may not happen. But for Php 200, 000?‖ Can the defendant insist on that?
here, the period will definitely arrive.
Even in that argument, the defendant could still not insist
In some cases, it may not be known when but it is, for that he should be given the right to buy the share for Php
sure, will be arriving. It will arrive. 200, 000. We have settled now that this is not a term; this is
a condition. That condition, the latter one, is potestative
The second is an obligation subject to a resolutory period. purely dependent on the will of the debtor, and as we
Here, it will terminate upon the arrival of the day certain. discussed before, the conditional obligation shall be void.
It‘s the opposite of the suspensive period. Instead of
arising, the obligation will terminate when the period So, here, the condition plus the obligation itself becomes
arrives. void. That is why in this case, the defendant would want
to compel the plaintiff to sell him his one-third share in the
When the obligation is subject to a resolutory period, it is property for Php 200, 000. The Supreme Court even cited
already demandable at once. The obligor will already that given the circumstances of the plaintiff, he was in
perform the obligation but when the period arrives then dire need of money, it would be expected that he
the obligation is already ended. needed cash immediately so the argument of the
defendant that he would still be given ample time until
he has obtained the loan or until he has obtained funds is
Example:
just completely inconsistent with the circumstances
during which the offer was made by the plaintiff.
―I will give to you my car until your 20th birthday.‖
So, that was the ruling of the Supreme Court in this case,
When the 20th birthday arrives then it‘s the period wherein in relation to Article 1193. So you have to know whether
the obligation of giving to him the car ends. In that case, this is a condition or a term. To resolve a conflict, it is
once the period arrives, the car will have to be returned. necessary to know whether or not it is a condition or a
term.
The period is defined in the 3rd paragraph. It is ―A day
certain is understood to be that which must necessarily BERG vs MAGDALENA ESTATE
come, although it may not be known when. If the
uncertainty consists in whether the day will come or not,
FACTS: The complaint avers that plaintiff and defendant are co-
the obligation is conditional, and it shall be regulated by owners of said property, the former being the owner of one-third
the rules of the preceding Section.‖ interest and the latter of the remaining two-thirds.
Hemady (defendant) claims that on September 22, 1943, it sold

to Berg (plaintiff) one-third of the property in litigation subject to
the express condition that should either vendor or vendee
decide to sell his or its undivided share, the party selling would

grant to the other part first an irrevocable option to purchase the Article 1194. In case of loss, deterioration or
same at the seller's price. improvement of the thing before the arrival of the day
certain, the rules in article 1189 shall be observed. (n)
It avers that on January 1946 plaintiff fixed the sum of P200,000 as
the price of said share and offered to sell it to defendant, which
offer was accepted, and for the payment of said price plaintiff Do you still remember the rules in Article 1189 in case of
gave defendant a period of time which, including the extensions loss, deterioration or improvement?
granted, would expire on May 31, 1947. Defendant claims that,
in spite of the acceptance of the offer, plaintiff refused to GENERAL RULE: loss or deterioration without the fault of
accept the payment of the price. the debtor, in case it is a loss, the obligation is
extinguished. In case it is deterioration, the impairment
It is an undisputed fact that since September 22, 1943, plaintiff shall be borne by the creditor. If it is an improvement, the
and defendant were co-owners pro indiviso of the property improvement shall inure to the benefit of the creditor.
known as Crystal Arcade in the proportion of one-third interest
belonging to the former and two-thirds to the latter. In the deed If it is with the fault of the debtor, in cases of loss, he shall
of sale executed by the parties on said date, they stipulated be liable to pay for damages plus the value of the thing
that, should either of them decide to sell his or her share, the
lost. If it is deterioration, the creditor has the option of
other party will have an irrevocable option to purchase it at the
seller's price. Then a disagreement ensued between the parties
rescission or specific performance plus damages in both
as to what really occurred concerning the deal. cases. If it is improvement, the debtor shall have no other
rights than that granted to a usufructuary.
Thus, while Berg claims that his negotiations with Hemady ended
when an offer by the latter to the former to buy his interest for
I think I discussed with you, what are the rights of the
the sum of P350,000, Hemady on the other hand claims that Berg creditor to the fruits of the thing. We also discussed before
offered to sell it to him for P200,000 subject to the condition that the rules in conditional obligations. If the condition is
the necessary permit be obtained from the United States fulfilled, the effect of the fulfillment shall retroact to the
Treasury Department. date of the constitution of the obligation.
In case of fruits and interests pending the fulfillment of the

condition, the law says, in case of reciprocal obligations,
RULING: Supposing that the term of payment is, as contended by
the fruits and interests shall be deemed to be mutually
defendant, until defendant has obtained the loan of P400,000 compensated. If it is a bilateral obligation, the debtor
from the National City Bank of New York, or after it has obtained shall appropriate the fruits.
funds from other sources (considering the terms of application
Exhibit "4") what is the legal effect of this alternative clause? Can In case of a period, and the period now arrives, what
it be considered a term within the meaning of our old Civil happens to the fruits and interests which accrued prior to
Code? Let us analyze it. Under article 1125 of said code, the arrival of the period?
obligations, for the fulfillment of which a day certain has been
fixed, shall be demandable only when the day arrives. A day The same rule would also apply as in the case of
certain is understood to be that which must necessarily arrive,
fulfillment of a condition. So, the creditor, before the
even though it is not known when. In order that an obligation
may be with a term, it is, therefore, necessary that it should arrival of the term cannot demand from the fruits that
arrive, sooner or later; otherwise, if its arrival is uncertain, the accrued prior to the arrival of the term. The creditor‘s
obligation is conditional. To constitute a term the period must rights will only start from the time of the arrival of the term
end on a day certain. and we already discussed this in Article 1164. Once the
obligation to deliver arises, the creditor already has a
Viewing in this light the clause on which defendant relies for the personal right over the fruits.
enforcement of its right to buy the property, it would seem that it
is not a term, but a condition. Considering the first alternative, So, once the period arrives, the creditor now has a right
that is, until defendant shall have obtained a loan from the to the fruits; a personal right. Unless the thing or the
National City Bank of New York, it is clear that the granting of subject matter is delivered to him, the creditor shall have
such loans is not definite and cannot be held to come within the a right over the fruits but merely a personal right. But he
terms "day certain" provided for in the Civil code, for it may or it
has a right already; he can demand for the delivery. But
may not happen. As a matter of fact, the loan did not
materialize. And if we consider that the period given was until prior to the arrival of the term, he has no right because in
such time as defendant could raise money from other sources, the first place, that will be appropriated by the debtor.
we also find it to be indefinite and contingent and so it is also a
condition and not a term within the meaning of the law. In any We are talking of an obligation subject to a period. The
event it is apparent that the fulfillment of the condition creditor cannot demand the performance of the
contained in this second alternative is made to depend upon obligation until after the arrival of the period.
the defendant's exclusive will, and viewed in this light, we are of
the opinion that plaintiff's obligation to sell did not arise, for, What happens if there is loss, deterioration or
under Article 1115 of the old Civil Code, "when the fulfillment of improvement that happens in the meantime that the
the condition depends upon the exclusive will of the debtor the
period has not yet arrived? Article 1194 says the same
conditional obligation shall be void."
rule in Article 1189.
In case of loss or deterioration, we follow ―res perit

domino‖ which means the owner bears the risk of loss. If it
is improvement, the same thing, the owner bears the
improvement.
A usufruct is a contract for the use of the property.

We already discussed under Article 1189 the rules in In Article 1195, fruits and interests may be recovered by
Article 1164. In Article 1164, once the obligation to deliver the payor regardless of the bad faith or good faith of the
arises, the creditor has a personal right over the fruits. payee. That would be another exception.
When the period does not yet arrive, the creditor also has
no rights over the fruits because the obligation to deliver Article 1196. Whenever in an obligation a period is
does not yet arise, pending the arrival of the period. We
designated, it is presumed to have been established
just reconcile it with Article1194.
for the benefit of both the creditor and the debtor,
unless from the tenor of the same or other
Article 1195. Anything paid or delivered before the
circumstances it should appear that the period has
arrival of the period, the obligor being unaware of
been established in favor of one or of the other.
the period or believing that the obligation has
(1127)
become due and demandable, may be
recovered, with the fruits and interests. (1126a)
Please remember this article. If the parties themselves fix
a period in their contract or in their obligation, we have
the presumption that the period is for the benefit of both
Here, the period has not yet arrived and the obligor is not parties.
aware that the period has not arrived or he is not aware
of the period or he believed that the obligation had What is the consequence of this presumption? One
already become due and demandable. consequence is, the debtor cannot be compelled to
perform prior to the arrival of the period because he has
So, what will happen if the debtor, prior to the arrival of in his favor the benefit of the period. He can wait until the
the period, delivers? Can he recover what he delivered? period is exhausted before he may deliver.
Yes, under Article 1195. He may recover what he Can he choose to deliver? No, because the creditor
delivered plus the fruits and interests because, in the first cannot be compelled to accept payment before the
place, he has no obligation yet to deliver. It is a case of period.
solutio indebiti or payment by mistake.
What will be the benefit of this to the creditor? If it is a
If he knew that the period has not yet arrived but he still loan, he will be interested in the interest. If e is the debtor,
delivered, can he recover? No, because he is deemed to of course, he will be interested in the convenience of not
have waived the period. paying immediately. He can use the money for other
expenses or undertaking. So, that would be beneficial to
Article 1195 will apply only if the debtor has no him.
knowledge that the period has not yet arrived.
If you remember, in loans, you cannot stipulate for the
What happens if prior to the arrival of the period, and the pre-termination of the loan agreement.
debtor did not know that the period has not yet arrived,
so, erroneously, the debtor thought that the obligation is You may wonder why the creditor does not agree to the
already demandable? Can he recover what has been pre-termination. Actually, that is also for his benefit. There
delivered? Yes, under Article 1195. The law even says with are creditors who agree to the pre-termination there is a
the fruits and interest. In the first place, the delivery was penalty. It is because you will be depriving the creditor of
not yet due and demandable. So he could recover the the interest over the money he is supposed to be paid
thing along with the fruits and interest. only upon the arrival of the period.
What if he knowingly made the delivery? He cannot There is an exception: unless from the tenor of the same
recover what he has delivered because he is deemed to or other circumstances, it should appear that the period
have waived the period. has been established in favor of one or of the other.
This is the same rule as in conditions. Example:
Although this is more or less similar to the concept of In a loan agreement, it is stated that the loan is payable
solutio indebiti where there is payment by mistake, this is on or before December 12, 2013. For whose benefit is that
not actually strictly the same (with solutio indebiti). period?
Under Article 1195, there is a debt due to the creditor but It is for the benefit of the debtor. In that case, if the
because the period has not yet arrived, the debtor is not creditor makes a demand on November 1, 2013, the
yet under the obligation to deliver. debtor may say that he still has until December 12 to fulfill
the obligation. The debtor cannot be compelled to pay.
In solutio indebiti, there is no debt but he made payment So, that is not for the benefit of the creditor.
or delivery by mistake.
What if the debtor pays on November 1? Can he compel
Although in both cases (solutio indebiti and Article 1195), the creditor to accept? Yes, he can because it is
there is mistake. payable ―on or before”. So, it is for the benefit of the
debtor.
In solutio indebiti, if there is undue payment in money,
general rule, the payor cannot recover interest except How about the obligation says it is ―demandable on or
when the payee acted in bad faith. before December 12, 2013”, whose benefit is that?

This time, it is for the benefit of the creditor. He now has Second, in the present case, the disagreement of the parties
the option to demand on or before December 12, 2013. over the increased rental rate and private respondents' failure to
pay it precluded the possibility of a mutual renewal.
CASE: LL AND COMPANY DEVELOPMENT AND AGR0-

Third, the fact that the lessor allowed the lessee to introduce
INDUSTRIAL CORPORATION VS. HUANG CHAO CHUN AND
improvements on the property was indicative, not of the former's
YANG TUNG FA intention to extend the contract automatically, but merely of its
obedience to its express terms allowing the improvements. After
The Supreme Court held that a stipulation in a lease all, at the expiration of the lease, those improvements were to
contract stating that its five-year term is subject to "an "become its property."
option to renew" shall be interpreted to be reciprocal in
character. Unless the language shows an intent to allow Thus, in this case, it is understood that both of the parties in the
the lessee to exercise it unilaterally, such option shall be lease contract can exercise the power to renew. It is reciprocal
deemed to benefit both the lessor and the lessee who in character.
must both consent to the extension or renewal, as well as
to its specific terms and conditions.
Article 1197. If the obligation does not fix a period,

The lessor, on his own. Cannot decide whether he should
but from its nature and the circumstances it can be
renew. Neither can the lessee choose to renew if they
inferred that a period was intended, the courts may
want to extend. Both parties should mutually agree.
fix the duration thereof.
Of course, it can also be stipulated that the option be

The courts shall also fix the duration of the period
given to the lessee, but it was not stated in this case. Thus,
when it depends upon the will of the debtor.
the interpretation should be in accordance with Article
1196, that the period should be deemed to be for the
benefit of both the debtor and creditor. In every case, the courts shall determine such period
as may under the circumstances have been
probably contemplated by the parties. Once fixed by
LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL
CORPORATION vs HUANG CHAO CHUN AND YANG TUNG FA
the courts, the period cannot be changed by them.
(1128a)
FACTS: This case originated from an unlawful detainer case filed
by petitioner.
Here, the obligation as written, is silent as to the period.
Petitioner alleged that respondents Huang Chao Chun and But, it is obvious from the circumstances that a period
Yang Tung Fa violated their amended lease contract when they was intended.
did not pay the monthly rentals thereon in the total amount
of P4,322,900.00. What is the remedy here since the obligation is silent?
It also alleged that the amended lease contract already expired Example:
on September 16, 1996 but respondents refused to surrender
possession thereof plus the improvements made thereon, and There is a loan agreement. A borrowed 1M from B.
pay the rental arrearages despite repeated demands. However, in the loan agreement, the parties forgot to fix
a period within which A should pay. The debtor says,
The amended lease contract was entered into by the parties ―Diba ang sabot nato within 5 months?” Then the creditor
sometime in August, 1991. The same amended the lease says, “Wala uy, wala ta’y sabot.”
contract previously entered into by the parties on August 8, 1991.
In that case, if the creditor allows the fixing of the period,
The parties stipulated, among others, in the lease contract that : there will be no problem. The parties may rectify the
mistake.
The term of this lease is FIVE (5) YEARS from the effectivity of said
lease, and with the option to renew, specifically shall But, if one of the parties does not agree to rectify, and a
commence from September 15, 1991 and shall expire on period was really intended, they have to go to court and
September 16, 1996, and maybe adjusted depending upon the the court will fix the period.
ejectment of tenants.
In that example (loan agreement), it is obvious that a
ISSUE: WON the stipulation in the lease contract stating that the period was intended.
five-year term is subject to an option to renew be interpreted in
favor of the lessor or the lessee. Nangutang gani si A kay wala siya’y kwarta, alangan
naman pagdawat niya sa 1M, pabayaron dayon siya?
RULING: There was nothing in the aforesaid stipulation or in the From the nature and circumstances of that particular
actuation of the parties that showed that they intended an case, it can be inferred that a period was really intended.
automatic renewal or extension of the term of the contract.
If the obligation says ―I will pay when my means permit
First, demonstrating petitioner's disinterest in renewing the me to do so,‖ is that an obligation subject to a condition
contract was its letter32 dated August 23, 1996, demanding that or a period?
respondents vacate the premises for failure to pay rentals since
1993. As a rule, the owner-lessor has the prerogative to terminate That is a codal provision; that is deemed to be with a
the lease upon its expiration. period: ―When my means permit me to do so.”

Why is it not a condition? Because here, there is already F.S DIVINAGRACIA VS. CA
an acknowledgment from the debtor that he owes
something and that he will pay. It is only the time of the FACTS: Private respondent's father was the original lessee of the
payment that is in question. building and lot owned by the late Doña Concepcion Gay de
Loring and the spouses Mercedes Van Kauffman and Jaime
Ibañez de Aldecoa.
We begin counting from the date of the maturity of the
obligation. This lease dates back to 1899. After his father's demise, private
respondent continued the lease. The building and lot subject of
Your right to make a demand arises from that time. the lease was bought by petitioner herein from the interest state
estate of the original owners for the sum of P250,000.00 on July 9,
The right to make a demand itself, when should it arise? Is 1974. Before its purchase, private respondent was a lessee of the
the right to demand co-terminus with the right to file an said owners and was paying them a rental of P1,250.00 a month.
action in court?
After the purchase, the rental corresponding to first half of the
Yes, because within the period of prescription, you should month of July, 1974 in the sum of P625.00 was paid by private
respondent to the original owners and that of the second half in
make a demand, whether judicial or extra-judicial.
the sum of P625.00 to the new owner, petitioner herein. In the
continuance of the lease, it was verbally agreed by and
In both cases, that would be affected by the period. between the petitioner and private respondent that the rental
for the succeeding months would be increased to P2,000.00
Is it necessary to have a judicial demand? starting August, 1974. This went on until September, 1975. About
the second week of October, 1975, private respondent was
No need, you can go directly to court. informed by a representative of petitioner, Atty. Santiago
Divinagracia, that his contract of lease would terminate on
WHY WAS IT ALLEGED THAT THE CA MADE A CONTRACT October 31, 1975. When private respondent refused to vacate
FOR THE PARTIES? the premises on October 31, 1975, petitioner reiterated the
advice earlier made in a letter dated November 4, 1975 formally
CAN THE COURT DETERMINE THE PERIOD (FOR THE LEASE)? advising him of the termination of the lease on October 31, 1975
and giving him, the private respondent, a final extension to
occupy the premises up to the end of November, 1975, for
HOW DID THE SC RULED IN ART. 1587 AND 1197?
which reason petitioner refused to accept further payment of
rentals for December, 1975. Private respondent in turn informed
This is one provision of law where it is really evident that petitioner that he was depositing his rentals for the succeeding
the court may determine the period for the lease using months with the Clerk of Court.
this article as the guide and in relation to Article 1687.
A complaint for unlawful detainer was filed by herein petitioner
Article 1687. If the period for the lease has not been fixed, it is against private respondent.
understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week Petitioner alleges that there was grave abuse of discretion by
if the rent is weekly; and from day to day if the rent is to be paid the Court of Appeals in reckoning the occupancy of the lessee
daily. However, even though a monthly rent is paid and no from 1899 when his predecessor-in-interest was the occupant of
period for the lease has been set, the court may fix a longer term the premises.
for the lease after the lessee has occupied the premises for over
one year. If the rent is weekly, the courts may likewise determine It should have been reckoned only from his personal occupancy
a longer period after the lessee has been in possession for over of the premises. Petitioner further alleges that the Court of
six months. In case of a daily rent, the courts may also fix a longer Appeals was oblivious of the following facts: (1) There was a
period after the lessee has stayed in the place for over one change of ownership - the lessor became owner only on July 9,
month. 1974; (2) The leased premises is a commercial lot; (3) the Private
respondent was made to understand that in the future, the
petitioner may need the premises for its own use; (4) The private
In a lease contract, would you say that a period would respondent has admitted that he has two stores, one at the
be intended in this contract? premises subject of this case and the other located at his own
commercial building; and (5) The petitioner herein was the one
who filed the unlawful detainer case. It could have been
Yes. When you say lease, you are just allowing the lessee
another matter had the private respondent filed an
temporary use of the premises. independent action asking for the fixing of the period of the
lease.
If you allow the use to be forever, you might as well
execute a contract of sale, not a contract of lease. ISSUE: Can the court determine the period for the lease?
In fixing a period, the court does not make a new

RULING: Petitioner's contention is devoid of merit.
contract for the parties. It merely made the period
definite.
In the first place, it is beyond dispute that Article 1687 of the New
Civil Code is applicable, which article states:
In the case of F.S. DIVINAGRACIA, it only made the
indefinite period definite.
Art. 1687. If the period for the lease has not been fixed, it is
The court merely clarified what would have been the understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly, from week to week,
intention of the parties taking into account the
if the rent is weekly; and from day to day, if the rent is to be paid
circumstances. daily. However, even though a monthly rent is paid and no
period for the lease has been set, the court may fix a longer term
That would be Article 1197. for the lease after the lessee has occupied the premises for over
one year. ...
Article 1687 of the New Civil Code must be correlated with

Article 1197 of the New Civil Code which provides: Council of Rizal, Santiago City issued Resolution No. 397
recognizing the right of the donors to redeem the subject parcel
Art. 1197. If the obligation does not fix a period, but from its of land because of the DECS‘ failure to utilize it for the intended
nature and circumstances it can be inferred that a period was purpose. It further resolved that the Rizal National High School no
intended, the court may fix the duration thereof. longer needed the donated land "considering its distance from
the main campus and [the] failure to utilize the property for a
Considering both Articles together, it is at once clear and long period of time."
evident that the court is accorded the power to fix a longer term
for the lease, which power is potestative or discretionary in On August 31, 1997, the heirs of Dulay, Sr., herein respondents,
nature. This prerogative is addressed to the court's sound filed a complaint for the revocation of the deed of donation
judgment and is controlled by equitable considerations. "The and cancellation of the title, alleging that (1) there was a
court may fix a longer term where equities come into play condition in the deed of donation: that the DECS, as donee,
demanding an extension." (Divino v. Fable de Marcos, 4 SCRA utilize the subject property for school purposes, that is, the
186) construction of a building to house the Rizal National High
School, (2) the DECS did not fulfill the condition and that the land
It may not, therefore, be contended that the Court of Appeals in remained idle up to the present, and (3) the donation inter vivos
the exercise of its discretionary power under Article 1687 in was inofficious, since the late Rufino Dulay, Sr. donated more
relation with Article 1197 made a contract between the parties, than what he could give by will.
since the very purpose of the law is not the fixing of a longer term
for the lease, but to make the indefinite period of lease definite Petitioners, through the Office of the Solicitor General (OSG),
by fixing once and for all the remaining duration of the lease. interposed the following defenses: (a) the DECS complied with
said condition because the land was being used by the school
as its technology and home economics laboratory; (b) the
If you file an action for the revocation of a donation on donation was not inofficious for the donors were the owners of
five other parcels of land, all located at Rizal, Santiago City; (c)
the ground that the condition is not fulfilled, when would
the DECS acquired the disputed property by virtue of purchase
your right to file an action accrue? When will the 10-year made on December 8, 1997 by the barangay of Rizal, Santiago
prescription period be counted? City in the amount of P18,000.00 as certified by its former
Barangay Captain, Jesus San Juan;11 and (d) the action of the
When there is already a violation. The cause of action will respondents had prescribed. The OSG also claimed that students
accrue from the time that there has been a violation. The planted a portion of the land with rice, mahogany seedlings,
period of prescription will run from such time. and fruit-bearing trees; the produce would then be sold and the
proceeds used for the construction of a school building on the
In the case of SECETARY OF EDUCATION vs DULAY, the subject property.
deed of donation did not specify the period within which
ISSUE: WON Art. 1197 is applicable.
the deed of donation will be fulfilled.
RULING: Yes.
How do we determine when the condition should be
fulfilled? Art. 1197 is the remedy. The court will fix the Corollarily, since a deed of donation is considered a written
period. If the nature and circumstances of the case will contract, it is governed by Article 1144 of the New Civil Code,
tell us that a period was intended, the Court will fix the which provides that the prescriptive period for an action arising
period. from a written contract is ten (10) years from the time the cause
of action accrues.
In this case, the SC ruled that the donors would not have
intended their property to remain idle for a long period of In the case of donation, the accrual of the cause of action is
time. from the expiration of the time within which the donee must
comply with the conditions or obligations of the donation. In the
The deed of donation did not specify the period within instant case, however, it must be noted that the subject
which the school must be built in the donors‘ land. donation fixed no period within which the donee can comply
with the condition of donation. As such, resort to Article 1197 of
the New Civil Code is necessary. Said article provides that if the
SECRETARY OF EDUCATION VS. DULAY obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof. Indeed, from the nature and
circumstances of the condition of the subject donation, it can
FACTS: On August 3, 1981, the spouses Rufino Dulay, Sr. and be inferred that a period was contemplated by the donors. The
Ignacia Vicente Dulay executed a deed of donation over a donors could not have intended their property to remain idle for
10,000-square-meter portion of their property in favor of the a very long period of time when, in fact, they specifically obliged
Ministry of Education and Culture. the defendant-appellants to utilize the land donated for school
purposes and thus put it in good use.
The property was subdivided. On April 13, 1983, a Transfer
Certificate of Title was issued in the name of the Ministry of
Education and Culture, represented by Laurencio C. Ramel, the In Central Philippine University v. Court of Appeals, a case
Superintendent of Schools of Isabela. However, the property was squarely in point, we have established that the legal possibility of
not used for school purposes and remained idle. bringing the action begins with the expiration of a reasonable
opportunity for the donee to fulfill what has been charged upon
it by the donor. Likewise, we held that even if Article 1197 of the
Sometime in 1988, the DECS, through its Secretary, started New Civil Code provides that the courts may fix the duration
construction of the Rizal National High School building on a when the obligation does not determine the period but from its
parcel of land it acquired from Alejandro Feliciano. The school nature and circumstances it can be inferred that a period was
site was about 2 kilometers away from the land donated by the intended, the general rule cannot be applied because to do so
spouses Dulay. would be a mere technicality and would serve no other purpose
than to delay or lead to an unnecessary and expensive
In a letter to the DECS Secretary dated August 19, 1994, the multiplication of suits.
spouses Dulay requested that the property be returned to them
considering that the land was never used since 1981, or a period Altogether, it has been 16 years since the execution of the deed
of more than 13 years. On August 28, 1994, the Barangay of donation. Petitioner DECS failed to use the property for the

purpose specified in the deed of donation. The property CASE: AGONCILLO vs JAVIER
remained barren and unutilized. Even after respondents sought
the return of the property before the courts, petitioner DECS still First, when we go to contracts, there are different kinds of
failed to draw up plans to use the property for school purposes. contract but as to form, it is not generally required as long
In fine, petitioner DECS has no use for the property; hence, the
as there is a meeting of the minds. But in a mortgage, it
same shall be reverted to the respondents.
has to be recorded in order to affect third persons and
there are certain requisites for the contract to be valid.
So, that was not complied with.
We now go to Article 1199, which is the start of alternative
obligations.
The Supreme Court here mentioned pactum
commisorium.
Article 1199. A person alternatively bound by
different prestations shall completely perform one of ―I, Anastasio Alano, also mortgage to the said lady my
them. four parcels of land situated in the barrio of San Isidro, to
secure the balance, if any; the title deeds of said
The creditor cannot be compelled to receive part of property, as well as the title deeds of the said house and
one and part of the other undertaking. (1131) lot are this day delivered to Sr. Vicente Ilustre, general
attorney-in-fact of Da. Marcela Mariño.‖
Here, it was stipulated that if there was a balance then

In an alternative obligation there are several prestations. automatically, the title over the lots and the house, as of
the execution, are transferred. That is what we call a
―I promise to deliver a car or jewelry or a house.‖ But the pactum commissorium or pacto comisorio.
delivery of any one of them would be sufficient to
extinguish the entire obligation. So, I don‘t have to deliver What is a pacto comisorio? Is it allowed?
the house, the car and the jewelry; I have to deliver only
one. So, alternative; alternate. When we say pactum commissorium, it is prohibited. A
stipulation in the contract whereby the ownership over
As long as I deliver the entire car, the jewelry or the the mortgaged property shall be transferred immediately
house, that would extinguish my obligation. and automatically to the mortgagee is prohibited.
In a mortgage, we have certain rules to be followed.

There is a procedure. In case the debt is not paid, the
Article 1200. The right of choice belongs to the mortgagee will have to foreclose the property then the
debtor, unless it has been expressly granted to the property shall be sold at public auction and the proceeds
creditor. shall be used to pay the debt. If there is any excess, the
excess shall be returned to the mortgager.
The debtor shall have no right to choose those
prestations which are impossible, unlawful or which Here, if there is automatic foreclosure or forfeiture, there is
could not have been the object of the obligation. no longer any return of the excess. That would be
(1132) prejudicial. That is a pactum commissorium.
As to the agreement to convey the house, the Supreme

Now, remember, in alternative obligations, as a general Court said it was valid. It is an alternative obligation. He
rule, to whom does the right of choice belong? can pay money or he can convey the house. It is not
pactum commissorium. Why is it not pactum
―I promise to deliver a car, a house or jewelry.‖ So, who commissorium?
will choose which to deliver?
It is not pactum commissorium because the transfer is not
General rule, it is the debtor who will choose which to automatic. ―To convey‖ meaning they would still have to
deliver unless it has been expressly granted to the execute a deed to convey the house unlike in pactum
creditor. For the creditor to have the right of choice in an commissorium where it is automatic. If the debt is not
alternative obligation, that should be expressly stated. paid and it is due and demandable, the property now
belongs to the creditor. In this case, it is not automatic. It
It cannot be implied. Meaning, through the
is, in a sense, an alternative obligation.
acquiescence of the debtor, the creditor is the one who
made the choice. No. It should be expressly given to the AGONCILLO vs JAVIER
creditor.
FACTS: On February 27, 1904, Anastasio Alano, Jose Alano, and
The limitation is: the debtor shall have no right to choose Florencio Alano executed in favor of the plaintiff, Da. Marcela
those prestations which are impossible, unlawful or which Mariño a document whereby they attested to be the
could not have been the object of the obligation. testamentary heirs of the Rev. Anastasio C. Cruz, deceased. The
document was of the following tenor:
So, his choice is only limited or confined to the available
choices; to the prestations agreed upon; a house, a car 1. We will pay to Da. Marcela Mariño within one year
or jewelry. He cannot deliver one sack of gold instead. from this date together with interest thereon at the rate
But, of course, if the creditor will accept then there is no of 12 per cent per annum, the sum of P2,730.50,
problem. But he cannot compel the creditor. Philippine currency, this being the present amount of
indebtedness incurred in favor of that lady on the 20th
of April 1897, by our testator, the Rev. Anastasio C. Cruz;
2. To secure the payment of this debt we mortgage to is not an attempt to permit the creditor to declare a forfeiture of
the said Da. Marcela Mariño the house and lot the security upon the failure of the debtor to pay the debt at
bequeathed to us by the deceased, situated in this maturity. It is simply provided that if the debt is not paid in money
town, on calle Evangelista, formerly Asturias, recorded it shall be paid in another specific was by the transfer of property
in the register of deeds on the twenty-second of April, at a valuation. Of course, such an agreement, unrecorded,
1895, under number 730; creates no right in rem; but as between the parties it is perfectly
valid, and specific performance of its terms may be enforced,
unless prevented by the creation of superior rights in favor of
3. In case of insolvency on our part, we cede by virtue
third persons.
of these presents the said house and lot to Da. Marcela
Mariño, transferring to her all our rights to the ownership
and possession of the lot; and if the said property upon The contract now under consideration is not susceptible of the
appraisal at the time of the maturity of this obligation interpretation that the title to the house and lot in question was
should not be of sufficient value to cover the total to be transferred to the creditor ipso facto upon the mere failure
amount of this indebtedness, I, Anastasio Alano, also of the debtors to pay the debt at its maturity. The obligations
mortgage to the said lady my four parcels of land assumed by the debtors were alternative, and they had the right
situated in the barrio of San Isidro, to secure the to elect which they would perform (Civil Code, art. 1132). The
balance, if any; the title deeds of said property, as well conduct of the parties (Civil Code, art. 1782) shows that it was
as the title deeds of the said house and lot are this day not their understanding that the right to discharge the obligation
delivered to Sr. Vicente Ilustre, general attorney-in-fact by the payment of money was lost to the debtors by their failure
of Da. Marcela Mariño. to pay the debt at its maturity. The plaintiff accepted a partial
payment from Anastasio Alano in 1908, several years after the
debt matured. The prayer of the complaint is that the
In 1912, Anastasio Alano died intestate. The court appointed an
defendants be required to execute a conveyance of the house
administrator and a committee to hear claims. It appears that
and lot, after its appraisal, "unless the defendants pay the
no claims whatever were presented to the committee, and it
plaintiff the debt which is the subject of this action."
having been shown to the court, by the statement of the
administrator, that the claim of the creditor at whose instance
the administration proceeding was commenced, had been It is quite clear, therefore, that under the terms of the contract,
settled by the heirs, the administrator was discharged and the as we read it, and as the parties themselves have interpreted it,
proceeding terminated by order. the liability of the defendants as to the conveyance of the house
and lot is subsidiary and conditional, being dependent upon
On April 27, 1916, at the instance of the plaintiff, Da. Marcela their failure to pay the debt in money.
Mariño, and upon the statement, made on her behalf, that she
was a creditor of the deceased and that her claim was secured
by mortgage upon real estate belonging to the said deceased,
the court reopened the intestate proceeding, and appointed
one Javier to be administrator of the estate. Article 1201. The choice shall produce no effect except
from the time it has been communicated. (1133)
The plaintiffs filed the complaint in this action against Javier, as
administrator of the estate of Anastasio Alano and against
Florencio Alano and Jose Alano personally. The action is based
upon the execution of the document of February 27, 1904.
Of course, unless the debtor communicates the choice,
It is averred that defendants have paid no part of the the creditor would not know what to deliver. So, before
indebtedness therein acknowledged, with the exception of the the choice is communicated, the debtor can change his
P200 paid on account in 1908. It is further averred that on April mind several times but once the choice has been
22, 1910, the debtors promised in writing that they would pay the communicated, the obligation becomes a pure and
debt in 1911, but that they had failed to do so. The prayer of the simple obligation to deliver the subject matter chosen. In
complaint is that, unless defendants pay the debt for the
that case, the debtor can no longer change his mind.
recovery of which the action was brought, they be required to
convey to plaintiffs the house and lot described in paragraph
two of the said document; that this property be appraised; and
that if its value is found to be less than the amount of the debt,
with the accrued interest at the stipulated rate, judgment be Article 1202. The debtor shall lose the right of choice
rendered in favor of the plaintiffs for the balance.
when among the prestations whereby he is
Appellants contend that the contract evidenced by that alternatively bound, only one is practicable. (1134)
instrument is merely a loan coupled with an ineffectual attempt
to create a mortgage to effect the payment of debt. The court
below regarded it as a conveyance of the house and lot
described in the contract, which took effect upon the failure of Example:
the debtors to pay the debt.
The obligation is to deliver a specific car, specific house
RULING: The principal undertaking evidenced by the document and jewelry. But the car is destroyed because of the
is, obviously, the payment of money. The attempt to create a flood so it cannot be delivered anymore. The house is
mortgage upon the house and lot described in the second also burned, it cannot be delivered anymore. What
clause of the contract is, of course, invalid, as it is admitted that remains is the jewelry, that is the one to be delivered.
the so-called mortgage was never recorded. Equally
inefficacious, and for the same reasons, is the purported
Example:
mortgage by Anastasio Alano of his land in the barrio of San
Isidro described in the third paragraph of the document.
Here, the debtor promised to deliver a specific house,
car, or jewelry. This is an alternative obligation.
The agreement to convey the house and lot at an appraised
valuation in the event of failure to pay the debt in money a t its
Now, the debtor burned the house. It cannot be
maturity is, however, in our opinion, perfectly valid. It is simply an
undertaking that if the debt is not paid in money, it will be paid in delivered anymore. Can the creditor demand for
another way. As we read the contract, the agreement is not damages against the debtor? No, because the right of
open to the objection that the stipulation is a pacto comisorio. It choice belongs to him. As long as he has not
communicated his choice, he can always change his
mind. The right of choice belongs to him so, meaning,
when he burned the house, maybe he just wants to
deliver the car or jewelry.
What if he threw the jewelry into the Pacific Ocean, will

he be liable for damages? No, because, again, the right
of choice belongs to him.
Now, what if he destroyed the car, is the debtor liable for

damages? He will be liable for damages because in this
case, his obligation is to deliver the car and it is now lost
through his fault so the value of the car plus damages.
Article 1203. If through the creditor's acts the debtor

cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with
damages. (n)
Article 1203 talks of the creditor‘s acts.
So, if the creditor destroyed any of the prestations: the

house, the car, the jewelry (based on the example
above) is he liable for damages?
Yes, because the debtor can no longer make the choice.

We cannot say nan a-a pa man nabilin. Na-a pay car,
na-a pay jewelry. But the right of choice belongs to the
debtor and you would be depriving him of that choice. The choice belongs to the creditor. It has been expressly
So, the debtor may rescind the contract with damages. given to him. Remember the rules.
(1) If one of the things is lost through a fortuitous

Article 1204. The creditor shall have a right to event, he shall perform the obligation by
indemnity for damages when, through the fault of delivering that which the creditor should choose
the debtor, all the things which are alternatively the from among the remainder, or that which
object of the obligation have been lost, or the remains if only one subsists;
compliance of the obligation has become
impossible.
If the loss is by reason of a fortuitous event, the debtor is
not liable.
The indemnity shall be fixed taking as a basis the
value of the last thing which disappeared, or that of
the service which last became impossible. (2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim
any of those subsisting, or the price of that which,
Damages other than the value of the last thing or through the fault of the former, has disappeared,
service may also be awarded. (1135a) with a right to damages;
That‘s the example I gave you. He destroyed everything If the loss is due to the fault of the debtor, halimabawa,
so that means, wala nay mabilin. Now, the debtor will be isa lang ang nawala through the fault of the debtor,
liable for damages plus the value of the prestation. what are the rights of the creditor? He may demand for
the value of any one, even katong nawala. Because the
right of choice belongs to him. He may choose the value
What is the value? The value of the thing which was last of the house or those which remain plus damages.
lost. Or which last disappeared.
(3) If all the things are lost through the fault of the
In that example, the house was lost first, then the jewelry debtor, the choice by the creditor shall fall upon
was lost next, the obligation becomes pure and simple to the price of any one of them, also with indemnity
deliver the car. So, that would be the valuation of the for damages.
liability of the debtor plus damages.
If the debtor destroyed everything, he may then again,
demand the value of any of those which was lost. Not
necessarily the one which last disappeared but any one
plus damages.
Article 1205. When the choice has been expressly
given to the creditor, the obligation shall cease to be
alternative from the day when the selection has been
communicated to the debtor.
Until then
Revelen theMizzy
Solis and responsibility of the debtor shall be
Mareé Martinez TAU MU Page 102 of 262
governed by the following rules:
(1) If one of the things is lost through a

fortuitous event, he shall perform the
obligation by delivering that which the
Article 1206. When only one prestation has been
agreed upon, but the obligor may render another in
substitution, the obligation is called facultative. Article 1207. The concurrence of two or more
creditors or of two or more debtors in one and the
The loss or deterioration of the thing intended as a same obligation does not imply that each one of the
substitute, through the negligence of the obligor, former has a right to demand, or that each one of the
does not render him liable. But once the substitution latter is bound to render, entire compliance with the
has been made, the obligor is liable for the loss of prestation. There is a solidary liability only when the
the substitute on account of his delay, negligence or obligation expressly so states, or when the law or the
fraud. (n) nature of the obligation requires solidarity. (1137a)
We have another kind of obligation. A facultative What do you mean by ―concurrence of two or more
obligation; that is in Article 1206. Take note of the codal creditors or of two or more debtors in one and the same
provision. Only one prestation has been agreed upon but obligation?‖
the obligor may render another in substitution.
Example:
How do we distinguish this from an alternative obligation?
A and B owe C and D Php 1 Million. There is concurrence
1. As to the number of prestations of debtors; meaning two or more creditors or two or more
debtors. Pwede na duha si creditor, usa si debtor. Basta
In alternative, there are several prestations but the kay more than one in either side or both.
delivery of one is sufficient to extionguish the
obligation. What is the general rule when there is concurrence of
debtors and creditors in one and the same obligation?
In facultative, only one is due, there is no choice, but The obligation is joint.
the debtor may deliver another in substitution. The
substitute is not the primary. In alternative, all those What do we mean by a joint obligation? Each obligor is
prestations are primary. Pwede ka mamili kung asa. liable only for his own share in the debt while each
creditor is entitled only to his own share in the credit. The
2. As to the right of choice motto is ―to each his own.‖
In an alternative obligation, the right of choice In that kind of obligation (Php 1 Million), when you say
belongs to the debtor. Can it be given to the joint, how much is the liability of A? Php 500, 000. The
creditor? Yes, it can be given expressly. same with B.
In facultative obligations, who has the right of How much is the credit of D? Php 500, 000.
choice? The debtor. Can it be given also tot eh
How about C? Php 500, 000.
creditor expressly? No. Only the debtor has the right
of choice in a facultative obligation.
How much can D collect from A? In the Php 500,000
credit of D, because it is joint, he cannot collect the
3. As to loss
entire Php 500,000 from A. Because the obligation is joint,
meaning for both D and C na-a pud silay share. So he
Loss of one prestation in an alternative obligation will
can collect the Php 500, 000 but only Php 250, 000 from A
not extinguish the obligation as long as there are
and Php 250, 000 from B. The same for C. He can collect
others which remain.
Php 500, 000 but he will collect Php 250, 000 from A and
Php 250, 000 from B.
In facultative obligations, we have a principal
prestation and a substitute. What is the effect of the With regards to A, his liability is Php 500, 000 but he will not
loss of the substitute? If the substitute is lost, the give the entire Php 500, 000 to D. Of A‘s Php 500, 000
principal obligation still remains because ma-o to siya liability, Php 250, 00 will go to D and Php 250, 000 will go
ang obligation. There is still something from which the to C.
obligation may rely upon. Loss of the principal even if
the substitute is there (without the fault of the debtor), That is in a joint obligation. There are as many debts as
will extinguish the obligation. Loss of the substitute will there are credits.
not affect the obligation.
When will the obligation be solidary?
We now go to conjunctive obligations. This obligation
means that all the prestations have to be delivered in GENERAL RULE: The obligation is merely joint. To each his
order to extinguish the obligation. Example: To deliver a own.
car, jewelry AND a house.
EXCEPTION: It will become solidary:
1. When the law expressly provides.
2. When the obligation states that it is solidary.
sharing as to the profits and the losses. In their capacity as
There are several legal provisions providing for a JVA, they contracted an obligation from PGI. They
solidarity which you will discuss when you go to breached their obligation from PGI. So, PGI demanded
these specific laws. from both Marsman and Gotesco. Marsman contended
that it should be excused from any liability because
according to the JVA, wala siyay labot sa losses. So
Example: dapat kay Gotesco lang daw siya maningil.
Under the law on Succession, co-heirs are Is that correct? The Supreme Court said no because the
solidarilly for the estate which they occupy even general rule would apply. When there is concurrence of
if the loss of which is only through the negligence debtors or creditors, the presumption is that the
of one. obligation is joint. Here, we have concurrence of debtors
(Marsman and Gotesco).
3. When the nature of the obligation requires
solidarity. How about the terms of the JVA? The Supreme Court said
that is only applicable between Gotesco and Marsman.
Example: The stipulations in that agreement would govern their
relationship with each other but as to their creditor, they
A and B were in a car. A was driving and B was are governed by a separate arrangement.
the owner. Then habang naga-drive si A, sige sila
ug joke joke to the point na si owner gina-gitik- Under the law, their obligation is joint. Marsman cannot
gitik niya si driver. Then A hit X, a pedestrian. X allege that only Gotesco should be liable.
sustained injuries and was hospitalized.
GOTESCO vs MARSMAN
Who will be liable for the injuries of X? Of course, FACTS: Marsman Drysdale Land, Inc. (Marsman Drysdale) and
the driver and the owner. Gotesco Properties, Inc. (Gotesco) entered into a Joint Venture
Agreement (JVA) for the construction and development of an
To what extent? By the nature of the obligation, office building on a land owned by Marsman Drysdale in Makati
you cannot determine with particularity the City.
extent of the negligence. You cannot divide or
quantify negligence. Both of them are solidarily
liable. The joint venture engaged the services of Philippine
Geoanalytics, Inc. (PGI) to provide subsurface soil exploration,
laboratory testing, seismic study and geotechnical engineering
When you say ―joint and severally,‖ what is this kind of for the project. PGI, was, however, able to drill only four of five
boreholes needed to conduct its subsurface soil exploration and
obligation? It is solidary.
laboratory testing, justifying its failure to drill the remaining
borehole to the failure on the part of the joint venture partners to
―In solidum‖ is also solidary. clear the area where the drilling was to be made. PGI was able
to complete its seismic study though.
Example:
PGI then billed the joint venture for P284,553.50 representing the
A and B borrowed money from D and C. The promissory
cost of partial subsurface soil exploration; and for P250,800
note states ―We promise to pay D and C Php 1 Million 30 representing the cost of the completed seismic study.
days from now.‖
What is that kind of obligation? It is joint because by the Despite repeated demands from PGI, the joint venture failed to
pay its obligations. Meanwhile, due to unfavorable economic
use of the word ―we‖ they acknowledge the separate
conditions at the time, the joint venture was cut short and the
personalities of each debtor. planned building project was eventually shelved.
If you say ―I promise to pay D and C Php 1 Million.‖ It is

PGI subsequently filed a complaint for collection of sum of
solidary because by using the word ―I‖ they are deemed
money and damages.
to have represented each other. Bale, isa lang sila ka
person.
In its Answer with Counterclaim and Cross-claim, Marsman
Drysdale passed the responsibility of paying PGI to Gotesco
Example:
which, under the JVA, was solely liable for the monetary
expenses of the project.
A and B are solidary debtors of C and D. C and D are
solidary creditors of A and B.
Gotesco, on the other hand, countered that PGI has no cause
of action against it as PGI had yet to complete the services
How much can D collect from A? Php 1 Million because
enumerated in the contract; and that Marsman Drysdale failed
each one of the debtors may be held liable for the entire to clear the property of debris which prevented PGI from
obligation. The motto of solidarity is ―all for one and one completing its work.
for all.‖
RTC rendered judgment in favor of PGI and ordered the
CASE: GOTSECO vs MARSMAN defendants (Gotesco and Marsman) to pay plaintiff jointly.
Marsman and Gotesco entered into a Joint Venture

Agreement (JVA). Under their agreement, Gotesco Both Marsman Drysdale and Gotesco appealed to the Court of
Appeals which affirmed with modification the decision of the
would contribute cash and Marsman would contribute
trial court.
land and they would develop this land. So, they made a
ISSUE: which between joint venturers Marsman Drysdale and CASE: INIMACO vs NLRC
Gotesco bears the liability to pay PGI its unpaid claims?
In the original decision, what is the tenor? Is it solidary or
joint?
RULING: To Marsman Drysdale, it is Gotesco that is liable since, There is concurrence here of obligors and it is silent as to
under the JVA, construction funding for the project was to be their respective liabilities so we apply the general rule. But
obtained from Gotesco‘s cash contribution, as its (Marsman when the writ of execution (this will command the sheriff
Drysdale‘s) participation in the venture was limited to the land. to execute the decision) was issued the wording became
different because it was converted into ―and/or‖ which
Gotesco maintains, however, that it has no liability to pay PGI means solidary.
since it was due to the fault of Marsman Drysdale that PGI was
unable to complete its undertaking. The decision became final and executory. That was why
it was implemented. When a judgment becomes final, it
The Court finds Marsman Drysdale and Gotesco jointly liable to becomes immutable, meaning it can no longer be
PGI. changed. So when the labor arbiter issued the writ of
executiuon, he is just supposedly to enforce the final and
PGI executed a technical service contract with the joint venture executor position.
and was never a party to the JVA. While the JVA clearly spelled
out, inter alia, the capital contributions of Marsman Drysdale In the decision, the obligation is merely joint and it
(land) and Gotesco (cash) as well as the funding and financing became final and executory so it cannot be changed
mechanism for the project, the same cannot be used to defeat anymore. It cannot be changed into a solidary obligation
the lawful claim of PGI against the two joint venturers-partners. in the writ of execution, especially that the word solidary
does not appear in the original tenor of the decision.
As the appellate court held, Articles 1207 and 1208 of the Civil
Code, which respectively read: Here, the liability is only joint in accordance with the
decision. Although the labor arbiter could have made
Art. 1207. The concurrence of two or more creditors or of two or these people solidarily liable in the original decision but
more debtors in one and the same obligation does not imply the decision which became final and executory only
that each one of the former has a right to demand, or that each provided for joint liability. Because it became final, what
one of the latter is bound to render, entire compliance with the will have to be executed is the same tenor as the
prestations.1avvphi1 There is a solidary liability only when the
decision which became final.
obligation expressly so states, or when the law or nature of the
obligation requires solidarity.
INIMACO vs NLRC
Art. 1208. If from the law, or the nature or the wording of the FACTS: Private respondent Enrique Sulit, Socorro Mahinay,
obligations to which the preceding article refers the contrary Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus,
does not appear, the credit or debt shall be presumed to be Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a
divided into as many equal shares as there are creditors or complaint with the Department of Labor and Employment
debtors, the credits or debts being considered distinct from one against Filipinas Carbon Mining Corporation, Gerardo Sicat,
another, subject to the Rules of Court governing the multiplicity Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner
of suits. (emphasis and underscoring supplied), Industrial Management Development Corporation (INIMACO),
for payment of separation pay and unpaid wages.
presume that the obligation owing to PGI is joint between
Marsman Drysdale and Gotesco. Labor Arbiter Bonifacio B. Tumamak held that:
RESPONSIVE, to all the foregoing, judgment is hereby

The only time that the JVA may be made to apply in the present
entered, ordering respondents Filipinas Carbon and
petitions is when the liability of the joint venturers to each other
Mining Corp. Gerardo Sicat, Antonio
would set in.
Gonzales/Industrial Management Development Corp.
(INIMACO), Chiu Chin Gin and Lo Kuan Chin, to pay
A joint venture being a form of partnership, it is to be governed complainants Enrique Sulit, the total award of
by the laws on partnership. P82,800.00; ESMERALDO PEGARIDO the full award of
P19,565.00; Roberto Nemenzo the total sum of
P29,623.60 and DARIO GO the total award of P6,599.71,
Again, in an obligation where there is concurrence of or the total aggregate award of ONE HUNDRED THIRTY-
debtors and creditors (meaning there are two or more EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS
AND 31/100 (P138,588.31) to be deposited with this
debtors or two or more creditors or both) the general rule
Commission within ten (10) days from receipt of this
is the obligation is joint. In a joint obligation, each debtor Decision for appropriate disposition.
is only liable to a proportionate amount of debt. The
creditor is only entitled to a proportionate amount of the
No appeal was filed within the reglementary period thus, the
credit. To each his own.
above Decision became final and executory. The Labor Arbiter
issued an Alias Writ of Execution which ordered thus:
Except when the obligation expressly states that there is
solidarity or when the law provides or when the nature of
NOW THEREFORE, by virtue of the powers vested in me
the obligation requires solidarity.
by law, you are hereby commanded to proceed to the
premises of respondents Antonio Gonzales/Industrial
It is easy to see when the obligation provides for solidarity. Management Development Corporation (INIMACO)
The obligation itself states that the obligation is solidary, situated at Barangay Lahug, Cebu City, in front of La
jointly and severely, in solidum. Memorize those Latin Curacha Restaurant, and/or to Filipinas Carbon and
terms para dili nimo malimtan. Mining corporation and Gerardo Sicat at 4th Floor
Universal RE-Bldg. 106 Paseo de Roxas, Legaspi Village,
Makati Metro Manila and at Philippine National Bank, became final and executory. It was, therefore, removed from
Escolta, Manila respectively, and collect the aggregate the jurisdiction of the Labor Arbiter or the NLRC to further alter or
award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE amend it. Thus, the proceedings held for the purpose of
HUNDRED EIGHTY-EIGHT PESOS AND THIRTY ONE amending or altering the dispositive portion of the said decision
CENTAVOS (P138,588.31) and thereafter turn over said are null and void for lack of jurisdiction. Also, the Alias Writ of
amount to complainants ENRIQUE SULIT, ESMERALDO Execution is null and void because it varied the tenor of the
PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to judgment in that it sought to enforce the final judgment against
this Office for appropriate disposition. Should you fail to "Antonio Gonzales/Industrial Management Development Corp.
collect the said sum in cash, you are hereby authorized (INIMACO) and/or Filipinas Carbon and Mining Corp. and
to cause the satisfaction of the same on the movable Gerardo Sicat," which makes the liability solidary.
or immovable property(s) of respondents not exempt
from execution. You are to return this writ sixty (6) (sic)
days from your receipt hereof, together with your
corresponding report. Article 1208. If from the law, or the nature or the
wording of the obligations to which the preceding
Petitioner filed a "Motion to Quash Alias Writ of Execution and Set article refers the contrary does not appear, the credit
Aside Decision," alleging among others that the alias writ of
execution altered and changed the tenor of the decision by or debt shall be presumed to be divided into as
changing the liability of therein respondents from joint to solidary, many shares as there are creditors or debtors, the
by the insertion of the words "AND/OR" between "Antonio credits or debts being considered distinct from one
Gonzales/Industrial Management Development Corporation
another, subject to the Rules of Court governing the
and Filipinas Carbon and Mining Corporation, et al."
multiplicity of suits. (1138a)
ISSUE: whether petitioner's liability pursuant to the Decision of the
Labor Arbiter dated March 10, 1987, is solidary or not.
Example:
RULING: Upon careful examination of the pleadings filed by the
If the debt is Php 1 Million, the obligation is joint so the
parties, the Court finds that petitioner INIMACO's liability is not
solidary but merely joint and that the respondent NLRC acted
liability of A isonly Php 500, 000. The same with B. What C
with grave abuse of discretion in upholding the Labor Arbiter's can demand is only Php 500, 000. The same with D.
Alias Writ of Execution and subsequent Orders to the effect that
petitioner's liability is solidary. How much can C collect from A? Php 250, 000 only
because even if A is liable for Php 500, 000 but that
A solidary or joint and several obligation is one in which each liability is to C and D (Php 250, 000 each). The same with
debtor is liable for the entire obligation, and each creditor is B, C and D.
entitled to demand the whole obligation. In a joint obligation
each obligor answers only for a part of the whole liability and to If the obligation is solidary, A may be held liable for the
each obligee belongs only a part of the correlative entire Php 1 Million. Also B. C may collect the entire Php 1
rights. Million from either A or B.
Well-entrenched is the rule that solidary obligation cannot lightly If A pays Php 1 Million in a solidary obligation, he can
be inferred. There is a solidary liability only when the obligation seek reimbursement from B because, as to them, B is
expressly so states, when the law so provides or when the nature bound to contribute Php 500, 000.
of the obligation so requires.
With respect to C who collected the entire Php 1Million,
In the dispositive portion of the Labor Arbiter, the word "solidary" he is bound to give to D his share of Php 500, 000
does not appear. The said fallo expressly states the following because, as to them, silang duha ang nagkautang sa
respondents therein as liable, namely: Filipinas Carbon and Php 1 Million although they can demand from any of the
Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial solidary debtors the entire obligation.
Management Development Corporation (petitioner INIMACO),
Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred
Example:
therefrom that the liability of the six (6) respondents in the case
below is solidary, thus their liability should merely be joint.
A and B are joint debtors. C and D are solidary creditors.
It is possible because in an obligation there can be joint
Granting that the Labor Arbiter has committed a mistake in
liability on the part of the debtor and solidarity on the
failing to indicate in the dispositive portion that the liability of
respondents therein is solidary, the correction — which is part of the creditors or vice versa.
substantial — can no longer be allowed in this case because the
judgment has already become final and executory. In that case, how much is the liability of A? Php 500, 000
kay joint lang man. So, you cannot collect from A the
It is an elementary principle of procedure that the resolution of
entire Php 1 Million. Ypu can only collect from him Php
the court in a given issue as embodied in the dispositive part of a 500, 000. Same with B.
decision or order is the controlling factor as to settlement of rights
of the parties. Once a decision or order becomes final and C is entitled to collect how much? Php 1 Million because
executory, it is removed from the power or jurisdiction of the solidary. Any one of the solidary creditors may collect the
court which rendered it to further alter or amend it. It thereby entire obligation.
becomes immutable and unalterable and any amendment or
alteration which substantially affects a final and executory D goes to A for collection, how much can D collect from
judgment is null and void for lack of jurisdiction, including the A? Php 500, 000. He cannot collect Php 1 Million even if
entire proceedings held for that purpose. An order of execution
he is a solidary creditor because the liability of A and B is
which varies the tenor of the judgment or exceeds the terms
thereof is a nullity. only joint.
D can still collect Php 1 Million but to do that, he has to

None of the parties in the case before the Labor Arbiter
collect from A and B because they are just joint debtors.
appealed the Decision dated March 10, 1987, hence the same
He can collect Php 500, 000 from A and PHp 500, 000 deliver the entire car. Nor can you compel B alone to
from B. The same with C. A is bound only to pay Php 500, deliver the entire car.
000.
So, as the creditor, how can you assure delivery? If you
Example: demand from A and he will say that ―My obligation is joint
so I will just deliver the car or the tires.‖
A and B are solidary debtors. C and D are joint creditor.
That is an example of an indivisible obligation. It cannot
The liability of A is Php 1 Million. The same with B. be performed in installment or parts. In that case, what is
the proper remedy of the creditor?
The credit of C is only Php 500, 000. The same with D.
The creditor has to demand from both A and B so that
If C goes to A for collection, how much can C collect? the delivery of the car will be ensured. The right of the
Only Php 500, 000. Even if A is liable for Php 1 Million but C creditors may be prejudiced only by their collective acts,
and D are just joint creditors. So, his credit is only up to and the debt can be enforced only by proceeding
PHp 500, 000. He can collect from A only up to Php 500, against all the debtors.
000.
Example:
But the liability of A is Php 1 Million. Yes, he has to pay Php
500, 000 to C and Php 500, 000 to D. If A is ready to deliver but B is not and their obligation is to
deliver a car so it is indivisible and joint. A is ready but B is
That is the consequence if there is a mixture of joint not, what will be the remedy of the creditor?
obligations as well as solidarity in one obligation.
He cannot compel A alone to deliver the car. In that
Multiplicity of suits. You will discuss that in your Civil case, the obligation becomes monetary. Now you can
Procedure but the concept here is you cannot split your compel A to deliver his share in that monetary obligation.
suits into as many as possible to ensure that you will have As to B, you have to proceed separately against B.
a favorable decision in your favor.
Article 1209 says ―If one of the latter should be insolvent.‖
Example: This means that A is insolvent, he cannot pay because he
has no money but B is ready. So, is B liable to shoulder the
You bought a parcel o9f land but the seller did not share of A?
deliver the land. So, your remedy is either rescission or
specific performance. You cannot file 2 cases; specific In a joint obligation, to each his own. So, the insolvency of
performance and rescission. Otherwise, you will be one debtor will not be shouldered by the other debtors.
charged of splitting your cause of action and that will be
a ground for dismissing either or both actions.
Article 1210. The indivisibility of an obligation does
Here, in a joint obligation. A and B borrowed Php 1 Million not necessarily give rise to solidarity. Nor does
from C and D. The obligation is Php 1 Million but insofar as solidarity of itself imply indivisibility. (n)
A is concerned you can only collect Php 500, 000. So, you
can actually file a case against A only. You are not
bound to file the Php 1 Million suit against A and B. So, When you say an obligation is indivisible, it does not
that is not splitting because each debt is considered to follow that it is solidary. I just explained to you that an
be separate and distinct from the others. obligation can be indivisible and joint.
Because when you say indivisible, we are talking of the

Article 1209. If the division is impossible, the right of subject matter, the prestatoin, that which is to be given,
the creditors may be prejudiced only by their not to be give, to be done or not to be done.
collective acts, and the debt can be enforced only
by proceeding against all the debtors. If one of the When you say solidary or joint, we are referring to the tie
latter should be insolvent, the others shall not be that binds the parties.
liable for his share. (1139) An obligation may be joint and indivisible or solidary and
indivisible.
Article 1209 speaks of an indivisible obligation. When you In my example, if A and B are solidary debtors and their
say indivisible, you cannot divide the performance of that obligation is to deliver a car, that is a solidary and
obligation. It has to be performed in one instance. indivisible obligation. The creditor can proceed against A
and demand from him the delivery of the entire car.
Example: Because A may be compelled to perform the entire
obligation.
An obligation to deliver a car. A and B bound themselves
to deliver a car to C. Both of them are bound but Unlike when it is a joint obligation and indivisible, to
because the obligation is silent as to the kind of compel delivery of the entire car, the creditor must
obligation, it is presumed to be joint. So, A and B‘s demand against both debtors.
obligation to deliver the car to c is just a joint obligation.
In a joint obligation, you cannot compel one to perform

the entire obligation. So, you cannot compel A alone to
Article 1211. Solidarity may exist although the
creditors and the debtors may not be bound in the Article 1212. Each one of the solidary creditors may
same manner and by the same periods and do whatever may be useful to the others, but not
conditions. (1140) anything which may be prejudicial to the latter.
(1141a)
There can be solidarity even if the creditors and debtors

will not be bound in the same manner and in the same So, in a solidary obligation, there is mutual agency so
period and conditions. each debtor is considered as the agent of one of the
debtors. The same thing with the creditors. So, each
Example: creditor is an agent of the other creditor.
A, B and X are solidary debtors. C and D are solidary They can do things in behalf of others but take note of
creditors. The obligation was contracted on January 1, Article 1212. With respect to the solidary creditors, they
2013. They contracted a loan of Php 1.2 Million. may do whatever they may be useful to the others but
not anything which may prejudicial to the latter.
The obligation of A is subject to a condition (if A will get
married). If he will get married, he will pay Php 1.2 Million Example:
The obligation of B is subject to a term (that he will pay on A, B and X are solidary debtors. C and D are solidary
December 31, 2013). creditors. In prescription, we mentioned that there are
prescriptive periods for the enforcement or institution of
How much can C or D collect? Because it‘s a solidary an action. Like, an action to enforce a right based on a
obligation, theoretically, they can collect the entire debt. written document, it prescribes in 10 years. If there is a
promissory note executed by A, B and X in favor of C and
On February 14, 2013, C wants to collect. Can he collect D, once the note matures, C and D have 10 years within
the entire Php 1.2 Million? which to make a demand otherwise the debt will
prescribe.
If C goes to A for collection, how much can C collect?
Supposedly, C is entitled to Php 1.2 Million. He can collect So, the demand made by either C or D will already
the entire Php 1.2 Million. The same with D. But on benefit the others. On the 9th year, C sent a demand
February 14, 2013, if C goes to A for collection, can C letter to A. And then A did not pay and the 10 years
collect? The obligation of A is subject to a condition elapsed already. Now, D demanded for the payment of
(once he gets married) but that condition can be the obligation. Can the debtors invoke prescription? Si c
invoked as to his share. His share is Php 400, 000. man tong nag-demand sa una, dili man si D.
The term as to his obligation can be invoked also as to his No, because the demand made by C before the
share. As of February 14, 2013, how much is due and prescriptive period has lapsed already inured or
demandable? Actually, his share is not yet demandable redounded to the benefit of the other creditors.
because he has not yet gotten married.
―But not anything which may be prejudicial to the latter.‖
The share of B is likewise not yet demandable because it
is not yet December. Example:
The share of X is already due and demandable. In that situation, C condoned the obligation. Gi-forgive
na niya; gikalimtan. Would that condonation be effective
Can C collect? Yes, but only the share of X. against D, his co-creditor?
Can he go to A for collection? Yes, because that is It is effective. It will extinguish the obligation. So D cannot
solidary. He can collect from any one of the solidary go to A and collect because there was already
debtors. A can invoke that his share is not yet due or B condonation.
can invoke that his share is not yet due so even if C can
collect from any one of the solidary debtors, C can only But the law says ―but not anything which may be
collect the share of X. prejudicial top the latter.‖ In that case, he will not also be
allowed to prejudice D. So, if C condoned the 1.2 Million,
A got married on February 14. How much can C collect that is with respect to the debtors. With respect to his own
now? Php 800, 000. From who? Any one of them also. creditor, he is still bound to give his share. Only your share
is terminated by the condonation. You can terminate the
So, December 31 niabot na. On January 1, 2014, any one debt with respect to debtors but ang sa akoa ihatag
of them can actually collect the entire obligation. gihapon nimo. C will still have to give the Php 600, 000 to
D. That is the meaning of Article 1212.
Kung katong February 1, 2013 niadto si C kay X for
collection, how much can C collect? Php 400, 000
because the share of A and B is was not yet due. Article 1213. A solidary creditor cannot assign his
Although the obligation is solidary in the sense that you rights without the consent of the others. (n)
can collect the share which is due from any one of the
solidary debtors. That is the meaning of Article 1211. There
can still although the creditors and the debtors may not
be bound in the same manner and by the same periods Remember, as I said, the relationship between the
and conditions. creditors in a solidary obligation is that of mutual agency.
So, when there is mutual agency, it presupposes that I believe this is the one I explained to you before.
each one enjoys the trust and confidence of the others. Novation, compensation, confusion and remission are
modes of extinguishing an obligation.
Why? Because ion a solidary obligation, if you are the
creditor, you can demand the entire obligation in behalf When you say novation, general rule: the old obligation is
of the other creditors. extinguished and is replaced by a new one.
In that case, if C demands the entire Php 1.2 Million from Compensation: the debtor and the creditor become
any one of the debtors, he can now collect the Php 1.2 mutual debtors and creditors of each other.
Million. Kung estafadora si C, dili na niya ihatag sa
iyahang co-creditor; musibat nan a siya. So, dapat in a Example:
solidary oblgiaiton naaypagsalig ang mga creditors sa
each other. That is the reason why a solidary creditor A owes B 1 Million. B owes A 1 Million. So, it is already
cannot assign his rights without the consent of the others. offset.
Assignment means the creditor will transfer his rights to Confusion: the persons of debtor and creditor are
another person; his right as the creditor. merged in one and the same person.
If C assigns his rights to W, a third person, W will now take Example:

the place of C and W may now collect the entire
obligation from any one of the debtors. A borrowed Php 10, 000 from B. As a commitment that he
will pay, A executed a promissory note for Php 10, 000 in
So, kung gusti ni C na isulod sa ilahang circle si W, it has to favor of B. ―I promise to pay B 30 days from today Php 10,
be with the consent of D because D amy not like W. W 000.‖ So after 30 days, B will collect the Php 10, 000 from
might have the reputation of a swindler so mahadlok si D A.
na collectahun na W unya musibat na siya.
B went to C and borrowed Php 10, 000. He negotiated
So that is why the consent of the others is required. the promissory note of A. Under the law on Negotiable
Instruments, promissory notes payable to bearer or order
can be negotiated. This means that C will give B Pho 10,
Article 1214. The debtor may pay any one of the 000 then the promissory note that B negotiated to C; C
solidary creditors; but if any demand, judicial or will be the one to go directly to A for collection.
extrajudicial, has been made by one of them,
payment should be made to him. (1142a) C also negotiated later on the note to D because he
needed money. And D eventually negotiated the note to
A. In that case, when the debt matures, is there still an
obligation? It‘s already extinguished by confusion or
This is the rule: the debtor may pay any one of the merger. The persons of the debtor and creditor are
solidary creditors because again, there is mutual agency. already merged in the same person. Kay alangan naman
But if any one of the creditors makes a demand, judicial si A mucollect siya sa iyahang kaugalingon.
or extra-judicial, upon any one of the debtors, payment
will now be made only to the creditor who demanded. These are modes of extinguishing an obligation. As I said,
these can be done by a solidary creditor and this will
Example: extinguish the obligation but this will not extinguish the
obligation of the creditor insofar as his co-creditors are
C and D are solidary creditors and C made a demand to concerned.
B to pay. B cannot choose to pay D because once C
makes a demand, the agency is now concentrated only He ―shall be liable to the others for the share in the
on the person of C. So, nawala na tong mutual agency. obligation corresponding to them.‖ Even if he already
Didto na ta kay C mubayad. remitted or condoned the debt so the debt is
extinguished but C will still have to give B his share.
That is the reason for Article 1214. Payment should be
made to the creditor who demanded.
Article 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)
Inc. Under this agreement, it ceded the entire, total and
complete present operation of its business to defendant
Article 1216. The creditor may proceed against any
Operators, Inc., in consideration for which Operators, Inc.
one of the solidary debtors or some or all of them undertook to answer for existing obligations of the plaintiff to its
simultaneously. The demand made against one of several creditors and to compensate plaintiff with a percentage
them shall not be an obstacle to those which may of the gross profits realized in the course of its operations. Insofar
as are pertinent to this case, the terms of this agreement,
subsequently be directed against the others, so long otherwise known as the Operating Contract
as the debt has not been fully collected. (1144a)
On June 12, 1954, or barely 10 months thereafter, plaintiff and
Operators, Inc., entered into another agreement, this time with
In a solidary obligation, the debtor may be compelled to defendant Associated Biscuit Operators, Inc., with the consent of
pay the entire obligation and any one of the creditors plaintiff, who was a formal party thereto. In this agreement,
may proceed against any one of the debtors for the known as the Tripartite Agreement, Associated agreed to
collection of that obligation. engage in the manufacture and marketing of the biscuit
products of American Biscuit Company, Inc., under the terms
That is also mentioned in Art. 1216. and conditions of the Operating Contract of September 26,
1953.
On June 17, 1954, or 5 days after the conclusion of the Tripartite
The creditor is not compelled to demand from all of the
Agreement, the defendants, Operators and Associated, entered
debtors precisely because the demand can be made to into an agreement in application of their right(s) and obligations
any one of them. The creditor may proceed against one, acquired under the terms of the foregoing agreements.
some, or all of them. It is either at the same time or one
after the other. Amid this setting, American Biscuit filed a complaint against
Operators Incorporated and Associated Biscuit for the
So, the demand made against one is not an obstacle to cancellation of the Operating Contract and the Tripartite
the demand made against another debtor until the Agreement, with prayers to put Associated Biscuit under
obligation will be collected. receivership and for damages. The complaint alleged that there
was a breach of the aforesaid agreements owing to the failure
of Associated Biscuit to pay its share in American Biscuit's
CASE: OPERATORS vs. AMERICAN BISCUIT
indebtedness to its (American Biscuit's) creditors, and the failure
of Associated Biscuit to pay its share in the monthly overhead
In your Civil Procedure, we have different parties in a suit. expenses of American Biscuit, in addition to the removal by
Associated Biscuit of machineries used in the business. American
We have: Biscuit maintained that the payment of its indebtedness and of
its overhead expenses was a joint and solidary obligation of
a. necessary parties Operators and Associated Biscuit.
b. indispensable parties. ISSUE: WON all the parties in a solidary obligation must be
impleaded in the case.
With respect to indispensable parties, those are parties
that have to be impleaded in the case. Otherwise, the RULING: No.
plaintiff cannot have a full and complete determination
Article 1216 of the Civil Code says that the creditor "may
and relief as well.
proceed against anyone of the solidary debtors or some or all of
them simultaneously.
He cannot get the full relief. Indispensable, hence, the Thus, the suit may be filed against one or any of the solidary
case cannot proceed unless these parties are creditors.
impleaded.
It was alleged here that because there was a solidary

obligation, all parties must be impleaded for there to be
a complete determination of the case and for there to
be a complete relief accorded by the court.
But, the Supreme Court held that solidarity does not make
a solidary obligor a party in a suit filed by the creditor.
So, the suit may be filed against one or any of the

debtors. You do not have to implead all because you
can actually seek a full relief by just filing against any one
of them.
For example, the case is dismissed or the defendant is

insolvent and cannot pay, you can still proceed against
the other debtors simultaneously or one after the other.
Operators vs. American Biscuit

FACTS: American Biscuit Company was, before World War II, a
manufacturer of biscuit, candy and bubble gum products. After
the liberation, it reopened its candy department. Financial
difficulties and reverses, however, forced it to discontinue its
business operations.
To bail itself out of this financial distress, plaintiff, on September

26, 1953, entered into an agreement with defendant Operators,
A can seek reimbursement from no one because he
Article 1217. Payment made by one of the solidary
voluntarily paid knowing that the debt had already
debtors extinguishes the obligation. If two or more
prescribed. The law on Natural Obligation prevents him
solidary debtors offer to pay, the creditor may
from recovering.
choose which offer to accept.
If the payment was made by mistake, he can recover by
He who made the payment may claim from his co- from the creditor by way of solutio indebiti.
debtors only the share which corresponds to each,
with the interest for the payment already made. If the
payment is made before the debt is due, no interest
for the intervening period may be demanded. Article 1219. The remission made by the creditor of
the share which affects one of the solidary debtors
When one of the solidary debtors cannot, because of does not release the latter from his responsibility
his insolvency, reimburse his share to the debtor towards the co-debtors, in case the debt had been
paying the obligation, such share shall be borne by totally paid by anyone of them before the remission
all his co-debtors, in proportion to the debt of each. was effected. (1146a)
(1145a)
Here, there was remission or condonation but the
remission happened only after one of the debtors paid
Under Article 1217, payment by one of the solidary the obligation.
debtors extinguishes the entire obligation.
In that case, the debtor who paid can still recover. For
For example, A, B, C and D are solidary debtors. X and Y example, X made a remission in favor of B but before
are solidary creditors. The debt is 1.2 M. that, C already paid the entire obligation. C can still
recover the share of B even if there was remission
X may demand the 1.2M against A, B, C and D. If A and B because the remission happened only after the
offered to pay, X will choose between A and B from payment.
whom he (X) will accept the payment.
The obligation has already been extinguished.
If A pays the full amount to X, X has to give 600K to Y. On Technically, there is nothing to remit anymore.
the other hand, A may claim from B,C and D 300K each
or 900K corresponding to their share in the obligation. The condonation or remission made by the creditor after
payment of the debt is no longer effective.
Assuming that A is insolvent, and X makes a demand
upon B, how much will B pay if A is insolvent? Still 1.2M. It is different if the remission was made before. If it is made
before, of course, he should recover from the creditor
In a solidary obligation, the insolvency of one debtor is because in the first place, that has already been
shouldered by the other debtors. condoned.
So, B will have to pay 1.2 Million. We can apply Art. 1218. The payment now becomes
illegal if the debt has already been condoned; you are
How much can B demand from C and D?
not supposed to pay anymore.
He can demand reimbursement of 400K each because
they have to shoulder A‘s share.
Article 1220. The remission of the whole obligation,
If the financial condition of A improves, they can collect obtained by one of the solidary debtors, does not
from A his share in the obligation. entitle him to reimbursement from his co-debtors. (n)
Article 1218. Payment by a solidary debtor shall not

For example, X made a remission for the obligation in
entitle him to reimbursement from his co-debtors if
favor of B. So, the obligation is now extinguished. Can B
such payment is made after the obligation has demand reimbursement from A, D and C?
prescribed or become illegal. (n)
The law says no. B is not entitled to reimbursement
because reimbursement presupposes payment.
When the obligation has already prescribed, the right of
action of the creditor has already lapsed.
If nothing is paid, then there is nothing to reimburse.
So, he can no longer collect the debt.
If the debtor pays voluntarily even after the debt has

prescribed, like, for example, X makes a demand upon A
but the debt has already prescribed, can A who
voluntarily pays demand from B,C and D?
No more. In the first place, they were not obliged to pay

as the debt already prescribed.
Article 1221. If the thing has been lost or if the
From whom can A seek reimbursement? prestation has become impossible without the fault of
the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all
shall be responsible to the creditor, for the price and
the payment of damages and interest, without
prejudice to their action against the guilty or
negligent debtor.
What are the defenses available to the solidary debtors?
1. Those defenses that are derived from the

obligation itself (prescription, illegality of the
cause, lack of consideration, prohibited
transaction, the thing is outside the commerce of
men).
These are defenses attached to the obligation

itself.
Take note that Article 1221 applies only if the obligation is
to deliver a specific or determinate thing. Example:
If it is lost or the prestation has become impossible without An obligation to deliver 5 sacks of marijuana.
the fault of the solidary debtors, the obligation is That is an obligation entered into by the debtors
extinguished. and the creditor. If the creditor demands the 5
sacks from A, A can totally allege that the
For example, the loss is by reason of the fault of B. So, the obligation is void because the subject matter is
obligation is to deliver a specific car and it is solidary on illegal. Hence, he will not pay anything.
A, B, C and D. But, with malice, B burned the car. So, the
car is lost. If the obligation has already prescribed, A can
also allege that he is no longer liable because of
Is the obligation extinguished? the prescription. So, that is a defense derived
from the nature of the obligation.
No, the obligation is not extinguished.
2. Those defenses which are personal to him.
The obligation is now converted to monetary – the value
of the car plus damages. Example:
Now, it was actually B who burned the car, it was not the If D is actually insane. A, B and C agreed to enter
fault of D. into an obligation and D also agreed to the
same but at that time, he (D) is insane. They
Can the creditors recover from D the entire value of the obtained a loan, they divided the money among
car plus damages even if D was not the one at fault? themselves but D did not benefit at all because
he just burned the money or he randomly gave
Yes, because this is a solidary obligation. One for all, all
the money.
for one.
After D regains sanity, X makes a demand to D.
So, he can recover from D. But, insofar as reimbursement
What may be the possible defense of D?
is concerned, for example, the value of the car is 1.2M
and the damages is 200K, D may demand He may argue, ―As to me, the obligation is
reimbursement from A,B and C. He may recover 300K voidable because I was insane at that time. My
from each for the value of the car which is 1.2M. consent was vitiated and I was incapacitated.‖
As for the damages of 200K, he may recover that only As to him, the defense is total. X (the creditor)
from B, the one who is at fault. cannot say na ―Yes, buang ka at that time. Pero
solidary man, kadto na lang share ni A, B and C
If the demand is made upon B, he will have to pay 1.2M
akong singlon sa imoha”?
plus damages. But he may demand from A, C and D
300K each as he will shoulder the damages because the No, his insanity cannot be divided. He cannot be
loss was his fault. insane as to his share and that of A,B and C, he is
not. That is a total defense as to him.
That rule also applies if the thing is lost by reason of a
fortuitous event and the loss happened after one of the The same thing with the defenses derived from
debtors has already incurred in delay. the obligation itself. The defense is total.
That is an exception. If there is already delay, the law says
the obligation is not extinguished.
3. The defense that is personal to the other debtors.
The same example, D was insane when the

Article 1222. A solidary debtor may, in actions filed obligation was contracted.
by the creditor, avail himself of all defenses which
are derived from the nature of the obligation and of
those which are personal to him, or pertain to his
own share. With respect to those which personally
belong
Revelen Solisto
andthe others,
Mizzy Mareéhe may avail himself thereof
Martinez TAU MU Page 112 of 262
only as regards that part of the debt for which the
latter are responsible. (1148a)
Now, X demands from C. What would be the If A is not ready and B,C and D are ready, the car cannot
possible defense of C? Can he allege the insanity be delivered because A is not ready. The car cannot be
of D? delivered in full because A‘s share is wanting.
Yes, he may. C may say ―Yes, admittedly, we are In that case, the obligation becomes monetary. The
liable, we signed but at that time D was insane. “ equivalent value of the shares of B, C and D should be
But, can C not pay anything at all because of D‘s paid and A should be liable for damages because he
insanity? was the one not ready.
No. In that case, the defense of insanity of D, What the creditor can demand against A is share plus
which is personal to the other debtor. That is only damages.
a partial defense.
The creditors cannot demand the damages from B, C
He may deduct the share of D. In an obligation and D because the obligation is joint. Hence, to each, his
to pay 1.2M, he may pay 900K only own. Unlike in solidary obligations where any of the
corresponding to his share and the shares of A debtors may pay the obligation and demand payment
and B. for the corresponding shares of the other debtors.
DIVISIBLE AND INDIVISIBLE OBLIGATIONS

Article 1225. For the purposes of the preceding
articles, obligations to give definite things and
Article 1223. The divisibility or indivisibility of the those which are not susceptible of partial
performance shall be deemed to be indivisible.
things that are the object of obligations in which
there is only one debtor and only one creditor does
When the obligation has for its object the
not alter or modify the provisions of Chapter 2 of this
execution of a certain number of days of work, the
Title. (1149) accomplishment of work by metrical units, or
analogous things which by their nature are
susceptible of partial performance, it shall be
When we say divisibility or indivisibility, we are referring to divisible.
the subject matter of the obligation or the prestation.
However, even though the object or service may
If it is not capable of partial performance, then it is
be physically divisible, an obligation is indivisible if
indivisible. But, if it is capable of partial performance, it is
so provided by law or intended by the parties.
divisible.
It does not follow that when an obligation is divisible and In obligations not to do, divisibility or indivisibility
it has two or more creditors, it is solidary. shall be determined by the character of the
prestation in each particular case. (1151a)
The solidary or joint nature of an obligation refers to the
tie that binds the parties to the obligation. That is different
from the subject matter. The law says if the obligation is not susceptible of partial
performance, then it is indivisible.
Article 1224. A joint indivisible obligation gives rise The classic example is the obligation to deliver a car. It
to indemnity for damages from the time anyone of cannot be performed separately. You cannot deliver the
tires first then the steering wheel; you have to deliver the
the debtors does not comply with his undertaking.
entire car.
The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity When an obligation can be divided like for a certain
beyond the corresponding portion of the price of number of days or accomplishment of work as in a
the thing or of the value of the service in which the construction agreement, di ba 20% completed or 50%
obligation consists. (1150) completed, that is indivisible. It can be accomplished by
metrical units, certain number of days, or analogous
things.
Example:
Even if physically, the obligation is divisible but the
The obligation of A, B, C and D is to deliver a car. They stipulation of the parties says that it is indivisible, like for
are joint debtors. So, for X and Y to have the entire car, example, you agreed to enter into a construction
they have to make a demand against A, B, C and D. contract but the delivery is to be made only after the
construction has been completed. The contractor has to
In a joint obligation, a debtor is liable only for his own deliver it as a whole, as completed because the contract
share. says it is indivisible. Even if physically, it is divisible.
Since in the example given, the obligation being to
deliver a car, you cannot just deliver ¼ of the car. It has In obligations to do or not to do, it depends upon the
to be the entire car. nature of the prestation.
For the creditor to have the complete delivery, he has to Like, again, to construct. It can be divided. Like for
make a demand against all debtors. instance your obligation is to finish 10% of the work a day.
But in obligations to do, like the obligation to sing in a
concert, it cannot be divided. It shall be determined by
the character of the prestation.
Before we leave the kinds of obligations, I mentioned to Actually, a penal clause is just an accessory undertaking.
you before the concepts of conjunctive and disjunctive It is not an essential element of the contract or an
obligations. obligation.
When we say conjunctive, we are referring to several Obligations and contracts may exist even without a
obligations, which must be delivered for the obligation to penal clause. But a penal clause is inserted to provide a
be extinguished. (e.g. to deliver a house, jewelry and a more coercive force on the obligor so that he will fear
car). Everything must be delivered for the obligation of being made to pay more in case of breach.
the debtor to be extinguished.
In the case of FILINVEST LAND, INC. VS. CA, the Supreme
Disjunctive, either A or B or C will deliver a car to X. What Court explained the double function of a penal clause.
is this kind of obligation? Who will deliver? And also, who
will determine the latter? That is the concept of A penal clause is an accessory undertaking to assume
disjunctive obligations. greater liability in case of breach. It is attached to an
obligation in order to ensure performance and it has a
In this case, in the interpretation of the contract, the double function.
intention of the parties must be first determined.
1.) To provide for liquidated damages.
Did the parties intend this to be an alternative obligation
wherein anyone of the debtors may decide whether it is Liquidated damages are those agreed upon by
A or B or C who will deliver the car to X. In an alternative the parties. They may provide in a contract that
obligation, the choice belongs to the debtor. in case of breach, the aggrieved party may
demand payment of 5M. There is no need for the
Also, whether the obligation is solidary for the creditor to aggrieved party to prove that he suffered in the
demand either against A, B or C. amount of 5M. All he has to prove is that there
was a breach.
The intention of the parties has to be determined. That is
the first rule. This is more convenient because you don‘t have
to go through the process of proving. You don‘t
If the intention of the parties cannot be determined even need to present receipts nor witnesses as long as
after exhausting all the rules in the interpretation, and we it is stipulated in the contract that in case of
don‘t know whether it is alternative or solidary, how do breach, 5M must be paid.
we resolve the doubt?
2.) To strengthen the coercive force of the obligation
Is it construed as alternative or solidary? by the threat of greater responsibility in case of
breach.
In case of doubt, it shall be construed as solidary.
For example, in a construction contract, the
Why? contractor has to finish the construction within
one year. In case of delay, he will be made to
To interpret it as a solidary obligation is more in keeping pay the penalty of 15K per day of delay, which
with the obligatory force of contracts. was the agreement in the case of FILINVEST.
Because when you say alternative, the right of choice If you are the contractor, of course you will fear
belongs to the debtor. So, the debtor naturally delays the being made to pay 15K. That is the purpose of a
performance of the obligation. penal clause.
If solidary, the obligation can be easily enforced because FILINVEST LAND, INC. VS. CA
the creditor may choose who to proceed against among
the debtors. FACTS: FILINVEST, a corporation engaged in the development
and sale of residential subdivisions, awarded to defendant
That is the interpretation in case of doubt. Pacific Equipment Corporation the development of its residential
subdivisions consisting of two (2) parcels of land.
To guarantee its faithful compliance and pursuant to the

agreement, defendant Pacific posted two (2) Surety Bonds in
favor of plaintiff which were issued by defendant Philippine
American General Insurance.
Article 1226. In obligations with a penal clause,
Notwithstanding three extensions granted by plaintiff to
the penalty shall substitute the indemnity for defendant Pacific, the latter failed to finish the contracted
damages and the payment of interests in case of works. On 16 October 1979, plaintiff wrote defendant Pacific
noncompliance, if there is no stipulation to the advising the latter of its intention to takeover the project and to
contrary. Nevertheless, damages shall be paid if hold said defendant liable for all damages which it had incurred
the obligor refuses to pay the penalty or is guilty of and will incur to finish the project.
fraud in the fulfillment of the obligation.
On 26 October 1979, plaintiff submitted its claim against
defendant Philamgen under its performance and guarantee
The penalty may be enforced only when it is bond but Philamgen refused to acknowledge its liability for the
demandable in accordance with the provisions of
this Code. (1152a)
simple reason that its principal, defendant Pacific, refused to A borrowed 1M from B payable within 1 year. In case of
acknowledge liability therefore. Hence, this action. breach, A would have to pay the interest of 2% per
month by way of penalty.
Defendant Pacific therefore became liable for delay when it did
Can A opt to pay the interest instead of the 1M? Kay
not finish the project on the date agreed on October 15,
1979. The RTC however, finds the claim of P3,990,000.00 in the
mao man na siya, dib a? It’s either you exact the
form of penalty by reason of delay (P15,000.00/day from April 25, payment of the obligation or you exact the penalty.
1979 to Jan. 15, 1980) to be excessive. Wala man sa contract na naa’y choice ang creditor to
demand both. But, under the circumstances, that right to
A forfeiture of the amount due defendant from plaintiff appears demand the performance of the obligation plus the
to be a reasonable penalty for the delay in finishing the project penalty is clearly granted to the creditor by the nature of
considering the amount of work already performed and the fact the loan agreement.
that plaintiff consented to three prior extensions.
You cannot say I will not pay the principal anymore, only
ISSUE: WON the penalty of 15K per day is excessive.
the penalty.
RULING: There is no question that the penalty of P15,000.00 per
day of delay was mutually agreed upon by the parties and that And if the creditor has decided to require the payment of
the same is sanctioned by law. A penal clause is an accessory the obligation but it becomes impossible, that is another
undertaking to assume greater liability in case of breach. It is case when the penalty may be enforced.
attached to an obligation in order to insure performance and
has a double function: (1) to provide for liquidated damages, This is another exception to the rule that the creditor
and (2) to strengthen the coercive force of the obligation by the cannot demand both.
threat of greater responsibility in the event of breach.
There are two exceptions.
As a general rule, courts are not at liberty to ignore the freedom
of the parties to agree on such terms and conditions as they see
General rule: The creditor cannot demand both the
fit as long as they are not contrary to law, morals, good customs,
public order or public policy.
payment of the obligation plus the penalty.
Nevertheless, courts may equitably reduce a stipulated penalty Exceptions:

in the contract in two instances: (1) if the principal obligation has
been partly or irregularly complied; and (2) even if there has 1.) When this right has been clearly granted to him;
been no compliance if the penalty is iniquitous or and
unconscionable in accordance with Article 1229.
2.) If after he has exacted the fulfillment of the
obligation, the performance becomes impossible
Article 1227. The debtor cannot exempt himself from without his fault.
the performance of the obligation by paying the
penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor Article 1228. Proof of actual damages suffered by the
demand the fulfillment of the obligation and the creditor is not necessary in order that the penalty
satisfaction of the penalty at the same time, unless may be demanded. (n)
this right has been clearly granted him. However, if
after the creditor has decided to require the So, as we discussed before, the penal clause partakes of
fulfillment of the obligation, the performance thereof the nature of liquidated damages. In that case, what has
been stipulated in the agreement will be the one to be
should become impossible without his fault, the
enforced.
penalty may be enforced. (1153a)
If you stipulated Php 1 Million as liquidated damages in
The first rule is that the debtor cannot just exempt himself. case of breach then that will be awarded as long as you
prove that there is a breach. There is no need to prove
He cannot choose not to perform his obligation and pay that you actually suffered that amount. That is also one of
the penalty instead. Except in cases where his right has the reasons why a penal clause is stipulated: to do away
been expressly reserved. with the hassles and cumbersome procedure of proving
the amount of damages.
When we say expressly, it means that it is clear in the
contract the debtor may opt to pay the penalty in lieu of
the obligation.
CASE: LAMBERT vs FOX
Insofar as the creditor is concerned, because the penalty
is intended to be the price for breaching the obligation, LAMBERT vs FOX
the creditor cannot demand the fulfillment of the
obligation and the satisfaction of the penalty at the same FACTS: Early in 1911 the firm known as John R. Edgar & Co.,
time. Unless, this right has been clearly reserved. engaged in the retail book and stationery business, found itself in
such condition financially that its creditors, including the plaintiff
When we say clearly, it does not have to be written in the and the defendant, together with many others, agreed to take
contract. It just has to be inferred. It can be deduced over the business, incorporate it and accept stock therein in
from the nature of the contract. payment of their respective credits. This was done, the plaintiff
and the defendant becoming the two largest stockholders in the
new corporation called John R. Edgar & Co., Incorporated.
Example:
A few days after the incorporation was completed plaintiff and
defendant entered into the following agreement:
Whereas it is recognized that the success of said Article 1229. The judge shall equitably reduce the
corporation depends, now and for at least one year
next following, in the larger stockholders retaining their penalty when the principal obligation has been partly
respective interests in the business of said corporation: or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be
Therefore, the undersigned mutually and reciprocally reduced by the courts if it is iniquitous or
agree not to sell, transfer, or otherwise dispose of any unconscionable. (1154a)
part of their present holdings of stock in said John R.
Edgar & Co. Inc., till after one year from the date
hereof.
In Article 1229, even in the parties voluntarily, knowingly,
Either party violating this agreement shall pay to the willingly, intelligently agreed to the stipulation as to the
other the sum of one thousand (P1,000) pesos as amount of the penalty, there are cases when the court
liquidated damages, unless previous consent in writing may still reduce the penalty.
to such sale, transfer, or other disposition be obtained.
These cases are:
Notwithstanding this contract the defendant Fox on October 19,
1911, sold his stock in the said corporation to E. C. McCullough of 1.) When there has been partial performance
the firm of E. C. McCullough & Co. of Manila, a strong
competitor of the said John R. Edgar & Co., Inc. When we say ―partial,‖ it is not complete like only
90%completed.
This sale was made by the defendant against the protest of the
plaintiff and with the warning that he would be held liable under 2.) When there is irregular performance.
the contract hereinabove set forth and in accordance with its
terms. In fact, the defendant Fox offered to sell his shares of stock When you say ―irregular,‖ there I complete
to the plaintiff for the same sum that McCullough was paying performance but it is not strictly in accordance
them less P1,000, the penalty specified in the contract. with the terms of the contract.
RULING: In the case at bar the parties expressly stipulated that 3.) When the penalty is iniquitous or unconscionable.
the contract should last one year. No reason is shown for saying
that it shall last only nine months. Whatever the object was in These are the cases when the courts or the judge may
specifying the year, it was their agreement that the contract reduce the penalty en if there is a stipulation which was
should last a year and it was their judgment and conviction that voluntarily entered into.
their purposes would not be subversed in any less time. What
reason can give for refusing to follow the plain words of the men
CASE: FLORENTINO vs SUPERVALUE
who made the contract? We see none.
Here, the lessee, despite the agreement that she should

The appellee urges that the plaintiff cannot recover for the secure the prior written consent of the lessor, made
reason that he did not prove damages, and cites numerous
improvements without consent. So, because of that SM
American authorities to the effect that because stipulations for
liquidated damages are generally in excess of actual damages wanted to forfeit the security deposit.
and so work a hardship upon the party in default, courts are
strongly inclined to treat all such agreements as imposing a The Supreme Court said that such violation was not so
penalty and to allow a recovery for actual damages only. He grave. The act of the lessee in introducing improvements
also cites authorities holding that a penalty, as such, will not be is already expected. It cannot be considered as
enforced and that the party suing, in spite of the penalty misrepresentation because the Supreme Court said that it
assigned, will be put to his proof to demonstrate the damages is consonant with human experience that lessees, before
actually suffered by reason of defendants wrongful act or occupying the leased premises, especially store spaces
omission.
located inside malls and big commercial establishments,
would renovate the place and introduce improvements
In this jurisdiction penalties provided in contracts of this character according to the needs and nature of their business and
are enforced. It is the rule that parties who are competent to
in harmony with their trademark designs as part of their
contract may make such agreements within the limitations of the
law and public policy as they desire, and that the courts will
marketing ploy to attract customers.
enforce them according to their terms. The only case recognized
by the Civil Code in which the court is authorized to intervene for So, it is not only a matter of necessity that a lessee should
the purpose of reducing a penalty stipulated in the contract is redesign its place of business but a business strategy as
when the principal obligation has been partly or irregularly well. If you redesign your space, it is expected that you
fulfilled and the court can see that the person demanding the will really do that but because it was without the prior
penalty has received the benefit of such or irregular consent of SM, the lessee here committed a violation but
performance. In such case the court is authorized to reduce the not that grave as to warrant a forfeiture of the entire
penalty to the extent of the benefits received by the party
security deposits.
enforcing the penalty.
Here, the Supreme Court reduced the penalty to 50%.
In this jurisdiction, there is no difference between a penalty and
liquidated damages, so far as legal results are concerned. FLORENTINO vs SUPERVALUE
Whatever differences exists between them as a matter of
language, they are treated the same legally. In either case the
party to whom payment is to be made is entitled to recover the FACTS: Petitioner is doing business under the business name
sum stipulated without the necessity of proving damages. "Empanada Royale," a sole proprietorship engaged in the retail
Indeed one of the primary purposes in fixing a penalty or in of empanada with outlets in different malls and business
liquidating damages, is to avoid such necessity.
establishments within Metro Manila. opening from 16 December 1999 to 26 December 1999, and by
introducing a new variety of empanada without the prior
consent of the respondent, as mandated by the provision of
Respondent, on the other hand, is a domestic corporation
Section 2 of the Contract of Lease. Respondent also alleged that
engaged in the business of leasing stalls and commercial store
petitioner infringed the lease contract by frequently closing
spaces located inside SM Malls found all throughout the country.
earlier than the agreed closing hours. Respondent finally averred
that petitioner is liable for the amountP106,474.09, representing
Petitioner and respondent executed three Contracts of Lease the penalty for selling a new variety of empanada, electricity
containing similar terms and conditions over the cart-type stalls and water bills, and rental adjustment, among other charges
at SM North Edsa and SM Southmall and a store space at SM incidental to the lease agreements. Respondent claimed that
Megamall. The term of each contract is for a period of four the seizure of petitioner‘s personal belongings and equipment
months and may be renewed upon agreement of the parties. was in the exercise of its retaining lien, considering that the
petitioner failed to settle the said obligations up to the time the
Upon the expiration of the original Contracts of Lease, the complaint was filed.
parties agreed to renew the same by extending their terms until
31 March 2000. Considering that petitioner already committed several breaches
of contract, the respondent thus opted not to renew its
Before the expiration of said Contracts of Lease, petitioner Contracts of Lease with her anymore. The security deposits were
received two letters from the respondent. In the first letter, made in order to ensure faithful compliance with the terms of
petitioner was charged with violating Section 8 of the Contracts their lease agreements; and since petitioner committed several
of Lease by not opening on 16 December 1999 and 26 infractions thereof, respondent was justified in forfeiting the
December 1999. security deposits in the latter‘s favor.
Respondent also charged petitioner with selling a new variety of RULING: The appellate court, in finding that the respondent is
empanada called "mini-embutido" and of increasing the price authorized to forfeit the security deposits, relied on the provisions
of her merchandise from P20.00 to P22.00, without the prior of Sections 5 and 18 of the Contract of Lease, to wit:
approval of the respondent.
Section 5. DEPOSIT. The LESSEE shall make a cash
Respondent observed that petitioner was frequently closing deposit in the sum of SIXTY THOUSAND PESOS
earlier than the usual mall hours, either because of non-delivery (P60,000.00) equivalent to three (3) months rent as
or delay in the delivery of stocks to her outlets, again in violation security for the full and faithful performance to each
of the terms of the contract. A stern warning was thus given to and every term, provision, covenant and condition of
petitioner to refrain from committing similar infractions in the this lease and not as a pre-payment of rent. If at any
future in order to avoid the termination of the lease contract. time during the term of this lease the rent is increased[,]
the LESSEE on demand shall make an additional
deposit equal to the increase in rent. The LESSOR shall
In the second letter, respondent informed the petitioner that it not be required to keep the deposit separate from its
will no longer renew the Contracts of Lease for the three outlets, general funds and the deposit shall not be entitled to
upon their expiration. interest. The deposit shall remain intact during the entire
term and shall not be applied as payment for any
Petitioner explained that the "mini-embutido" is not a new variety monetary obligations of the LESSEE under this contract.
of empanada but had similar fillings, taste and ingredients as If the LESSEE shall faithfully perform every provision of
those of pork empanada; only, its size was reduced in order to this lease[,] the deposit shall be refunded to the LESSEE
make it more affordable to the buyers. upon the expiration of this Lease and upon satisfaction
of all monetary obligation to the LESSOR.
Such explanation notwithstanding, respondent still refused to
renew its Contracts of Lease with the petitioner. To the contrary, xxxx
respondent took possession of the store space in SM Megamall
and confiscated the equipment and personal belongings of the Section 18. TERMINATION. Any breach, non-
petitioner found therein after the expiration of the lease performance or non-observance of the terms and
contract. conditions herein provided shall constitute default
which shall be sufficient ground to terminate this
Petitioner demanded that the respondent release the lease, its extension or renewal. In which event, the
equipment and personal belongings it seized from the SM LESSOR shall demand that LESSEE immediately vacate
Megamall store space and return the security deposits, in the the premises, and LESSOR shall forfeit in its favor the
sum ofP192,000.00, turned over by the petitioner upon signing of deposit tendered without prejudice to any such other
the Contracts of Lease. appropriate action as may be legally authorized.
An action for Specific Performance, Sum of Money and Since it was already established by the trial court that the
Damages was filed by the petitioner against the respondent. petitioner was guilty of committing several breaches of contract,
petitioner alleged that the respondent made verbal the Court of Appeals decreed that she cannot therefore
representations that the Contracts of Lease will be renewed from rightfully demand the return of the security deposits for the same
time to time and, through the said representations, the petitioner are deemed forfeited by reason of evident contractual
was induced to introduce improvements upon the store space violations.
at SM Megamall in the sum of P200,000.00, only to find out a year
later that the respondent will no longer renew her lease It is undisputed that the above-quoted provision found in all
contracts for all three outlets. Contracts of Lease is in the nature of a penal clause to ensure
petitioner‘s faithful compliance with the terms and conditions of
In addition, petitioner alleged that the respondent, without the said contracts.
justifiable cause and without previous demand, refused to return
the security deposits in the amount of P192,000.00. A penal clause is an accessory undertaking to assume greater
liability in case of breach. It is attached to an obligation in order
For its part, respondent countered that petitioner committed to insure performance and has a double function: (1) to provide
several violations of the terms of their Contracts of Lease by not for liquidated damages, and (2) to strengthen the coercive
force of the obligation by the threat of greater responsibility in
the event of breach. The obligor would then be bound to pay contracts from time to time after their expirations, and that the
the stipulated indemnity without the necessity of proof of the petitioner was so induced thereby that she expended the sum
existence and the measure of damages caused by the breach. of P200,000.00 for the improvement of the store space leased.
Article 1226 of the Civil Code states:
This argument was squarely addressed by this court in Fernandez
Art. 1226. In obligations with a penal clause, the penalty shall v. Court of Appeals, thus:
substitute the indemnity for damages and the payment of
interests in case of noncompliance, if there is no stipulation to
The Court ruled that the stipulation of the parties in their lease
the contrary. Nevertheless, damages shall be paid if the obligor
contract "to be renewable" at the option of both parties stresses
refuses to pay the penalty or is guilty of fraud in the fulfillment of
that the faculty to renew was given not to the lessee alone nor
the obligation.
to the lessor by himself but to the two simultaneously; hence,
both must agree to renew if a new contract is to come about.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
Petitioner‘s contention that respondents had verbally agreed to
extend the lease indefinitely is inadmissible to qualify the terms of
As a general rule, courts are not at liberty to ignore the freedoms the written contract under the parole evidence rule, and
of the parties to agree on such terms and conditions as they see unenforceable under the statute of frauds.
public order or public policy. Nevertheless, courts may equitably
Moreover, it is consonant with human experience that lessees,
reduce a stipulated penalty in the contracts in two instances: (1)
before occupying the leased premises, especially store spaces
if the principal obligation has been partly or irregularly complied
located inside malls and big commercial establishments, would
with; and (2) even if there has been no compliance if the
renovate the place and introduce improvements thereon
penalty is iniquitous or unconscionable in accordance with
according to the needs and nature of their business and in
Article 1229 of the Civil Code which clearly provides:
harmony with their trademark designs as part of their marketing
ploy to attract customers. Certainly, no inducement or
Art. 1229. The judge shall equitably reduce the penalty when the misrepresentation from the lessor is necessary for this purpose, for
principal obligation has been partly or irregularly complied with it is not only a matter of necessity that a lessee should re-design
by the debtor. Even if there has been no performance, the its place of business but a business strategy as well.
penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
CASE: TAN vs CA
In ascertaining whether the penalty is unconscionable or not, this
court set out the following standard in Ligutan v. Court of What was involved here was a Contract of Loan. There
Appeals, to wit: was a penalty stipulated for the delay in the payment of
the loan. The penalty was 2% per month compounded
The question of whether a penalty is reasonable or iniquitous can monthly.
be partly subjective and partly objective. Its resolution would
depend on such factor as, but not necessarily confined to, the What do we mean by compounded? Interest is added to
type, extent and purpose of the penalty, the nature of the the principal. On the next installment, the basis of the
obligation, the mode of breach and its consequences, the computation of the interest will be the interest and the
supervening realities, the standing and relationship of the parties,
principal of the previous month. So, the interest and the
and the like, the application of which, by and large, is addressed
to the sound discretion of the court. xxx. principal will become the principal in the next installment.
If there is another interest unpaid, it will also be added to
the principal and then made as the basis for the
In the instant case, the forfeiture of the entire amount of the
security deposits in the sum of P192,000.00 was excessive and
computation.
unconscionable considering that the gravity of the breaches
committed by the petitioner is not of such degree that the Here, the debtor contended that the penalty was
respondent was unduly prejudiced thereby. It is but equitable iniquitous and unconscionable. So, it alleged that the
therefore to reduce the penalty of the petitioner to 50% of the penalty charged should be reduced to 10% of the
total amount of security deposits. unpaid balance of the loan because he already made
partial payments which showed his good faith that a
It is in the exercise of its sound discretion that this court tempered reduction of the penalty would be justified under Article
the penalty for the breaches committed by the petitioner to 50% 1229. That was the allegation of the debtor.
of the amount of the security deposits. The forfeiture of the entire
sum of P192,000.00 is clearly a usurious and iniquitous penalty for Here, the Supreme Court said that indeed there were
the transgressions committed by the petitioner. The respondent is partial payments so a reduction of the penalty would be
therefore under the obligation to return the 50% of P192,000.00 to
justifiable. Of course, the Supreme Court also did not
the petitioner.
reduce it to 10% of the outstanding balance; that would
already be prejudicial to the creditor considering that
Turning now to the liability of the respondent to reimburse the there was already a long overdue deprivation of the use
petitioner for one-half of the expenses incurred for the
of the money of the creditor.
improvements on the leased store space at SM Megamall:
Here, the Supreme Court found it fair and equitable to
The Section 11 in the Contract of Lease mandates that before reduce the penalty to 12% per annum. So, 1% per month
the petitioner can introduce any improvement on the leased
simple interest not compounded.
premises, she should first obtain respondent‘s consent. In the
case at bar, it was not shown that petitioner previously secured
TAN vs CA
the consent of the respondent before she made the
improvements on the leased space in SM Megamall. It was not
FACTS: Petitioner Antonio Tan obtained two (2) loans each in the
even alleged by the petitioner that she obtained such consent
principal amount of P2,000,000.00, or in the total principal
or she at least attempted to secure the same. On the other
amount of P4,000,000.00 from respondent Cultural Center of the
hand, the petitioner asserted that respondent allegedly
Philippines (CCP, for brevity) evidenced by two (2) promissory
misrepresented to her that it would renew the terms of the
notes. justifiable pursuant to Article 1229 of the New Civil Code which
provides that: "The judge shall equitably reduce the penalty
Petitioner defaulted but after a few partial payments he had the when the principal obligation has been partly or irregularly
loans restructured by respondent CCP, and petitioner complied with by the debtor. Even if there has been no
accordingly executed a promissory note in the amount of performance, the penalty may also be reduced by the courts if it
P3,411,421.32 payable in five (5) installments. Petitioner Tan failed is iniquitous or unconscionable." Petitioner insists that the penalty
to pay any installment on the said restructured loan of should be reduced to ten percent (10%) of the unpaid debt in
P3,411,421.32. accordance with Bachrach Motor Company v. Espiritu.
Petitioner requested and proposed to respondent CCP a mode There appears to be a justification for a reduction of the penalty
of paying the restructured loan, i.e., (a) twenty percent (20%) of charge but not necessarily to ten percent (10%) of the unpaid
the principal amount of the loan upon the respondent giving its balance of the loan as suggested by petitioner. Inasmuch as
conformity to his proposal; and (b) the balance on the principal petitioner has made partial payments which showed his good
obligation payable in thirty-six (36) equal monthly installments faith, a reduction of the penalty charge from two percent (2%)
until fully paid. per month on the total amount due, compounded monthly, until
paid can indeed be justified under the said provision of Article
Instead, respondent CCP, through counsel, wrote a letter to the 1229 of the New Civil Code.
petitioner demanding full payment, within ten (10) days from
receipt of said letter, of the petitioner‘s restructured loan which
amounted to P6,088,735.03. In other words, we find the continued monthly accrual of the
two percent (2%) penalty charge on the total amount due to be
unconscionable inasmuch as the same appeared to have been
The trial court gave five (5) reasons in ruling in favor of compounded monthly.
respondent CCP. First, it gave little weight to the petitioner‘s
contention that the loan was merely for the accommodation of
Wilson Lucmen for the reason that the defense propounded was Considering petitioner‘s several partial payments and the fact
not credible in itself. Second, assuming, arguendo, that the he is liable under the note for the two percent (2%) penalty
petitioner did not personally benefit from the said loan, he charge per month on the total amount due, compounded
should have filed a third party complaint against Wilson Lucmen, monthly, for twenty-one (21) years since his default in 1980, we
the alleged accommodated party but he did not. Third, for find it fair and equitable to reduce the penalty charge to a
three (3) times the petitioner offered to settle his loan obligation straight twelve percent (12%) per annum on the total amount
with respondent CCP. Fourth, petitioner may not avoid his liability due starting August 28, 1986, the date of the last Statement of
to pay his obligation under the promissory note (Exh. "A") which Account.
he must comply with in good faith pursuant to Article 1159 of the
New Civil Code. Fifth, petitioner is estopped from denying his We also took into consideration the offers of the petitioner to
liability or loan obligation to the private respondent. enter into a compromise for the settlement of his debt by
presenting proposed payment schemes to respondent CCP. The
The petitioner appealed the decision of the trial court to the said offers at compromise also showed his good faith despite
Court of Appeals insofar as it charged interest, surcharges, difficulty in complying with his loan obligation due to his financial
attorney‘s fees and exemplary damages against the petitioner. problems. However, we are not unmindful of the respondent‘s
In his appeal, the petitioner asked for the reduction of the long overdue deprivation of the use of its money collectible from
penalties and charges on his loan obligation. the petitioner.
The appellate court rendered a decision affirming the decision

of the trial court. However, the appellate court modified the CASE: STATE INVESTMENT HOUSE vs CA
decision of the trial court by deleting the award for exemplary
damages and reducing the amount of awarded attorney‘s fees The 4.2 Million which was recovered during the
to five percent (5%). foreclosure sale already included the principal plus a
portion of the penalty. So, the remaining Php 500, 000
RULING: The private respondent‘s Statement of Account shows plus was only purely penalty. So, when the Court
the following breakdown of the petitioner‘s indebtedness as of disallowed that Php 500, 000, it was not actually deleting
August 28, 1986: the penalty because there was already penalty
recovered when the foreclosure sale generated Php 4.2
Million, a portion of that already included the penalty.
Principal P2,838,454.68
So, that was not actually a case of deleting the penalty
but merely reducing the penalty.
Interest P 576,167.89 STATE INVESTMENT HOUSE vs CA
Surcharge P4,581,692.10 FACTS: In that sale that should a receivable remain unpaid,
plaintiff, at its discretion, may impose a penalty fee of 3% per
month. To secure the payment of the receivables, the Malonjaos
P7,996,314.67
also executed in favor of plaintiff, a real estate mortgage over
their real property.
The said statement of account also shows that the above
amounts stated therein are net of the partial payments
Pursuant to their agreement, Lomuyon sold to plaintiff for a total
amounting to a total of P452,561.43 which were made during the
consideration of P2,558,073.75, various receivables consisting of
period from May 13, 1983 to September 30, 1983. The petitioner
checks. TCBTC (The Consolidated Bank and Trust Corporation)
now seeks the reduction of the penalty due to the said partial
checks were all drawn by Amanda Malonjao to the order of
payments. The principal amount of the promissory note was
payee Lomuyon which in turn, indorsed the checks to plaintiff.
P3,411,421.32 when the loan was restructured on August 31,
The MBTC (Metropolitan Bank and Trust Company) check was
1979. As of August 28, 1986, the principal amount of the said
drawn by one Antonietta Malonjao-Roque to the order of payee
restructured loan has been reduced to P2,838,454.68.
Amanda Malonjao who in turn, indorsed said check to plaintiff.
Thus, petitioner contends that reduction of the penalty is

When plaintiff presented the checks for payment to the drawee
banks, the same were dishonored for having been drawn respondent was computed to be P4,809,187.12 inclusive of
against insufficient funds. interest and penalty charges. Since the private respondent
failed to fulfill its obligation, petitioner then decided to foreclose
Plaintiff made repeated written demands on defendants to the real estate mortgage on two properties of the private
make good the checks they indorsed and to pay the penalty respondent. At the time of the auction sale on February 14, 1983,
charges it has imposed thereon. Defendants failed to pay the the properties were sold in the amount of P4,223,874.00 with the
value of the checks. Plaintiff thus decided to undertake petitioner as the highest bidder. Deducting this amount from the
foreclosure of the real estate mortgage. outstanding obligation of P4,809,187.12 as stipulated in the
Statement of Account, there would therefore be a balance of
Plaintiff filed with the Provincial Sheriff of Rizal a petition for only about P575,313.l2. 1âwphi1.nêt
extrajudicial foreclosure of real estate mortgage. In said petition,
plaintiff alleged among others, that as of said date, September Whether or not the alleged deficiency from the foreclosure sale
28, 1981, defendants' outstanding obligation, inclusive of interest was P575,313.12 or P2,601,147.62 as claimed by petitioner was of
and charges, is P4,809,187.12. The Provincial Sheriff sold at public no moment. The respondent court disallowed the payment of
auction, defendants mortgaged properties to plaintiff who was the deficiency altogether because it found that tile principal
the highest bidder for P4,233,874.00. obligation of the private respondent would not have ballooned
to such a horrendous amount of P4.8M as of September 21,1991
Plaintiff filed the complaint alleging that after deducting the if not for the penalty charge of 3% per month or 36% per annum.
price of the mortgaged properties from defendants' outstanding
obligation, there remains a deficiency of P2,601,147.62 as of
February 14, 1983, which as of May 31, 1983 amounted to The trial court justified, to wit;
P2,876,929.27 inclusive of interest and charges. As an alternative
cause of action, plaintiff alleged that it is entitled to recover from x x x [F]rom the various checks the defendants had sold
the defendant the total value of the checks amounting to originally to the plaintiff at the beginning of their
P2,239,237.10. transactions, it is shown that the amount including
interests and other charges, is P2,970,566.64. For a two
In their answer, defendants admitted having incurred the year period from June 9, 1978 to March 9, 1980 and up
obligation with the plaintiff brought about by the dishonor of the to September 26, 1981 the amount grew to
checks. However, defendants contended that plaintiff's P4,809,187.12. In other words, the money of the plaintiff
computation of their outstanding obligation is erroneous. has already earned interests and other charges to
more or less P1,638,630.48. As alleged in plaintiff's
The trial court rendered its decision declaring that the plaintiff is complaint, the total amount purchased by plaintiff was
not entitled to any deficiency amount from the defendants. only for P2,500,000.00. There is reason to believe that
the P2,970,566.64 represented by the various checks
The respondent court rendered the assailed decision disallowing include therein, the interest and other charges upon
the claim for deficiency on the finding that the penalty charges their maturity dates. Deducting the amount of
imposed by petitioner on the principal obligation were highly P2,500,000.00 from P2,970,556.64 is P420,556.64. In brief,
iniquitous and unconscionable. the interests and charges that plaintiff has already
earned from the time it has foreclosed defendants'
In disallowing the claim for deficiency, the respondent court properties has passed the P2,000,000.00.
found that the proceeds of the auction sale was sufficient to
cover the principal obligation of the private respondent
Contrary to petitioner's contention, the respondent court acted
including interest, penalty and other charges, Both the
in accordance to of Article 1229 when it declared that petitioner
respondent court and the trial court took particular attention on
was no longer entitled to the payment of the deficiency
the penalty charge of 3% a month which was imposed on the
amount. The disallowance of the payment of deficiency was in
principal obligation as a result of their default in payments.
effect merely a reduction of the penalty charges and not as a
deletion of the penalties as contended by the petitioner.
Petitioner asserts that as of September 26, 1981, private
respondent's obligation amounted to P4,809,187.12. At that time
of the foreclosure sale on February 14, 1982, the obligation to SIHI In the case at bar, the two courts below found the penalty
was computed to be P6,833,021.62 inclusive of interest and charge of 3% a month or 36% per annum iniquitous and
penalty charges. Considering that the bid price of the unconscionable. Petitioner computed the amount of
foreclosed properties was only P4,233,874.00, petitioner was still P4,809,187.12, as the outstanding obligation of the petitioner as
entitled to a deficiency of about P2,601,147.62. Petitioner further of September 21, 1981 after imposing the 3% penalty charge
added that until the original obligation is fully paid, private when petitioner defaulted in their payments. This amount was no
respondent's outstanding obligation continue to earn interest longer questioned and was particularly taken into consideration
and penalty charges from day to day. Thus, from the time of the when the mortgaged properties were foreclosed and sold at the
foreclosure sale on February 14,1983 (P2,601,147.62) up to the auction sale in 1983, obtaining a sum of about P4,223,874.00.
filing of the complaint for the deficiency claim on May 31, 1983
(P2,876,929.27), and up to the trial on June 3, 1988 in the RTC, These foreclosed properties located in Makatiare undoubtedly
private respondent's outstanding obligation to SIHI rose to valuable properties whose market value has greatly
P7,651,969.41. appreciated to substantially satisfy the payment of the
outstanding obligation. Notwithstanding the balance of
There is no dispute that the payment of penalty is sanctioned by P575,313.12, petitioner has clearly recouped its investment and
the law, although the penalty may be reduced by the courts if it earned more than enough profit in two years (1978-1981) by way
is iniquitous or unconscionable. Petitioner argues that while it of penalty charges.
recognizes the authority of the court to reduce the penalty if it is
iniquitous or unconscionable, the court, however, does not have Although petitioner claims that the penalty charge was well
the authority to delete the payment of the penalty charges within the banking and business practice, no proof was
altogether for this is in clear contravention of Article 1229 and adduced thereof. To allow the petitioner to recover the amount
the law of contracts between the parties. of P6,835,021.21 at the time of the foreclosure sale in 1983, or
P7,651,969.41 at the time of the trial of the case in 1988 which
amounts are almost three times more than the original
RULING: The Court does not find any reversible error committed
investment of about P2,558.073.75 is rather unwarranted.
by the respondent court in ruling that the petitioner was no
longer entitled to recover any deficiency amount after the
foreclosure sale on February 14, 1983. Per Statement of Account While the Court recognizes the right of the parties to enter into
dated September 21, 1981, the obligation of the private contracts and are expected to comply with the terms and
obligations, this rule is not absolute. The Court is allowed to So, when a breach is actually committed, that penalty
temper interest rates when necessary. Article 1229 of the New stipulated would be more or less equivalent to his
Civil Code clearly provides: damage. If the courts will reduce that, it will be to the
prejudice of the aggrieved party. So, the court will be
ART. 1229. The judge shall equitably reduce the penalty slow in reducing the penalty if the penalty is really
when the principal obligation has been partly or intended as indemnity for damages. The court will not
irregularly complied with by the debtor. Even if there exercise their authority to reduce the penalty.
reduced by the courts if it is iniquitous or
But if the penalty is really intended as a penalty for the
unconscionable.
breach, usually, the courts will be ready to lessen or
reduce the amount.
CASE: FILINVEST LAND INCORPORATED vs CA
That‘s the distinction.
I would just like to point out the discussion on the
Here, the Supreme Court said that the distinction is
distinction between penalty/penal clause essentially as a
irrelevant because there was already partial
mere penalty or penal clause as liquidated damages.
performance. So, whether the penal clause is intended
Here, in the case of Laureano, the Supreme Court as a penalty or whether it is intended as indemnity for
instructed about the distinction between a penalty damages, it doesn‘t matter. As long as there is partial
clause imposed essentially as a penalty and a penalty performance or irregular performance, the courts will
clause imposed as indemnity for damages. reduce the penalty.
Usually, the courts will rigidly apply the doctrine of strict That distinction will only be relevant if there is no
construction against the enforcement in its entirety of performance. If there is no performance and then it is
indemnification where it is clear from the terms of the really intended as a penalty, the courts will readily
contract that the amount or character of the indemnity is reduce. If it is intended as indemnity for damages, the
fixed without regard to probable damages which might courts will usually not reduce. But if there is partial or
be anticipated as a result of a breach of the terms of the irregular performance whatever may be the purpose of
contract. the penalty, the court will really reduce the penalty.
In other words, where the indemnity provided for is In the case of LIGUTAN vs CA, which is cited in this case of
essentially a mere penalty, having for its principal object FILINVEST, the Supreme Court discussed when we will
the enforcement of compliance with a contract, the consider a penalty as reasonable or iniquitous.
courts will rigidly apply the doctrine of strict construction
The question of whether a penalty is reasonable or
against the enforcement of the penalty.
iniquitous can be partly subjective and partly objective
This means that when there is an amount stipulated in the as its resolution will depend on such factors as, but not
contract which is the penalty clause but that amount is necessarily confined to, the type, extent, and purpose of
intended by the parties to be a mere penalty, without the penalty, the nature of the obligation, the mode of
regard as to the actual damages suffered by the breach and its consequences, the supervening realities,
aggrieved party in case of breach, the fixing of the the standing and relationship of the parties and the like,
penalty is not based on the damages but just really a the application of which by enlarge is addressed to the
penalty. In that case, the Supreme Court said that the sound discretion of the courts.
courts will rigidly apply the doctrine of strict construction
So, that will be the guidance to the courts in determining
against the enforcement.
whether a penalty is reasonable or iniquitous.
This means that the courts will not strictly enforce the
FILINVEST LAND, INC. VS. CA
penalty, the courts will reduce the penalty.
FACTS: FILINVEST, a corporation engaged in the development
But the courts will be slow in exercising the jurisdiction and sale of residential subdivisions, awarded to defendant
conferred upon them in Article 1229 so as to modify the Pacific Equipment Corporation the development of its residential
terms of an agreed upon indemnification when it subdivisions consisting of two (2) parcels of land.
appears in fixing such indemnification, the parties had in
mind a fair and reasonable compensation for actual To guarantee its faithful compliance and pursuant to the
damages anticipated as a result of a breach of a agreement, defendant Pacific posted two (2) Surety Bonds in
favor of plaintiff which were issued by defendant Philippine
contract. In other words, where the principal purpose of
American General Insurance.
the indemnification agreed upon appears to have been
to provide for the payment of actual, anticipated and Notwithstanding three extensions granted by plaintiff to
liquidated damages rather than the penalization of a defendant Pacific, the latter failed to finish the contracted
breach in a contract. works. On 16 October 1979, plaintiff wrote defendant Pacific
advising the latter of its intention to take over the project and to
The court will be slow in reducing the penalty. In other hold said defendant liable for all damages which it had incurred
words, the courts usually will not reduce the penalty when and will incur to finish the project.
the penalty is really intended as an indemnity for
damages because the reason here is that when the On 26 October 1979, plaintiff submitted its claim against
defendant Philamgen under its performance and guarantee
parties agreed on that amount (like Php 2 Million), they
bond but Philamgen refused to acknowledge its liability for the
already considered that the aggrieved party will suffer simple reason that its principal, defendant Pacific, refused to
Php 2 Million so that they consider that as the reasonable acknowledge liability therefore. Hence, this action.
indemnity for the damages suffered.
In defense, defendant Pacific claims that its failure to finish the
contracted work was due to inclement weather and the fact Moreover, the penalty was fixed to provide for actual or
that several items of finished work and change order which anticipated liquidated damages and not simply to ensure
plaintiff refused to accept and pay for caused the disruption of compliance with the terms of the contract; hence, pursuant
work. Since the contractual relation between plaintiff and to Laureano v. Kilayco, courts should be slow in exercising the
defendant Pacific created a reciprocal obligation, the failure of authority conferred by Art. 1229 of the Civil Code.
the plaintiff to pay its progressing bills estops it from demanding
fulfillment of what is incumbent upon defendant Pacific. The ISSUE: whether or not the liquidated damages agreed upon by
acquiescence by plaintiff in granting three extensions to the parties should be reduced considering that the liquidated
defendant Pacific is likewise a waiver of the former‘s right to damages was fixed by the parties to serve not only as penalty in
claim any damages for the delay. Further, the unilateral and case Pecorp fails to fulfill its obligation on time, but also as
voluntary action of plaintiff in preventing defendant Pacific from indemnity for actual and anticipated damages which Filinvest
completing the work has relieved the latter from the obligation may suffer by reason of such failure.
of completing the same.
RULING: There is no question that the penalty of P15,000.00 per
Philamgen contends that the various amendments made on the day of delay was mutually agreed upon by the parties and that
principal contract and the deviations in the implementation the same is sanctioned by law. A penal clause is an accessory
thereof which were resorted to by plaintiff and co-defendant undertaking to assume greater liability in case of breach. It is
Pacific without its (defendant Philamgen‘s) written consent attached to an obligation in order to insure performance and
thereto, have automatically released the latter from any or all has a double function: (1) to provide for liquidated damages,
liability within the purview and contemplation of the coverage of and (2) to strengthen the coercive force of the obligation by the
the surety bonds it has issued. threat of greater responsibility in the event of breach.
Based on the billings of defendant Pacific and the payments

Article 1226 of the Civil Code states:
made by plaintiff, the work accomplished by the former
amounted to P11,788,282.40 with the exception of the last billing
(which was not acted upon or processed by plaintiff) in the Art. 1226. In obligations with a penal clause, the
amount of P844,396.42. The total amount of work left to be penalty shall substitute the indemnity for damages and
accomplished by plaintiff was based on the original contract the payment of interests in case of noncompliance, if
amount less value of work accomplished by defendant Pacific in there is no stipulation to the contrary. Nevertheless,
the amount of P681,717.58 (12,470,000-11,788,282.42). damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the
obligation.
In resolving this case, the court observes that the appointment of
a Commissioner was a joint undertaking among the parties. The
findings of facts of the Commissioner should therefore not only The penalty may be enforced only when it is demandable in
be conclusive but final among the parties. The court therefore accordance with the provisions of this Code.
agrees with the commissioner‘s findings with respect to
As a general rule, courts are not at liberty to ignore the freedom
1. Cost to repair deficiency or defect – P532,324.02 of the parties to agree on such terms and conditions as they see
public order or public policy.
2. Unpaid balance of work done by defendant -
P1,939,191.67
Nevertheless, courts may equitably reduce a stipulated penalty
in the contract in two instances: (1) if the principal obligation has
3. Additional work/change order (due to defendant) –
been partly or irregularly complied; and (2) even if there has
P475,000.00
been no compliance if the penalty is iniquitous or
unconscionable in accordance with Article 1229 of the Civil
The unpaid balance due defendant therefore is P1,939,191.67. Code which provides:
To this amount should be added additional work performed by
defendant at plaintiff‘s instance in the sum of P475,000.00. And
Art. 1229. The judge shall equitably reduce the penalty
from this total of P2,414,191.67 should be deducted the sum
when the principal obligation has been partly or
of P532,324.01 which is the cost to repair the deficiency or
irregularly complied with by the debtor. Even if there
defect in the work done by defendant. The commissioner arrived
at the figure of P532,324.01 by getting the average between
plaintiff‘s claim of P758,080.37 and defendant‘s allegation
unconscionable.
of P306,567.67. The amount due to defendant per the
commissioner‘s report is therefore P1,881,867.66.
In herein case, the trial court ruled that the penalty charge for
delay – pegged at P15,000.00 per day of delay in the aggregate
Although the said amount of P1,881,867.66 would be owing to
amount of P3,990,000.00 -- was excessive and accordingly
defendant Pacific, the fact remains that said defendant was in
reduced it to P1,881,867.66 "considering the amount of work
delay since April 25, 1979.
already performed and the fact that Filinvest consented to three
(3) prior extensions." The Court of Appeals affirmed the ruling but
Defendant Pacific therefore became liable for delay when it did added as well that the penalty was unconscionable "as the
not finish the project on the date agreed on October 15, construction was already not far from completion."
1979. The RTC however, finds the claim of P3,990,000.00 in the
form of penalty by reason of delay (P15,000.00/day from April 25,
We likewise agree with the trial court that a penalty interest
1979 to Jan. 15, 1980) to be excessive.
of P15,000.00 per day of delay as liquidated damages
or P3,990,000.00 (representing 32% penalty of the P12,470,000.00
A forfeiture of the amount due defendant from plaintiff appears contract price) is unconscionable considering that the
to be a reasonable penalty for the delay in finishing the project
construction was already not far from completion. Penalty
considering the amount of work already performed and the fact
interests are in the nature of liquidated damages and may be
that plaintiff consented to three prior extensions. equitably reduced by the courts if they are iniquitous or
unconscionable. The judge shall equitably reduce the penalty
Filinvest argues that the penalty in its entirety should be when the principal obligation has been partly or irregularly
respected as it was a product of mutual agreement and it complied with by the debtor. Even if there has been no
represents only 32% of the P12,470,000.00 contract price, thus, performance, the penalty may also be reduced by the courts if it
not shocking and unconscionable under the circumstances. is iniquitous or unconscionable (Art. 1229, New Civil Code).
Moreover, plaintiff‘s right to indemnity due to defendant‘s delay subjective and partly objective as its "resolution would depend
has been cancelled by its obligations to the latter consisting of on such factors as, but not necessarily confined to, the type,
unpaid works. extent and purpose of the penalty, the nature of the obligation,
the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties, and the like,
We are hamstrung to reverse the Court of Appeals as it is
the application of which, by and large, is addressed to the
rudimentary that the application of Article 1229 is essentially
sound discretion of the court."
addressed to the sound discretion of the court. As it is settled
that the project was already 94.53% complete and that Filinvest
did agree to extend the period for completion of the project, In herein case, there has been substantial compliance in good
which extensions Filinvest included in computing the amount of faith on the part of Pecorp which renders unconscionable the
the penalty, the reduction thereof is clearly warranted. application of the full force of the penalty especially if we
consider that in 1979 the amount ofP15,000.00 as penalty for
Filinvest, however, hammers on the case of Laureano v. delay per day was quite steep indeed. Nothing in the records
suggests that Pecorp‘s delay in the performance of 5.47% of the
Kilayco, decided in 1915, which cautions courts to distinguish
contract was due to it having acted negligently or in bad faith.
between two kinds of penalty clauses in order to better apply
Finally, we factor in the fact that Filinvest is not free of blame
their authority in reducing the amount recoverable. We held
either as it likewise failed to do that which was incumbent upon
therein that:
it, i.e., it failed to pay Pecorp for work actually performed by the
latter in the total amount ofP1,881,867.66. Thus, all things
. . . [I]n any case wherein there has been a partial or considered, we find no reversible error in the Court of Appeals‘
irregular compliance with the provisions in a contract exercise of discretion in the instant case.
for special indemnification in the event of failure to
comply with its terms, courts will rigidly apply the
doctrine of strict construction against the enforcement
CASE: SEGOVIA vs JL DUMATOL
in its entirety of the indemnification, where it is clear
from the terms of the contract that the amount or
character of the indemnity is fixed without regard to
Here, the penalty was 3% per month. The Supreme Court
the probable damages which might be anticipated as said it was iniquitous so it was reduced to 12% per annum.
a result of a breach of the terms of the contract; or, in
other words, where the indemnity provided for is 12% per annum or 1% per month is the legal rate of
essentially a mere penalty having for its principal object interest for forbearance of money, goods or credits. 6% if
the enforcement of compliance with the contract. But it is not for forbearance of money, goods or credit.
the courts will be slow in exercising the jurisdiction
conferred upon them in article 1154 so as to modify the SEGOVIA vs JL DUMATOL
terms of an agreed upon indemnification where it
appears that in fixing such indemnification the parties FACTS: Petitioner SEGOVIA DEVELOPMENT CORPORATION
had in mind a fair and reasonable compensation for (SEGOVIA for brevity) and respondent J. L. DUMATOL REALTY
actual damages anticipated as a result of a breach of AND DEVELOPMENT CORPORATION (DUMATOL for brevity) are
the contract, or, in other words, where the principal domestic corporations engaged in the business of real estate
purpose of the indemnification agreed upon appears development.
to have been to provide for the payment of actual
anticipated and liquidated damages rather than the petitioner SEGOVIA and respondent DUMATOL entered into
penalization of a breach of the contract. three (3) separate but identical contracts to sell involving three
(3) condominium units, namely, Units Nos. 703, 704 and 904, of
Filinvest contends that the subject penalty clause falls under the the Heart Tower Condominium. The total contract price for the
second type, i.e., the principal purpose for its inclusion was to three (3) units was P6,050,000.00.
provide for payment of actual anticipated and liquidated
damages rather than the penalization of a breach of the The contracts, which were in standard form approved by the
contract. Thus, Filinvest argues that had Pecorp completed the Housing and Land Use Regulatory Board (HLURB), contained the
project on time, it (Filinvest) could have sold the lots sooner and following provision:
earned its projected income that would have been used for its
other projects. 4.1 x x x x Where less than 2 years of installments were
paid, the SELLER shall give the BUYER a grace period of
60 days but a penalty of 3% per month shall be levied
Unfortunately for Filinvest, the above-quoted doctrine is
upon unpaid installments. If the BUYER fails to comply,
inapplicable to herein case. The Supreme Court
the SELLER may cancel the Contract after 30 days from
inLaureano instructed that a distinction between a penalty
receipt by the BUYER of the Notice of Cancellation or
clause imposed essentially as penalty in case of breach and a
the Demand of Rescission of the Contract by a notarial
penalty clause imposed as indemnity for damages should be
act without need of judicial action.
made in cases where there has been neither partial nor irregular
compliance with the terms of the contract. In cases where there
Out of the total contract price of P6,050,000.00, respondent
has been partial or irregular compliance, as in this case, there
DUMATOL was able to pay only the amount of P450,000.00 for
will be no substantial difference between a penalty and
the three (3)units. However, the check paid by respondent
liquidated damages insofar as legal results are concerned.
DUMATOL through Julius Stracham (P 100, 000) was dishonored
by the bank so that only P4,400,000.00 was credited to the
It must be remembered that the Court of Appeals not only held account of respondent DUMATOL.
that the penalty should be reduced because there was partial
compliance but categorically stated as well that the penalty A meeting was held between the two (2) contracting parties
was unconscionable. Otherwise stated, the Court of Appeals whereby it was approved in principle that petitioner would
affirmed the reduction of the penalty not simply because there withdraw the action for rescission subject to the condition that
was partial compliance per se on the part of Pecorp with what respondent would pay for the following: (a) the total balance for
was incumbent upon it but, more fundamentally, because it the three (3) condominium units, together with interest and the
deemed the penalty unconscionable in the light of Pecorp‘s related charges amounting to P2,808,699.00, would be settled
94.53% completion rate. not later than 12:00 o'clock noon of 7 December 1990; and, (b)
liquidated damages amounting to P700,000.00.
In Ligutan v. Court of Appeals, we pointed out that the question
of whether a penalty is reasonable or iniquitous can be partly Respondent DUMATOL disputed the computation made by
petitioner and informed the, latter that it was prepared to pay Here, there was a Lease Contract involved in this case. As
the remaining balance of the purchase price plus interests, a penalty for the breach, it was stipulated that future
which amounted to only P1,977,200.00. rentals can be collected plus other damages.
Respondent DUMATOL lodged a complaint with the HLURB
praying among others that the three percent (3%) interest rate When we discussed Article 1226, we learned that in
being assessed by petitioner on the defaulted payments be obligations with a penal clause, the general rule is that
declared erroneous and that petitioner be likewise ordered to the penalty serves as a substitute for the indemnity for
pay P3,400,000.00 compensatory damages. damages and the payment of interest in case of
noncompliance.
The settlement of the outstanding balance of the purchase price
not having materialized, respondent received another notice of
But, there are exceptions:
cancellation from petitioner, this time officially informing
respondent that the Contracts to Sell for Units 703, 704 and 904
were being cancelled without need of judicial action. 1.) If there is stipulation to the contract made.
2.) When the obligor is sued for refusal to pay the
Respondent consigned with the HLURB the amount of agreed penalty.
P1,977,220.00 in the form of Philippine Savings Bank Check No. 3.) When the obligor is guilty of fraud.
203331 which represented what it believed to be its remaining
accountability to petitioner SEGOVIA.
In these cases, the purpose of the penalty is obviously to
punish the obligor for the breach. Hence, the obligee
Respondent argued that the three percent (3%) penalty charge can recover from the former not only the penalty but also
was iniquitous and unconscionable and therefore unjustified and
other damages resulting from the nonfulfillment of the
that its acts of tendering and consigning the sum of
P1,977,200.00 with the HLURB suspended the running of such
principal obligations.
interest charges.
So, here, the first exception would apply. There was a
RULING: In opposing the three percent (3%) penalty interest, stipulation in their contract providing that aside from the
respondent, as sustained by the Court of Appeals, invokes Art. payment of the rentals corresponding to the remaining
1229 of the Civil Code which provides - term of the lease, the lessee shall also be liable for any
and all damages, actual or consequential, resulting from
The judge shall equitably reduce the penalty when the such default and termination in the contract.
principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no
With that, it was stipulated so it could be enforced. So,
performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
the PAGCOR would be liable not only for the future
rentals but also for other damages.
Respondent also claims that the spirit of the above provision is re-
echoed in Art. 2227 of the Civil Code which provides - The Supreme Court also discussed here the reduction of
the penalty. Considering that the claim for future rentals
Liquidated damages, whether intended as an to the tune of Php 7, 370, 835. 40 is highly iniquitous, the
indemnity or a penalty, shall be equitably reduced if Court reduced the penalty. So, under the circumstances,
they are iniquitous or unconscionable. the advanced rental deposits in the sum of Php 687,
289.50 should be sufficient penalty for respondent‘s
We agree. The three percent (3%) penalty interest is patently breach. So, gamay kaayog gi-award. Dako kayo gi-
iniquitous and unconscionable as to warrant the exercise by this reduce. From Php 7 Million, nahimo na siyang Php 687,
Court of its judicial discretion. A close reading of the contracts to 000.
sell will show that the three percent (3%) penalty interest on
unpaid installments on a monthly basis (per Sec. 4.1) would
translate to a yearly penalty interest of thirty-six percent (36%).
PRYCE vs PAGCOR
Assuming that respondent has an outstanding balance which
runs into millions (P2,559,900.00 per HLURB Arbiter's computation), FACTS: Sometime in the first half of 1992, representatives from
the payments respondent made (amounting to P4.4 million out Pryce Properties Corporation (PPC for brevity) made
of the P6.05 million contract price) would be virtually wiped out if representations with the Philippine Amusement and Gaming
the three percent (3%) penalty interest were imposed on the Corporation (PAGCOR) on the possibility of setting up a casino in
account balance. Pryce Plaza Hotel in Cagayan de Oro City.
The parties executed a Contract of Lease involving the ballroom

Although this Court on various occasions has eliminated of the Hotel for a period of three (3) years starting December 1,
altogether the three percent (3%) penalty interest for being 1992 and until November 30, 1995. On November 13, 1992, they
unconscionable, we are not inclined to do the same in this case. executed an addendum to the contract which included a lease
A reduction is more consistent with fairness and equity. We of an additional 1000 square meters of the hotel grounds as living
should not lose sight of the fact that petitioner remain an unpaid quarters and playground of the casino personnel.
seller that it has suffered, one way or another, from respondent's
non-performance of its contractual obligations. In view of such Way back in 1990, the Sangguniang Panlungsod of Cagayan de
glaring reality, we invoke the authority granted to us by Art. 1229 Oro City passed Resolution No. 2295 declaring as a matter of
of the Civil Code, and as equity dictates, the penalty interest is policy to prohibit and/or not to allow the establishment of a
accordingly reimposed on a reduced rate of one percent (1%) gambling casino in Cagayan de Oro City. Resolution No. 2673
interest per month or twelve percent (12%) per annum. was subsequently passed a month before the contract of lease
was executed reiterating with vigor and vehemence the policy
of the City under Resolution No. 2295, series of 1990, banning
CASE: PRYCE vs PAGCOR casinos in Cagayan de Oro City.
Just hours before the actual formal opening of casino

This is more applicable to Article 1226. operations, a public rally in front of the hotel was staged by
some local officials, residents and religious leaders. Barricades There are exceptions to the aforementioned rule, however, as
were placed which prevented some casino personnel and hotel enumerated in paragraph 1 of Article 1226 of the Civil Code:
guests from entering and exiting from the Hotel. PAGCOR was
constrained to suspend casino operations because of the rally. 1) when there is a stipulation to the contrary;
PAGCOR resumed casino operations on July 15, 1993, against 2) when the obligor is sued for refusal to pay the agreed
which, however, another public rally was held. Casino penalty, and
operations continued for some time, but were later on 3) when the obligor is guilty of fraud.
indefinitely suspended due to the incessant demonstrations. Per 4)
verbal advice from the Office of the President of the Philippines, In these cases, the purpose of the penalty is obviously to punish
PAGCOR decided to stop its casino operations in Cagayan de the obligor for the breach. Hence, the obligee can recover from
Oro City. PAGCOR stopped its casino operations in the hotel the former not only the penalty, but also other damages resulting
prior to September, 1993. from the nonfulfillment of the principal obligation.
In two Statements of Account PPC apprised PAGCOR of its In the present case, the first exception applies because Article
outstanding account for the quarter September 1 to November XX (c) provides that, aside from the payment of the rentals
30, 1993. PPC sent PAGCOR another Letter dated September 15, corresponding to the remaining term of the lease, the lessee
1993 stating its Board of Directors‘ decision to collect the full shall also be liable "for any and all damages, actual or
rentals in case of pre-termination of the lease. consequential, resulting from such default and termination of this
contract." Having entered into the Contract voluntarily and with
PAGCOR sent PPC a letter stating that it was not amenable to full knowledge of its provisions, PAGCOR must be held bound to
the payment of the full rentals citing as reasons unforeseen legal its obligations. It cannot evade further liability for liquidated
and other circumstances which prevented it from complying damages.
with its obligations. PAGCOR further stated that it had no other
alternative but to pre-terminate the lease agreement due to the REDUCTION OF THE PENALTY
relentless and vehement opposition to their casino operations.
PAGCOR asked PPC to refund the total of P1,437,582.25 In certain cases, a stipulated penalty may nevertheless be
representing the reimbursable rental deposits and expenses for equitably reduced by the courts. This power is explicitly
the permanent improvement of the Hotel‘s parking lot. In a sanctioned by Articles 1229 and 2227 of the Civil Code, which
letter, PAGCOR formally demanded from PPC the payment of its we quote:
claim for reimbursement.
"Art. 1229. The judge shall equitably reduce the penalty
PPC filed a case for sum of money. PAGCOR also filed a case for when the principal obligation has been partly or
sum of money. The cases were ordered consolidated. irregularly complied with by the debtor. Even if there
These cases were jointly tried by the court a quo. On August 17, has been no performance, the penalty may also be
1995, the court a quo promulgated its decision. Both parties reduced by the courts if it is iniquitous or
appealed. unconscionable."
In its appeal, PPC faulted the trial court for the court‘s ruling that "Art. 2227. Liquidated damages, whether intended as
the 2 percent penalty was to be imposed from the date of the an indemnity or a penalty, shall be equitably reduced if
promulgation of the Decision, not from the date stipulated in the they are iniquitous or unconscionable."
Contract.
The question of whether a penalty is reasonable or iniquitous is
On the other hand, PAGCOR criticized the trial court for the addressed to the sound discretion of the courts. To be
latter‘s failure to rule that the Contract of Lease had already considered in fixing the amount of penalty are factors such as --
been terminated as early as September 21, 1993, or at the latest, but not limited to -- the type, extent and purpose of the penalty;
on October 14, 1993, when PPC received PAGCOR‘s letter the nature of the obligation; the mode of the breach and its
dated October 12, 1993. consequences; the supervening realities; the standing and
relationship of the parties; and the like.
RULING: Future rentals cannot be claimed as compensation for
the use or enjoyment of another‘s property after the termination In this case, PAGCOR‘s breach was occasioned by events that,
of a contract. We stress that by abrogating the Contract in the although not fortuitous in law, were in fact real and pressing.
present case, PPC released PAGCOR from the latter‘s future From the CA‘s factual findings, which are not contested by
obligations, which included the payment of rentals. To grant that either party, we find that PAGCOR conducted a series of
right to the former is to unjustly enrich it at the latter‘s expense. negotiations and consultations before entering into the
Contract. It did so not only with the PPC, but also with local
However, it appears that Section XX (c) was intended to be a government officials, who assured it that the problems were
penalty clause. That fact is manifest from a reading of the surmountable. Likewise, PAGCOR took pains to contest the
mandatory provision under subparagraph (a) in conjunction with ordinances before the courts, which consequently declared
subparagraph (c) of the Contract. A penal clause is "an them unconstitutional. On top of these developments, the
accessory obligation which the parties attach to a principal gaming corporation was advised by the Office of the President
obligation for the purpose of insuring the performance thereof to stop the games in Cagayan de Oro City, prompting the
by imposing on the debtor a special prestation (generally former to cease operations prior to September 1993.
consisting in the payment of a sum of money) in case the
obligation is not fulfilled or is irregularly or inadequately fulfilled." Also worth mentioning is the CA‘s finding that PAGCOR‘s casino
Quite common in lease contracts, this clause functions to operations had to be suspended for days on end since their start
strengthen the coercive force of the obligation and to provide, in December 1992; and indefinitely from July 15, 1993, upon the
in effect, for what could be the liquidated damages resulting advice of the Office of President, until the formal cessation of
from a breach. There is nothing immoral or illegal in such operations in September 1993. Needless to say, these
indemnity/penalty clause, absent any showing that it was forced interruptions and stoppages meant that PAGCOR suffered a
upon or fraudulently foisted on the obligor. tremendous loss of expected revenues, not to mention the fact
that it had fully operated under the Contract only for a limited
In obligations with a penal clause, the general rule is that the time.
penalty serves as a substitute for the indemnity for damages and
the payment of interests in case of noncompliance; that is, if While petitioner‘s right to a stipulated penalty is affirmed, we
there is no stipulation to the contrary, in which case proof of consider the claim for future rentals to the tune ofP7,037,835.40
actual damages is not necessary for the penalty to be to be highly iniquitous. The amount should be equitably
demanded. reduced. Under the circumstances, the advanced rental
deposits in the sum of P687,289.50 should be sufficient penalty for
respondent‘s breach. of P7,385,500.00 to finance the construction and development of
the Este del Sol Mountain Reserve, a sports/resort complex
project.
CASE: RAMNANI vs CA
Under the terms of the Loan Agreement, the proceeds of the

The subject matter here was a Compromise Agreement. loan were to be released on staggered basis. Interest on the
In that Compromise Agreement, the parties stipulated on loan was pegged at sixteen (16%) percent per annum based on
the amount to pay as penalty. The Compromise the diminishing balance. The loan was payable in thirty-six (36)
Agreement was a result of mutual concessions pending equal and consecutive monthly amortizations to commence at
litigation. When you say that there is a Compromise the beginning of the thirteenth month from the date of the first
Agreement, that would be equivalent to a final and release in accordance with the Schedule of Amortization.
executory judgment. Once approved by the court, the
Compromise Agreement has the effect and is equivalent In case of default, an acceleration clause was, among others,
to a final and executory judgment. provided and the amount due was made subject to a twenty
(20%) percent one-time penalty on the amount due and such
amount shall bear interest at the highest rate permitted by law
Here, the parties agreed to the Compromise Agreement from the date of default until full payment thereof plus liquidated
but it was not followed by the other party. So, the damages at the rate of two (2%) percent per month
aggrieved party moved for the execution of the compounded quarterly on the unpaid balance and accrued
Compromise Agreement according to what has been interests together with all the penalties, fees, expenses or
stipulated in the Agreement. The offender, the one who charges thereon until the unpaid balance is fully paid, plus
attorney's fees equivalent to twenty-five (25%) percent of the
committed a breach of the Compromise Agreement,
sum sought to be recovered, which in no case shall be less than
moved for a reduction of the penalty invoking Article P20,000.00 if the services of a lawyer were hired.
1229.
Since respondent Este del Sol failed to meet the schedule of
The Supreme Court said Article 1229 applies only to repayment in accordance with a revised Schedule of
pending cases. It applies only to obligations or contracts Amortization, it appeared to have incurred a total obligation
subject of litigation. The condition being that the same of P12,679,630.98 per the petitioner's Statement of Account.
has been partly or irregularly complied with by the
debtor. The provision also applies even if there has been The trial court rendered its decision in favor of petitioner FMIC
no performance as long as the penalty is iniquitous or
unconscionable. But it cannot apply to a final and On appeal, the appellate court found and declared that the
executor judgment. stipulated penalties, liquidated damages and attorney's fees
were "excessive, iniquitous, unconscionable and revolting to the
Take note that a final judgment is already immutable. It conscience," and declared that in lieu thereof, the stipulated
one time twenty (20%) percent penalty on the amount due and
cannot be changed anymore. Therefore, the court
ten (10%) percent of the amount due as attorney's fees would
cannot use Article 1229 to change a final decision. So, be reasonable and suffice to compensate petitioner FMIC for
Article 1229 applies only to obligations subject of a those items.
pending case. Here, there was already a decision which
attained finality so it cannot be changed anymore by RULING: Attorney's fees as provided in penal clauses are in the
reducing the penalty embodied in that Compromise nature of liquidated damages. So long as such stipulation does
Agreement. not contravene any law, morals, or public order, it is binding
upon the parties. Nonetheless, courts are empowered to reduce
Besides, the Supreme Court said there were fraud and the amount of attorney's fees if the same is "iniquitous or
unconscionable." Articles 1229 and 2227 of the New Civil Code
dilatory schemes which were exercised by the other
provide that:
party. There was insincerity based on grounds of bad faith
on the part of the Choithram family. They did not deserve
Art. 1229. The judge shall equitably reduce the penalty
the invocation of the power of the court to reduce the
when the principal obligation has been partly or
penalty even if there was partial payment. Again, this is irregularly complied with by the debtor. Even if there
supposed to be a final and executory judgment. has been no performance, the penalty may also be
CASE: FIRST METRO INVESTMENT CORPORATION vs ESTE DEL unconscionable.
SOL MOUNTAIN RESERVE, INC.
Art. 2227. Liquidated damages, whether intended as
an indemnity or a penalty, shall be equitably reduced if
We are talking here of attorney‘s fees as provided in
they are iniquitous or unconscionable.
penal clauses are in the nature of liquidated damages.
So, if you agree in the contract that in case of breach,
In the case at bar, the amount of P 3,188,630.75 for the
you will pay Php 1 Million as attorney‘s fees. That is
stipulated attorney's fees equivalent to twenty-five (25%) percent
actually liquidated damages. of the alleged amount due, as of the date of the auction sale on
June 23, 1980, is manifestly exorbitant and unconscionable.
Here, the court said that the amount was iniquitous and Accordingly, we agree with the appellate court that a reduction
unconscionable. The amount stipulated was Php 3.1 of the attorney's fees to ten (10%) percent is appropriate and
Million or equivalent to 25% of the amount due. It was reasonable under the facts and circumstances of this case.
reduced to 10%.
Take note in all these cases, a penalty of 3% per month or
FIRST METRO INVESTMENT CORPORATION vs ESTE DEL SOL up, iniquitous na siya kasagaran. Niingon ang Supreme
MOUNTAIN RESERVE, INC. Court. Pwede ang 2% pero kung naay 2% na
compounded, the court reduced it saying that it was
FACTS: Petitioner FMIC granted respondent Este del Sol a loan
Article 1230. The nullity of the penal clause does not
carry with it that of the principal obligation.
The nullity of the principal obligation carries with it

that of the penal clause. (1155)
iniquitous. Usually, the court will award 12% per annum or
1% per month. Article 1232. Payment means not only the delivery
of money but also the performance, in any other
manner, of an obligation. (n)
When we say ―payment‖ we usually think of payment

meaning bayad. But actually, it also covers performance
of an obligation.
A penalty clause or a penal clause is just an accessory Article 1233. A debt shall not be understood to have
undertaking in an obligation. It may or may not exist. been paid unless the thing or service in which the
Being an accessory undertaking, its existence is
obligation consists has been completely delivered
dependent upon the nullity of the principal obligation.
or rendered, as the case may be. (1157)
If the principal obligation is void then the accessory

obligation is also void. It cannot stand alone without a Payment must be in full. This is one requisite for valid
principal. But if the penalty clause is void, the principal payment.
can still stand. It will not affect the existence of the When the debt is Php 1 Million, you should pay the entire
principal obligation. Php 1 Million. If it bears interest then you should also pay
the interest. If it is performance, you should completely
perform the prestation. So, if you offer only 1/2, you
cannot compel the creditor to accept only ½. It is not a
valid tender of payment. For you to be able to compel
the creditor to accept, it should be in full unless the
parties agreed to an installment payment. But if it is not a
stipulated installment, you should pay in full.
Article 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.
Other causes of extinguishment of obligations, such

as annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere
in this Code. (1156a)
So, we now go to extinguishment or modes of

extinguishing an obligation. You have to memorize the
enumerated modes in Article 1231.
There are other causes mentioned like fulfillment of a

resolutory condition and annulment. There are still others
like mutual desistance or mutual dissent - meaning the
parties themselves voluntarily agree to end their contract.
So, that is also a mode of extinguishing an obligation.
Rescission would also extinguish an obligation; we
discussed that before.
The Court of Appeals affirmed in toto the decision of the trial
Article 1234. If the obligation has been substantially court.
performed in good faith, the obligor may recover as
though there had been a strict and complete
ISSUE: whether Artigo's claim has been extinguished by full
fulfillment, less damages suffered by the obligee. (n) payment, waiver or abandonment
―Substantial performance in good faith.‖ So, when RULING: The De Castros contend that Artigo's inaction as well as
performance is not complete but it is substantial like 99% failure to protest estops him from recovering more than what
and in good faith. Here, it can also be considered as was actually paid him. The De Castros cite Article 1235 of the
payment if the creditor accepts less the amount which is Civil Code which reads:
lacking. For example, if the creditor reserves his right to
that then he may recover. But if he accepts the Art. 1235. When the obligee accepts the performance,
payments as the full and fair equivalent of the obligation, knowing its incompleteness and irregularity, and
that will also extinguish the obligation. without expressing any protest or objection, the
obligation is deemed fully complied with.
Article 1235. When the obligee accepts the

The De Castros' reliance on Article 1235 of the Civil Code is
performance, knowing its incompleteness or
misplaced. Artigo's acceptance of partial payment of his
irregularity, and without expressing any protest or commission neither amounts to a waiver of the balance nor puts
objection, the obligation is deemed fully him in estoppel. This is the import of Article 1235 which was
complied with. (n) explained in this wise:
"The word accept, as used in Article 1235 of the Civil

Article 1234 speaks of substantial performance. Article Code, means to take as satisfactory or sufficient, or
1235 speaks of constructive fulfillment. agree to an incomplete or irregular
performance. Hence, the mere receipt of a partial
So, even if the payment or performance is not in full or it is payment is not equivalent to the required acceptance
of performance as would extinguish the whole
irregular or partial but the creditor, knowing that it is
obligation."
irregular and partial, but still he accepted then it is
equivalent to full payment. The creditor cannot later on
say that there is a difference which he should recover. There is thus a clear distinction between acceptance and
mere receipt. In this case, it is evident that Artigo merely
received the partial payment without waiving the balance. Thus,
CASE: DE CASTRO vs CA there is no estoppel to speak of.
The Supreme Court said that you should make a Article 1236. The creditor is not bound to accept
distinction between acceptance and received. payment or performance by a third person who
has no interest in the fulfillment of the obligation,
When you say ―received,‖ this means you merely unless there is a stipulation to the contrary.
physically received. There‘s a physical changing of hands
of the money. Whoever pays for another may demand from the
debtor what he has paid, except that if he paid
When you say ―accept,‖ you take that as satisfactory or without the knowledge or against the will of the
sufficient or you agreed to an incomplete or irregular debtor, he can recover only insofar as the payment
performance. has been beneficial to the debtor. (1158a)
The fact that Artigo still filed a case shows that he just Example:
received, he did not accept. And he did not waive the
balance. A borrowed Php 1 Million from B. A is the debtor, B is the
creditor. The rule is: the creditor cannot be compelled to
DE CASTRO vs CA accept payment from a third person. Assuming, X has a
crush on A, so he goes to B and says that he will pay A‘s
debt. Can B refuse the payment by X? Yes, B may refuse.
FACTS: Appellants were co-owners of four (4) lots. Appellee was
authorized by appellants to act as real estate broker in the sale
of these properties for the amount ofP23,000,000.00, five percent What if B agrees but A says ―Ayaw lay maulaw ko. Basig
(5%) of which will be given to the agent as commission. It was mapugsan ko na sugton nalang siya.” Can B still accept if
appellee who first found Times Transit Corporation, represented dili magsugot si debtor? Yes. What is needed is only the
by its president Mr. Rondaris, as prospective buyer which desired acceptance by the creditor. In that case, when the
to buy two (2) lots only. Appellee received from
debtor does not agree or he does not know, the
appellants P48,893.76 as commission.
payment made by the third persons, the acceptance by
the creditor of the amount extinguishes the obligation. So,
Appellee apparently felt short changed because according to
A is no longer indebted to B.
him, his total commission should be P352,500.00 which is five
percent (5%) of the agreed price of P7,050,000.00 paid by Times
Transit Corporation to appellants for the two (2) lots, and that it Now, as the one who paid, can X claim from A? Yes, he
was he who introduced the buyer to appellants and unceasingly can claim from A but only beneficial reimbursement. Only
facilitated the negotiation which ultimately led to the to the extent that A was benefitted to the payment
consummation of the sale. Hence, he sued below to collect the made by the third person.
balance ofP303,606.24 after having received P48,893.76 in
advance.
If the debt is Php 1 Million and X paid Php 1 Million, A was extinguished, respondent Guevarra may demand for
benefitted to the extent of Phph 1 Million. If the debt was reimbursement from his principal. To rule otherwise would result in
already partially paid (Php 800, 000 nalang) and X paid unjust enrichment of petitioner.
Php 1 Million, how much can X collect from A by way of The extent to which petitioner was benefited by the settlement
reimbursement? Php 800, 000, because that is the only of the insurance claims could best be proven by the Release of
amount which inures to the benefit of A. If the debt had Claim Loss and Subrogation Receipts which were attached to
already prescribed and still X paid to B and B accepted, the original complaint, in the total amount of P116,276.95.
can X recover anything from A? No, because a did not
However, the amount of the revolving fund/collection that was
benefit at all. So, only to the extent that the debtor was then in the possession of respondent Guevarra as reflected in the
benefitted by the payment. statement of account dated July 11, 1990 would be deducted
from the above amount.
In that case, when the debt has already prescribed or
The outstanding balance and the production/remittance for the
had been partially paid, asa man mabawi ni X ang period corresponding to the claims was P3,604.84. Deducting this
iyahang gibayad? Nganong nidawat man ka, B, na from P116,276.95, we get P112,672.11. This is the amount that
prescribed naman ang iyahang utang or fully paid may be reimbursed to respondent Guevarra.
naman? Can X recover? Yes, but not from A because A
did not benefit. He can recover from B on the ground of
solutio indebiti. Article 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the
CASE: DOMINION INSURANCE vs CA latter, cannot compel the creditor to subrogate
him in his rights, such as those arising from a
DOMINION INSURANCE vs CA mortgage, guaranty, or penalty. (1159a)
FACTS: Plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 That is one consequence: of the payment by the third
for sum of money against defendant Dominion Insurance person is without the knowledge or against the will of the
Corporation. Plaintiff sought to recover thereunder the sum of
debtor, he is not subrogated to the rights of the creditor
P156, 473.90 which he claimed to have advanced in his
capacity as manager of defendant to satisfy certain claims filed
arising from mortgage, guaranty or penalty.
by defendant‘s clients.
Example:
Defendant denied any liability to plaintiff and asserted a
counterclaim for P249,672.53, representing premiums that A owes B Php 1 Million and then to secure his debt, A
plaintiff allegedly failed to remit. mortgaged his land to B. The use of the mortgage is when
A fails to pay his debt, B may foreclose on the mortgage
Defendant filed a third-party complaint against Fernando and the proceeds will be used to pay the obligation of A.
Austria, who, at the time relevant to the case, was its Regional X, without the knowledge of A or with the knowledge but
Manager for Central Luzon area.
against the will of A, paid B the Php 1 Million and B
accepted. So, the obligation is extinguished. As we
The court a quo rendered judgment ordering defendant discussed, X is entitled to beneficial reimbursement from
Dominion Insurance Corporation to pay plaintiff the sum of A. What if A did not pay, can X foreclose on the
P156,473.90 representing the total amount advanced by plaintiff
mortgage on the land?
in the payment of the claims of defendant‘s clients.
The Court of Appeals promulgated a decision affirming that of No, because there is no subrogation. He does not step
the trial court. into the shoes of the creditor, insofar as mortgage,
guaranty and penalty are concerned. He is only entitled
ISSUE: whether respondent Guevarra is entitled to reimbursement to beneficial reimbursement.
of amounts he paid out of his personal money in settling the
claims of several insured.
Article 1238. Payment made by a third person who
RULING: While the law on agency prohibits does not intend to be reimbursed by the debtor is
respondent Guevarra from obtaining reimbursement, his right to deemed to be a donation, which requires the
recover may still be justified under the general law on obligations debtor's consent. But the payment is in any case
and contracts.
valid as to the creditor who has accepted it. (n)
Article 1236, second paragraph, Civil Code, provides:
―Whoever pays for another may demand from the CASE: LENTFER vs WOLFF
debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been In this particular case, the Spouses Lentfer knew a
beneficial to the debtor.” foreigner. Then the foreigner wanted to buy a beach
house or rest house in the Philippines so he requested the
In this case, when the risk insured against occurred, petitioner‘s
Spouses to arrange the documents for him. And he sent
liability as insurer arose. This obligation was extinguished when money to the account of the Spouses. Then, unknown to
respondent Guevarra paid the claims and obtained Release of him, when the Deed of Sale was executed, the Spouses
Claim Loss and Subrogation Receipts from the insured who were placed the Dee of Sale under their name but they did
paid. not tell the foreigner. When the foreigner arrived in the
Philippines, he thought the beach house belonged to
Thus, to the extent that the obligation of the petitioner has been
him. He vacationed there only to find out that the Deed favor of Moreño-Lentfer.
was in the name of the Spouses.
Upon learning of this, respondent filed a Complaint for
So, he sued the Spouses for the recovery of that amount. annulment of sale and reconveyance of property with damages
and prayer for a writ of attachment.
The Spouses claimed that the foreigner did not intend to
be reimbursed when you sent to us the amount. Applying
Article 1238, you are considered as the third person who The court a quo dismissed the complaint for failure to establish a
paid our debt to the seller and that valid; that is intended cause of action.
to be a donation to us. You are not entitled to recover. Is
that correct? The appellate court reversed the decision of the trial court and
held spouses Genter and Victoria Moreno-Lentfer and John
Craigie Young Cross jointly and severally liable to pay plaintiff-
The Supreme Court said no. Judging from the appellant the amount of 220,000.00 DM German Currency or its
circumstances of the parties, the Supreme Court would present peso equivalent plus legal interest.
not believe that the foreigner would give such a huge
amount of money to the Spouses who was not even ISSUE: Does Article 1238 of the New Civil Code apply to the case
close to him. That amount of money is impossible na at bar?
gipanghatag lang.
RULING: Article 1238 of the New Civil Code provides:
And if it is alleged to be a donation, it has to comply with
the formalities of a donation. So, for a donation of ART. 1238. Payment made by a third person who does
personal property less that Php 5, 000, there has to be not intend to be reimbursed by the debtor is deemed
simultaneous delivery. If it is more than Php 5, 000, there to be a donation, which requires the debtor's consent.
has to be at least a written document. If it involves real But the payment is in any case valid as to the creditor
property, whatever may be the amount, it has to be in a who has accepted it.
public document. Those are the formalities in donation.
Petitioners posit that in a contract of sale, the seller is the
creditor, who in this case is Cross, and the buyer is the debtor,
Here, there was not even a written document. It involves
namely Moreño-Lentfer in this case. Respondent is the third
money so it is personal property and since it is more than person who paid the consideration on behalf of Moreño-Lentfer,
Php 5, 000 it should be in writing. There was no the debtor. Petitioners insist that respondent did not intend to be
observance of the form. Even if it was alleged to be a reimbursed for said payment and debtor Moreño-Lentfer
donation, the donation plus the acceptance should be in consented to it. Thus, by virtue of Article 1238, payment by
a private document but there was no such document. respondent is considered a donation.
The Supreme Court said, it could not even be valid as a
donation. In that case, the foreigner could still recover Respondent counters that Article 1238 bears no relevance to the
the money. case since it applies only to contracts of loan where payment is
made by a third person to a creditor in favor of a debtor of a
previously incurred obligation. The instant case, in contrast,
LENTFER vs WOLFF involves a contract of sale where no real creditor-debtor
relationship exists between the parties. Further, respondent
FACTS: The petitioners are Gunter Lentfer, a German citizen; his argues his conduct never at any time intimated any intention to
Filipina wife, Victoria Moreño-Lentfer; and John Craigie Young donate in favor of petitioner Moreño-Lentfer.
Cross, an Australian citizen. espondent Hans Jurgen Wolff is a
German citizen. Moreover, respondent contends that the alleged donation is
void for non-compliance with the formal requirements set by
Petitioners alleged that with respondent, they engaged the law. Citing Article 748 of the New Civil Code, respondent avers
notarial services of Atty. Rodrigo C. Dimayacyac for: (1) the sale that since the amount involved exceeds P5,000, both the
of a beach house owned by petitioner Cross in Sabang, Puerto donation and its acceptance must be in writing for the donation
Galera, Oriental Mindoro, and (2) the assignment of Cross' to be valid. Respondent further says there was no simultaneous
contract of lease on the land where the house stood. delivery of the money as required by Art. 748 for instances of oral
donation. Respondent also calls our attention to the sudden
change in petitioners' theory. Previously, before the Court of
The sale of the beach house and the assignment of the lease
Appeals, the petitioners claimed that what was donated were
right would be in the name of petitioner Victoria Moreño-Lentfer,
the subject properties. But before this Court, they insist that what
but the total consideration of 220,000 Deutschmarks (DM) would
was actually donated was the money used in the purchase of
be paid by respondent Hans Jurgen Wolff. A promissory note was
subject properties.
executed by said respondent in favor of petitioner Cross.
On this point, we find petitioners' stance without merit. Article

According to respondent, however, the Lentfer spouses were his
1238 of the New Civil Code is not applicable in this case.
confidants who held in trust for him, a time deposit account in
the amount of DM 200,000 at Solid Bank Corporation. Apprised
of his interest to own a house along a beach, the Lentfer couple Trying to apply Art. 1238 to the instant case is like forcing a
urged him to buy petitioner Cross' beach house and lease rights square peg into a round hole.
in Puerto Galera. Respondent agreed and through a bank-to-
bank transaction, he paid Cross the amount of DM 221,700 as The absence of intention to be reimbursed, the qualifying
total consideration for the sale and assignment of the lease circumstance in Art. 1238, is negated by the facts of this case.
rights.
Respondent's acts contradict any intention to donate the

However, Cross, Moreño-Lentfer and Atty. Dimayacyac properties to petitioner Moreño-Lentfer. When respondent
surreptitiously executed a deed of sale whereby the beach learned that the sale of the beach house and assignment of the
house was made to appear as sold to Moreño-Lentfer for only lease right were in favor of Victoria Moreño-Lentfer, he
P100,000. The assignment of the lease right was likewise made in immediately filed a complaint for annulment of the sale and
reconveyance of the property with damages and prayer for a To whom shall payment be made?
writ of attachment. Respondent Moreño-Lentfer at that time
claimed the beach house, together with the lease right, was Of course, you have to pay to the creditor himself.
donated to her. Noteworthy, she had changed her theory, to
say that it was only the money used in the purchase that was If you pay to the maid of the creditor, for example, you
donated to her. But in any event, respondent actually stayed in
went to his house to pay your obligation but he was not
the beach house in the concept of an owner and shouldered
the expenses for its maintenance and repair amounting to
around, you left it with his maid who later absconded
P200,000 for the entire period of his stay for ten weeks. Moreover, with the money, can you say that your payment is valid
the appellate court found that respondent is not related or even as to the creditor?
close to the Lentfer spouses. Obviously, respondent had trusted
the Lentfer spouses to keep a time deposit account for him with No, because payment must be made to him unless he
Solid Bank for the purpose of making the purchase of the cited authorized his maid to accept payment.
properties.
Payment must be made to:
Petitioner Moreño-Lentfer's claim of either cash or property
donation rings hollow. A donation is a simple act of liberality 1.) The person in whose favor the obligation is
where a person gives freely of a thing or right in favor of another, constituted;
who accepts it. But when a large amount of money is involved,
equivalent to P3,297,800, based on the exchange rate in the 2.) His successor in interest;
year 1992, we are constrained to take the petitioners' claim of
liberality of the donor with more than a grain of salt. Like for example, when the creditor is already dead, it
doesn‘t mean that the obligation is already extinguished.
Petitioners could not brush aside the fact that a donation must The right of the creditor to demand payment shall now
comply with the mandatory formal requirements set forth by law be transmitted to his heirs.
for its validity. Since the subject of donation is the purchase
money, Art. 748 of the New Civil Code is applicable.
The debtor has to pay the heirs or any person authorized
Accordingly, the donation of money equivalent to P3,297,800 as
well as its acceptance should have been in writing. It was not. by the creditor to receive payment.
Hence, the donation is invalid for non-compliance with the
formal requisites prescribed by law. CULABA vs CA AND SAN MIGUEL CORP.
FACTS: Spouses Francisco and Demetria Culaba were the

Remember the requisites in Article 1238. Even if it is owners and proprietors of the CUlaba Store and were engaged
intended as a donation, the formalities of donation in the sale and distribution of SMC beer products. SMC sold beer
should be observed. If not, then the third person can still products on credit to spouses Culaba in the amount of P26, 650
recover. as evidenced in a temporary credit invoice.
Culaba spouses made a partial payment of 3, 740, leaving an

unpaid balance of P24, 910.
Article 1239. In obligations to give, payment made
They failed to pay despite repeated demands made by SMC
by one who does not have the free disposal of the and SMC filed an action for the collection of the sum of money
thing due and capacity to alienate it shall not be before the RTC.
valid, without prejudice to the provisions of article
Defendant spouses denied the liability claiming that they had
1427 under the Title on "Natural Obligations."
already paid the plaintiff in full on 4 separate occasions. To
(1160a) substantiate this claim, they presented 4 Temporary Charge
Sales Liquidation receipts. Francisco testified that he made the
payments to SMC supervisor who come in an SMC van. He was
Payment must be by one who has the capacity.
showed with customer‘s accountabilities which included his. He
paid in good faith and was issued a receipt. SMC submitted
Meaning, he has capacity to contract; he has the publisher‘s affidavit to prove that the entire booklet of TSL were
juridical personality. reported loss and notice of loss was published on the daily
express.
For example, the debtor is insane. Would you accept
payment form an insane debtor? RTC held Culaba spouses liable for the unpaid balance because
it is unusual for defendants to forget the name of the collector to
Generally, payment by a person who has no capacity to whom payment was paid and did not require the collector to
contract is not valid. print his name on the receipt.
So, payment must be made by his legal guardian if he is ISSUE: WON payment extinguished the obligation.
insane or is under civil interdiction. That is one rule in
RULING: Payment is a mode of extinguishing an obligation.
payment. Article 1240 of the Civil Code provides that 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.
In this case, the payments were purportedly made to a

―supervisor‖ of the private respondent who was clad in an SMC
Article 1240. Payment shall be made to the person uniform and drove an SMC van. He appeared to be authorized
to accept payments as he showed a list of the customers‘
in whose favor the obligation has been constituted,
accountabilities and even issued SMC liquidation receipts which
or his successor in interest, or any person authorized looked genuine.
to receive it. (1162a)
Unfortunately for petitioner Francisco, he did not ascertain the
identity and authority of the said supervisor, nor did he ask to be For example, the debtor gave the money to the neighbor
shown any identification to prove that the latter was, indeed, an of the creditor. That payment is, supposedly, not valid. It
SMC supervisor. so happened that the creditor also owes his neighbor 1M.
The petitioners relied solely on the man‘s representation that he
When the debtor paid the neighbor, the latter said that
was collecting payments for the private respondent.
he would credit such payment to the obligation of the
The fact that they were parting with a valuable consideration creditor.
should have made them more circumspect in handling their
business transactions. In that case, the payment shall be valid because it
redounded to the benefit of the creditor.
Such benefit to the creditor need not be proved in the

Article 1241. Payment to a person who is following cases:
incapacitated to administer his property shall be
valid if he has kept the thing delivered, or insofar as 1.) If after the payment, the third person acquires the
the payment has been beneficial to him. creditor’s rights.
For example, you are a lessee. When you went to

Payment made to a third person shall also be valid the house of the lessor, you paid to the person
insofar as it has redounded to the benefit of the who was present there.
creditor. Such benefit to the creditor need not be
proved in the following cases: Generally, that person is not authorized as he is a
third person. That payment should not be valid.
(1) If after the payment, the third person
acquires the creditor's rights; But, because for example, you discovered that
such person to whom you paid the money was
already the owner of the house, he now has the
(2) If the creditor ratifies the payment to the
right to collect. The right of the lessor is now on
third person;
that person with respect to the house. You can
say that the payment has redounded to the
(3) If by the creditor's conduct, the debtor benefit of the creditor.
has been led to believe that the third person
had authority to receive the payment. 2.) If the creditor ratifies the payment made to a
(1163a) third person.
Like when you paid to the maid who is not

authorized to receive payment but the next day
In Article 1239, the debtor is the one incapacitated to
you saw the creditor who told you ―Nagbayad
make payment. He does not have the free disposal to
diay ka sa akong katabang? Okay lang to maski
alienate the property or the prestation.
nisisbat na siya.”
In Article 1241, it is the creditor who is incapacitated.
Payment in that case is valid because the
creditor ratified it.
As a general rule, payment to a person who is
incapacitated is not valid.
When you say ratification, it follows the act.
If the creditor becomes insane in the meantime and you
3.) If by the creditor’s conduct, the debtor has been
made payment to him, the payment is not valid except if
led to believe that the third person had authority
the payment has been kept by him or the payment has
to receive the payment.
been beneficial to him.
So, you went to the lessor‘s house to pay and you
For example, a debtor paid 1M to an insane creditor but
saw a beautiful woman whom you thought was
the latter just kept the 1M.
the lessor‘s wife. You told the lessor, ―Gwapa lagi
imong asawa no?” and he agreed.
When he regains his sanity, he discovered that the 1M is
still in his possession, or that the money was used for his
After a month, you went to the lessor‘s house to
medication.
again pay your dues but he was not around so
you paid to the woman thinking she was the
In that case, the payment would be valid.
lessor‘s wife.
But, if he just destroyed or just gave away the money, he
In that case, you cannot be made to pay to the
has to pay gain because the payment is not valid.
lessor after you paid to the third person (woman)
Payment to a third person is not valid, as we discussed because it was through the lessor‘s conduct that
before. Payment should be made to the person in whose you were led to believe that the woman was
favor the obligation was constituted, his successors in authorized.
interest, and those who are authorized by him.
Payment to a third person is not valid unless it has Article 1242. Payment made in good faith to any
redounded to the benefit of the creditor.
person in possession of the credit shall release the
debtor. (1164)
When you are in possession of the credit, the rights of the
creditor are transferred to you by virtue of the nature of
CASE: PANGANIBAN vs CUEVAS the document itself like a promissory note payable to
bearer.
PANGANIBAN vs CUEVAS
If you are the bearer of the note, you are in possession of
FACTS: Panganiban, on December 10, 1897, sold under pacto the credit because the note is negotiable by
de retro a camarin and a lot to one Conzales with the
endorsement. You have to endorse it to transfer it.
agreement that if Panganiban did not repurchase within six
months, the property will pass to Gonzales upon paying an
additional sum of P200. Like for example:
In May 1898, Panganiban sought to repurchase the property, but
he could not locate Gonzales due to the revolutionary war. I promise to pay A.
The revolutionary government seized the land and camarin from Signed, B
Gonzales. Panganiban redeemed the property from the
revolutionary government by paying the purchase price. On the For that note to be negotiable by way of endorsement, B
other hand, on August 1, 1900, Gonzales sold the property to has to write at the back of the note:
defendant Cuevas, who, on November 10 attempted to pay
P200 to Panganiban who refused the same. To: C; Signed, B
ISSUE: Whether the repurchase made by Panganiban form the
Even if the note is now with X, the latter is still not in
revolutionary government vested in him the title to the property.
possession of the credit because the note was not
RULING: Article 1242 is not applicable. endorsed to him.
The revolutionary government to which the payment was made But, if B endorses that same note to X, X is now in
was not in possession of credit; it did nothing but seize the possession of the credit.
property from the vendor, including the house and lot. Seizure is
not, in itself, confiscation. A seizure or embargo is nothing but a So, even if A executed the note only in favor of B, he may
prohibition enjoining the owner from disposing the property. directly pay X because X in possession of the credit.
What Panagniban did in this case was to reacquire the
ownership of the property from the one who was not the owner
thereof.
Article 1243. Payment made to the creditor by the
Neither could Art. 1241 (2) be applied because there is no proof
debtor after the latter has been judicially ordered to
that of the payment made to Gonzales. Such payment,
therefore, did not extinguish the obligation of Panganiban to retain the debt shall not be valid. (1165)
pay the purchase price.
Since Cuevas did not make the additional payment of P200 in It is clear that the debtor is the one judicially ordered to
the manner agreed upon in the contract, and did not make a retain the debt.
consignation in the manner provided by law, the right of
Panganiban to redeem still exists as he may purchase the You know the concept of garnishment, attachment and
property upon paying the repurchase price to the defendant. levy.
Like for example, the creditor files a case against the

Example: debtor for collection but the former is afraid that if he will
have to wait for the case to be finished, basi wala na’y
A borrowed 10K from B and A executed a promissory property si debtor.
note in favor of B. That note is payable to bearer.
As soon as the creditor files a case against the debtor, he
Because B wanted money, he borrowed form C and can pray for a writ of preliminary attachment. Under this,
negotiated the promissory note. the properties of the debtor are preserved in favor of the
creditor so that when the creditor wins, he may proceed
So, who is now the holder of the promissory note? It is C. If
against those properties if the debtor has no cash.
A pays, to whom shall he pay? A can pay C.
That would also cover receivables of the debtor himself.
In that case, payment made by A to C is valid because C They may also be attached.
is now in possession of the credit. Meaning, C has a right
to demand payment from A directly because the For the meantime that they are attached, the debtors of
receivable of B was already transferred to C. the debtor may not pay him yet. The debtor may lose in
the case and instead of paying the debtor, they may
But, if the promissory note is not negotiable, (meaning not pay directly to the creditor.
payable to bearer) and X stole the promissory note, can
X collect from A? The creditor may proceed against the properties of the
debtor and against his receivables if the latter loses in the
No. In that case, even if X has in his possession the case and has no cash.
promissory note, he is not in possession of the credit
because the tenor of the note itself does not make it Once the debtors of the debtor receive the Writ of
payable to bearer. Preliminary Attachment, he may not pay the debtor. He
has to reserve the money for the creditor of the debtor.
The mere possession of the note does not make X in
possession of the credit.
The concept of garnishment: If the debtor wins and the If B agrees, that delivery of the land is valid; it will
sheriff demanded the debtors of the debtor to pay and extinguish the obligation of A.
they did not, the sheriff will look for properties as well as
receivables of the latter. Take note, in Dation in Payment, the consent of the
creditor is needed.
For example, X is the debtor of the debtor. The receivable
from him is also garnished. Meaning, X does not have to It is not the same as an alternative obligation.
pay the debtor, he may pay directly to the creditor of the
debtor. In alternative obligations, there are several prestations
due and the delivery of one will extinguish the entire
But, if X pays the debtor despite the garnishment order, obligation. Usually, the right of choice belongs to the
payment made by X to the debtor is no longer valid. debtor.
He will be made to pay again to the creditor. In Dation in Payment, there is only one prestation due
and demandable.
That is the meaning of Article 1243; Payment made to the
creditor by the debtor of a debtor. If the debtor would offer another, as long as the creditor
agrees, it is valid.
Article 1244. The debtor of a thing cannot compel the It is also different from Facultative obligations.
creditor to receive a different one, although the latter
may be of the same value as, or more valuable than In a Facultative obligation, there is a principal prestation
that which is due. but you already agreed as to the substitute.
In obligations to do or not to do, an act or In Dation in Payment, there is no such agreement except
forbearance cannot be substituted by another act or the obligation in money.
forbearance against the obligee's will. (1166a)
The offer of giving another prestation instead of money
comes after the constitution of the obligation.
Of course, you cannot compel the creditor to receive a While in Facultitve obligations, the right of choice belongs
different prestation. only to the debtor.
Like for example, A owes B 1 sack of rice, A cannot Lastly, Dation in Payment is governed by the Law on
deliver 1 sack of diamonds instead even if it is more Sales.
valuable.
When you deliver the land in payment of a monetary
The same thing with an act or forbearance. If the obligation, the transaction becomes like that of a sale.
obligation is to sing, you cannot substitute it with just
dancing nor have it done by A instead of B as agreed. The money which was given to you before by way of
loan becomes the purchase price and the delivery of the
It has to be the very same thing which was agreed upon. land becomes the subject matter.
If the debt is in Peso, you cannot instead deliver Dollars.
Dation in Payment is actually a form of Novation because
it changes the nature of the obligation.
The monetary obligation is now extinguished because it is

replaced by a new transaction governed by the Law on
Sales.
Article 1245. Dation in payment, whereby property is

alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales. (n)
In Dation in Payment, the original obligation here is

monetary.
Example:
A owes B 1M but A does not have cash at the time the

obligation became due. However, he has properties. He
offered a parcel of land to B as payment instead of the
1M.
CASE: CALTEX vs IAC defendant therein. Private respondent (plaintiff) appealed to the
Intermediate Appellate Court (IAC). On August 27, 1985, a
There was dation in payment. decision was rendered by the said appellate court reversing the
decision of the trial court, and ordering petitioner to return the
It was understood from the agreement of the parties that amount of P510,550.63 to private respondent.
there would still be interest and charges that would
ISSUE: Whether or not there is a valid dation in payment in this
accrue from time to time. case.
The Supreme Court said that whether it is total or partial, it RULING: The Supreme Court ruled that the Deed of Assignment
would depend upon the intent of the parties in their executed by the parties on July 31, 1980 is not a dation in
stipulation. payment and did not totally extinguish respondent's obligations
as stated therein.
In this case, there was an express stipulation that Caltex
will continue to charge from time to time. The then Intermediate Appellate Court ruled that the three (3)
requisites of dacion en pago are all present in the instant case,
Payment would only be up to the concurrent amount of and concluded that the Deed of Assignment of July 31, 1980)
constitutes a dacion in payment provided for in Article 1245 of
the obligation. Because this was the agreement, the
the Civil Code which has the effect of extinguishing the
entire debt was not yet extinguished. obligation, thus supporting the claim of private respondent for
the return of the amount retained by petitioner.
Dation in payment may be partial depending on the
agreement. The Supreme Court, speaking of the concept of dation in
payment, in the case of Lopez vs. Court of Appeals, among
CALTEX VS. IAC others, stated: "'The dation in payment extinguishes the
obligation to the extent of the value of the thing delivered, either
FACTS: On January 12, 1978, private respondent Asia Pacific as agreed upon by the parties or as may be proved, unless the
Airways Inc. entered into an agreement with petitioner Caltex parties by agreement, express or implied, or by their silence,
(Philippines) Inc., whereby petitioner agreed to supply private consider the thing as equivalent to the obligation, in which case
respondent's aviation fuel requirements for two (2) years, the obligation is totally extinguished."
covering the period from January 1, 1978 until December 31,
1979. Pursuant thereto, petitioner supplied private respondent's From the above, it is clear that a dation in payment does not
fuel supply requirements. necessarily mean total extinguishment of the obligation. The
obligation is totally extinguished only when the parties, by
As of June 30, 1980, private respondent had an outstanding agreement, express or implied, or by their silence, consider the
obligation to petitioner in the total amount of P4,072,682.13, thing as equivalent to the obligation. In the instant case, the
representing the unpaid price of the fuel supplied. To settle this then Intermediate Appellate Court failed to take into account
outstanding obligation, private respondent executed a Deed of the express recitals of the Deed of Assignment.
Assignment dated July 31, 1980, wherein it assigned to petitioner
its receivables or refunds of Special Fund Import Payments from "That Whereas, ASSIGNOR has an outstanding obligation with
the National Treasury of the Philippines to be applied as ASSIGNEE in the amount of P4,072,682.13 as of June 30, 1980, plus
payment of the amount of P4,072,683.13 which private any applicable interest on overdue account. Now therefore in
respondent owed to petitioner. On February 12, 1981, pursuant consideration of the foregoing premises, ASSIGNOR by virtue of
to the Deed of Assignment, Treasury Warrant No. B04708613 in these presents, does hereby irrevocably assign and transfer unto
the amount of P5,475,294.00 representing the refund to ASSIGNEE any and all funds and/or Refund of Special Fund
respondent of Special Fund Import Payment on its fuel purchases Payments, including all its rights and benefits accruing out of the
was issued by the National Treasury in favor of petitioner. Four same, that ASSIGNOR might be entitled to, by virtue of and
days later, on February 16, 1981, private respondent, having pursuant to the decision in BOE Case No. 80-123, in payment of
learned that the amount remitted to petitioner exceeded the ASSIGNOR's outstanding obligation plus any applicable interest
amount covered by the Deed of Assignment, wrote a letter to charges on overdue account and other avturbo fuel lifting and
petitioner, requesting a refund of said excess. deliveries that ASSIGNOR may from time to time receive from the
ASSIGNEE, and ASSIGNEE does hereby accepts such assignment
Petitioner, acting on said request, made a refund in the amount in its favor."
of P900,000.00 plus in favor of private respondent. The latter,
believing that it was entitled to a larger amount by way of Hence, it could easily be seen that the Deed of Assignment
refund, wrote petitioner anew, demanding the refund of the speaks of three (3) obligations (1) the outstanding obligation of
remaining amount. In response thereto, petitioner informed P4,072,682.13 as of June 30, 1980; (2) the applicable interest
private respondent that the amount not returned (P510,550.63) charges on overdue accounts; and (3) the other avturbo fuel
represented interest and service charges at the rate of 18% per lifting and deliveries that assignor (private respondent) may from
annum on the unpaid and overdue account of respondent from time to time receive from assignee (Petitioner). As aptly argued
June 1, 1980 to July 31, 1981. by petitioner, if it were the intention of the parties to limit or fix
respondent's obligation to P4,072.682.13, they should have so
Thus, on September 13, 1982, private respondent filed a stated and there would have been no need for them to qualify
complaint against petitioner in the Regional Trial Court of Manila, the statement of said amount with the clause "as of June 30,
to collect the sum of P510,550.63.00. 1980 plus any applicable interest charges on overdue account"
and the clause "and other avturbo fuel lifting and deliveries that
Petitioner (defendant in the trial court) filed its answer, reiterating ASSIGNOR may from time to time receive from the ASSIGNEE".
that the amount not returned represented interest and service
charges on the unpaid and overdue account at the rate of 18% The terms of the Deed of Assignment being clear, the literal
per annum. It was further alleged that the collection of said meaning of its stipulations should control. In the construction of
interest and service charges is sanctioned by law, and is in an instrument where there are several provisions or particulars,
accordance with the terms and conditions of the sale of such a construction is, if possible, to be adopted as will give
petroleum products to respondent, which was made with the effect to all.
conformity of said private respondent who had accepted the
validity of said interest and service charges. Likewise, the then Intermediate Appellate Court failed to take
into consideration the subsequent acts of the parties which
On November 7, 1983, the trial court rendered its decision clearly show that they did not intend the Deed of Assignment to
dismissing the complaint, as well as the counterclaim filed by totally extinguish the obligation: (1) After the execution of the
Deed of Assignment on July 31, 1980, petitioner continued to
charge respondent with interest on its overdue account up to
January 31, 1981. This was pursuant to the Deed of Assignment
which provides for respondent's obligation for "applicable
interest charges on overdue account". The charges for interest
were made every month and not once did respondent question
or take exception to the interest; and (2) In its letter of February
Extrajudicial expenses required for the payment shall be
16, 1981, respondent addressed the following request to
petitioner:
for the account of the debtor. Meaning, the debtor shall
shoulder the expenses.
In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally Why? Because generally, the law views that the debtor is
considered (Art. 1253, Civil Code). The foregoing subsequent also benefited by the payment because his obligation is
acts of the parties clearly show that they did not intend the extinguished. Except in cases provided for under the law.
Deed of Assignment to have the effect of totally extinguishing
the obligations of private respondent without payment of the Judicial costs, the Rules of Court shall govern.
applicable interest charges on the overdue account.
These are the expenses that you have to pay when you
Finally, the payment of applicable interest charges on overdue
file the case in court.
account, separate from the principal obligation of P4,072,682.13
was expressly stipulated in the Deed of Assignment. The law
provides that "if the debt produces interest, payment of the Usually, if the case is decided in favor of the creditor,
principal shall not be deemed to have been made until the attorney‘s fees, cost of litigation, damages, the Rules of
interests have been covered." (Art. 1253, Civil Code). Court shall govern.
Article 1248. Unless there is an express stipulation to

Article 1246. When the obligation consists in the that effect, the creditor cannot be compelled
delivery of an indeterminate or generic thing, partially to receive the prestations in which the
whose quality and circumstances have not been obligation consists. Neither may the debtor be
required to make partial payments.
stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a
However, when the debt is in part liquidated and in
thing of inferior quality. The purpose of the
part unliquidated, the creditor may demand and
obligation and other circumstances shall be taken the debtor may effect the payment of the former
into consideration. (1167a) without waiting for the liquidation of the latter.
(1169a)
This refers to an obligation to deliver an indeterminate
thing; the thing is described only as to its kind.
When the thing is described only as to its kind, what One limitation in payment is that the debtor cannot
should be delivered? compel the creditor to accept partial payments.
Like when the obligation is to deliver a car, what car Payments must be full unless the agreement is to pay the
should be delivered? amount in installments.
Can the creditor compel the delivery of a Mercedes If the debt is in part liquidated and in part unliquidated,
Benz? Can the debtor instead deliver a Multicab? like for example, the obligation arising from torts.
The circumstances of and the purpose of the obligation Example: The obligor ran over the obligee and the latter
shall be considered. sustained injuries. In the meantime, the obligee already
incurred expenses but he is still incurring other expenses.
So, the thing, which should be delivered, should be the
thing that is of middle or medium quality. He can demand for the payment of the obligation
already incurred. Those are liquidated. That may be
The creditor cannot demand a thing of superior quality demanded without waiting for the other expenses to be
and the debtor cannot compel the creditor to receive a liquidated.
thing of inferior quality.
In the future, when the other expenses are also
For example, the obligation is to deliver a car to be used liquidated, he can demand the payment of the same.
as a bridal car. Can the debtor deliver a multicab?
This is one case where payment may not necessarily be in
They should take into account the status of the parties full.
and the purpose.
So if the parties are from the middle-class, you cannot

also compel the debtor to deliver a Mercedes Benz
because even the creditor cannot afford that.
That is under Article 1247.
Article 1247. Unless it is otherwise stipulated, the

extrajudicial expenses required by the payment
shall Solis
Revelen be forandthe account
Mizzy of the debtor. With regard to
judicial costs, the Rules of Court shall govern.
(1168a)
Article 1249. The payment of debts in money shall PAPA vs VALENCIA
be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the FACTS: Sometime in June 1982, A.U. Valencia and Co., Inc. and
currency which is legal tender in the Philippines. Felix Peñarroyo, filed with the Regional Trial Court of Pasig,
Branch 151, a complaint for specific performance against Myron
C. Papa, in his capacity as administrator of the Testate Estate of
The delivery of promissory notes payable to order, one Angela M. Butte. The complaint alleged that Papa, acting
or bills of exchange or other mercantile as attorney-in-fact of Angela M. Butte, sold to Peñarroyo,
documents shall produce the effect of payment through Valencia, a parcel of land.
only when they have been cashed, or when
through the fault of the creditor they have been Prior to the alleged sale, the said property had been mortgaged
impaired. by her to the Associated Banking Corporation. After the alleged
sale to Valencia and Penarroyo, but before the title to the
subject property had been released, Butte passed away.
In the meantime, the action derived from the Despite representations made by Valencia to the bank to
original obligation shall be held in the abeyance. release the title to the property sold to Peñarroyo, the bank
(1170) refused to release it unless and until all the mortgaged properties
of the late Butte were also redeemed.
This has already been modified.
In order to protect his rights and interests over the property,
Payment shall be made in Philippine Pesos unless the Peñarroyo caused the annotation on the title of an adverse
parties stipulate otherwise. claim.
What is the legal tender here in the Philippines? Sometime in April 1977, that Valencia and Peñarroyo discovered
that the mortgage rights of the bank had been assigned to
It is the Philippine Peso. Tomas L. Parpana, as special administrator of the Estate of
Ramon Papa. Jr. Since then, Papa had been collecting monthly
So, you cannot compel the creditor to accept payment rentals in the amount of P800.00 from the tenants of the property,
knowing that said property had already been sold to Valencia
in dollars or in any other currency.
and Peñarroyo. Despite repeated demands from said
respondents, Papa refused and failed to deliver the title to the
If the obligation is silent, then it shall be in Peso. If you property.
agree that the payment be in dollars, then the stipulation
shall prevail.
Valencia and Peñarroyo prayed that Papa be ordered to deliver
to Peñarroyo the title to the subject property.
How about promissory notes, bills of exchange like
check? Can they be considered legal tender? What do
RTC rendered a decision, allowing Papa to redeem from the
we mean by legal tender?
Reyes spouses, who bought the land at a public auction
because of tax delinquency and ordering Papa to execute a
It is that which the debtor can compel the creditor to Deed of Absolute Sale in favor of Peñarroyo
accept in payment of an obligation. Such that if the
creditor refuses to accept, that would be a ground for
Papa‘s defense was that the sale was never ―consummated‖ as
the debtor to consign the payment.
he did not encash the check (in the amount of P40,000.00) given
by Valencia and Peñarroyo in payment of the full purchase
The refusal of the creditor would be unjustified if the price of the subject lot. He maintained that what Valencia and
amount paid is of legal tender. Peñarroyo had actually paid was only the amount of P5,000.00
(in cash) as earnest money.
If you pay in check, the check is not considered in legal
tender. So, that is not considered as payment. ISSUE: Was there valid payment although Papa failed to encash
the check?
The check shall only produce the payment in the
following instances:
RULING: Yes.
1.) When the check has been encashed.
Valencia and Peñarroyo had given Papa the amounts of
2.) When its value has been impaired through the P5,000.00 in cash on 24 May 1973, and P40,000.00 in check on 15
June 1973, in payment of the purchase price of the subject lot.
fault of the creditor.
Papa himself admits having received said amounts, and having
issued receipts therefor. Papa‘s assertion that he never
CASE: PAPA vs VALENCIA. encashed the aforesaid check is not substantiated and is at
odds with his statement in his answer that ―he can no longer
In this case, ten years had already lapsed. The creditor recall the transaction which is supposed to have happened 10
did not encash the check. The check becomes stale years ago.‖
after 6 months from the date of issue.
After more than 10 years from the payment in part by cash and
You should really present the check within a reasonable in part by check, the presumption is that the check had been
time. If you are the creditor, you should exercise due encashed. Granting that Papa had never encashed the check,
diligence. Otherwise, you would suffer the loss if the value his failure to do so for more than 10 years undoubtedly resulted in
is impaired by reason of your failure to exercise that due the impairment of the check through his unreasonable and
diligence. unexplained delay.
While it is true that the delivery of a check produces the effect of

payment only when it is cashed, pursuant to Article 1249 of the
Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditor‘s unreasonable delay in presentment. The acceptance The waiter was unmoved, thus, private respondent and two of
of a check implies an undertaking of due diligence in presenting his guests approached the restaurant's cashier who again
it for payment, and if he from whom it is received sustains loss by passed the credit card over the verification computer. The
want of such diligence, it will be held to operate as actual same information was produced, i.e., CARD EXPIRED.
payment of the debt or obligation for which it was given.
Thereupon, private respondent left the restaurant and got his BPI
If no presentment is made at all, the drawer cannot be held Express Credit Card from his car and offered it to pay their
bill. This was accepted and honored by the cashier after
liable irrespective of loss or injury unless presentment is otherwise
excused. This is in harmony with Article 1249 of the Civil Code verification. Petitioner and his companions left afterwards.
under which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except when The incident triggered the filing of a suit for damages by private
through the fault of the creditor, the instrument is impaired. The respondent.
payee of a check would be a creditor under this provision and if
its non-payment is caused by his negligence, payment will be Petitioner contends that it cannot be faulted for its cashier's
deemed effected and the obligation for which the check was refusal to accept private respondent's BANKARD credit card, the
given, as conditional payment will be discharged. same not being a legal tender.
It argues that private respondent's offer to pay by means of

Considering that Valencia and Peñarroyo had fulfilled their part credit card partook of the nature of a proposal to novate an
of the contract of sale by delivering the payment of the existing obligation for which petitioner, as creditor, must first give
purchase price, they, therefore, had the right to compel Papa to its consent otherwise there will be no binding contract between
deliver to them the owner‘s duplicate of TCT 28993 of Angela M. them.
Butte and the peaceful possession and enjoyment of the lot in
question. ISSUE: WON a credit card is of legal tender.
RULING: Mandarin Villa Seafood Village is affiliated with

Are credit cards considered legal tender? BANKARD. In fact, an agreement entered into by the parties
provided that credit cards issued by the company shall be
CASE: MANDARIN VILLA vs CA honored in the establishment.
Payment, when they are represented by the While private respondent may not be a party to the said
establishment to be acceptable, there is actually a agreement, the agreement conferred a favor upon the private
contract between the establishment and the credit card respondent, a holder of credit card validly issued by BANKARD.
company.
In that contract, there is a stipulation that holders of the

credit card company will be honored in the This stipulation is a stipulation pour autri and under Article 1311 of
establishment. the Civil Code private respondent may demand its fulfillment
provided he communicated his acceptance to the petitioner
That stipulation is what we call stipulation pour atrui. before its revocation.
A stipulation pour atrui is that stipulation in favor of a third

person.
In this case, private respondent's offer to pay by means of his
When a third person accepts that stipulation in his favor, BANKARD credit card constitutes not only an acceptance of the
the parties are bound to honor that stipulation. said stipulation but also an explicit communication of his
acceptance to the obligor.
So, they cannot revoke it.
They can revoke it before acceptance but once there is

acceptance, it cannot be withdrawn.
In addition, the record shows that petitioner posted a logo inside
Mandarin Villa Seafood Village stating that "Bankard is accepted
Here, there is a stipulation pour atrui.
here.‖ This representation is conclusive upon the petitioner which
it cannot deny or disprove as against the private respondent,
MANDARIN VILLA vs CA
the party relying thereon.
FACTS: In the evening of October 19, 1989, private respondent,
Clodualdo de Jesus, a practicing lawyer and businessman,
hosted a dinner for his friends at the petitioner's restaurant the
Mandarin Villa Seafoods Village. Petitioner, therefore, cannot disclaim its obligation to accept
private respondent's BANKARD credit card without violating the
After dinner, the waiter handed to him the bill in the amount of equitable principle of estoppel.
P2,658.50. Private respondent offered to pay the bill through his
credit card issued by Philippine Commercial Credit Card Inc.
(BANKARD).
When the private respondent presented the credit card,
This card was accepted by the waiter who immediately in effect, he accepted the stipulation.
proceeded to the restaurant's cashier for card verification.
So, the credit card may be accepted not because it is of
Ten minutes later, however, the waiter returned and audibly legal tender but because of the stipulation pour atrui in
informed private respondent that his credit card had expired. the contract between the establishment and the credit
card company.
Private respondent remonstrated that said credit card had yet to
expire on September 1990, as embossed on its face.
Article 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. (n)
CASE: EPCIB vs NG SHO NGOR
EPCIB vs NG SHO NGOR
FACTS: On October 7, 2001, respondents Ng Sheung Ngor, Ken

Appliance Division, Inc. and Benjamin E. Go filed an action for
annulment and/or reformation of documents and
contracts against petitioner Equitable PCI Bank (Equitable) and
its employees. They claimed that Equitable induced them to
Art. 1250 speaks of extraordinary inflation or deflation of
avail of its peso and dollar credit facilities by offering low interest
the currency. rates so they accepted Equitable's proposal and signed the
bank's pre-printed promissory notes on various dates beginning
When that happens, the value of currency at the time of 1996.
the establishment of the obligation shall be the basis of
the payment. They, however, were unaware that the documents contained
identical escalation clauses granting Equitable authority to
For example, in 1950, you borrowed 1M. increase interest rates without their consent.
During that time, your 1M could buy 100 hectares of land. Equitable, in its answer, asserted that respondents knowingly
That obligation would be payable after 30 years. So, in accepted all the terms and conditions contained in the
promissory notes. In fact, they continuously availed of and
1980.
benefited from Equitable's credit facilities for five years.
Assuming that there is extraordinary inflation or deflation ISSUE: WON there was extraordinary deflation.
and in 1980, the 1M can only buy 1,000 sq. meters of land.
So the value of the 1M in 1950 has reduced significantly. RULING: Extraordinary inflation exists when there is an unusual
decrease in the purchasing power of currency (that is, beyond
In that case, for the purpose of equality, so as not to the common fluctuation in the value of currency) and such
prejudice the creditor, the basis of the payment shall be decrease could not be reasonably foreseen or was manifestly
the value at the time of the establishment of the beyond the contemplation of the parties at the time of the
obligation. obligation. Extraordinary deflation, on the other hand, involves
an inverse situation.
So in 1980, what would be paid is not 1M because the 1M
For extraordinary inflation (or deflation) to affect an obligation,
could only buy 1,000 sq. meters. You should pay an the following requisites must be proven:
equivalent amount, which could also buy 100 hectares.
1. that there was an official declaration of extraordinary
So that would be the basis. Not at the time of payment inflation or deflation from the Bangko Sentral ng
but at the time of the establishment of the obligation. Pilipinas (BSP);
When will this apply? 2. that the obligation was contractual in nature; and
As defined by the Supreme Court in the case of EPCIB vs 3. that the parties expressly agreed to consider the
NG SHO NGOR, extraordinary inflation exist when there is effects of the extraordinary inflation or deflation.
an unusual decrease in the purchasing power of
Despite the devaluation of the peso, the BSP never declared a
currency that is beyond the common fluctuation in the situation of extraordinary inflation. Moreover, although the
value of the currency and such decrease was not obligation in this instance arose out of a contract, the parties did
foreseen or is manifestly beyond the contemplation of not agree to recognize the effects of extraordinary inflation (or
the parties at the time of the constitution of the deflation). The RTC never mentioned that there was such
obligation. stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar-denominated
Extraordinary deflation, on the other hand, involves the loans at the exchange rate fixed by the BSP on the date of
reverse situation. maturity.
The following requisites must also be proven:

CASE: FILIPINO PIPE vs NAWASA
1.) That there was an official declaration of
extraordinary inflation or deflation from the FILIPINO PIPE vs NAWASA
Bangko Sentral ng Piipinas.
FACTS: On June 12,1961, the NAWASA entered into a contract
with the plaintiff FPFC for the latter to supply it with 4" and 6"
No other authority; not the Congress, nor the diameter centrifugally cast iron pressure pipes to be used in the
President but the Bangko Sentral ng Pilipinas only. construction of the Anonoy Waterworks in Masbate and the
Barrio San Andres-Villareal Waterworks in Samar.
2.) That the obligation was contractual in nature.
Defendant NAWASA paid in installments on various dates, a total
Meaning, the obligation arises out of a contract. of P134,680.00 leaving a balance of P135,507.50 excluding
interest.
3.) The parties agreed to consider the effects of
extraordinary inflation or deflation. Having completed the delivery of the pipes, the plaintiff
demanded payment from the defendant of the unpaid balance
of the price with interest in accordance with the terms of their
It was expressed in the contract that should there
contract. When the NAWASA failed to pay the balance of its
be extraordinary inflation or deflation, they will
account, the plaintiff filed a collection suit.
merit an adjustment of the amount payable.
On November 23, 1967, the RTC rendered judgment ordering the
defendant to pay the unpaid balance of P135,507.50 in They mentioned that there will be an adjustment in the
NAWASA negotiable bonds, redeemable after ten years from payable should there be a devaluation.
their issuance with interest at 6% per annum, P40,944.73 as
interest up to March 15, 1966 and the interest accruing Here, the creditor asked for the adjustment because it
thereafter to the issuance of the bonds at 6% per annum and
alleged that there was extraordinary inflation.
the costs.
Defendant, however, failed to satisfy the decision. It did not

It was argued by the debtor that they did not mention
deliver the bonds to the judgment creditor. On February 18, about extraordinary inflation in their contract, only
1971, the plaintiff FPFC filed another complaint, seeking an devaluation. So, Art. 1250 is not applicable.
adjustment of the unpaid balance in accordance with the value
of the Philippine peso when the decision was rendered on In this case, the Supreme Court said that even if they
November 23, 1967. denominated it as devaluation, a reading of their
contract show that they really did not intend to depart
ISSUE: WON there was extraordinary inflation to justify the from Article 1250 of the Civil Code. Hence, it should be
adjustment of NAWASA‘s unpaid judgment obligation to
read in harmony with the Civil Code provision.
petitioner.
It is not necessary to quote the law verbatim as long as it
is the intention of the parties.
HELD: Article 1250 of the Civil Code provides:
In this case, not all three requisites are present. Although it
In case an extraordinary inflation or deflation of the currency was mentioned in their contract (termed as devaluation),
stipulated should supervene, the value of the currency at the there was no declaration by the Central Bank (1 st
time of the establishment of the obligation shall be the basis of requisite).
payment, unless there is an agreement to the contrary..
Thus, Article 1250 could still not be applied.
The court suggested to the parties during the trial that they
present expert testimony to help it in deciding whether the ALMEDA vs BATHALA
economic conditions then, and still prevailing, would justify the
application of Article 1250 of the Civil Code. The plaintiff FACTS: In May 1997, Bathala Marketng, renewed its Contract of
presented voluminous records and statistics showing that a Lease with Ponciano Almeda. Under the contract, Ponciano
spiraling inflation has marked the progress of the country from agreed to lease a porton of Almeda Compound for a monthly
1962 up to the present. There is no denying that the price index rental of P1,107,348.69 for four years. On January 26, 1998,
of commodities, which is the usual evidence of the value of the petitioner informed respondent that its monthly rental be
currency, has been rising. increased by 73% pursuant to the condition No. 7 of the contract
and Article 1250. Respondent refused the demand and insisted
that there was no extraordinary inflation to warrant such
Extraordinary inflation exists "when there is a decrease or application. Respondent refused to pay the VAT and adjusted
increase in the purchasing power of the Philippine currency rentals as demanded by the petitioners but continually paid the
which is unusual or beyond the common fluctuation in the value stipulated amount. RTC ruled in favor of the respondent and
said currency, and such decrease or increase could not have declared that plaintiff is not liable for the payment of VAT and
reasonably foreseen or was manifestly beyond contemplation the adjustment rental, there being no extraordinary inflation or
the parties at the time of the establishment of the obligation. devaluation. CA affirmed the decision deleting the amounts
(Tolentino Commentaries and Jurisprudence on the Civil Code representing 10% VAT and rental adjustment.
Vol. IV, p. 284.)
ISSUE: Whether the amount of rentals due the petitioners should
As reported, "prices were going up every week, then every day, be adjusted by reason of extraordinary inflation or devaluation.
then every hour. Women were paid several times a day so that
they could rush out and exchange their money for something of RULING: Petitioners are stopped from shifting to respondent the
value before what little purchasing power was left dissolved in burden of paying the VAT. 6th Condition states that respondent
their hands. Some workers tried to beat the constantly rising can only be held liable for new taxes imposed after the
prices by throwing their money out of the windows to their effectivity of the contract of lease, after 1977, VAT cannot be
waiting wives, who would rush to upload the nearly worthless considered a ―new tax‖. Neither can petitioners legitimately
paper. A postage stamp cost millions of marks and a loaf of demand rental adjustment because of extraordinary inflation or
bread, billions." (Sidney Rutberg, "The Money Balloon" New York: devaluation. Absent an official pronouncement or declaration
Simon and Schuster, 1975, p. 19, cited in "Economics, An by competent authorities of its existence, its effects are not to be
Introduction" by Villegas & Abola, 3rd Ed.) applied.
While appellant's voluminous records and statistics proved that Petition is denied. CA decision is affirmed.
there has been a decline in the purchasing power of the
Philippine peso, this downward fall of the currency cannot be
considered "extraordinary." It is simply a universal trend that has
not spared our country.
CASE: ALMEDA vs BATHALA
In this case, the parties mentioned about devaluation in

their contract.
CASE: APO FRUITS CORPORATION AND HIJO PLANTATION
INC. vs CA After the issuance of the certificate of title in the name of the
Republic of the Philippines, the Register of Deeds of Davao,
In this case, pursuant to the Agrarian Reform Law or R.A. upon the request of the DAR, issued TCTs and Certificates of
Land Ownership Award to qualified farmer-beneficiaries.
6657, private lands were taken form landowners and
distributed to agrarian reform beneficiaries. On 14 February 1997, AFC and HPI filed separate complaints for
determination of just compensation with the DAR Adjudication
In that case, the beneficiaries will pay to Land Bank the Board (DARAB). Despite the lapse of more than three years from
amortization and the landowners will be paid just the filing of the complaints, the DARAB failed and refused to
compensation for their lands. This is actually an exercise render a decision on the valuation of the land.
of the power of eminent domain or expropriation.
Hence, two complaints for determination and payment of just
Usually in expropriation cases, the government enters the compensation were filed by AFC and HPI before Branch 2 of the
property first and deposits an amount as just Regional Trial Court (RTC) of Tagum City (acting as a Special
Agrarian Court), which were subsequently consolidated.
compensation. But of course, the landowner will object
since naturally, they would want a higher valuation for On September 25, 2001, the RTC resolved the consolidated
the land. cases, fixing the just compensation for the petitioners‘ 1,338.6027
hectares of land at P1,383,179,000.00, with interest on this
In this case, it was contended that Art. 1250 should be amount at the prevailing market interest rates, computed from
applicable. There should be an adjustment because of the taking of the properties on December 9, 1996 until fully paid,
the extraordinary deflation or inflation. minus the amounts the petitioners already received under the
initial valuation.
The Supreme Court said that Art. 1250 is not applicable
because the second requisite says it should arise from a LBP moved for the reconsideration of the decision. The RTC
modified its ruling and fixed the interest at the rate of 12% per
contractual obligation.
annum from the time the complaint was filed until finality of the
decision.
The obligation to pay here does not arise out of a
contract. This arises out of the power of eminent domain ISSUE: WON there should be an adjustment in the just
of the state. So, Art. 1250 is not applicable. compensation.
Changes or fluctuation in the value of the currency, there HELD: No. The interest of 12% per annum imposed by law for the
is an imposition of interest which is at 12% per annum. delay in the payment of just compensation is sufficient. This
allowance of interest on the amount found to be the value of
The SC said that such interest should be sufficient to the property as of the time of the taking computed, being an
compensate the landowner for the lapse of time that has effective forbearance, at 12% per annum should help eliminate
the issue of the constant fluctuation and inflation of the value of
passed from the time of taking up to the time of
the currency over time.
payment.
For Art. 1250 to be applicable, the following requisites must be
There is still an adjustment but not under Art. 1250 since present:
the provision applies only to contracts.
1. that there was an official declaration of
APO FRUITS CORPORATION AND HIJO PLANTATION INC. vs CA extraordinary inflation or deflation from the
Bangko Sentral ng Pilipinas (BSP);
FACTS: In October 1995, the petitioners voluntarily offered to sell
their parcels of land to the government. 2. that the obligation was contractual in
nature; and
After the initial processing at the Department of Agrarian Reform
(DAR) of the Voluntary Offer to Sell (VOS) application of 3. that the parties expressly agreed to consider
petitioners, it was referred to the Land Bank of the Philippines the effects of the extraordinary inflation or
(LBP) for initial valuation. deflation.
In October 1996, petitioners received separately from the DAR‘s In the case at bar, the obligation did not arise from a contract
Provincial Agrarian Reform Officer (PARO) of Davao province a but from the power of eminent domain of the State. Thus, the
notice of land acquisition and valuation, informing AFC that the second requisite is wanting.
value of the properties has been placed at P86,900,925.88
or P165,484.47 per hectare while HPI‘s properties were valued The 12% interest imposed should be sufficient to compensate the
at P164,478,178.14. landowners for the delay in the payment of just compensation.
Both AFC and HPI considered the valuations unreasonably low There is still adjustment in the payment of just compensation.
and inadequate as just compensation for the properties. Such adjustment is not the one contemplated in Art. 1250
because the obligation is not contractual in nature.
In November 1996, AFC rejected the valuation. HPI also rejected
the valuation of its three parcels of land.
Owing to the rejection by both AFC and HPI of LBP‘s valuation,

the DAR requested LBP to deposit the amounts equivalent to
their valuations in the names and for the accounts of AFC and
HPI. AFC thereafter withdrew the amount of P26,409,549.86,
while HPI withdrew the amount of P45,481,706.76, both in cash
from LBP.
The DAR PARO then directed the Register of Deeds of Davao to

cancel the TCTs of AFC and HPI to the said properties and to
Article 1251. Payment shall be made in the place
issue a new one in the name of the Republic of the Philippines.
designated in the obligation.
There being no express stipulation and if the
undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might be
at the moment the obligation was constituted.
What you have to remember under this article is that
there is only one debtor and one creditor but there are
several debts involved. Those debts are different from
each other. The debts are all due and demandable but
the debtor‘s money is not sufficient to pay all of the
obligations.
Payment shall be made first in the place agreed upon, if
there is no stipulation, you have to consider the thing to So, the question is, to which obligation shall the amount
be delivered. be applied?
If it is determinate, payment shall be made at the place Example: A debtor owes 10K, 20K and 30k all of which are
where the thing might be at the moment the obligation due and demandable. However, he only has 30K. To
was constituted. which obligation should he apply the amount?
Example: One limitation is that you cannot compel the creditor to

accept partial payment.
An obligation to deliver a specific car.
So, the payment can be applied to 10K, 20K or 30K
In the absence of any stipulation, delivery shall be made because either way, such payment shall be sufficient to
at the place where the car was at the time the obligation fully cover the respective amounts.
was entered into.
That is application.
Any other case (generic prestation), payment shall be
made at the domicile of the debtor. Who will determine as to which obligation must the
payment be applied?
Example:
GENERAL RULE: the debtor will determine to which
In rentals. The creditor is the lessor. If there was no obligation payment shall be applied.
agreement as to the place of payment, the lessor must
collect from the domicile of the debtor (lessee). Subject to these limitations:
That is one exception to the rule that extrajudicial 1.) That he cannot compel the creditor to accept
expenses shall be borne by the creditor. partial payment;
So, the fare of the creditor or his other expenses in going 2.) That he cannot compel the creditor to accept
to the debtor‘s domicile shall be charged to the creditor payment for an obligation not yet due and
because under the law, payment shall be made at the
place of the debtor. 3.) The interest must first be paid before the
principal.
Additional expenses shall be borne by the debtor as
when, for example, he knew that the creditor will come If for example, the debtor did not state as to which debt
to collect the payment and the debtor changed his the payment should apply, the creditor will decide. How?
residence to evade payment.
In this case, the creditor will indicate to which debt
This provision is without prejudice to the venue as should the payment apply in the receipt he will give the
provided under the Rules of Court. debtor.
Venue is actually where you file the case. That will be Can the debtor complain? No, unless there is vitiated
discussed in the Rules of Court. consent.
That is the meaning of ―unless there is a cause for

invalidating the contract.”
Again, under the rule on application of payments, there is

only one debtor and one creditor. There are several
debts/obligations due and demandable and the money
Article 1252. He who has various debts of the same of the debtor is not sufficient to pay all of these
kind in favor of one and the same creditor, may
declare at the time of making the payment, to which
Revelen Solisthe
of them andsame
Mizzy Mareé
must Martinez
be applied. Unless the parties TAU MU Page 142 of 262
so stipulate, or when the application of payment is
made by the party for whose benefit the term has
been constituted, application shall not be made as to
debts which are not yet due.
obligations. Of course, he cannot pay everything but he the total amount of US$150,000 plus unpaid interests in the total
will pay some of that debt. amount of US$13,500.
Under the rule, it is the debtor, generally, who has the Private respondent Christian filed complaint for a sum of money
and damages against the petitioner corporation, Hegerty, and
right to choose which debts should be paid. But there are
Atty. Infante.
limitations:
The complaint alleged as follows: the petitioner, as well as its
1.) The debtor cannot choose those debts which president and vice-president obtained loans from him in the total
are not due and demandable. amount of US$150,000 payable after three years, with an interest
of 15% per annum payable quarterly or every three months. For
2.) Payment must be in full. The debtor cannot a while, they paid an interest of 15% per annum every three
compel the creditor to accept partial payments months in accordance with the three promissory notes. However,
on the other debts. starting January 1998 until December 1998, they paid him only
an interest of 6% per annum, instead of 15% per annum, in
3.) In payment, the interest must be paid first; ahead violation of the terms of the three promissory notes. Thus,
Christian prayed that the trial court order them to pay him jointly
of the principal.
and solidarily the amount of US$150,000 representing the total
amount of the loans; US$13,500 representing unpaid interests
CASE: SWAGMAN HOTELS vs CA from January 1998 until December 1998; P100,000 for moral
damages; P50,000 for attorney‘s fees; and the cost of the suit.
There were cash vouchers. First, there was a cash
voucher dated January 1998 stating the payment of $ According to the petitioner corporation, together with its
750 represents investment payment. And then all the president and vice-president, Christian had no cause of action
succeeding cash vouchers from 1998 to September 1998 because the three promissory notes were not yet due and
described the payments as ―capital repayment.‖ demandable.
It was contended by the debtor that because of these The trial court rendered a decision declaring the first two
promissory notes as already due and demandable and that the
vouchers which indicated ―capital repayment,‖ he is no
interest on the loans had been reduced by the parties from 15%
longer liable for the interest. The rule is payment must be to 6% per annum. It then ordered the petitioner corporation to
applied first to the interest before the principal and pay Christian the amount of $100,000 representing the principal
receipt of payment for the principal indicates and gives obligation covered by the promissory notes "plus interest of 6%
rise to the presumption that interest had been paid. per month thereon until fully paid, with all interest payments
already paid by the defendant to the plaintiff to be deducted
Here, it was contended that the interest was already therefrom."
condoned because of their negotiation of the loan on
account of the business reverses suffered by the debtor. The Court of Appeals denied petitioner‘s appeal and
affirmed in toto the decision of the trial court.
The Supreme Court said yes, if under Article 1253 of the
Civil Code, if the debt produces interest, payment of the
prinicipal shall not be deemed to have been made until RULING: It is undisputed that the three promissory notes were for
the interest has been covered. the amount of P50,000 each and uniformly provided for (1) a
term of three years; (2) an interest of 15 % per annum, payable
In this case, the private respondent would not have quarterly; and (3) the repayment of the principal loans after
signed the receipt describing the payments made by the three years from their respective dates. However, both the Court
petitioner as ―capital with payment‖ if the obligation to of Appeals and the trial court found that a renegotiation of the
pay the interest was subsisting. three promissory notes indeed happened in December 1997
between the private respondent and the petitioner resulting in
the reduction – not waiver – of the interest from 15% to 6% per
So, the receipts as well as the summary of payments lend
annum, which from then on was payable monthly, instead of
credit to the claim that the payments were for the quarterly.
principal loans and that the interests were condoned.
The term of the principal loans remained unchanged in that they
were still due three years from the respective dates of the
Article 1253. If the debt produces interest, payment promissory notes. Thus, at the time the complaint was filed with
of the principal shall not be deemed to have been the trial court on 2 February 1999, none of the three promissory
made until the interests have been covered. (1173) notes was due yet; although, two of the promissory notes with
the due dates of 7 August 1999 and 14 March 2000 matured
during the pendency of the case with the trial court. Both courts
So, that‘s explained also in the case of Swagman. also found that the petitioner had been religiously paying the
private respondent US$750 per month from January 1998 and
even during the pendency of the case before the trial court and
SWAGMAN HOTELS vs CA
that the private respondent had accepted all these monthly
payments.
FACTS: Sometime in 1996 and 1997, petitioner Swagman Hotels
and Travel, Inc., through Atty. Leonor L. Infante and Rodney
David Hegerty, its president and vice-president, respectively, It is worthy to note that the cash voucher dated January
obtained from private respondent Neal B. Christian loans 1998 states that the payment of US$750 represents "INVESTMENT
evidenced by three promissory notes. PAYMENT." All the succeeding cash vouchers describe the
payments from February 1998 to September 1999 as "CAPITAL
Each of the promissory notes is in the amount of US$50,000 REPAYMENT." All these cash vouchers served as receipts
payable after three years from its date with an interest of 15% evidencing private respondent‘s acknowledgment of the
per annum payable every three months. payments made by the petitioner: two of which were signed by
the private respondent himself and all the others were signed by
Christian informed the petitioner corporation that he was his representatives. The private respondent even identified and
terminating the loans and demanded from the latter payment in confirmed the existence of these receipts during the
hearing. Significantly, cognizant of these receipts, the private
respondent applied these payments to the three consolidated
principal loans in the summary of payments he submitted to the
court.
Under Article 1253 of the Civil Code, if the debt produces

interest, payment of the principal shall not be deemed to have
been made until the interest has been covered. In this case, the
private respondent would not have signed the receipts
describing the payments made by the petitioner as "capital
repayment" if the obligation to pay the interest was still subsisting. CASE: DBP vs CA
The receipts, as well as private respondent‘s summary of
payments, lend credence to petitioner‘s claim that the
Here, the debtor borrowed money from DBP (assuming it
payments were for the principal loans and that the interests on
the three consolidated loans were waived by the private was Php 1 Million). Simultaneous with the execution of the
respondent during the undisputed renegotiation of the loans on promissory note, there was also a Deed of Assignment
account of the business reverses suffered by the petitioner at the over a fishpond lease because the debtor here is also a
time. lessee of a fishpond. She assigned the rights to that
fishpond lease to DBP in addition to the promissory note.
Article 1254. When the payment cannot be DBP sought to acquire ownership over the fishpond lease.
applied in accordance with the preceding rules, or It contended that there was already either a cession or a
if application can not be inferred from other dation in payment. So, the question here is, is the
circumstances, the debt which is most onerous to execution of the Deed of Assignment over the fishpond
the debtor, among those due, shall be deemed to lease considered a cession?
have been satisfied.
In cession, it contemplates that there is one debtor and
there are several creditors. It also contemplates
If the debts due are of the same nature and
insolvency on the part of the debtor (his assets are
burden, the payment shall be applied to all of
greater than his liabilities or his liabilities are greater than
them proportionately. (1174a)
his assets). And because he is insolvent, the plurality of his
properties is ceded in favor of the creditor. It is not the
property which is being accepted or being alienated to
the creditor; only the proceeds of the property. In that
Example:
case, is there cession?
If the rule on application of payments cannot be applied,
This arrangement is not actually cession.
the debtor does not choose which debt shall be
considered paid. So it is the creditor who will choose
Is this dation in payment? What is dation in payment?
which debt is considered paid. How will he indicate that?
There is a pre-existing monetary obligation and then it is
In the receipt which he issues. That cannot be questioned
agreed later on that the debtor will instead convey
by the debtor unless the debtor was prevented from
property in payment. Actually, this is also not dation in
making an application of payment because of vitiated
payment because the assignment of the fishpond lease is
consent (there was fraud, violence, intimidation, undue
not contemplated to be in payment of the bolgiation.
influence asserted upon him by the creditor).
Actually, it was just a security in case the debtor cannot
pay so the DBP will enforce its rights under the Deed of
If neither the debtor nor the creditor makes an
Assignment. So, just in case na dili makabayad. This is just
application of payment, which debt is considered
a collateral.
extinguished? Then we have Article 1254. The most
onerous to the debtor is deemed to have been satisfied
Here, dation in payment is governed by the law on Sales
first. Katong bugat-bugat. Burdensome. Like those debts
but here, this is governed by the law on Mortgage. This is
which bear interest, those debts which have penalties,
not dation in payment and this is also not cession.
guaranties, mortgage. Those are considered as satisfied
first. DBP vs CA
If they are of the same burden then the application will FACTS: Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease
be proportionate. If the debt is Php 30, 000 and the Agreement No. 2083 (new) dated May 13, 1974 from the
debtor has debts of Php 10, 000 and Php 20, 000. And the Government. Plaintiff Lydia P. Cuba obtained loans from the
money of the debtor is only Php 5, 000, where will we Development Bank of the Philippines in the amounts of
apply that? The debts are of the same burden. So, 1/3 P109,000.00; P109,000.00; and P98,700.00 under the terms stated
and 2/3. It‘s 10, 000 and 20, 000 so 10 + 20 = 30. 10/30 x 5, in the Promissory Notes.
000 and 20/30 x 5, 000.
As security for said loans, plaintiff Lydia P. Cuba executed two
Deeds of Assignment of her Leasehold Rights. Plaintiff failed to
10 20 pay her loan on the scheduled dates thereof in accordance
____ x 5000 = 1/3 and ____ x 5000 = 2/3 with the terms of the Promissory Notes.
30 30
Without foreclosure proceedings, whether judicial or extra-
judicial, defendant DBP appropriated the Leasehold Rights of
plaintiff Lydia Cuba over the fishpond in question. After
Article 1255. The debtor may cede or assign his defendant DBP has appropriated the Leasehold Rights of plaintiff
property to his creditors in payment of his debts. Lydia Cuba over the fishpond in question, defendant DBP, in
This cession, unless there is stipulation to the turn, executed a Deed of Conditional Sale of the Leasehold
Rights in favor of plaintiff Lydia Cuba over the same fishpond in
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)
question. (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in
In the negotiation for repurchase, plaintiff Lydia Cuba addressed case of non-payment of the principal obligation within
two letters to the Manager DBP. DBP thereafter accepted the the stipulated period.
offer to repurchase.
Condition no. 12 did not provide that the ownership over the
After the Deed of Conditional Sale was executed in favor of leasehold rights would automatically pass to DBP upon CUBA's
plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083- failure to pay the loan on time. It merely provided for the
A dated March 24, 1980 was issued by the Ministry of Agriculture appointment of DBP as attorney-in-fact with authority, among
and Food in favor of plaintiff Lydia Cuba only, excluding her other things, to sell or otherwise dispose of the said real rights, in
husband. case of default by CUBA, and to apply the proceeds to the
payment of the loan. This provision is a standard condition in
After plaintiff Lydia Cuba failed to pay the amortization as stated mortgage contracts and is in conformity with Article 2087 of the
in Deed of Conditional Sale, she entered with the DBP a Civil Code, which authorizes the mortgagee to foreclose the
temporary arrangement whereby in consideration for the mortgage and alienate the mortgaged property for the
deferment of the Notarial Rescission of Deed of Conditional Sale, payment of the principal obligation.
plaintiff Lydia Cuba promised to make certain payments as
stated in temporary Arrangement.
DBP, however, exceeded the authority vested by condition no.
Defendant DBP thereafter sent a Notice of Rescission. After the 12 of the deed of assignment. As admitted by it during the pre-
Notice of Rescission, defendant DBP took possession of the trial, it had "without foreclosure proceedings, whether judicial or
Leasehold Rights of the fishpond in question. extrajudicial, . . . appropriated the leasehold rights of plaintiff
Lydia Cuba over the fishpond in question." Its contention that it
limited itself to mere administration by posting caretakers is
After defendant DBP took possession of the Leasehold Rights further belied by the deed of conditional sale it executed in
over the fishpond in question, DBP advertised in the SUNDAY favor of CUBA.
PUNCH the public bidding to dispose of the property;
It is obvious from the above-quoted paragraphs that DBP had

appropriated and taken ownership of CUBA's leasehold rights
The DBP thereafter executed a Deed of Conditional Sale in favor merely on the strength of the deed of assignment.
of defendant Agripina Caperal. Thereafter, defendant Caperal
was awarded Fishpond Lease Agreement No. 2083-A on
December 28, 1984 by the Ministry of Agriculture and Food. DBP cannot take refuge in condition no. 12 of the deed of
assignment to justify its act of appropriating the leasehold rights.
As stated earlier, condition no. 12 did not provide that CUBA's
The trial court resolved the issue in favor of CUBA by declaring default would operate to vest in DBP ownership of the said rights.
that DBP's taking possession and ownership of the property Besides, an assignment to guarantee an obligation, as in the
without foreclosure was plainly violative of Article 2088 of the present case, is virtually a mortgage and not an
Civil Code. The trial court also declared invalid condition no. 12 absolute conveyance of title which confers ownership on the
of the Assignment of Leasehold Rights for being a clear case assignee.
of pactum commissorium expressly prohibited and declared null
and void by Article 2088 of the Civil Code.
The Court of Appeals ruled that contrary to the claim of DBP, the How do we distinguish cession from dation in payment?
assignment was not a cession under Article 1255 of the Civil
Code because DBP appeared to be the sole creditor to CUBA — Rememeber, in cession, there are several creditors. In
cession presupposes plurality of debts and creditors. dation in payment, not necessarily.
RULING: Significantly, both the deeds of assignment and the Cession requires insolveny. Dation in payment does not.
promissory notes were executed on the same dates the loans
were granted. Also, the last paragraph of the assignment stated: In cession, the plurality and universality of the properties
"The assignor further reiterates and states all terms, covenants, (tanan) is ceded in favor of the creditor. In dation in
and conditions stipulated in the promissory note or payment, only the specific property.
notes covering the proceeds of this loan, making said promissory
note or notes, to all intent and purposes, an integral part hereof." In cession, only the proceeds of the property are paid. In
dation in payment, the property itself is paid.
Neither did the assignment amount to payment
by cession under Article 1255 of the Civil Code for the plain and The law on Sales shall apply in dation in payment. And
simple reason that there was only one creditor, the DBP. Article the law on Insolvency shall apply in cession.
1255 contemplates the existence of two or more creditors and
involves the assignment of all the debtor's property.
Nor did the assignment constitute dation in payment under

Article 1245 of the civil Code, which reads: "Dation in payment,
whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law on sales." It bears
stressing that the assignment, being in its essence a mortgage,
was but a security and not a satisfaction of indebtedness.
We do not, however, buy CUBA's argument that condition no. 12

of the deed of assignment constituted pactum commissorium. SUMMARY:
The elements of pactum commissorium are as follows:
CESSION DATION IN PAYMENT
(1) there should be a property mortgaged by way of
security for the payment of the principal obligation,
and
There are several creditors. It is not necessary. There If you just made a valid tender of payment and you did
can be only one creditor. not consign later on, that would not also extinguish the
obligation. If you will consign immediately without a prior
valid tender of payment, that is not a valid payment so it
would not also result to extinguishment of the obligation.
Requires insolvency. Does not require EXCEPTIONS: The exceptions mentioned are those under
insolvency. Article 1256, numbers 1 to 5. Under those exceptions, you
cannot make a tender of payment because:
All the properties of the Only the specific property
debtor are ceded to the agreed upon is ceded to (1) When the creditor is absent or unknown, or
creditor. the creditor. does not appear at the place of payment;
(2) When he is incapacitated to receive the

Only the proceeds of the The property itself is paid to payment at the time it is due;
property are paid to the the creditor in satisfaction
creditor. of the obligation. (3) When, without just cause, he refuses to give a
receipt;
(4) When two or more persons claim the same

Law on Insolvency shall Law on Sales shall apply. right to collect;
apply.
(5) When the title of the obligation has been lost.
You can immediately consign.
That is cession. Remember the concept of cession. It is a

Article 1257. In order that the consignation of the
mode of extinguishing an obligation.
thing due may release the obligor, it must first be
announced to the persons interested in the
Article 1256. If the creditor to whom tender of fulfillment of the obligation.
payment has been made refuses without just cause
to accept it, the debtor shall be released from The consignation shall be ineffectual if it is not
responsibility by the consignation of the thing or sum made strictly in consonance with the provisions
due. which regulate payment. (1177)
Consignation alone shall produce the same effect in

the following cases: So, you have to announce the fact that you are
consigning. So, you made a tender of payment and then
(1) When the creditor is absent or unknown, it is refused so you consign but you have to tell the
or does not appear at the place of creditor that you are consigning the prestation to give
payment; him an opportunity to change his mind; whether or not he
will now accept.
(2) When he is incapacitated to receive the
payment at the time it is due; Article 1258. Consignation shall be made by
depositing the things due at the disposal of judicial
(3) When, without just cause, he refuses to authority, before whom the tender of payment shall
give a receipt; be proved, in a proper case, and the
announcement of the consignation in other cases.
(4) When two or more persons claim the
same right to collect; The consignation having been made, the interested
parties shall also be notified thereof. (1178)
(5) When the title of the obligation has been
lost. (1176a)
Here, you have to bring the thing due to the court. It is
the money itself, not the check. If it is a car then you have
What is tender of payment? It is the act of the debtor in to bring the car itself.
offering the prestation which is due and demandable. If it
is money, it should be of legal tender like the Philippine To whom shall you make the consignation? To the proper
Peso. That is the first requisite in payment. judicial authority. You have to file a petition for
consignation in court. It is not enough that you left the
What if the creditor refuses without just cause to accept money with the barangay captain. That is not proper
the payment? Is the fact that the debtor made a tender consignation. There has to be a proper petition.
of payment already sufficient to extinguish the
obligation? No. It should be followed by consignation. After the court determines that consignation is proper,
the creditor shall also be notified to inform him that the
GENERAL RULE: There has to be tender of payment. money is here and he can get the money.
Consignation is also defined in this case. It is made by
Article 1259. The expenses of consignation, when depositing the proper amount to the judicial authority
properly made, shall be charged against the before whom the tender of payment and the
announcement of the consignation shall be proved. All
creditor. (1179)
interested parties are to be notified of the consignation.
RAMOS vs SARAO
Why is it charged against the creditor? Because if he had FACTS: Spouses Jonas Ramos and Myrna Ramos executed a
accepted in the first place, the expenses of consignation contract over their conjugal house and lot in favor of Susana S.
would not have been incurred. Sarao for and in consideration of P1,310,430. Entitled "DEED OF
SALE UNDER PACTO DE RETRO," the contract, inter alia, granted
the Ramos spouses the option to repurchase the property within
Article 1260. Once the consignation has been duly six months from February 21, 1991, for P1,310,430 plus an interest
made, the debtor may ask the judge to order the of 4.5 percent a month. It was further agreed that should the
cancellation of the obligation. spouses fail to pay the monthly interest or to exercise the right to
repurchase within the stipulated period, the conveyance would
be deemed an absolute sale.
Before the creditor has accepted the consignation,
or before a judicial declaration that the Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in
consignation has been properly made, the debtor the form of two manager‘s checks, which the latter refused to
may withdraw the thing or the sum deposited, accept for being allegedly insufficient. Myrna filed a Complaint
for the redemption of the property and moral damages plus
allowing the obligation to remain in force. (1180)
attorney‘s fees. She deposited with the RTC two checks that
Sarao refused to accept.
Take note of Article 1260.
Sarao filed against the Ramos spouses a Petition "for
Once the court says that the consignation is proper, the consolidation of ownership in pacto de retro sale."
debtor is already released from his obligation. The debt is
After trial, the RTC dismissed the Complaint and granted the
extinguished. prayer of Sarao to consolidate the title of the property in her
favor.
Can the debtor still withdraw the thing or the sum
deposited? Before the creditor has accepted the The appellate court sustained the RTC‘s finding that the disputed
consignation, the debtor can withdraw. Or before the contract was a bonafide pacto de retro sale, not a mortgage to
court says that consignation is proper, the debtor may secure a loan. It ruled that Myrna Ramos had failed to exercise
withdraw. the right of repurchase, as the consignation of the two
manager‘s checks was deemed invalid. She allegedly failed (1)
to deposit the correct repurchase price and (2) to comply with
Article 1261. If, the consignation having been the required notice of consignation.
made, the creditor should authorize the debtor to
ISSUE: WON there was valid tender of payment and
withdraw the same, he shall lose every preference consignation?
which he may have over the thing. The co-debtors,
guarantors and sureties shall be released. (1181a) RULING: Tender of payment is the manifestation by debtors of
their desire to comply with or to pay their obligation. If the
creditor refuses the tender of payment without just cause, the
For example, the court already declares that the
debtors are discharged from the obligation by the consignation
consignation is proper so the debtor may no longer of the sum due. Consignation is made by depositing the proper
withdraw the thing. But with the consent of the creditor, amount to the judicial authority, before whom the tender of
he is still able to withdraw the thing then the law says the payment and the announcement of the consignation shall be
creditor shall lose every preference which he may have proved. All interested parties are to be notified of the
over the thing. consignation. Compliance with these requisites is mandatory.
If the debtor became insolvent, for example, wala nay The trial and the appellate courts held that there was no valid
preference si creditor. Supposedly, na-a kay gi-consign consignation, because petitioner had failed to offer the correct
man sa iyaha but because he allowed the withdrawal of amount and to provide ample consignation notice to Sarao. This
the thing, he loses preference and if there are guarantors, conclusion is incorrect.
co-debtors and sureties, they are also released from the
obligation. Note that the principal loan was P1,310,430 plus 4.5 per cent
monthly interest compounded for six months. Expressing her
That‘s the consequence if the creditor, after the court desire to pay in the fifth month, petitioner averred that the total
says consignation is proper, allows the withdrawal of the amount due was P1,633,034.19, based on the computation of
thing. These are the effects. Sarao herself. The amount of P2,911,579.22 that the latter
demanded from her to settle the loan obligation was plainly
exorbitant, since this sum included other items not covered by
As to the definition of tender of payment, that is the agreement. The property had been used solely as securety
discussed in the case of RAMOS vs SARAO. for the P1,310,430 loan; it was therefore improper to include in
that amount payments for gasoline and miscellaneous expenses,
Tender of payment is the manifestation by the debtors of taxes, attorney‘s fees, and other alleged loans. When Sarao
their desire to comply with or to pay their obligation. So, if unjustly refused the tender of payment in the amount
the creditors refuse a tender of payment without just of P1,633,034.20, petitioner correctly filed suit and consigned the
cause, the debtors are discharged from the obligation by amount in order to be released from the latter‘s obligation.
the consignation of the sum due.
The two lower courts cited Article 1257 of the Civil Code to justify
their ruling that petitioner had failed to notify Respondent Sarao manifested that she would be the one to pay the installments
of the consignation. This provision of law states that the obligor due to respondent on account of Yu‘s default.
may be released, provided the consignation is first announced
to the parties interested in the fulfillment of the obligation. Respondent commenced an action for rescission of the
conditional deed of assignment against Yu.
The facts show that the notice requirement was complied with.
In her August 1, 1991 letter, petitioner said that should the The trial court ruled in respondent‘s favor in the rescission case.
respondent fail to accept payment, the former would consign The decision was even affirmed by this appellate Court. Yu
the amount. This statement was an unequivocal announcement brought his cause before the Supreme Court in a Petition for
of consignation. Concededly, sending to the creditor a tender of Review, but this was likewise denied.
payment and notice of consignation -- which was precisely what
petitioner did -- may be done in the same act. The subject lots were sold to spouses Carlos and Sandra Ventura
who were allegedly surprised to find the annotation of lis
pendens in their owner‘s duplicate title. The Ventura spouses
Because petitioners‘ consignation of the amount filed an action for Quieting of Title with Prayer for Cancellation of
of P1,633,034.20 was valid, it produced the effect of payment. Annotation and Damages. The trial court ruled in favor of the
"The consignation, however, has a retroactive effect, and the Ventura spouses. On appeal before this appellate Court,
payment is deemed to have been made at the time of the however, the decision was reversed.
deposit of the thing in court or when it was placed at the
disposal of the judicial authority." "The rationale for consignation Upon filing of an appeal to the Supreme Court docketed as GR
is to avoid making the performance of an obligation more No. 109078, the above decision was affirmed. The Supreme
onerous to the debtor by reason of causes not imputable to Courth held that private respondent Rosario T. Alzul is hereby
him." given a non-extendible period of thirty (30) days from entry of
judgment, within which to make full payment for the properties in
question.
In the case of B.E. SAN DIEGO vs ALZUL, we have here the
procedure: Respondent filed a Manifestation in GR No. 109078 informing the
Supreme Court that petitioner, on three (3) occasions, refused to
a.) There was a debt due. accept her payment of the balance in the amount of
₧187,380.00.
b.) The consignation of the obligation had been
Respondent‘s counsel wrote a letter to petitioner citing the
made because the creditor to whom tender of latter‘s refusal to accept her payment on several occasions. It
payment was made refused to accept it. Or was also mentioned therein that due to its refusal, respondent
because he/she was absent, incapacitated or would just consign the balance due to petitioner before the
several persons claimed to be entitled to receive proper judicial authority.
the amount due or because the title to the
obligation had been lost. Thinking that an action for consignation alone would not be
sufficient to allow for the execution of a final judgment in her
c.) Previous notice of the consignation had been favor, respondent decided to file an action for consignation and
specific performance against petitioner before the Housing and
given to the person interested in the
Land Use Regulatory Board.
performance of the obligation.
ISSUE: whether respondent Alzul is still entitled to consignation
d.) The amount due was placed at the disposal of despite the lapse of the period provided by the Court
the court.
RULING: In G.R. No. 109078, finding no reversible error on the part
e.) After the consignation had been made, the
of the CA, we denied Wilson P. Yu‘s petition and affirmed the
person interested was notified of the action. appellate court‘s ruling that as between Wilson P. Yu, the
Ventura spouses, petitioner B.E. San Diego, Inc., and respondent
This is the procedure. Alzul, respondent has inchoate proprietary rights over the
disputed lots. We upheld the CA ruling declaring as "null and
B.E. SAN DIEGO vs ALZUL void" the titles issued in the name of the Ventura spouses and
reinstating them in the name of B.E. San Diego, Inc., with the
FACTS: Respondent Rosario T. Alzul purchased from petitioner B.E. corresponding notices of lis pendens annotated on them in favor
San Diego, Inc. four (4) subdivision lots with an aggregate area of respondent until such time that ownership of the subject
of 1,275 square meters. parcels of land is transferred to respondent Rosario Alzul.
These lots, which are now subject of this petition, were bought
It is thus clear that we accorded respondent Alzul expectant
through installment under Contract to Sell No. 867 at P 100.00 per
rights over the disputed lots, but such is conditioned on the
square meter, with a downpayment P 12,750.00, and monthly
payment of the balance of the purchase price. Having been
installments of P 1,249.50. The interest agreed upon was 12
conceded such rights, respondent had the obligation to pay the
percent (12%) per annum until fully paid, thus, the total purchase
remaining balance to vest absolute title and rights of ownership
price was P 237,660.00.
in his name over the subject properties.
Respondent took immediate possession of the subject property,
setting up a perimeter fence and constructing a house thereon. In our June 17, 1996 Resolution, we clearly specified thirty (30)
days from entry of judgment for respondent to promptly effect
Respondent signed a "Conditional Deed of Assignment and the full payment of the balance of the purchase price for the
Transfer of Rights" which assigned to a certain Wilson P. Yu her subject properties, thus:
rights under the Contract to Sell. Petitioner was notified of the
execution of such deed. Later on, the Contract to Sell in We however agree with the observation made by movants that
respondent‘s name was cancelled, and petitioner issued a new no time limit was set by the respondent Court of Appeals in its
one in favor of Yu. assailed Decision for the private respondent herein, Rosario Alzul,
to pay B.E. San Diego, Inc., the original owner of the properties in
Respondent informed petitioner about Yu‘s failure and refusal to litigation. To rectify such oversight, private respondent Rosario T.
pay the amounts due under the conditional deed. She also Alzul is hereby given a non-extendible period of thirty (30) days
from entry of judgment, within which to make full payment for "reasonable time thereafter." Indeed, we have accorded
the properties in question. respondent, through said Resolution, all the opportunity to
pursue consignation with the court of origin and yet, respondent
failed to make a valid consignation. This is already inexcusable
The non-compliance with our June 17, 1996 Resolution is fatal to
neglect on the part of respondent.
respondent Alzul‘s action for consignation and specific
performance
No valid consignation made
Unfortunately, respondent failed to effect such full payment of
the balance of the purchase price for the subject properties. We agree with petitioner‘s assertion that even granting
arguendo that the instant case for consignation was instituted
within the 30-day period or within a reasonable time thereafter, it
No consignation within the 30-day period or at a reasonable
would still not accord respondent relief as no valid consignation
time thereafter
was made. Certainly, the records show that there was no valid
consignation made by respondent before the HLURB as she did
It is clear as day that respondent did not attempt nor pursue not deposit the amount with the quasi-judicial body as required
consignation within the 30-day period given to her in by law and the rules.
accordance with the prescribed legal procedure. She received
a copy of the entry of judgment on August 21, 1996 and had 30
Pertinently, the first paragraph of Article 1258 of the Civil Code
days or until September 20, 1996 to pay the balance of the
provides that "consignation shall be made by depositing the
purchase price to petitioner. She made a tender of payment on
things due at the disposal of judicial authority, before whom the
August 29, 1996, August 30, 1996, and September 28, 1996, all of
tender of payment shall be proved, in a proper case, and the
which were refused by petitioner possibly because the latter is of
announcement of the consignation in other cases (emphasis
the view that it is not bound by the November 27, 1992 Decision
supplied)."
in CA-G.R. CV No. 33619 nor the December 26, 1995 Resolution in
G.R. No. 109078, and the fact that respondent has forfeited her
rights to the lots because of her failure to pay the monthly Considering the tenor of our June 17, 1996 Resolution,
amortizations. respondent ought to have consigned the amount with the court
of origin within the non-extendible period of 30 days that was
accorded her or within a reasonable time thereafter.
It must be borne in mind however that a mere tender of
payment is not enough to extinguish an obligation. In Meat
Packing Corporation of the Philippines v. Sandiganbayan, we As cited earlier, consignation is the act of depositing the thing
distinguished consignation from tender of payment and due with the court or judicial authorities whenever the creditor
reiterated the rule that both must be validly done in order to cannot accept or refuses to accept payment and it generally
effect the extinguishment of the obligation, thus: requires a prior tender of payment. It is of no moment if the
refusal to accept payment be reasonable or not. Indeed,
consignation is the remedy for an unjust refusal to accept
Consignation is the act of depositing the thing due with the court
payment. The first paragraph of Art. 1256 of the Civil Code
or judicial authorities whenever the creditor cannot accept or
precisely provides that "[i]f the creditor to whom tender of
refuses to accept payment, and it generally requires a prior
payment has been made refuses without just cause to accept it,
tender of payment. It should be distinguished from tender of
the debtor shall be released from responsibility by the
payment. Tender is the antecedent of consignation, that is, an
consignation of the thing or sum due (emphasis supplied)."
act preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be The proper and valid consignation of the amount due with the
extrajudicial, while consignation is necessarily judicial, and the court of origin, which shall judicially pronounce the validity of the
priority of the first is the attempt to make a private settlement consignation and declare the debtor to be released from his/her
before proceeding to the solemnities of consignation. Tender responsibility, shall extinguish the corresponding obligation.
and consignation, where validly made, produces the effect of
payment and extinguishes the obligation.
Moreover, in order that consignation may be effective, the
debtor must show that:
There is no dispute that a valid tender of payment had been
made by respondent. Absent however a valid consignation,
(1) there was a debt due;
mere tender will not suffice to extinguish her obligation and
(2) the consignation of the obligation had been made
consummate the acquisition of the subject properties.
because the creditor to whom tender of payment was
made refused to accept it, or because s/he was
The records also reveal that respondent failed to effect absent or incapacitated, or because several persons
consignation within a reasonable time after the 30-day period claimed to be entitled to receive the amount due or
which expired on September 20, 1996. Instead of consigning the because the title to the obligation had been lost;
amount with the court of origin, respondent filed her November (3) previous notice of the consignation had been given to
11, 1996 Manifestation informing this Court of petitioner‘s unjust the person interested in the performance of the
refusal of the tender of payment. We acted favorably to it by obligation;
issuing our January 28, 1997 Resolution which ordered, thus: (4) the amount due was placed at the disposal of the
court; and
(5) after the consignation had been made, the person
Considering the manifestation, dated November 11, 1996, filed
interested was notified of the action.
by counsel for private respondent Rosario T. Alzul, stating that
private respondent tendered to B.E. San Diego, Inc. the payment
of the sum of P187,380.00 representing the balance of the Respondent did not comply with the provisions of law particularly
purchase price of the properties which are the subject of this with the fourth and fifth requirements specified above for a valid
litigation, but B.E. San Diego, Inc., refused to accept the same, consignation. In her complaint for consignation and specific
the Court resolved to REFER the case to the court of origin, for performance, respondent only prayed that she be allowed to
appropriate action. make the consignation without placing or depositing the
amount due at the disposal of the court of origin. Verily,
respondent made no valid consignation.
Respondent still failed to take the cue by her inaction to consign
the amount with the court of origin. Undoubtedly, pursuing the
action for consignation on March 12, 1998 or over a year after
the Court issued its January 28, 1997 Resolution is way beyond a
In the case of Ramos vs Sarao, the Supreme Court even upheld Ms. Bautista‘s authority to represent respondent
said that tender of payment and notice of consignation notwithstanding the absence of a resolution to that effect, since
can be done in the same act. You can send a letter her authority was implied form her power as general
saying that you are tendering payment and if he refuses manager/treasurer of the company.
to accept, you will consign. That will be sufficient also as
ISSUE: WON consignation is proper in this case.
a first notice.
HELD: Yes.
General rule is there must be a valid tender of payment;
you cannot directly consign the thing due in court. What was clearly established by the evidence was petitioners‘
Otherwise, the payment or the consignation there is not non-payment of rentals because ostensibly, they did not know to
valid. whom payment should be made. However, this did not justify
their failure to pay, because if such were the case, they were not
But, there are exceptions. As discussed, even without a without any remedy.
valid tender of payment, there can still be consignation.
They should have availed of the provisions of the Civil Code on
You have to remember the procedure in consignation.
consignation of payment and of the Rules of Court on
interpleader.
These cases would be with respect to the exceptions.
CASE: PASRICHA vs DON LUIS DISON REALTY Article 1256 of the Civil Code provides:
It was an issue that they did not know to whom tender of Article 1256. If the creditor to whom tender of payment
payment shall be made. So, to whom shall the tender of has been made refuses without just cause to accept it,
payment be made? It‘s not clear. So the remedy here is the debtor shall be released from responsibility by the
consignation of the thing or sum due.
directly to go to court for consignation. That is the
exception: when 2 or more persons claim the same right
to collect. Consignation alone shall produce the same effect in
the following cases:
They should have filed an action for interpleader if two or
more persons claim the right to collect. If you don‘t know xxxx
who to pay, A or B, you file an action for interpleader
against A and B then let them fight among themselves as (4) When two or more persons claim the same right to
to who is really entitled to the payment. collect;
You should consign the money in court. In that case, your x x x x.

obligation is extinguished.
Consignation shall be made by depositing the thing due at the
PASRICHA vs DON LUIS DISON REALTY disposal of the judicial authority, before whom the tender of
payment shall be proved in a proper case, the announcement
FACTS: Respondent Don Luis Dison Realty, Inc. and petitioners of the consignation on other cases.
Pasricha executed two Contracts of Lease whereby the former,
as lessor, agreed to lease to the latter several units of the San Luis In the instant case, consignation alone would have produced
Building located at Ermita, Manila. Petitioners, in turn, agreed to
the effect of payment of the rentals. The rationale for
pay the monthly rentals. consignation is to avoid the performance of an obligation
becoming more onerous to the debtor by reason of causes not
Petitioners paid the monthly rentals until May 1992. After that, imputable to him.
however, petitioners refused to pay the rent. Petitioners assert
that their refusal to pay the rent was justified because of the Petitioners claim that they made a written tender of payment
internal squabble in respondent company as to the person
and actually prepared vouchers for their monthly rentals. But
authorized to receive payment. Also, petitioners alleged that
that was insufficient to constitute a valid tender of payment.
they were prevented from using the units rented. Even assuming that it was valid tender, still, it would not
constitute payment for want of consignation of the amount.
Petitioners eventually paid their monthly rent for December 1992 Well-settled is the rule that tender of payment must be
in the amount of 30K and claimed that respondent waived its accompanied by consignation in order that the effects of
right to collect the rents for the months of July to November 1992
payment may be produced.
since petitioners were prevented from using some of the units.
However, they again withheld payment starting January 1993 Moreover, Section 1, Rule 62 of the Rules of Court provides:
because of respondents‘ refusal to turn over three of the units.
Section 1. When interpleader proper. – Whenever conflicting
A complaint for ejectment was filed by private respondent claims upon the same subject matter are or may be made
through its representative, Ms. Bautista. against a person who claims no interest whatever in the subject
matter, or an interest which in whole or in part is not disputed by
The MeTC considered petitioners‘ non-payment of rentals as the claimants, he may bring an action against the conflicting
unjustified. The court held that mere willingness to pay the rent claimants to compel them to interplead and litigate their several
did not amount to payment of the obligation. The court did not claims among themselves.
give credence to petitioners‘ claim that private respondent
failed to turn over possession of the premises. The court,
however, dismissed the complaint because of Ms. Bautista‘s Otherwise stated, an action for interpleader is proper when the
alleged lack of authority to sue on behalf of the corporation. lessee does not know to whom payment of rentals should be
made due to conflicting claims on the property (or on the right
The RTC reversed and set aside the MeTC decision. to collect). The remedy is afforded not to protect a person
against double liability but to protect him against double
vexation in respect of one liability.
It adopted the MeTC‘s finding on petitioners‘ unjustified refusal to
pay the rent, which is a valid ground for ejectment. It, however,
Notably, instead of availing of the above remedies, petitioners it disappears in such a way that its existence is unknown
opted to refrain from making payments. or it cannot be recovered (Article 1189).
That case is an example of the exception.
CASE: CO vs CA
As we discussed, general rule: tender of payment + if
tender is refused, there has to be consignation. What is the duty of the repair shop owner in case vehicles
are entrusted to them for repair? For example, if you want
There are cases where consignation alone will be shop, what is a requirement for you before registering
sufficient. So, those are enumerated. Is there an instance with the DTI? You should secure an insurance policy
when tender of payment alone would be sufficient even because you cannot avoid that there might be things
without the consignation? that would happen when vehicles are entrusted to you.
There are situations when tender of payment alone is If there is no insurance policy, the presumption is the shop
sufficient. owner is negligent therefore, the shop owner is liable for
the loss. If there is an insurance policy, they can recover
Example: from the policy so still they would have to answer
because it would be unjust enrichment on their part na
A sold his land to B under a pacto de retro sale, which is a nawadan na gani tong owner sa car tapos nakakuha pa
sale with a right to repurchase. Within 2 years, A can sila ug proceeds. The loss here will not extinguish the
repurchase his land from B. After 1 year and 8 months, A obligation.
manifested his intention to B that he will buy back his
house. B refused without just cause. A did not do CO VS. CA
anything and 2 years had lapsed.
FACTS: On July 18, 1990, petitioner entrusted his Nissan pick-up
Can A still buy back his house considering that the 2 year car 1988 model to private respondent - which is engaged in the
period had lapsed and he did not consign the amount in sale, distribution and repair of motor vehicles - for job repair
court? services and supply of parts.
Yes, because here the tender of payment is in the

exercise of a right or a privilege. It is not in payment of an Private respondent undertook to return the vehicle on July 21,
obligation. The right to redeem or repurchase is at issue 1990 fully serviced and supplied in accordance with the job
here, so tender of payment is sufficient. contract. After petitioner paid in full the repair bill in the amount
of P1,397.00, private respondent issued to him a gate pass for the
Of course, you still have to give the money but insofar as release of the vehicle on said date. But came July 21, 1990, the
latter could not release the vehicle as its battery was weak and
the right is concerned, that is reserved. was not yet replaced. Left with no option, petitioner himself
bought a new battery nearby and delivered it to private
respondent for installation on the same day. However, the
battery was not installed and the delivery of the car was
rescheduled to July 24, 1990 or three (3) days later. When
petitioner sought to reclaim his car in the afternoon of July 24,
1990, he was told that it was carnapped earlier that morning
while being road-tested by private respondent‘s employee
along Pedro Gil and Perez Streets in Paco, Manila. Private
respondent said that the incident was reported to the police.
Having failed to recover his car and its accessories or the value
thereof, petitioner filed a suit for damages against private
respondent anchoring his claim on the latter‘s alleged
negligence. For its part, private respondent contended that it
has no liability because the car was lost as a result of a fortuitous
event - the carnapping.
Article 1262. An obligation which consists in the
delivery of a determinate thing shall be extinguished if
ISSUE: Who between the parties shall bear the loss of the vehicle.
it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay. HELD: It is a not a defense for a repair shop of motor vehicles to
escape liability simply because the damage or loss of a thing
When by law or stipulation, the obligor is liable even lawfully placed in its possession was due to carnapping.
for fortuitous events, the loss of the thing does not Carnapping per se cannot be considered as a fortuitous event.
extinguish the obligation, and he shall be responsible The fact that a thing was unlawfully and forcefully taken from
another‘s rightful possession, as in cases of carnapping, does not
for damages. The same rule applies when the nature
automatically give rise to a fortuitous event. To be considered as
of the obligation requires the assumption of risk. such, carnapping entails more than the mere forceful taking of
(1182a) another‘s property. It must be proved and established that the
event was an act of God or was done solely by third parties and
that neither the claimant nor the person alleged to be negligent
Loss of a thing is also a mode of extinguishment of an has any participation. In accordance with the Rules of evidence,
obligation. How do we define loss? the burden of proving that the loss was due to a fortuitous event
rests on him who invokes it which in this case is the private
There is loss when a thing perishes; when it goes out of respondent.
commerce and when its existence is unknown and when
However, other than the police report of the alleged
carnapping incident, no other evidence was presented by REPUBLIC vs GRIJALDO
private respondent to the effect that the incident was not due to
its fault. A police report of an alleged crime, to which only FACTS: Grijaldo obtained five loans from the Bank of Taiwan in
private respondent is privy, does not suffice to established the the total amount of P1, 281.97 with interest at the rate of 6% per
carnapping. Neither does it prove that there was no fault on the annum compounded quarterly. These were evidenced by five
part of private respondent notwithstanding the parties‘ promissory notes.
agreement at the pre-trial that the car was carnapped.
Carnapping does not foreclose the possibility of fault or These loans were crop loans and were considered to be due
negligence on the part of private respondent. one year after they were incurred.
Even assuming arguendo that carnapping was duly established As a security for the payment of the loans, a chattel mortgage
as a fortuitous event, still private respondent cannot escape was executed on the standing crops of his land.
liability. Article 1165 of the New Civil Code makes an obligor who
is guilty of delay responsible even for a fortuitous event until he The assets in the Bank of Taiwan were vested in the US Gov‘t
has effected the delivery. In this case, private respondent was which were subsequently transferred to the Republc of the
already in delay as it was supposed to deliver petitioner‘s car Philippines.
three (3) days before it was lost. Petitioner‘s agreement to the
rescheduled delivery does not defeat his claim as private Republic is now demanding the payment of the account.
respondent had already breached its obligation. Moreover, such
accession cannot be construed as waiver of petitioner‘s right to Justice of Peace dismissed the case on the ground of
hold private respondent liable because the car was unusable prescription. CA rendered decision ordering appellant to pay
and thus, petitioner had no option but to leave it. appellee.
Assuming further that there was no delay, still working against Grijaldo contended that the Republic has no cause of action
private respondent is the legal presumption under Article 1265 against him because the transaction was with the Bank of
that its possession of the thing at the time it was lost was due to Taiwan. He further alleged that if Republic had cause of action,
its fault. This presumption is reasonable since he who has the it had already prescribed.
custody and care of the thing can easily explain the
circumstances of the loss. The vehicle owner has no duty to show ISSUE: WON Republic may still collect from Grijaldo.
that the repair shop was at fault. All that petitioner needs to
prove, as claimant, is the simple fact that private respondent HELD: Yes. The obligation of the contract was not to deliver a
was in possession of the vehicle at the time it was lost. In this determinate thing, it was a generic thing – the amount of money
case, private respondent‘s possession at the time of the loss is representing the sum of his loans. The destruction of anything of
undisputed. Consequently, the burden shifts to the possessor the same kind does not extinguish his obligation to pay because
who needs to present controverting evidence sufficient enough the account could still be paid from other sources aside from the
to overcome that presumption. Moreover, the exempting mortgaged crops. Also, prescription does not run against the
circumstances - earthquake, flood, storm or other natural State.
calamity - when the presumption of fault is not applicable do
not concur in this case. Accordingly, having failed to rebut the
presumption and since the case does not fall under the
exceptions, private respondent is answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and

1262 of the New Civil Code, liability attaches even if the loss was
due to a fortuitous event if ―the nature of the obligation requires
the assumption of risk‖. Carnapping is a normal business risk for
those engaged in the repair of motor vehicles. For just as the
owner is exposed to that risk so is the repair shop since the car
was entrusted to it. That is why, repair shops are required to first
register with the Department of Trade and Industry (DTI) and to
secure an insurance policy for the ―shop covering the property
entrusted by its customer
for repair, service or maintenance‖ as a pre-requisite for
such registration/ accreditation.
In another case, the case of CIPRIANO, there was loss

due to fire. The vehicle was burned.
The Supreme Court said that the shop owner is liable

because they failed to secure an insurance policy to
cover for the fire. The loss did not extinguish the
obligation.
Article 1263. In an obligation to deliver a generic

thing, the loss or destruction of anything of the same
kind does not extinguish the obligation. (n)
CASE: REPUBLIC vs GRIJALDO
It‘s very clear here. The obligation is to pay money which

is generic. Even if the crops were destroyed, that would
not extinguish the obligation because that is not the thing
which is the prestation.
CASE: GAISANO CAGAYAN, INC. vs INSURANCE CO. OF
NORTH AMERICA
This case refers to those stocks or clothes inside the mall.

They were lost by reason of fire.
The question is: is the obligation to Gaisano with respect

to those (wala pa man to nabayaran), is that
extinguished? Nawala ang goods, ang obligation ba sa
store extinguished?
Take note of the presumption.
No, because the obligation here is to pay money, not to
return the goods. Their obligation is not extinguished. Loss is presumed to be the fault of the debtor unless the
loss is by reason of calamities.
GAISANO CAGAYAN, INC. vs INSURANCE CO. OF NORTH
AMERICA
FACTS: Intercapitol Marketing Corporation (IMC) is the maker of Article 1266. The debtor in obligations to do shall
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local
also be released when the prestation becomes
distributor or products bearing trademarks owned by Levi Strauss
and Co. legally or physically impossible without the fault of
the obligor. (1184a)
IMCI and LSPI both obtained from respondent fire insurance
policies with book debt endorsements. It provides for coverage
on book debts in connection with ready-made clothing
Article 1266 applies only to obligations to do.
materials which have been sold or delivered to various
customers and dealers insured everywhere in the Philippines.
The policies defined book debts as unpaid account still
CASE: ASIAN CONSTRUCTION AND DEVELOPMENT
appearing in the Book of Account of the Insured 45 days after CORPORATION vs PCIB
the time of the loss covered by the said policy.
In this case, where the obligation is to give, the provision
Petitioner is a customer and dealer of products of IMC and LSPI. was not made applicable. Article 1266 applies only to an
In February 1991, Gaisano Superstore Complex in Cagayan de obligation to do.
Oro City, owned by petitioner, burned down.
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION vs
Included in the items lost in the fire were the ready-made PCIB
clothing materials sold and delivered by IMC and LSPI.
FACTS: On various occasions, ASIAKONSTRUKT obtained U.S.
ISSUE: WON the petitioner is liable for the unpaid accounts. dollar denominated credit accommodations from PCIBANK.
These credit accommodations are covered by promissory notes.
HELD: Yes, petitioner is liable.
The promissory notes have remained not fully paid despite their
The insurance in this case is not for loss of goods by fire but for having become due and demandable. Repeated verbal and
petitioner‘s accounts with IMC and LSPI that remained unpaid written demands were made upon ASIAKONSTRUKT, but to no
for 45 days after the fire. Petitioner‘s obligation is for the payment avail. It has failed and refused, and continues to fail and refuse,
of money. to pay its outstanding obligations to PCIBANK;
Where the obligation consists in the payment of money, the As a result of ASIAKONSTRUKT‘s refusal to pay its outstanding
failure of the debtor to make the payment even by reason of a obligations, PCIBANK was constrained to refer the matter to
fortuitous event shall not relieve him of his liability. counsel and thus incur attorney‘s fees and legal costs.
The rule that the obligor should be held exempt from liability The aggregate unpaid obligation of ASIAKONSTRUKT to PCIBANK,
when the loss occurs through a fortuitous event only holds true as of December 31, 1998 amounts to US$4,553,446.06.
when the obligation consists in the delivery of a determinate
thing and there is no stipulation holding hi liable even in case of As a result of the fraudulent acts of ASIAKONSTRUKT, PCIBANK
fortuitous event. It does not apply when the obligation is suffered the following damages, all of which ASIAKONSTRUKT
pecuniary in nature. must be held to pay PCIBANK.
In support of its prayer for a writ of preliminary attachment
Article 1264. The courts shall determine whether, embodied in the complaint, plaintiff PCIBANK alleges that
under the circumstances, the partial loss of the ASIAKONSTRUKT is guilty of fraud in contracting the debt.
object of the obligation is so important as to By way of defenses, defendant pleads in its Answer the alleged
extinguish the obligation. (n) "severe financial and currency crisis" which hit the Philippines in
July 1997, which adversely affected and ultimately put it out of
business. Defendant adds that the deeds of assignments it
executed in favor of PCIBANK were standard forms proposed by
If the loss will really make the thing unfit for its purpose, the bank as pre-condition for the release of the loans and
then it will really make the loss total, technically and therefore partake of the nature of contracts of adhesion, leaving
legally. the defendant to the alternative of "taking it or leaving it."
ISSUE: WON the obligation has become impossible.
But, if the thing is only impaired and can still be used, then
the obligation shall not be extinguished. HELD: The petitioner may have experienced financial difficulties
because of the "1997 economic crisis" that ensued in Asia.
However, the same does not constitute a valid justification for
the petitioner to renege on its obligations to the respondent. The
petitioner cannot even find solace in Articles 1266 and 1267 of
the New Civil Code for, as declared by our Supreme Court:
Article 1265. Whenever the thing is lost in the
possession of the debtor, it shall be presumed that
the loss was due to his fault, unless there is proof to
the contrary, and without prejudice to the
provisions of article 1165. This presumption does
not apply in case of earthquake, flood, storm, or
other natural calamity. (1183a)
It is a fundamental rule that contracts, once perfected, bind that the shares in question have substantially declined in value
both contracting parties, and obligations arising therefrom have and the SSS could no longer afford to continue holding on to
the force of law between the parties and should be complied them at the present level of EPCIB‘s income.
with in good faith. But the law recognizes exceptions to the
principle of the obligatory force of contracts. One exception is Albeit there were other interested parties, only Banco de Oro
laid down in Article 1266 of the Civil Code, which reads: ‗The Universal Bank (BDO) and its investment subsidiary, respondent
debtor in obligations to do shall also be released when the BDO Capital, appeared in earnest to acquire the shares in
prestation becomes legally or physically impossible without the question. Following talks between them, BDO and SSS a Letter-
fault of the obligor.‘ Agreement, for the sale and purchase of some 187.8 million
EPCIB common shares (the Shares, hereinafter), at P43.50 per
Petitioner cannot, however, successfully take refuge in the said
share, which represents a premium of 30% of the then market
article, since it is applicable only to obligations "to do," and not
value of the EPCIB shares.
obligations "to give." An obligation "to do" includes all kinds of
work or service; while an obligation "to give" is a prestation which
The Commission on Audit (COA), in response to respondent Dela
consists in the delivery of a movable or an immovable thing in
Paz‘s letter-query on the applicability of the public bidding
order to create a real right, or for the use of the recipient, or for
requirement under COA Circular No. 89-296 on the divestment
its simple possession, or in order to return it to its owner.
by the SSS of its entire EPICB equity holdings, stated that the
"circular covers all assets of government agencies except those
merchandize or inventory held for sale in the regular course of
business." And while it expressed the opinion that the sale of the
Article 1267. When the service has become so difficult subject Shares are "subject to guidelines in the Circular," the
as to be manifestly beyond the contemplation of the COA qualified its determination with a statement that such
negotiated sale would partake of a stock exchange transaction
parties, the obligor may also be released therefrom, in
and, therefore, would be adhering to the general policy of
whole or in part. (n) public auction.
Following several drafting sessions, SSS and BDO Capital, the

designated buyers of the Banco de Oro Group, agreed on a
So here, the service has become so difficult; in Article final draft version of the Share Purchase Agreement (SPA). In it,
1267 it is impossibility of performance whether physical or the parties mutually agreed to the purchase by the BDO Capital
legal; here, it is difficulty. and the sale by SSS of all the latter‘s EPCIB shares at the closing
date at the specified price of P43.50 per share or a total
of P8,171,383,258.50.
The law says it will also excuse the obligor in performing
his part. SSC passed Res. No. 428 approving, as earlier stated, the sale of
the EPCIB shares through the Swiss Challenge method. SSS
This is actually based on the doctrine in International Law, advertised an Invitation to Bid for the block purchase of the
the doctrine of rebus sic stantibus. Shares. The Invitation to Bid expressly provided that the "result of
the bidding is subject to the right of BDO Capital … to match the
Under International Law, countries or states would enter highest bid."
into agreements but this agreement is in the light of
prevailing circumstances. Over time, these circumstances Even before the bid envelopes, if any, could be opened, the
would change. Therefore, when you still enforce the herein petitioners commenced the instant special civil action for
certiorari, setting their sights primarily on the legality of the Swiss
obligation when the circumstances and the environment
Challenge angle and a provision in the Instruction to Bidders
have changed drastically or dramatically, this change under which the SSS undertakes to offer the Shares to BDO
shall be used by the parties as an excuse for the non- should no bidder or prospective bidder qualifies. And as earlier
performance of their treaty obligation. mentioned, the Court, via a status quo order, effectively
suspended the proceedings on the proposed sale.
That is the doctrine of rebus sic stantibus.
Under the Swiss Challenge format, one of the bidders is given the
CASE: OSMENA vs SSS option or preferential "right to match" the winning bid.
The agreement also that was entered into before Petitioners assert, in gist, that a public bidding with a Swiss
between SSS and PCIB could no longer be enforced Challenge component is contrary to COA Circular No. 89-296
and public policy which requires adherence to competitive
because they became only one entity.
public bidding in a government-contract award to assure the
best price possible for government assets. Accordingly, the
This is one example of Article 1267. Because there was petitioners urge that the planned disposition of the Shares
already a merger of the two companies, the previous through a Swiss Challenge method be scrapped. As argued, the
agreements entered into could no longer be effected Swiss Challenge feature tends to discourage would-be-bidders
because there has been a change in the condition of from undertaking the expense and effort of bidding if the
the parties. chance of winning is diminished by the preferential "right to
match" clause.
Before, lahi sila na entities so they could agree but they
became one so their agreement before was dissolved Against the petitioners‘ stance, public respondents inter alia
submit that the sale of subject Shares is exempt from the tedious
because of the merger.
public bidding requirement of COA. Obviously stressing the
practical side of the matter, public respondents assert that if
OSMENA vs SSS
they are to hew to the bidding requirement in the disposition of
SSS‘s Philippine Stock Exchange (PSE)-listed stocks, it would place
FACTS: Sometime in 2003, SSS, a government financial institution
the System at a disadvantage vis-à-vis other stock market
(GFI) created pursuant to Republic Act (RA) No. 1161 and
players who certainly enjoy greater flexibility in reacting to the
placed under the direction and control of SSC, took steps to vagaries of the market and could sell their holdings at a
liquefy its long-term investments and diversify them into higher-
moment‘s notice when the price is right.
yielding and less volatile investment products. Among its assets
determined as needing to be liquefied were its shareholdings in
Pending consideration of the petition, supervening events and
EPCIB. The principal reason behind the intended disposition is
corporate movements transpired that radically altered the
factual complexion of the case: BDO made public its intent to under any circumstance, cause the implementation of the
merge with EPCIB. Under what BDO termed as "Merger of assailed resolutions, let alone proceed with the planned
Equals", EPCIB shareholders would get 1.6 BDO shares for every disposition of the Shares, be it via the traditional competitive
EPCIB share. bidding or the challenged public bidding with a Swiss
Challenge feature.1âwphi1
SSS stated that the case is now moot in view of the SM-BDO
Group‘s Tender Offer at P92.00 @ unit share, for the subject EPCIB At any rate, the moot-and-academic angle would still hold sway
common shares, inclusive of the SSS shares subject of the
even if it were to be assumed hypothetically that the subject
petition. Shares are still existing. This is so, for the supervening BDO-EPCIB
merger has so effected changes in the circumstances of SSS and
Petitioners concede the huge gap between the unit price stated BDO/BDO Capital as to render the fulfillment of any of the
in the Tender Offer and the floor price of P43.50 per share stated obligations that each may have agreed to undertake under
in the Invitation to Bid. It is their posture, however, that unless SSS either the Letter-Agreement, the SPA or the
withdraws the sale of the subject shares by way of the Swiss Swiss Challenge package legally impossible. When the service
Challenge, the offer price of P92 per share cannot render the has become so difficult as to be manifestly beyond the
case moot and academic. contemplation of the parties, total or partial release from a
prestation and from the counter-prestation is allowed.
Meanwhile, the positive response to the Tender Offer enabled
the SM-BDO Group to acquire controlling interests over EPCIB
and paved the way for a BDO-EPCIB merger. The merger was Under the theory of rebus sic stantibus, the parties stipulate in the
formalized by subsequent submission of the necessary merger light of certain prevailing conditions, and once these conditions
documents to the SEC. The SEC approved the merger between cease to exist, the contract also ceases to exist. Upon the facts
BDO and EPCIB. obtaining in this case, it is abundantly clear that the conditions in
which SSS and BDO Capital and/or BDO executed the Letter-
Agreement upon which the pricing component – at P43.50 per
RULING: A case or issue is considered moot and academic when share – of the Invitation to Bid was predicated, have ceased to
it ceases to present a justiciable controversy by virtue of exist. Accordingly, the implementation of the Letter- Agreement
supervening events, so that an adjudication of the case or a or of the challenged Res. Nos. 428 and 485 cannot plausibly push
declaration on the issue would be of no practical value or use. In through, even if the central figures in this case are so minded.
such instance, there is no actual substantial relief which a
petitioner would be entitled to, and which would be negated by
the dismissal of the petition. Courts generally decline jurisdiction
over such case or dismiss it on the ground of mootness -- save CASE: NATELCO vs CA
when, among others, a compelling constitutional issue raised
requires the formulation of controlling principles to guide the The Supreme Court said that to also order the removal of
bench, the bar and the public; or when the case is capable of all would cause due inconvenience to the public. So, the
repetition yet evading judicial review. Supreme Court just ordered the payment of additional
compensation for the use of the posts. Because to retain
The case, with the view we take of it, has indeed become moot the old agreement that for every 10 naay 1 telephone
and academic for interrelated reasons. and then naghan na kayo ang naka-connect would be
burdensome on the part of the electrical company
We start off with the core subject of this case. As may be noted, (CASURECO).
the Letter-Agreement, the SPA, the SSC resolutions assailed in this
recourse, and the Invitation to Bid sent out to implement said The Supreme Court said that Article 1267 applies but it
resolutions, all have a common subject: the Shares – the 187.84 varied the application of Article 1267 not to simply do
Million EPCIB common shares. away with the contract; there was just imposition of
additional compensation.
It cannot be overemphasized, however, that the Shares, as a
necessary consequence of the BDO-EPCIB merger which saw NATELCO vs CA
EPCIB being absorbed by the surviving BDO, have been
transferred to BDO and converted into BDO common shares FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a
under the exchange ratio set forth in the BDO-EPCIB Plan of telephone company rendering local as well as long distance
Merger. telephone service in Naga City while private respondent
Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a
As thus converted, the subject Shares are no longer equity private corporation established for the purpose of operating an
security issuances of the now defunct EPCIB, but those of BDO- electric power service in the same city.
EPCI, which, needless to stress, is a totally separate and distinct
entity from what used to be EPCIB. In net effect, therefore, the The parties entered into a contract for the use by petitioners in
187.84 Million EPCIB common shares are now lost or inexistent. the operation of its telephone service the electric light posts of
And in this regard, the Court takes judicial notice of the private respondent in Naga City. In consideration therefor,
disappearance of EPCIB stocks from the local bourse listing. petitioners agreed to install, free of charge, ten (10) telephone
Instead, BDO-EPCI Stocks are presently listed and being traded in connections for the use by private respondent.
the PSE.
The contract was prepared by or with the assistance of the other
petitioner, Atty. Luciano M. Maggay, then a member of the
Under the law on obligations and contracts, the obligation to Board of Directors of private respondent and at the same time
give a determinate thing is extinguished if the object is lost the legal counsel of petitioner.
without the fault of the debtor. And per Art. 1192 (2) of the Civil
Code, a thing is considered lost when it perishes or disappears in
such a way that it cannot be recovered. In a very real sense, the After the contract had been enforced for over ten (10) years,
interplay of the ensuing factors: a) the BDO-EPCIB merger; and private respondent filed against petitioners for reformation of the
b) the cancellation of subject Shares and their replacement by contract with damages, on the ground that it is too one-sided in
totally new common shares of BDO, has rendered the erstwhile favor of petitioners; that it is not in conformity with the guidelines
187.84 million EPCIB shares of SSS "unrecoverable" in the of the National Electrification Administration (NEA) which direct
contemplation of the adverted Civil Code provision. that the reasonable compensation for the use of the posts is
P10.00 per post, per month; that after eleven (11) years of
petitioners' use of the posts, the telephone cables strung by them
With the above consideration, respondent SSS or SSC cannot, thereon have become much heavier with the increase in the
volume of their subscribers, worsened by the fact that their as legal counsel for both companies and presumably
linemen bore holes through the posts at which points those posts with the interests of both companies in mind when he
were broken during typhoons; that a post now costs as much as prepared the aforesaid agreement, Atty. Maggay must
P2,630.00; so that justice and equity demand that the contract have considered the same fair and equitable to both
be reformed to abolish the inequities thereon. sides.
Private respondent alleged that starting with the year 1981, That the aforesaid contract has become inequitous or
petitioners have used 319 posts in the towns of Pili, Canaman, unfavorable or disadvantageous to the plaintiff with
Magarao and Milaor, Camarines Sur, all outside Naga City, the expansion of the business of appellant and the
without any contract with it; that at the rate of P10.00 per post, increase in the volume of its subscribers in Naga City
petitioners should pay private respondent for the use thereof the and environs through the years, necessitating the
total amount of P267,960.00 from 1981 up to the filing of its stringing of more and bigger telephone cable wires by
complaint; and that petitioners had refused to pay private appellant to plaintiff's electric posts without a
respondent said amount despite demands. Private respondent corresponding increase in the ten (10) telephone
also complained about the poor servicing by petitioners of the connections given by appellant to plaintiff free of
ten (10) telephone units which had caused it great charge in the agreement as consideration for its use of
inconvenience and damages to the tune of not less than the latter's electric posts in Naga City, appear,
P100,000.00 however, undisputed from the totality of the evidence
on record and the lower court so found.
The trial court found that while the contract appeared to be fair
to both parties when it was entered into by them during the first The fact that said contract has become inequitous or
year of private respondent's operation and when its Board of disadvantageous to plaintiff as the years went by did
Directors did not yet have any experience in that business, it had
not, however, give plaintiff a cause of action for
become disadvantageous and unfair to private respondent
reformation of said contract, for the reasons already
because of subsequent events and conditions, particularly the pointed out earlier. But this does not mean that plaintiff
increase in the volume of the subscribers of petitioners for more is completely without a remedy, for we believe that the
than ten (10) years without the corresponding increase in the
allegations of its complaint herein and the evidence it
number of telephone connections to private respondent free of
has presented sufficiently make out a cause of action
charge. The trial court concluded that while in an action for under Art. 1267 of the New Civil Code for its release
reformation of contract, it cannot make another contract for the from the agreement in question.
parties, it can, however, for reasons of justice and equity, order
that the contract be reformed to abolish the inequities therein.
Thus, said court ruled that the contract should be reformed by In truth, as also correctly found by the lower court,
ordering petitioners to pay private respondent compensation for despite the increase in the volume of appellant's
the use of their posts in Naga City, while private respondent subscribers and the corresponding increase in the
should also be ordered to pay the monthly bills for the use of the telephone cables and wires strung by it to plaintiff's
telephones also in Naga City. electric posts in Naga City for the more 10 years that
the agreement of the parties has been in effect, there
Petitioners appealed to respondent Court of Appeals. In the has been no corresponding increase in the ten (10)
decision, respondent court affirmed the decision of the trial telephone units connected by appellant free of
court, but based on different grounds to wit: (1) that Article 1267 charge to plaintiff's offices which was the only
of the New Civil Code is applicable and (2) that the contract consideration provided for in said agreement for
was subject to a potestative condition which rendered said appellant's use of plaintiffs electric posts. Not only that,
condition void. appellant even started using plaintiff's electric posts
outside Naga City although this was not provided for in
Hence, the present petition. the agreement as it extended and expanded its
telephone services to towns outside said city.
ISSUE: whether the continued enforcement of the contract
between the parties has, through the years, become too The conclusion is indeed ineluctable that the
inequitous or disadvantageous to the plaintiff and too one-sided agreement has already become too one-sided in favor
in favor of defendant-appellant of appellant to the great disadvantage of plaintiff, in
short, the continued enforcement of said contract has
RULING: Petitioners assert earnestly that Article 1267 of the New manifestly gone far beyond the contemplation of
Civil Code is not applicable primarily because the contract does plaintiff, so much so that it should now be released
not involve the rendition of service or a personal prestation and it therefrom under Art. 1267 of the New Civil Code to
is not for future service with future unusual change. avoid appellant's unjust enrichment at its (plaintiff's)
expense. As stated by Tolentino in his commentaries on
In applying Article 1267, respondent court rationalized: the Civil Code citing foreign civilist Ruggiero, "equity
demands a certain economic equilibrium between the
prestation and the counter-prestation, and does not
We agree with appellant that in order that an action permit the unlimited impoverishment of one party for
for reformation of contract would lie and may prosper, the benefit of the other by the excessive rigidity of the
there must be sufficient allegations as well as proof that principle of the obligatory force of contracts.”
the contract in question failed to express the true
intention of the parties due to error or mistake,
accident, or fraud. Article 1267 speaks of "service" which has become so difficult.
Taking into consideration the rationale behind this provision, the
term "service" should be understood as referring to the
Here, plaintiff-appellee did not allege in its complaint, "performance" of the obligation.
nor does its evidence prove, that there was a mistake
on its part or mutual mistake on the part of both parties
when they entered into the agreement, and that In the present case, the obligation of private respondent consists
because of this mistake, said agreement failed to in allowing petitioners to use its posts in Naga City, which is the
express their true intention. Rather, plaintiff's evidence service contemplated in said article. Furthermore, a bare
shows that said agreement was prepared by Atty. reading of this article reveals that it is not a requirement
Luciano Maggay, then a member of plaintiff's Board of thereunder that the contract be for future service with future
Directors and its legal counsel at that time, who was unusual change.
also the legal counsel for defendant-appellant, so that
According to Senator Arturo M. Tolentino, Article 1267 states in not have accepted deliveries from other suppliers. This is
our law the doctrine of unforeseen events. This is said to be not the application of Article 1267.
based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the RUSTAN vs IAC
light of certain prevailing conditions, and once these conditions
cease to exist the contract also ceases to exist. Considering FACTS: Petitioner Rustan established a pulp and paper mill in
practical needs and the demands of equity and good faith, the Baloi, Lano del Norte. Respondent Lluch, who is a holder of a
disappearance of the basis of a contract gives rise to a right to forest products license, transmitted a letter to petitioner Rustan
relief in favor of the party prejudiced. for the supply of raw materials by the former to the latter.
We, therefore, release the parties from their correlative These prefatory business proposals culminated in the execution
obligations under the contract. However, our disposition of the of a contract of sale whereby Romeo A. Lluch agreed to sell,
present controversy does not end here. We have to take into and Rustan Pulp and Paper Mill, Inc. undertook to pay the price
account the possible consequences of merely releasing the of P30.00 per cubic meter of pulp wood raw materials to be
parties therefrom: petitioners will remove the telephone delivered at the buyer's plant in Baloi, Lanao del Norte.
wires/cables in the posts of private respondent, resulting in
disruption of their service to the public; while private respondent, In the installation of the plant facilities, the technical staff of
in consonance with the contract will return all the telephone Rustan Pulp and Paper Mills, Inc. recommended the
units to petitioners, causing prejudice to its business. acceptance of deliveries from other suppliers of the pulp wood
materials for which the corresponding deliveries were made. But
during the test run of the pulp mill, the machinery line thereat
We shall not allow such eventuality. Rather, we require, as
had major defects while deliveries of the raw materials piled up,
ordered by the trial court: 1) petitioners to pay private
which prompted the Japanese supplier of the machinery to
respondent for the use of its posts in Naga City and in the towns
recommend the stoppage of the deliveries. The suppliers were
of Milaor, Canaman, Magarao and Pili, Camarines Sur and in
informed to stop deliveries.
other places where petitioners use private respondent's posts,
the sum of ten (P10.00) pesos per post, per month, beginning
Petitioners sent a letter to private respondet stating ―that the
January, 1989; and 2) private respondent to pay petitioner the
supply of raw materials to us has become sufficient and we will
monthly dues of all its telephones at the same rate being paid by
not be needing further delivery from you. As per the terms of our
the public beginning January, 1989.
contract, please stop delivery thirty (30) days from today.‖
POTESTATIVE CONDITION Private respondent Romeo Lluch sought to clarify the tenor of
the letter as to whether stoppage of delivery or termination of
Petitioners allege that there is nothing purely potestative about the contract of sale was intended, but the query was not
the prestations of either party because petitioner's permission for answered by petitioners. This alleged ambiguity notwithstanding,
free use of telephones is not made to depend purely on their will, Lluch and the other suppliers resumed deliveries after the series
neither is private respondent's permission for free use of its posts of talks between Romeo S. Vergara and Romeo Lluch.
dependent purely on its will.
Petitioners filed a complaint for contractual breach which was
dismissed. Petitioners trimmed down their discourse before this
Petitioners' allegations must be upheld in this regard. A Court to three basic matters, relative to the nature of liability, the
potestative condition is a condition, the fulfillment of which propriety of the stoppage, and the feasibility of awarding moral
depends upon the sole will of the debtor, in which case, the damages including attorney's fees.
conditional obligation is void. Based on this definition,
respondent court's finding that the provision in the contract, to RULING: Respondent Court found it ironic that petitioners had to
wit: exercise the prerogative regarding the stoppage of deliveries via
the letter addressed to Iligan Diversified Project, Inc. on
(a) That the term or period of this contract shall be as September 30, 1968 because petitioners never really stopped
long as the party of the first part (petitioner) has need accepting deliveries from private respondents until December
for the electric light posts of the party of the second 23, 1968.
part (private respondent) . . ..
The fact that appellees were buying and accepting
pulp wood materials from other sources other than the
is a potestative condition, is correct. However, it must have
appellants even after September 30, 1968 belies that
overlooked the other conditions in the same provision, to wit:
they have more than sufficient supply of pulp wood
materials, or that they are unable to go into full
. . . it being understood that this contract shall commercial operation or that their machineries are
terminate when for any reason whatsoever, the party defective or even that the pulp wood materials coming
of the second part (private respondent) is forced to from appellants are sub-standard.
stop, abandoned (sic) its operation as a public service
and it becomes necessary to remove the electric light Clearly therefore, this is a breach of the contract
post (sic); entered into by and between appellees and
appellants which warrants the intervention of this Court.
which are casual conditions since they depend on chance,
hazard, or the will of a third person. In sum, the contract is The letter of September 30, 1968 shows that defendants
subject to mixed conditions, that is, they depend partly on the were terminating the contract of sale, and refusing any
will of the debtor and partly on chance, hazard or the will of a future or further delivery — whether on the ground that
third person, which do not invalidate the aforementioned they had sufficient supply of pulp wood materials or
provision. that appellants cannot meet the standard of quality of
pulp wood materials that Rustan needs or that there
were defects in appellees' machineries resulting in an
inability to continue full commercial operations.
CASE: RUSTAN vs IAC
It‘s very clear here that they cannot invoke Article 1267. It Furthermore, there is evidence on record that
was not really truly difficult for them otherwise they would appellees have been accepting deliveries of pulp
wood materials from other sources, i.e. Salem Usman,
Fermin Villanueva and Pacasum even after September
30, 1968. Roland Pedrejas alias "Potot" whether Manuel was already in
their house. She replied that she did not know. Later that
evening, Maria Fe, Ronito, Leo and Julifer had just taken their
We are not prepared to accept petitioners' exculpation
dinner when Manuel and Jose arrived. Manuel told Ronito that
grounded on frustration of the commercial object under Article
he wanted to borrow money from him and Maria Fe. The latter
1267 of the New Civil Code, because petitioners continued
refused to lend Manuel the money but she was prevailed upon
accepting deliveries from the suppliers. This conduct will estop
by Ronito. Manuel, Jose and Ronito then had a drinking spree in
petitioners from claiming that the breakdown of the machinery
the sala. Maria Fe and Julifer went to sleep in the former‘s
line was an extraordinary obstacle to their compliance to the
bedroom while Leo slept in the sala.
prestation. It was indeed incongruous for petitioners to have sent
the letters calling for suspension and yet, they in effect
disregarded their own advice by accepting the deliveries from At around 2:00 a.m., Manuel, armed with a .38 caliber gun and
holding a flourescent lamp, entered the bedroom of Ronito and
the suppliers. The demeanor of petitioners along this line was
Maria Fe. He poked the said gun on Maria Fe. She woke up and
sought to be justified as an act of generous accommodation,
which entailed greater loss to them and "was not motivated by attempted to stand up but Manuel ordered her to lie down.
Jose, armed with a knife followed Manuel to the bedroom. The
the usual businessman's obsession with profit."
latter ordered Jose to tie the hands of Maria Fe behind her back
and put a tape on her mouth. Jose complied. On orders of
Altruism may be a noble gesture but petitioners' stance in this
Manuel, Jose woke up Leo and brought him to the room. Jose
respect hardly inspires belief for such an excuse is inconsistent
tied the hands of Leo behind his back. Jose and Manuel then
with a normal business enterprise which takes ordinary care of its
divested Maria Fe of her necklace, rings and earrings.
concern in cutting down on expenses. Knowing fully well that
they will encounter difficulty in producing output because of the
Manuel then threatened to explode the grenade tucked under
defective machinery line, petitioners opted to open the plant to
greater loss, thus compounding the costs by accepting his shirt and kill Maria Fe, her family and their househelps if she
additional supply to the stockpile. Verily, the petitioner's action refused to surrender her money. Petrified, Maria Fe took the
when they acknowledged that "if the plant could not be money from her waist pouch and gave the same to Manuel and
Jose. Manuel took a blanket and ordered Jose to kill Ronito with
operated on a commercial scale, it would then be illogical for
defendant Rustan to continue accepting deliveries of raw it. Jose went to the kitchen, got a knife, covered Ronito with the
blanket and sat on top of him then stabbed the latter several
materials."
times. Manuel also stabbed Ronito on different parts of his body.
Jose slit the throat of Ronito and took the latter‘s wristwatch and
ring. Manuel then untied Julifer, removed her clothes and
Article 1268. When the debt of a thing certain and panties and then raped her. She could do nothing but cry.
determinate proceeds from a criminal offense, the Manuel and Jose stayed in the house until 4:00 a.m. Before they
left, Manuel and Jose told Maria Fe that they were acting on
debtor shall not be exempted from the payment of
orders of Rolando Pedrejas, Joel Colejara, Grace Pabulacion
its price, whatever may be the cause for the loss, and Juliet Capuno.
unless the thing having been offered by him to the
person who should receive it, the latter refused An Information was filed against Manuel and Jose wherein it was
stated that the accused took and carried away a gold
without justification to accept it. (1185) necklace, gold earrings, gold rings, cash, 2 Seiko wristwatches
and another gold ring all valued in all at P45,500.00, belonging to
Ronito Enero and Maria Fe Balo.
If the obligation proceeds from a crime, even if the thing
is lost by reason of a fortuitous event, it will not be
extinguished except if the creditor is already in default or
mora accepiendi.
RULING: As to the civil liability of appelants, the trial court
ordered the appellants to pay in solidum to the heirs of Ronito
The obligation to return only ceases when there has been
the amount of P50,000. However, although Maria Fe testified, the
delay on the part of the creditor and the thing is lost by trial court did not award moral damages to said heirs. Neither
reason of a fortuitous event. did the trial court award exemplary damages. The trial court
ordered the appellants to return to said heirs the pieces of
Here, if the thing is lost by reason of a fortuitous event, the jewelry taken by them but the trial court failed to specify or
obligation is now extinguished. This is illustrated in the describe in its decision the said pieces of jewelry.
case of PEOPLE vs DANIELA.
Maria Fe testified that the appellants took her chinese gold
CASE: PEOPLE OF THE PHILIPPINES vs DANIELA necklace worth P7,000; two gold rings worth P3,000; chinese gold
earring worth P1,000; wristwatch worth P900; and cash money in
PEOPLE OF THE PHILIPPINES vs DANIELA the amount of P30,000 and that the appellants took the gold ring
of Ronito worth P900, and his wristwatch worth P1,800. However,
FACTS: Ronito Enero and his common-law wife Maria Fe Balo and the prosecution failed to adduce documentary evidence to
their three children resided in Sawang, Calero, Pasil, Cebu prove the acquisition cost of the pieces of jewelry taken from
City. The couple eked out a living vending fish at the Pasil public Maria Fe and Ronito. Neither is there any documentary evidence
market near their house. They employed Leo Quilongquilong, the to prove that Maria Fe had P30,000 inside her pouch.
cousin of Maria Fe, as helper in their business and Julifer Barrera, Nevertheless, the Court has to modify the decision of the trial
a "tomboy" as their house help. Both lived with the couple. court.
Manuel Daniela had been a "barkada"; of Ronito, while Imelda,
Manuel‘s wife, was Maria Fe‘s friend and former classmate. Conformably with current jurisprudence, the heirs of Ronito Enero
are entitled to moral damages in the amount ofP50,000 and
Manuel and Jose Baylosis arrived in Cebu City and stayed in the exemplary damages in the amount of P25,000. Under Article 105
house of Joel Colejara in Pardo. Manuel and Jose went to the of the Revised Penal Code, the appellants are obliged to return
market and met Maria Fe. The latter informed Manuel where she to Maria Fe the pieces of jewelry they stole from her and to the
and Ronito lived. Since then, Manuel and Jose had been to the heirs of Ronito the wristwatch and ring the appellants took from
house of the couple and Manuel was able to borrow money Ronito, whenever possible, with allowance for any deterioration
from them in the amount of P800. or diminution of value as determined by the trial court. Under
Article 106 of the Revised Penal Code, if the appellants can no
Maria Fe was at the public market when she was asked by longer return the articles, they are obliged to make reparation
for the price of the pieces of jewelry if they can no longer return That is for express condonation or remission.
the same taking into account the price and the special
sentimental value thereof to the victims.
Article 1271. The delivery of a private document
Under Article 1268 of the New Civil Code, the appellants are not evidencing a credit, made voluntarily by the
exempted from the payments of the price of the stolen articles creditor to the debtor, implies the renunciation of
even if the same are lost, whatever be the cause of the loss, the action which the former had against the latter.
unless the things having been offered to the owners thereof, the
former refused to receive the same without any valid cause.
If in order to nullify this waiver it should be claimed
Article 1269. The obligation having been to be inofficious, the debtor and his heirs may
extinguished by the loss of the thing, the creditor uphold it by proving that the delivery of the
document was made in virtue of payment of the
shall have all the rights of action which the debtor
debt. (1188)
may have against third persons by reason of the
loss. (1186)
Take note of Article 1271. It says ―private document.‖
What is a private document? A document which has not
been notarized; not acknowledged before a notary
If the obligation is extinguished by reason of the loss, the republic; does not form part if public records.
creditor shall have the rights of action.
When the private document is delivered to the debtor, it
Example: implies condonation. Why? Because supposedly the
possession of the, for example, promissory note should be
The thing to be delivered is insured, so obviously, the with the creditor. It is the proof of the creditor that the
creditor can recover the loss. In that case, the creditor debtor has a debt. The creditor will only give the
will not be left with nothing. He can recover from the promissory note back to the creditor when the debt has
insurance. already been paid.
He can exercise the rights of the debtor insofar as the If you are the debtor, you would also have to ask for the
insurance is concerned. He can avail of that. return of the promissory note to evidence that you have
already paid your debt.
That would be with respect to the loss.
The law says ―private‖ because if it is public, you can get
that from anywhere. You can go to the office of the
Article 1270. Condonation or remission is essentially notary republic and request for the copy of that
gratuitous, and requires the acceptance by the document; you can go to the clerk of court and you can
obligor. It may be made expressly or impliedly. go to the archives office. So, if you are the debtor, you
can just acquire it.
One and the other kind shall be subject to the rules
Article 1271 only applies if it is a private document.
which govern inofficious donations. Express
Because if there is possession on the part of the debtor of
condonation shall, furthermore, comply with the forms
that private document, the presumption is it came from
of donation. (1187)
the creditor; he got it from the creditor and not from
anywhere else.
Condonation or remission – kanang gapasaylo lang. It
may be implied or express. Implied condonation is As to the second paragraph:
discussed in the subsequent article. Express condonation
is kanag klaro gyud, in writing or verbally nagingon ka na Condonation, again, partakes of the nature of a
dili na nimo bayaran ang utang. donation which is essentially gratuitous.
When you say express condonation that should comply Under the Law on Succession, all donation made by the
with the rules on donation. In donation, if it is personal precedent (the one who died) during his lifetime shall be
property and the value does not exceed Php 5, 000 there collated. What do we mean by collated? Kanang i-
has to be acceptance (in all cases of donation, there is compute ug balik kay if you just allow a person to donate
acceptance) by the donee and simultaneous delivery on all his properties during his lifetime, chances are, mahurot
the part of the donor. If more than Php 5, 000 there has to na na iyang properties; walay mabilin sa iyahang mga
be a private document. compulsory heirs. Under the Law on Succession,
compulsory heirs are actually entitled to their legitimes.
When you say private document, the document is Legitime is the portion of the estate of one person that is
written. It doesn‘t matter if it is computerized or in long reserved for children and wives and they cannot be
hand or short hand but there has to be a written deprived of that. For example, for children, their legitime
document. is ½ of the estate and if there are two children and the
estate is Php 1 Million so ½ of that is Php 500, 000 so that
If it involves donation of real property, there has to be a Php 500, 000 is theirs. If they will split the Php 500, 000 they
public document. It has to be in a public document. The will have Php 250, 000 each. Minimum gyud na sa
acceptance and the donation must be in a public ilakahang madawat.
document otherwise the donation is void. Donation is
actually a formal contract so its validity depends on the Now, if their parent donated the property and then when
observance of the forms required by law. the parent died, all that was left was Php 200, 000. So,
their legitime was prejudiced because their legitime
should be Php 500, 000. So all the donations bawiun to
siya para makumpleto ang legitime sa compulsory heirs.
We said that condonation partakes of donation.
Example:
We are talking here of the accessory obligation of
The creditor condoned and condoned. The heirs now pledge.
said, ―Dapat Php 1 Million gud ang estate sa akong
father. Katong mga receivables na gipang-condone Example:
niya, donation to siya so dapat ibalik siya sa estate kay
nabilin nalang sa akoa is Php 200, 000. Kulang na and Gi-prenda nimo ang imohang singsing as a collateral for
legitime.‖ the obligation.
You are the debtor and the promissory note is in your If the ring is now found in the possession of the debtor, the
possession. Then, the heirs are collecting the note presumption is only the pledge is extinguished, not the
because according to them, the donation is inofficious loan.
(prejudices the legitimes of the compulsory heirs) so
dapat ibalik. Under Article 1271 to Article 1274 we only have
presumptions. These are disputable presumptions. You
Here, the debtor can actually say ―No, I have in my can present proof that it is not true that there is
possession the promissory note not because of renunciation. That the debtor only stole that document
condonation but because I paid the note.‖ When you which is why it is with him or the creditor can say that he
say ―I paid,‖ it means that it is not subject to collation misplaced it or lost it. Those are proofs which can be
because the debt has already been paid so it‘s not really presented to prove that there was really no renunciation.
condonation.
The debtor can prove that it‘s not really condonation Article 1275. The obligation is extinguished from the
that is the reason that the note was given to him by the time the characters of creditor and debtor are
creditor but it‘s really because of payment.
merged in the same person. (1192a)
That is Article 1271.
I think I already explained to you before.
Confusion: the persons of debtor and creditor are

Article 1272. Whenever the private document in merged in one and the same person.
which the debt appears is found in the possession of
the debtor, it shall be presumed that the creditor Example:
delivered it voluntarily, unless the contrary is proved.
A borrowed Php 10, 000 from B. As a commitment that he
(1189)
will pay, A executed a promissory note for Php 10, 000 in
favor of B. ―I promise to pay B 30 days from today Php 10,
000.‖ So after 30 days, B will collect the Php 10, 000 from
So, Article 1272 is just actually a condonation. When the A.
document in found in the possession of the debtor, the
presumption is it was voluntarily delivered by the creditor. B went to C and borrowed Php 10, 000. He negotiated
When, under Article 1271, it was voluntarily delivered by the promissory note of A. Under the law on Negotiable
the creditor, the debt has already been renounced. Instruments, promissory notes payable to bearer or order
can be negotiated. This means that C will give B Pho 10,
000 then the promissory note that B negotiated to C; C
will be the one to go directly to A for collection.
C also negotiated later on the note to D because he

needed money. And D eventually negotiated the note to
A. In that case, when the debt matures, is there still an
Article 1273. The renunciation of the principal debt obligation? It‘s already extinguished by confusion or
shall extinguish the accessory obligations; but the merger. The persons of the debtor and creditor are
already merged in the same person. Kay alangan naman
waiver of the latter shall leave the former in force.
si A mucollect siya sa iyahang kaugalingon.
(1190)
A is both the issuer of the promissory note and at the
BASIC PRINCIPLE: The extinguishment of the principal same time, the holder. He is both the creditor and the
carries with it the extinguishment of the accessories. debtor at the same time. In that case, the obligation is
extinguished.
If the principal is extinguished by enunciation, it carries
with it the accessory. But if the accessory (like guaranty,
pledge or mortgage) is what is condoned, the principal Article 1276. Merger which takes place in the person
obligation still stands. of the principal debtor or creditor benefits the
guarantors. Confusion which takes place in the
Article 1274. It is presumed that the accessory person of any of the latter does not extinguish the
obligation of pledge has been remitted when the obligation. (1193)
thing pledged, after its delivery to the creditor, is
found
Revelen in and
Solis theMizzy
possession of the debtor, or of a third
person who owns the thing. (1191a)
A owes B Php 10, 000. B owes A Php 10, 000 so offsetting.
Murag quits nalang. By operation of law, there is
Example: extinguishment.
A borrowed Php 10, 000 from B. G is the guarantor. A is You have to learn the principles of compensation.
the principal debtor. The purpose of the guarantor is that
if A cannot pay, B can go to G for collection. Assuming B CASE: FRANCIA vs IAC
borrowed Php 10, 000 from C and endorsed the note
coming from A. Then C borrowed from D and endorsed Remember here, the government has an obligation for
the note to D. What happens here is D will go to A to just compensation but the taxpayer also has obligation
collect. But D borrowed from A Php 10, 000 endorsing the for taxes. Insofar as the obligation for taxes is concerned,
same note. that cannot be offset with the obligation of the
government because they do not have the relationship
In this case, there is now confusion because A is now the of debtor and creditor. With respect to the taxes, taxes
debtor and at the same time, the creditor. He cannot go are the lifeblood of the government so they really have
against himself for collection. In this case, the principal to be paid regardless of whatever claim you have unless
obligation is extinguished, as well as the guaranty. your claim is for refund of taxes. Your obligation to pay
taxes does not arise from any contractual obligation. It is
Example: an obligation imposed by the State as a taxpayer.
D instead borrowed from G Php 10, 000 and endorsed This is a very basic principle. Taxes cannot be offset
the same promissory note. Is the obligation extinguished? against your receivables from the government unless you
have claim for the same kind of tax like na-overpayment
No, because G is not the principal debtor. He is just the ka or na-overassess ka. So next year, pwede na nimo siya
guarantor. It would not extinguish the obligation of A. But ipa-refund. Ana lang but other than that dili pwede.
as the guaranty itself, it is extinguished. Why? Because G
is now the creditor. If A cannot pay, can G go against FRANCIA vs IAC
himself for collection? No, so in that case, there is merger.
The accessory of the obligation of guaranty is FACTS: Engracio Francia is the registered owner of a residential
extinguished but the principal obligation still stands. lot and a two-story house built upon it. A 125 square meter
portion of Francia's property was expropriated by the Republic
of the Philippines for the sum of P4,116.00 representing the
That is the meaning of Article 1276.
estimated amount equivalent to the assessed value of the
aforesaid portion.
Of course, when there is a merger of the person of the
principal debtor then the guaranty is also extinguished. Since 1963 up to 1977 inclusive, Francia failed to pay his real
But if the guaranty is extinguished because of that case, estate taxes. Thus, his property was sold at public auction in
the principal obligation still remains. order to satisfy a tax delinquency of P2,400.00. Ho Fernandez
was the highest bidder for the property.
Francia filed a complaint to annul the auction sale.

Article 1277. Confusion does not extinguish a joint
obligation except as regards the share The trial court dismissed the complaint and the Intermediate
corresponding to the creditor or debtor in whom the Appellate Court affirmed the decision of the lower court in toto.
two characters concur. (1194) Hence, this petition for review.
ISSUE: WON Francia‘s obligation to pay P2,400.00 for supposed

tax delinquency was set-off by the amount of P4,116.00 which
We already know what is the nature of a joint obligation. the government is indebted to the former.
Example:
RULING: Francia contends that his tax delinquency of P2,400.00
has been extinguished by legal compensation. He claims that
A and X are joint debtors so they issued the promissory
the government owed him P4,116.00 when a portion of his land
note and then later on it was endorsed and then was expropriated on October 15, 1977. Hence, his tax obligation
endorsed again and then endorsed again. B endorsed had been set-off by operation of law as of October 15, 1977.
the note to A because he borrowed Php 10, 000 from A.
Is the obligation extinguished? Only half; that which only There is no legal basis for the contention. By legal compensation,
pertains to A. Ang kay X na-a lang gihapon because in a obligations of persons, who in their own right are reciprocally
joint obligation the obligation of each debtor is different debtors and creditors of each other, are extinguished (Art. 1278,
from the others. Civil Code). The circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit:
Article 1278. Compensation shall take place when

(1) that each one of the obligors be bound principally
two persons, in their own right, are creditors and and that he be at the same time a principal creditor of
debtors of each other. (1195) the other;
xxx xxx xxx

In that case, the obligation is also extinguished.
Example: (3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have
consistently ruled that 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.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), These are the requisites for legal compensation. All of
this Court ruled that Internal Revenue Taxes can not be the these requisites must be present for legal compensation
subject of set-off or compensation. We stated that:
to take place.
A claim for taxes is not such a debt, demand, contract When you say legal compensation, by operation of law,
or judgment as is allowed to be set-off under the the obligation is extinguished even if the parties are not
statutes of set-off, which are construed uniformly, in the
aware of that.
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
Remember the requisites.
taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or (1) That each one of the obligors be bound
transaction sued on. "The general rule based on principally, and that he be at the same time a
grounds of public policy is well-settled that no set-off principal creditor of the other;
admissible against demands for taxes levied for general
or local governmental purposes. The reason on which
the general rule is based, is that taxes are not in the This is also explained in the case of FRANCIA vs IAC.
nature of contracts between the party and party but
grow out of duty to, and are the positive acts of the
government to the making and enforcing of which, the
personal consent of individual taxpayers is not required.
..." (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
We stated that a taxpayer cannot refuse to pay his tax when
called upon by the collector because he has a claim against
latter has been stated;
the governmental body not included in the tax levy.
The same obligation: money or if the things are
consumable like rice.
Example:
Like rice. One sack of NFA rice. Na-a pud siyay tang sa
imoha na one sack of rice. Dapat NFA pud para pwede
ang compensation. They be of the same kind and of the
same quality (if it is not money).
If it is money, you can always offset the value.
(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
Article 1279. In order that compensation may be Example:

proper, it is necessary:
A owes B Php 10, 000. B owes A 10, 000. Legally, there can
be legal compensation.
(1) That each one of the obligors be bound
principally, and that he be at the same time a Dili pasabot na dapat parehas sila kadako ug utang.
principal creditor of the other; Pwede na and utang ni B kay A is Php 20, 000. So naay
compensation only to the extent of the concurrent
(2) That both debts consist in a sum of money, amount. So ang na-a nabilin diri is Php 10, 000. Na-a pay
or if the things due are consumable, they be utang na Php 10, 000 si B kay A. Pero wala nay utang si A
of the same kind, and also of the same quality na Php 10, 000 kay na-offset na.
if the latter has been stated;
Example:
A owes B Php 10, 000 and B owes A Php 20, 000. As I said,
there can still be compensation except if for example, in
(4) That they be liquidated and demandable; this case, X is a third person who has a receivable from A
(5)and
Revelen Solis That over
Mizzy neither
Mareé of them there be any
retention or controversy, commenced by third
persons and communicated in due time to
the debtor. (1196)
for Php 20, 000. X filed a case for collection against A and Unisphere in the amount of P12,295.00.
secured a writ of preliminary attachment against all
receivables of A. Apil diri si B. Nakadawat ug order si B Hence, the instant petition for review interposed by petitioners
saying na i-hold sa nimo ang pagbayad kay A kay si a E.G.V. Realty and CCC challenging the decision of the Court of
Appeals.
na-ay kaso. Kung makadaog tong nagkaso kay A, didto
nimo ibayad ang Php 20, 000 kay X. ISSUE: whether or not set-off or compensation has taken place in
the instant case.
In this case, because there is retention or controversy,
there can be no compensation. RULING: It is petitioners' assertion that the ruling of the Court of
Appeals to offset the alleged losses as a result of the robberies in
“Communicated in due time to the debtor.” Dapat the amount of P12,295.00 from the unpaid monthly dues of
before the requisites for compensation occurred. Like if P13,142.67 is unfounded because respondent Unisphere is not
the debt is not yet due and he was already notified that the owner of the goods lost but a third party, Amtrade.
he should pay to X. In that case, compensation can no Respondent Unisphere, on its part, claims that this issue is factual,
hence, not a proper issue to raise before this Court.
longer take place between B and A.
We quote pertinent portions of the assailed decision:
CASE: EGV REALTY DEVELOPMENT CORPORATION vs CA
You cannot offset a debt and a claim. For a claim to be Compensation or offset under the New Civil Code
takes place only when two persons or entities in their
elevated to the status of a debt it has to be
own rights, are creditors and debtors of each other.
acknowledged by the one against whom the claim was (Art. 1278). . . .
made or it has to be passed upon by the court. In that
case, there can be no compensation.
A distinction must be made between a debt and a
mere claim. A debt is an amount actually ascertained.
EGV REALTY DEVELOPMENT CORPORATION vs CA
It is a claim which has been formally passed upon by
the courts or quasi-judicial bodies to which it can in law
FACTS: Petitioner E.G.V. Realty Development Corporation is the
be submitted and has been declared to be a debt. A
owner/develops of a seven-storey condominium building known
claim, on the other hand, is a debt in embryo. It is mere
as Cristina Condominium. Cristina Condominium Corporation
evidence of a debt and must pass thru the process
(CCC) holds title to all common areas of Cristina Condominium
prescribed by law before it develops into what is
and is in charge of managing, maintaining and administering
properly called a debt.
the condominium's common areas and providing for the
building's security.
Absent, however, any such categorical admission by
Respondent Unisphere International, Inc. is the owner/occupant an obligor or final adjudication, no compensation or
of Unit 301 of said condominium. Respondent Unisphere's Unit off-set can take place. Unless admitted by a debtor
301 was allegedly robbed of various items valued at P6,165.00. himself, the conclusion that he is in truth indebted to
The incident was reported to petitioner CCC. Another robbery another cannot be definitely and finally pronounced,
allegedly occurred at Unit 301 where the items carted away no matter how convinced he may be from the
were valued at P6,130.00, bringing the total value of items lost to examination of the pertinent records of the validity of
P12,295.00. This incident was likewise reported to petitioner CCC. that conclusion the indebtedness must be one that is
admitted by the alleged debtor or pronounced by final
judgment of a competent court or in this case by the
Respondent Unisphere demanded compensation and Commission.
reimbursement from petitioner CCC for the losses incurred as a
result of the robbery.1âwphi1.nêt
There can be no doubt that Unisphere is indebted to
the Corporation for its unpaid monthly dues in the
Petitioner CCC denied any liability for the losses claimed to have
amount of P13,142,67. This is admitted. But whether the
been incurred by respondent Unisphere, stating that the goods
Corporation is indebted to Unisphere is vigorously
lost belonged to Amtrade, a third party. As a consequence of
disputed by the former.
the denial, respondent Unisphere withheld payment of its
monthly dues starting November 1982.
It appears quite clear that the offsetting of debts does
not extend to unliquidated, disputed claims arising from
Petitioners E.G.V. Realty and CCC jointly filed a petition with the
tort or breach of contract.
Securities and Exchange Commission (SEC) for the collection of
the unpaid monthly dues in the amount of P13,142.67 against
respondent Unisphere. Since it has been determined and proven by the
evidence presented before the hearing office of
respondent SEC that Unisphere indeed suffered losses
Respondent Unisphere alleged that it could not be deemed in
because of the robbery incidents and since it
default in the payment of said unpaid dues because its tardiness
(Unisphere) did not refute its liability to the corporation
was occasioned by the petitioners' failure to comply with what
for the unpaid monthly dues in the amount of
was incumbent upon them, that is, to provide security for the
P13,142.67, this amount should be set-off against the
building premises in order to prevent, if not to stop, the robberies
aforestated losses of Unisphere.
taking place therein. It asserted as counterclaim that the
amount of P12,295.00 representing the total value of its loss due
to the two robberies be awarded to it by way of damages for We fully agree with the appellate court's dissertation on the
the latter's failure to secure the premises. nature and character of a set-off or compensation. However,
we cannot subscribe to its conclusion that a set-off or
compensation took place in this case.
The SEC rendered a decision in favor of petitioner and ordered
private respondent to pay petitioner the sum of P13,142.67.
In Article 1278 of the Civil Code, compensation is said to take
The CA reversed the decision of the SEC and ordered that the place when two persons, in their own right, are creditors and
amount of P13,142.67, the unpaid monthly dues of Unisphere to debtors of each other. Compensation is "a mode of
the Corporation should be offset by the losses suffered by the extinguishing to the concurrent amount, the obligations of those
persons who in their own right are reciprocally debtors and
creditors of each other" and "the offsetting of two obligations
which are reciprocally extinguished if they are of equal value, or It doesn‘t have to be the same amount. There can be
extinguished to the concurrent amount if of different compensation up to the concurrent amount.
values." Article 1279 of the same Code provides:
Art. 1279. In order that compensation may be proper, it

is necessary: Article 1282. The parties may agree upon the
compensation of debts which are not yet due. (n)
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the other; So, even if the right of requisites say that both debts are
due and demandable, there can be a voluntary or
(2) That both debts consist in a sum of money, or if the conventional compensation; compensation which is
things due are consumable, they be of the same kind, agreed upon by the parties. Legal compensation takes
and also of the same quality if the latter has been place operation of law.
stated;
(4) That they be liquidated and demandable; Article 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other,
(5) That over neither of them there be any retention or the former may set it off by proving his right to said
controversy, commenced by third persons and
communicated in due time to the debtor. damages and the amount thereof. (n)
Absent any showing that all of these requisites exist, Article 1283 talks of judicial compensation or counter-
compensation may not take place. claim.
While respondent Unisphere does not deny its liability for its A filed a case against B claiming for damages kay si B
unpaid dues to petitioners, the latter do not admit any nagchismis daw na naay kabit si A. B answered that ―dili
responsibility for the loss suffered by the former occasioned by na tinuod. Actually, ikaw ang nagshicmiss na ako ang
the burglary. At best, what respondent Unisphere has against
naay kabit so magfile pud ko sa imoha ug damages.”
petitioners is just a claim, not a debt. Such being the case, it is
not enforceable in court. It is only the debts that are enforceable
in court, there being no apparent defenses inherent in them. So, that is a counter-claim. For that to be given affect,
Respondent Unisphere's claim for its loss has not been passed they have to present evidence. They have to allege their
upon by any legal authority so as to elevate it to the level of a counter-claim and they must present evidence and the
debt. court should order whether or not it is due. It is the court
which orders the compensation or offsetting. That is
Tested by the foregoing yardstick, it has not been sufficiently judicial compensation.
established that compensation or set-off is proper here as there is
lack of evidence to show that petitioners E.G.V. Realty and CCC
and respondent Unisphere are mutually debtors and creditors to
each other. Article 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)
Article 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up
When you say ―rescissible‖ or ―voidable,‖ these contracts
compensation as regards what the creditor may owe are valid until rescinded or annulled. So, in the meantime
the principal debtor. (1197) that they have not yet rescinded or voided or annulled,
there can be compensation.
Example: The compensation would now the subsequent annulment

or rescission because when there is compensation, the
A owes B Php 10, 000 and G is the guarantor. B owes A debt is already extinguished.
Php 20, 000 so there is compensation. B went to G for
collection because A did not pay. G, the guarantor, can
raise that there is already compensation between A and Article 1285. The debtor who has consented to the
B because B owes him Php 20, 000 and A owes you Php assignment of rights made by a creditor in favor of
10, 000 so in this case, there is compensation of Php 10, a third person, cannot set up against the assignee
000 and ikaw pa ang na-ay utang kay a na Php 10, 000. the compensation which would pertain to him
against the assignor, unless the assignor was
The guarantor can set up the compensation. That‘s the notified by the debtor at the time he gave his
meaning of Article 1280. Even if the guarantor is not the consent, that he reserved his right to the
principal debtor, he can still set up compensation. compensation.
If the creditor communicated the cession to him

Article 1281. Compensation may be total or partial. but the debtor did not consent thereto, the latter
When the two debts are of the same amount, there is a may set up the compensation of debts previous to
total compensation. (n) 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)
after the assignment, B can no longer invoke the
compensation.
3rd situation:
If the assignment is made without the knowledge of the

debtor, what is the consequence? He may still set up
compensation until he has obtained knowledge.
There are three situations contemplated under Article
1285: If the assignment happened on May 1 but he learned of
the assignment on May 16, he can avail of the
1st situation: compensation for all debts which matured prior to his
knowledge of the assignment.
A owes B several debts: B also owes A:
Actually, in that case, he can invoke compensation for all
Php 10, 000 due on Php 5, 000 due on debts even if the assignment happened to May 1 and
January 1 January 15 there is still 1 debt that hadn‘t matured, but he learned of
the assignment on May 16 already so he can still invoke
Php 20, 000 due on Php 10, 000 due on compensation for all debts which matured prior to his
February 14 February 28 knowledge.
Php 30, 000 due on Php 10, 000 due on Remember the distinction:
May 1 May 15
In the 2nd situation, he can invoke compensation for those
debts which matured prior to the assignment.
By May 20, all the obligations are due and demandable. In the 3rd situation, if the assignment is without the
So supposedly, by operation of law, there is offsetting to knowledge of the debtor, he may invoke compensation
the concurrent amounts. Php 35, 000 nalang ang utang for all debts which matured prior to his knowledge of the
ni A kay B. assignment.
For example, May 20, A told B that he will assign the debts Remember Article 1285.
of B to X. When you say assign, X will be the one to collect
from B. Under the law, B can refuse because there has
already been compensation and by virtue of the
compensation, the obligations are already extinguished
so there is nothing more to assign.
B can refuse but he agreed so he waived his right to the

assignment. He cannot later on, when X will collect,
allege that gamay nalang akong utang kay na-
compensate naman siya.
That is the first situation. Kung nisugot si debtor na i-assign

ang mga receivables, he waives the right to the
compensation because he could have refused in the first
place.
Unless he reserved his right to the compensation. B can

say ―Okay, A. I agree to the assignment to your
receivable from me to X but I reserve my right to invoke
the compensation when X collects from me.‖
If he did not reserve, he can no longer invoke because

he is deemed to have waived his rights to the
compensation.
2nd situation:
If the creditor communicated the cession (cession means

assignment) but the debtor did not consent.
B did not give his consent to A‘s assignment of

receivables from him to X. What is the effect of that? He
can still set up compensation only to those debts which
matured prior to the assignment.
If the assignment happened on May 1, all the obligations

that matured prior to May 1, B can still avail of the
compensation. But to those obligations that matured
Article 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)
So, kung daghang utang, asa unahon pag-extinguish, we
will apply the rule on application of payments.
As I said, we are talking here of legal compensation. It
takes effect by operation of law even if the parties do not Take note, in Article 1287 to Article 1289, it‘s only the
have knowledge of it. depositary, the bailee, the person who is obliged to give
support and the criminal who is obliged to return who are
the people who cannot set up compensation.
Article 1287. Compensation shall not be proper when
one of the debts arises from a depositum or from the But the other party (like the depositary or the person
obligations of a depositary or of a bailee in entitled to support) can invoke compensation because
commodatum. they are the ones who gave their trust and confidence.
That‘s facultative compensation.
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 Article 1290. When all the requisites mentioned in
paragraph 2 of article 301. (1200a)
article 1279 are present, compensation takes
effect by operation of law, and extinguishes both
Example: debts to the concurrent amount, even though the
A owes B Php 10, 000. This is a contract of loan. And then creditors and debtors are not aware of the
A deposited to B his ring worth Php 10, 000. This is a compensation. (1202a)
contract of deposit.
This is the effect of legal compensation. When all the
In the contract of loan, A has the obligation to pay. requisites are present, by operation of law, there is
compensation. Although again, this can be waived by
In the contract of Deposit, it is B who has the obligation to the debtor. If he agrees to the assignment of the credit,
retune the ring. this can be waived unless he reserves his right to the
compensation.
A was not able to pay his debt to B. Can B refuse to
return the ring to A alleging compensation? No, because
a Contract of Deposit is founded on trust and
Article 1291. Obligations may be modified by:
confidence. You would be violating the trust and
confidence reposed to you by the depositary if you just
refuse to return the thing deposited on the ground that (1) Changing their object or principal
the depositor owes the depositary an amount. conditions;
That‘s the essence in Contract of Deposit and in Bailee (2) Substituting the person of the debtor;
and Commodatum.
(3) Subrogating a third person in the rights
Also, in claims for support because support is for the
of the creditor. (1203)
subsistence of the person. So, mamatay nalang siya kay
dili nimo tagaan ug support kay na-a siyay utang sa
imoha. It‘s not allowed.
Remember Article 1291. These are the modes of
novation.
Article 1288. Neither shall there be compensation if (1) Changing their object or principal conditions;
one of the debts consists in civil liability arising from
a penal offense. (n) This is objective or real novation.
(2) Substituting the person of the debtor;

In all cases, the convicted person should really return the
subject matter of the crime. Except if there is default in (3) Subrogating a third person in the rights of the
the part of the creditor, mora accipiendi, and the thing is creditor.
lost by reason of a fortuitous event.
This is subjective or personal navation.
This will also extinguish the obligation.
Article 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
Article 1289. If a person should have against him
terms, or that the old and the new obligations be on
several debts which are susceptible of
every point incompatible with each other. (1204)
compensation, the rules on the application of
Revelen Solis and shall
payments Mizzy Mareé
applyMartinez
to the order of the TAU MU Page 166 of 262
compensation. (1201)
Circular No. 905, series of 1982. Respondent also sought payment
of ten per cent (10%) of the amount due as attorney's fees.
Basically, in novation, there is an existing obligation and The trial court ordered petitioner spouses to pay respondent
then it is extinguished by the new one. For the new corporation the sum of P140,515.11, with interest at the rate of
12% per annum.
obligation to extinguish the old one, they have to be
totally inconsistent with each other. They have to be The appellate court reversed the trial court by applying the
irreconcilable. They are incompatible with each other. interest rate of 21% per annum, and adding attorney's fees of
10%.
CASE: BAUTISTA vs PILAR DEVOLOPMENT CORPORATION
Without the presence of any one of these requisites, there RULING: Petitioners claim that the interest rate of 12% per
can be no novation. If there is no old valid obligation, annum should be adjudged inasmuch as the two promissory
there is nothing to novate. If the new obligation is not notes constitute one transaction. Allegedly, the first note defined
valid then the old obligation is also not novated. the terms and conditions of the loan while the second note is
merely an extension of and derives its existence from the former.
Hence, the second note is governed by the stipulations in the first
Aside from the fact that there was express novation and
note.
assuming there was none, the first note and the second
note are really incompatible with each other. The The two promissory notes are identically entitled "Promissory Note
principal and the interest in the first promissory note were with Authority to Assign Credit." The notes were prepared by
made as the new principal in the second note. The Apex in standard form and consist of two (2) pages each.
interest rate was made higher, The new payment period Except for one or two stipulations, they contain the same
was also changed. The monthly payment was made also provisions and the same blanks for the amount of the loan and
higher. You cannot really reconcile the first promissory other pertinent data subject of each note. However, on the
upper right portion of the second note, there appears a
note and the second promissory note. Everything has
typewritten entry which reads:
been changed.
This cancels PN # A-387-78 dated December 22, 1978.
There is really novation in this case. The old note is
extinguished by the new promissory note. Correspondingly, on the face of each page of the first
promissory note, i.e., PN No. A-387-78 dated December 22, 1978,
BAUTISTA vs PILAR DEVOLOPMENT CORPORATION the word "Cancelled" is boldly stamped twice with the date
"September 16, 1982" and a signature written in a space inside
FACTS: Petitioner spouses Florante and Laarni Bautista purchased the letters of the word.
a house and lot in Pilar Village, Las Pinas, Metro Manila. To
partially finance the purchase, they obtained from the Apex The first promissory note was cancelled by the express terms of
Mortgage & Loan Corporation (Apex) a loan in the amount of the second promissory note. To cancel is to strike out, to revoke,
P100,180.00. They executed a promissory note obligating rescind or abandon, to terminate. In fine, the first note was
themselves, jointly and severally, to pay the "principal sum of revoked and terminated. Simply put, it was novated. The
P100,180.00 with interest rate of 12% and service charge of 3%" extinguishment of an obligation by the substitution or change of
for a period of 240 months, or twenty years, from date, in the obligation by a subsequent one which extinguishes or
monthly installments of P1,378.83. modifies the first is a novation.
Late payments were to be charged a penalty of one and one- Novation is made either by changing the object or principal
half per cent (1 1/2%) of the amount due. In the same promissory conditions, referred to as an objective or real novation; or by
note, petitioners authorized Apex to "increase the rate of interest substituting the person of the debtor or subrogating a third
and/or service charges" without notice to them in the event that person to the rights of the creditor, which is known as subjective
a law, Presidential Decree or any Central Bank regulation should or personal novation. In both objective and subjective novation,
be enacted increasing the lawful rate of interest and service a dual purpose is achieved — an obligation is extinguished and
charges on the loan. Payment of the promissory note was a new one is created in lieu thereof.
secured by a second mortgage on the house and lot purchased
by petitioners. Novation may either be express, when the new obligation
declares in unequivocal terms that the old obligation is
Petitioner spouses failed to pay several installments. extinguished; or implied, when the new obligation is on every
point incompatible with the old one. Express novation takes
They executed another promissory note in favor of Apex. This place when the contracting parties expressly disclose that their
note was in the amount of P142,326.43 at the increased interest object in making the new contract is to extinguish the old
rate of twenty-one per cent (21%) per annum with no provision contract, otherwise the old contract remains in force and the
for service charge but with penalty charge of 1 1/2% for late new contract is merely added to it, and each gives rise to an
payments. Payment was to be made for a period of 196 months obligation still in force.
or 16.33 years in monthly installments of P2,526.68, inclusive of
principal and interest. Petitioner spouses also authorized Apex to Novation has four (4) essential requisites:
"increase/decrease the rate of interest and/or service charges"
on the note in the event any law or Central Bank regulation shall (1) the existence of a previous valid obligation;
be passed increasing or decreasing the same. (2) the agreement of all parties to the new contract;
(3) the extinguishment of the old contract; and
Petitioner spouses again failed to pay the installments. Apex (4) the validity of the new one.
assigned the second promissory note to respondent Pilar
Development Corporation without notice to petitioners. In the instant case, all four requisites have been complied with.
The first promissory note was a valid and subsisting contract
Respondent corporation, as successor-in-interest of Apex, when petitioner spouses and Apex executed the second
instituted against petitioner spouses a civil suit. Respondent promissory note. The second promissory note absorbed the
corporation sought to collect from petitioners the amount of unpaid principal and interest of P142,326.43 in the first note
P140,515.11 representing the unpaid balance of the principal which amount became the principal debt therein, payable at a
debt from November 23, 1983, including interest at the rate of higher interest rate of 21% per annum. Thus, the terms of the
twenty-one per cent (21%) under the second promissory note, second promissory note provided for a higher principal, a higher
and 25% and 36% per annum in accordance with Central Bank interest rate, and a higher monthly amortization, all to be paid
within a shorter period of 16.33 years. that on the basis of the deed, it made additional substantial
advances on the purchase price and even expended certain
These changes are substantial and constitute the principal amounts to satisfy the judgment debt of Antonio; that the heirs
conditions of the obligation. Both parties voluntarily accepted of Antonio refused to execute the formal deed of sale.
the terms of the second note; and also in the same note, they
unequivocally stipulated to extinguish the first note. Clearly, there The RTC decided in favor of Titan. The trial court upheld the
was animus novandi, an express intention to novate. The first validity of both the Deed of Sale of Real Estate and the Deed of
promissory note was cancelled and replaced by the second Conditional Sale. It held that there was no basis to rescind the
note. This second note became the new contract governing the contracts since petitioners had not proven that Titan had failed
parties' obligations. to comply with its undertaking under them.
The RTC modified the decision by specifying that in view of the

CASE: BERNABE vs CA compromise agreements entered into by Titan and defendants
Patricio and Cecilia, the Decision should be rendered against
In a Conditional Sale, even if there is delivery, there is yet the heirs of Antonio. Accordingly, said heirs were ordered to
execute a registrable Deed of Absolute Sale over the one-third
no transfer of ownership. There is a condition. The transfer
(1/3) share of Antonio in the property pursuant to the Deed of
of ownership is subordinated to the fulfillment of a Conditional Sale, upon Titan‘s payment to them of the amount
condition. In a Deed of Absolute Sale, there is usually a of P3,431,058.42 representing the balance of the purchase price.
transfer of ownership even if it is not yet fully paid.
The Court of Appeals affirmed the RTC decision in toto.
You cannot reconcile the two contracts. Either it‘s the
conditional sale or the absolute sale. Because there was Petitioners argue that the import of the stipulations in the Deed
the subsequent contract of Conditional Sale, then the of Sale of Real Estate—which was not signed by Titan‘s
subsequent contract is valid and it cannot be reconciled representative or by two of the four alleged vendors, and which
was neither notarized nor registered and hence defective—is
with the first contract so logically, the first contract was
that full payment of the purchase price must be made before
superseded or novated by the second contract. ownership of the properties passes to Titan. The Deed of
Conditional Sale, which necessarily superseded and nullified
BERNABE vs CA the Deed of Sale of Real Estate, expressed this intent more
clearly when it stated that "upon full payment of the purchase
FACTS: This case stemmed from a Complaint for specific price, Vendor shall execute the necessary Deed of Absolute Sale
performance filed by respondent Titan Construction Corporation in favor of Vendee transferring and conveying all his undivided
against petitioners‘ predecessor-in-interest, Antonio F. Bernabe, shares in the x x x properties."
and his siblings Patricio F. Bernabe, Jose F. Bernabe and Cecilia
Bernabe Perez (the defendants), who are co-owners of an Titan dismisses petitioners‘ claim that the Deed of Sale of Real
undivided one-half (½) share in two (2) parcels of land. Estate was superseded and nullified by the subsequent Deed of
Conditional Sale, arguing that neither of these documents
In an undated Deed of Sale of Real Estate entered into by Titan exclusively controls and determines the agreement between the
and the defendants, the latter sold their one-half (½) share in the parties. Instead, it relies on the declaration of the Court of
properties to Titan for P17,700,00.00. Appeals that there was a perfected contract of sale of real
estate evidenced by the Deed of Sale of Real Estate.
Titan prayed for judgment ordering defendants to comply with
their obligations under the contract and to pay damages, RULING: The document that spells out the nature of the
alleging that it had already paid a substantial portion of the transaction of the parties is the Deed of Conditional Sale.
down payment and was still waiting for the defendants‘ Stemming from the compromise agreement entered into by
compliance with their undertaking which they had failed to Titan and petitioners, the Deed of Conditional Sale has
perform despite repeated reminders. superseded the Deed of Sale of Real Estate which is the original
contract. The whole essence of a compromise is that by making
Titan received a letter from the defendants‘ counsel, Atty. reciprocal concessions, the parties avoid litigation or put an end
Samuel A. Arcamo, (Atty. Arcamo) canceling and revoking the to one already commenced. A compromise agreement can be
deed of sale allegedly in view of Titan‘s failure to comply with entered into without novating or supplanting existing contracts,
the terms of the deed. Insisting that it was the defendants who but in this case, the irreconcilable incompatibility between
had incurred in default, Titan also sought the award of damages. the Deed of Sale of Real Estate and the Deed of Conditional
Sale inevitably resulted in extinctive novation.
A compromise agreement was subsequently entered into by
Titan and the remaining defendants, whereby the latter agreed
to the sale of their one-half (½) share in the properties to Titan The first contract or the Deed of Sale of Real Estate embodies a
and waived whatever cause of action for damages they might perfected contract of sale. There is no stipulation in the said
have against each other. By virtue of the compromise deed that title to the properties would remain with defendants
agreement, similar Deeds of Conditional Sale were separately until full payment of the consideration, or that the right to
entered into by respondent Titan as vendee, and defendants unilaterally resolve the contract upon Titan‘s failure to pay within
Patricio, Cecilia, and Antonio, who is represented by his a fixed period is given to defendants. Patently, the contract
attorneys-in-fact, as vendors of their undivided shares in the two executed by the parties is a contract of sale and not a contract
properties. The three deeds were similarly worded and to sell.
contained the same terms and conditions and differed only as
to the amount of the purchase price. When the parties entered into a compromise, they executed
new contracts involving the shares of Patricio, Cecilia and
Later, defendant Antonio died and left herein petitioners — his Antonio in the properties. These new contracts are the three
surviving spouse Evelyn Cruz and her children, Jose III, Shirley deeds of conditional sale entered into by Titan with Patricio,
Ann, Gregory and Michael — as his heirs. Cecilia and Antonio, the last represented by his attorneys-in-fact.
These contracts, all entitled Deed of Conditional Sale, are
Titan subsequently filed a supplemental complaint alleging that contracts to sell.
Antonio had already received a substantial portion of the down
payment for the sale of his share in the properties; that prior to his
The difference between contracts of sale and contracts to sell is
death, Antonio executed a SPA in favor of his two children, Jose
relevant. In a contract of sale, the title to the property passes to
III and Shirley Ann, empowering them to execute in his favor the
the vendee upon the delivery of the thing sold; in a contract to
Deed of Conditional Sale involving his share in the properties;
sell, ownership is, by agreement, reserved in the vendor and is
not to pass to the vendee until full payment of the purchase The RTC dismissed the case which decision was likewise affirmed
price. by the Court of Appeals.
Otherwise stated, in a contract of sale, the vendor loses ISSUE: whether there was a novation of the mortgage loan
contract between petitioners and BPI-FSB that would result in the
ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas in a extinguishment of petitioners‘ liability to the bank.
contract to sell, title is retained by the vendor until full payment
of the price. In the latter contract, payment of the price is a RULING: Novation is defined as the extinguishment of an
positive suspensive condition, failure of which is not a breach but obligation by the substitution or change of the obligation by a
an event that prevents the obligation of the vendor to convey subsequent one which terminates the first, either by changing
title from becoming effective. the object or principal conditions, or by substituting the person of
the debtor, or subrogating a third person in the rights of the
A careful reading of the stipulations in the Deed of Conditional creditor.
Sale conveys the intent of the parties to enter into a contract to
sell. The fourth paragraph of the contract explicitly states that Article 1292 of the Civil Code on novation further provides:
only when full payment of the purchase price is made shall
Antonio execute the deed of absolute sale transferring and
Article 1292. In order that an obligation may be extinguished by
conveying his shares in the subject properties. Clearly, the intent
another which substitutes the same, it is imperative that it be so
is to reserve ownership in the seller, Antonio, until the buyer, Titan,
declared in unequivocal terms, or that the old and the new
pays in full the purchase price. The full payment of the purchase
obligations be on every point incompatible with each other.
price does not automatically vest ownership in Titan. A deed of
absolute sale still has to be executed by Antonio.
The cancellation of the old obligation by the new one is a
necessary element of novation which may be effected either
As earlier noted, the Deed of Sale of Real Estate is substituted by
expressly or impliedly. While there is really no hard and fast rule to
the subsequent deeds of conditional sale. TheDeed of Sale of
determine what might constitute sufficient change resulting in
Real Estate and the deeds of conditional sale involve different
novation, the touchstone, however, is irreconcilable
parties and different amounts, and impose different obligations.
incompatibility between the old and the new obligations.
The original deed, on one hand, and the latter three, on the
other, are incompatible and cannot subsist all at the same time.
In Garcia, Jr. v. Court of Appeals, we held that:
CASE: REYES vs BPI In every novation there are four essential requisites:
There was a promissory note secured by mortgage and (1) a previous valid obligation;
subsequently, there was another note executed. It was (2) the agreement of all the parties to the new contract;
argued that because of the execution of the new note, (3) the extinguishment of the old contract; and
there was a novation and by reason of the novation, the (4) validity of the new one.
old obligation which was secured was already
extinguished. So now, the obligation is unsecured. Is that There must be consent of all the parties to the substitution,
correct? resulting in the extinction of the old obligation and the creation
of a valid new one. The acceptance of the promissory note by
The mortgage itself was intended to secure all other the plaintiff is not novation of the contract.
obligations subsequently acquired and what was the
change made here in the new promissory note? The legal doctrine is that an obligation to pay a sum of money is
not novated in a new instrument by changing the term of
Merely an extension was granted. It can still be payment and adding other obligations not incompatible with
reconciled with the old obligation. There is no the old one. It is not proper to consider an obligation novated as
incompatibility between the two so there is no novation. in the case at bar by the mere granting of extension of payment
which did not even alter its essence. To sustain novation
necessitates that the same be declared in unequivocal terms or
REYES vs BPI
that there is complete and substantial incompatibility between
the two obligations.
FACTS: The Reyes spouses executed a real estate mortgage on
their property in Iloilo City in favor of respondent BPI Family
Savings Bank, Inc. (BPI-FSB) to secure a P15,000,000 loan of An obligation to pay a sum of money is not novated in a new
Transbuilders Resources and Development Corporation instrument wherein the old is ratified by changing only the terms
(Transbuilders). of payment and adding other obligations not incompatible with
the old one or wherein the old contract is merely supplementing
When Transbuilders failed to pay its P15M loan within the the old one.
stipulated period of one year, the bank restructured the loan
through a promissory note executed by Transbuilders in its favor. Thus, the well-settled rule is that, with respect to obligations to
pay a sum of money, the obligation is not novated by an
Petitioners aver that they were not informed about the instrument that expressly recognizes the old, changes only the
restructuring of Transbuilders‘ loan. In fact, when they learned of terms of payment, adds other obligations not incompatible with
the new loan agreement, they wrote BPI-FSB requesting the the old ones, or the new contract merely supplements the old
cancellation of their mortgage and the return of their certificate one.
of title to the mortgaged property. They claimed that the new
loan novated the first loan agreement. Because the novation
was without their knowledge and consent, they were allegedly BPI-FSB and Transbuilders only extended the repayment term of
released from their obligation under the mortgage. the loan from one year to twenty quarterly installments at 18%
interest per annum. There was absolutely no intention by the
BPI-FSB, on the other hand, instituted extrajudicial foreclosure parties to supersede or abrogate the old loan contract secured
proceedings against petitioners in Iloilo City after Transbuilders by the real estate mortgage executed by petitioners in favor of
defaulted in its payments. Consequently, a sheriff‘s notice of sale BPI-FSB. In fact, the intention of the new agreement was
of petitioners‘ property at public auction was issued. precisely to revive the old obligation after the original period
expired and the loan remained unpaid. The novation of a
contract cannot be presumed. In the absence of an express de Jesus have failed and refused to pay it.
agreement, novation takes place only when the old and the
new obligations are incompatible on every point. Petitioner Garcia averred that he assumed no liability under the
promissory note because he signed it merely as an
accommodation party for de Jesus; and, alternatively, that he is
relieved from any liability arising from the note inasmuch as the
loan had been paid by de Jesus by means of a check; and that,
Article 1293. Novation which consists in substituting a in any event, the issuance of the check and respondent‘s
new debtor in the place of the original one, may be acceptance thereof novated or superseded the note.
made even without the knowledge or against the will Respondent asserted that the loan remained unpaid for the
of the latter, but not without the consent of the reason that the check issued by de Jesus bounced.
creditor. Payment by the new debtor gives him the
de Jesus asserted that out of the supposed P400,000.00 loan, he
rights mentioned in articles 1236 and 1237. (1205a)
received only P360,000.00, the P40,000.00 having been advance
interest thereon for two months. In fact, he paid the sum
of P120,000.00 by way of interests; that this payment was made
Novation of the Person of the Debtor when respondent‘s daughter, one Nits Llamas-Quijencio,
received from the Central Police District Command
There are actually 2 kinds. We have expromission and at Bicutan, Taguig, Metro Manila (where de Jesus worked), the
delegacion. sum of P40,000.00, representing the peso equivalent of his
accumulated leave credits, another P40,000.00 as advance
In expromission, it is without the consent of the debtor. interest, and still another P40,000.00 as interest.
The RTC rendered judgment in favor of respondent and against

In delegacion, the initiative comes from the debtor.
petitioner and de Jesus.
In all cases, there is an agreement or consent by the The appellate court ruled that no novation -- express or implied --
creditor. had taken place when respondent accepted the check from
De Jesus. According to the CA, the check was issued precisely
Here, if the novation is without the consent of the debtor to pay for the loan that was covered by the promissory note
(expromission), what will be the consequence? The same jointly and severally undertaken by petitioner and De Jesus.
effect as a third person who pays the debt of the debtor Respondent‘s acceptance of the check did not serve to make
without the knowledge or against the will of the debtor. De Jesus the sole debtor because, first, the obligation incurred
The person who pays is entitled to beneficial by him and petitioner was joint and several; and, second, the
check -- which had been intended to extinguish the obligation --
reimbursement only. That would be his rights. He cannot
bounced upon its presentment.
demand that he be subrogated to the rights of the
creditor. Hence, this Petition.
ISSUE: whether there was novation of the obligation

Payment by the new debtor gives him the rights
mentioned in Article 1236 and Article 1237 which we
discussed before. Beneficial reimbursement only. RULING: Novation is a mode of extinguishing an obligation by
changing its objects or principal obligations, by substituting a
new debtor in place of the old one, or by subrogating a third
CASE: GARCIA vs LLAMAS
person to the rights of the creditor. Article 1293 of the Civil Code
defines novation as follows:
It cannot be expromission because in expromission it
contemplates a third person who pays the debt of the
debtor. Here, he is a co-debtor so it cannot be ―Art. 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made
expromission.
even without the knowledge or against the will of the
latter, but not without the consent of the
This is not a case of novation because they are co- creditor. Payment by the new debtor gives him rights
debtors and under the law, anyone of them may pay. But mentioned in articles 1236 and 1237.‖
if the debt is not fully paid, the creditor may proceed
against one, some or all of them simultaneously until the In general, there are two modes of substituting the person of the
full obligation is collected. debtor: (1) expromision and (2) delegacion.
Here, he can still go against Garcia. Garcia cannot say In expromision, the initiative for the change does not come from
that there is novation. ―My obligation as a solidary debtor -- and may even be made without the knowledge of -- the
is already extinguished by the payment by de Jesus.‖ No, debtor, since it consists of a third person‘s assumption of the
obligation. As such, it logically requires the consent of the third
because in the first place, de Jesus is a co-debtor.
person and the creditor.
In delegacion, the debtor offers, and the creditor accepts, a

GARCIA vs LLAMAS third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are
FACTS: This case started out as a complaint for sum of money necessary. Both modes of substitution by the debtor require the
and damages by Respondent Dionisio Llamas against Petitioner consent of the creditor.
Romeo Garcia and Eduardo de Jesus. The complaint alleged
that petitioner and de Jesus borrowed P400,000.00 from Novation may also be extinctive or modificatory. It is extinctive
respondent and that, on the same day, they (petitioner and de when an old obligation is terminated by the creation of a new
Jesus) executed a promissory note wherein they bound one that takes the place of the former.
themselves jointly and severally to pay the loan on or before 23 It is merely modificatory when the old obligation subsists to the
January 1997 with a 5% interest per month. The loan has long extent that it remains compatible with the amendatory
been overdue and, despite repeated demands, petitioner and agreement.
Whether extinctive or modificatory, novation is made either by present respondent has done away with his right to exact
changing the object or the principal conditions, referred to as fulfillment from either of the solidary debtors.
objective or real novation; or by substituting the person of the
debtor or subrogating a third person to the rights of the creditor, More important, De Jesus was not a third person to the
an act known as subjective or personal novation. obligation. From the beginning, he was a joint
and solidary obligor of the P400,000 loan; thus, he can be
For novation to take place, the following requisites must concur: released from it only upon its extinguishment. Respondent‘s
acceptance of his check did not change the person of the
debtor, because a joint and solidary obligor is required to pay
1) There must be a previous valid obligation.
the entirety of the obligation.
2) The parties concerned must agree to a new
contract. It must be noted that in a solidary obligation, the creditor is
3) The old contract must be extinguished. entitled to demand the satisfaction of the whole obligation from
4) There must be a valid new contract. any or all of the debtors. It is up to the former to determine
against whom to enforce collection. Having made himself jointly
Novation may also be express or implied. It is express when the and severally liable with De Jesus, petitioner is therefore liable for
new obligation declares in unequivocal terms that the old the entire obligation.
obligation is extinguished.
It is implied when the new obligation is incompatible with the old

one on every point. The test of incompatibility is whether the two
obligations can stand together, each one with its own
independent existence.
Applying the foregoing to the instant case, we hold that

no novation took place.
The parties did not unequivocally declare that the old obligation
had been extinguished by the issuance and the acceptance of
the check, or that the check would take the place of the
note. There is no incompatibility between the promissory note
and the check. As the CA correctly observed, the check had
been issued precisely to answer for the obligation. On the one
hand, the note evidences the loan obligation; and on the other,
the check answers for it. Verily, the two can stand together.
Neither could the payment of interests -- which, in petitioner‘s

view, also constitutes novation -- change the terms and
conditions of the obligation. Such payment was already
provided for in the promissory note and, like the check, was
totally in accord with the terms thereof.
Also unmeritorious is petitioner‘s argument that the obligation

was novated by the substitution of debtors. In order to change
the person of the debtor, the old one must be expressly released
from the obligation, and the third person or new debtor must
assume the former‘s place in the relation. Well-settled is the rule
that novation is never presumed. Consequently, that which
arises from a purported change in the person of the debtor must
be clear and express. It is thus incumbent on petitioner to show
clearly and unequivocally that novation has indeed taken
place.
In the present case, petitioner has not shown that he was

expressly released from the obligation, that a third person was
substituted in his place, or that the joint and solidary obligation
was cancelled and substituted by the solitary undertaking of De
Jesus.
The CA aptly held:
―x x x. Plaintiff‘s acceptance of the bum check did not

result in substitution by de Jesus either, the nature of the
obligation being solidary due to the fact that the
promissory note expressly declared that the liability of
appellants thereunder is joint and solidary. Reason:
under the law, a creditor may demand payment or
performance from one of the solidary debtors or some
or all of them simultaneously, and payment made by
one of them extinguishes the obligation. It therefore
follows that in case the creditor fails to collect from one
of the solidary debtors, he may still proceed against the
other or others. x x x ‖
Moreover, it must be noted that for novation to be valid and

legal, the law requires that the creditor expressly consent to the
substitution of a new debtor. Since novation implies a waiver of
the right the creditor had before the novation, such waiver must
be express. It cannot be supposed, without clear proof, that the
CASE: REYES vs CA payments to the latter. In fact, Bermic paid AFP-MBAI P31,711.11
and a check of P1-million.
In that particular case, between Reyes and Eleazar,
Reyes was the creditor and Eleazar was the debtor. But At the time of the pendency of the cases filed by Elsa Reyes
against Graciela Eleazar, AFP-MBAI lodged a separate
Reyes also owed some amount to AFP-MBAI. The
complaint for estafa and a violation of BP 22 against Elsa Reyes.
agreement between Reyes and Eleazar was for Eleazar
to settle directly the loan of Reyes to AFP-MBAI.
Between August 1989 and September 1990, Eurotrust offered to
There is no novation in that particular scenario because sell to AFP-MBAI various marketable securities, including
government securities, such as but not limited to treasury notes,
AFPM-BAI did not agree to the change of the person of
treasury bills, Land Bank of the Philippines Bonds and Asset
the debtor. Between Reyes and Eleazar, there was an Participation Certificates.
agreement but there was no agreement by the creditor
to replace the debtor. If the creditor does not agree,
Relying on a canvass conducted by one of its employees,
there can be no novation either expromission or Cristina Cornista, AFP-MBAI decided to purchase several
delegacion. No change of the person of the debtor. securities amounting to P120,000,000.00 from Eurotrust.
Either in expromission or delegacion, there has to be

From February 1990 to September 1990, a total of 21 transactions
consent on the part of creditor for the new debtor to were entered into between Eurotrust and AFP-MBAI. Eurotrust
replace the old debtor. delivered to AFP-MBAI treasury notes amounting to P73 million.
However, Eurotrust fraudulently borrowed all those treasury notes
Here, mere acceptance of payment is not equivalent to from the AFP-MBAI for purposes of verification with the Central
consent. There should be an intention to replace and Bank. Despite AFP-MBAI's repeated demands, Eurotrust failed to
that is not shown in this particular case. return the said treasury notes.
REYES vs CA Eurotrust nonetheless made partial payment to AFP-MBAI

amounting to P35,151,637.72. However, after deducting this
FACTS: Elsa Reyes is the president of Eurotrust Capital partial payment, the amounts of P73 million treasury notes with
Corporation (EUROTRUST), a domestic corporation engaged in interest and P35,151,637.72 have remained unpaid.
credit financing. Graciela Eleazar, private respondent, is the
president of B.E. Ritz Mansion International Corporation (BERMIC),
a domestic enterprise engaged in real estate development. The Reyes interposed the defense of novation and insisted that AFP-
other respondent, Armed Forces of the Philippines Mutual Benefit MBAI's claim of unreturned P73 million worth of government
Asso., Inc. (AFP-MBAI), is a corporation duly organized primarily securities has been satisfied upon her payment of P30 million.
to perform welfare services for the Armed Forces of the With respect to the remaining P43 million, the same was paid
Philippines. when Eurotrust assigned its Participation Certificates to AFP-MBAI.
Elsa Reyes alleges that Eurotrust and Bermic entered into a loan RULING: We cannot see how novation can take place
agreement. Pursuant to the said contract, Eurotrust extended to considering the surrounding circumstances which negate the
Bermic P216.053,126.80 to finance the construction of the latter's same. The principle of novation by substitution of creditor was
Ritz Condominium and Gold Business Park. The loan was without erroneously applied in the first questioned resolution involving the
collateral but with higher interest rates than those allowed by the contract of loan between petitioner and respondent Eleazar.
banks. In turn, Bermic issued 21 postdated checks to cover
payments of the loan packages.
Admittedly, in order that a novation can take place, the
concurrence of the following requisites is indispensable:
However, when those checks were presented for payment, the
same were dishonored by the drawee bank, Rizal Commercial
Banking Corporation (RCBC), due to stop payment order made 1. there must be a previous valid obligation,
by Graciela Eleazar. Despite Eurotrust's notices and repeated 2. there must be an agreement of the parties concerned
demands to pay, Eleazar failed to make good the dishonored to a new contract,
checks, prompting Reyes to file against her several criminal 3. there must be the extinguishment of the old contract,
complaints for violation of B.P. 22 and estafa. and
4. there must be the validity of the new contract.
Subsequently, Elsa Reyes was investigated by the Senate Blue
Ribbon Committee. She was involved in a large scale scam Upon the facts shown in the record, there is no doubt that the
amounting to millions of pesos belonging to Instructional Material last three essential requisites of novation are wanting in the
Corporation (IMC), an agency under the Department of instant case. No new agreement for substitution of creditor war
Education, Culture and Sports. forged among the parties concerned which would take the
place of the preceding contract. The absence of a new
contract extinguishing the old one destroys any possibility of
Meanwhile, respondent AFP-MBAI which invested its funds with
novation by conventional subrogation.
Eurotrust, by buying from it government securities, conducted its
own investigation and found that after Eurotrust delivered to
AFP-MBAI the securities it purchased, the former borrowed the In concluding that a novation took place, the respondent court
same securities but failed to return them to AFP-MBAI; and that relied on the two letters which, according to it, formalized
the amounts paid by AFP-MBAI to Eurotrust for those securities petitioner's and respondent Eleazar's agreement that BERMIC
were in turn lent by Elsa Reyes to Bermic and others. would directly settle its obligation with the real owners of the
funds - the AFP MBAI and DECS IMC. Be that as it may, a cursory
reading of these letters, however clearly and unmistakably shows
When Eleazar came to know that the funds originally loaned by
that there was nothing therein that would evince that
Eurotrust to Bermic belonged to AFP-MBAI, she, as President of
respondent AFP-MBAI agreed to substitute for the petitioner as
Bermic, requested a meeting with Eurotrust representatives.
the new creditor of respondent Eleazar in the contract of loan.
The representatives of Eurotrust and Bermic agreed that Bermic

It is evident that the two letters merely gave respondent Eleazar
would directly settle its obligations with the real owners of the
an authority to directly settle the obligation of petitioner to AFP-
fund-AFP-MBAI and DECS-IMC. Pursuant to this understanding,
MBAI and DECS-IMC. It is essentially an agreement between
Bermic negotiated with AFP-MBAI and DECS-IMC and made
petitioner and respondent Eleazar only. There was no mention EXCEPTION: Unless the insolvency is already existing and
whatsoever of AFP-MBAI's consent to the new agreement of public knowledge or known to the debtor when he
between petitioner and respondent Eleazar much less an delegated his debt.
indication of AFP-MBAI's intention to be the substitute creditor in
the loan contract.
In that case, the old debtor would be in bad faith. He
should not be allowed to profit from his dad faith.
Well settled is the rule that novation by substitution of creditor
requires an agreement among the three parties concerned —
the original creditor, the debtor and the new creditor. It is a new Article 1296. When the principal obligation is
contractual relation based on the mutual agreement among all
the necessary parties, Hence, there is no novation if no new extinguished in consequence of a novation,
contract was executed by the parties. Article 1301 of the Civil accessory obligations may subsist only insofar as they
Code is explicit, thus: may benefit third persons who did not give their
consent. (1207)
Conventional subrogation of a third person requires the
consent of the original parties and of the third person.
The fact that respondent Eleazar made payments to AFP-MBAI GENERAL RULE: When the principal obligation is
and the latter accepted them does not ipso factoresult in extinguished, the accessory obligations are likewise
novation. There must be an express intention to novate — extinguished.
animus novandi. Novation is never presumed. Article 1300 of
the Civil Code provides inter alia that conventional subrogation
must be clearly established in order that it may take effect.
If by reason of novation, the old obligation is extinguished
then the accessory to that old obligation (like penalty,
guaranty, mortgage, etc.) are likewise extinguished
unless it has been expressly assumed in the new
obligation.
Article 1294. If the substitution is without the
knowledge or against the will of the debtor, the new That is why in the previous cases which we discussed,
debtor's insolvency or non-fulfillment of the they alleged novation because they want the mortgage
obligations shall not give rise to any liability on the in the prior loan wala na. Supposedly, by novation, the
part of the original debtor. (n) old obligation is extinguished and along with the
accessory obligation.
But if it is agreed to assume the accessory obligation, the

Just remember the consequence if the new debtor accessory obligations will still subsist.
becomes insolvent. Because there is novation and
extinguishment of the old obligation and even without
the consent of the original debtor then he is no longer Article 1297. If the new obligation is void, the original
liable; shall not give rise to any liability. Wala na siyay one shall subsist, unless the parties intended that the
labot sa insolvency sa new debtor. former relation should be extinguished in any event.
(n)
Article 1295. The insolvency of the new debtor, who That is self-explanatory. If there is no new valid obligation,
has been proposed by the original debtor and the original obligation will subsist unless, in all cases, they
agree that the old obligation will be extinguished.
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
Article 1298. The novation is void if the original
public knowledge, or known to the debtor, when
obligation was void, except when annulment may be
the delegated his debt. (1206a)
claimed only by the debtor or when ratification
validates acts which are voidable. (1208a)
Article 1294 speaks of expromission.

Actually, Article 1298 simply says that if the old obligation
Article 1295 speaks of delegacion. is void then there is nothing to novate because a void
obligation legally does not exist. So, it has no legal
In delegacion, the initiative of replacing the person of the consequence. If you seek to novate a void obligation,
debtor comes from the original debtor. In delegacion, the novation is void.
the debtor offers and the creditor accepts a third person
who consents to the substitution and assumes the If the obligation you are talking about is merely a
oblgaiton. Thus, the consent of the original debtor, the voidable obligation, that can be novated as long as it
new debtor and the creditor are necessary. has not yet been annulled. But a void obligation cannot
be novated because it does not exist.
Here, this is delegacion. What if the new debtor turns out
to be insolvent, would the old debtor be answerable for The meaning of the second phrase refers to voidable
the insolvency? obligations. They can be novated as long as they have
not yet been annulled.
GENERAL RULE: No.
Article 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
Revelen Solis and Mizzy Mareé Martinez otherwise stipulated. (n) TAU MU Page 173 of 262
The same condition is carried over to the new obligation.
Even if you‘re saying that the old obligation is
extinguished but it is subject to a condition so the
condition is carried over to the new obligation unless
agreed upon by the parties that there is no longer a In these instances, there is legal subrogation. Even if the
condition. parties did not agree that there will be a change in the
person of the creditor, there is a change that will
happens by operation of law.
Article 1300. Subrogation of a third person in the
rights of the creditor is either legal or conventional.
(1) When a creditor pays another creditor who is
The former is not presumed, except in cases preferred, even without the debtor's knowledge;
expressly mentioned in this Code; the latter must be
clearly established in order that it may take effect. Example:
(1209a)
D, debtor, mortgaged his land to X. X is the 1 st
mortgagee, Then subsequently, he borrowed money
Substitution of the person of the creditor. That is from Y, with the consent of X, he mortgaged the same
subrogation. land to Y. In that land, X is preferred. If the debtor cannot
pay his debt to X, X can foreclose the land and sell it at
Substitution on the part of the person of the debtor is public auction and the proceeds will be used to pay off
either expromission or delegacion. the debt of D to X. If there is any excess, it will go to Y.
Subrogation (change on the part of the person of the To assure that there is collateral, Y can pay off the debt
creditor) may be legal or conventional. of the debtor to X. In that case, he acquires the right of X,
as to this first mortgage. Now, Y is elevated to the status
Conventional subrogation – nagsabot mo. Agreed upon of a first mortgagee. He is subrogated to the rights of X.
by both parties.
(2) When a third person, not interested in the
Legal subrogation – that is under Article 1302. obligation, pays with the express or tacit
approval of the debtor;
A third person pays the debt of the debtor.

Article 1301. Conventional subrogation of a third
person requires the consent of the original parties Example:
and of the third person. (n)
The debtor has a debt against the creditor. X offers to
pay the debt of the debtor and the debtor agrees. So, X
That is conventional subrogation. is now subrogated to the rights of the creditor. All the
rights of the creditor are now with X.
Nagsabot mo na baguhon nato ang person sa creditor
so it requires the consent of all. Rememebr, if the debtor does not give his consent and X
pays, X will only have the right of beneficial
reimbursement.
If the creditor consents to the payment of X to the

creditor, there is subrogation.
There is a big difference because in beneficial

reimbursement, X can only recover from the debtor only
insofar as the debtor has benefitted. He cannot be
subrogated to the mortgage, penalty, guaraanty, etc.
(3) When, even without the knowledge of the

debtor, a person interested in the fulfillment of the
Article 1302. It is presumed that there is legal
obligation pays, without prejudice to the effects
subrogation:
of confusion as to the latter's share.
(1) When a creditor pays another creditor When a person interested pays.
who is preferred, even without the debtor's
knowledge; Like a guarantor. He pays the debt of the debtor so the
guarantor is now subrogated to the rights of the creditor.
(2) When a third person, not interested in the There is legal subrogation.
obligation, pays with the express or tacit
approval of the debtor;
Revelen Solis(3)
andWhen,
Mizzy Mareé Article 1303. Subrogation transfersTAU
to MU
thePage
persons
even Martinez
without the knowledge of the 174 of 262
subrogated the credit with all the rights thereto
debtor, a person interested in the fulfillment
of the obligation pays, without prejudice to appertaining, either against the debtor or against
the effects of confusion as to the latter's third person, be they guarantors or possessors of
share. (1210a) mortgages, subject to stipulation in a conventional
subrogation. (1212a)
That is what I explained before. He assumes the rights of
the creditor.
Article 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)
Subrogation but the creditor only received partial

payment. Katong bag-o na creditor, he also has the right
pero sa balance, mas preferred ang old creditor. Katong
balance sa debt na wala na-subrogate.
CONTRACTS
I.GENERAL PROVISIONS
(Articles 1305 – 1317)
We now proceed to Contracts.
What do you mean by innominate contracts?
Please read the definition of contracts.
Those contracts that are not given any names by the law.
Article 1305. A contract is a meeting of minds What are these innominate contracts? It involves four
between two persons whereby one binds himself, with types:
respect to the other, to give something or to render do ut des - I give that you may give.
some service. (1254a)
do ut facias - I give that you may do.
I believe we discussed this definition before when we facio ut des - I do that you may give.
discussed the different sources of obligations: law,
facio ut facias - I do that you may do.
contract, quasi-contract, delict, quasi-delict.
They are not given specific names by the Civil Code but
The law says it is the meeting of minds between two
persons. Meaning, nagkasinabot sila with respect to they are not prohibited.
something.
Any contract regarding these can be entered into.
Once there is a meeting of the minds, there is already an
CASE: DIZON vs GABORRO
agreement to give something or to render some service.
Actually, this is also a mortgage contract. But, you can
The law says between two persons. Can there be a
add some provisions. You can have a variety of contracts
contract with only one person involved?
incorporating various contracts like lease with option to
buy, and other stipulations.
We have this concept of an auto-contract.
When you measure them strictly against the provisions of
An auto-contract is a contract wherein there is only one
the Civil Code, the Civil Code is not accurate because
person who represents both parties in the contract.
there are other provisions incorporated that are not
Actually, when you say contract, to be more accurate, it covered by the nominate contracts.
should be between two parties, not persons.
What do you do? How do you resolve conflicts regarding
There might be instances when the contract is signed by these contracts?
only one person although that one person represents
They are considered as innominate contracts and they
different parties.
shall be resolved according to the most analogous
At least, there has to be two parties in a contract. There contract.
can‘t be only one party; you cannot agree with yourself.
In the case of DIZON VS. GABORRO, the most analogous
So, there has to be at least two parties.
contract is that of Antichresis.
What is a contract of Antichresis? It is like a loan contract

Article 1306. The contracting parties may establish
where you give as collateral real property and the
such stipulations, clauses, terms and conditions as creditor will harvest or take the fruits out of that property
they may deem convenient, provided they are not and apply that in payment of your obligation.
contrary to law, morals, good customs, public order,
or public policy. (1255a) In innominate contracts, the contract shall be governed
by the most analogous contract, meaning, pinakaduol,
murag pareha sa iyaha na contract.
This is the provision on freedom to stipulate. I believe you DIZON VS. GABORRO
also encountered this before.
FACTS: Petitioner Jose P. Dizon was the owner of the three (3)
parcels of land, subject matter of this litigation. He constituted a
In a contract, the parties may agree on certain terms
first mortgage lien in favor of the Development Bank of the
and conditions that they want to be incorporated in the Philippines in order to secure a loan in the sum of P38,000.00 a
contract but there are limitations on their freedom to second mortgage lien in favor of the Philippine National Bank to
stipulate. cure his indebtedness to said bank in the amount of P93,831.91.
What are these limitations to this freedom? As long as Petitioner Dizon having defaulted in the payment of his debt, the
they are not contrary to law, good morals, good customs, Development Bank of the Philippines foreclosed the mortgage
public order or public policy. extrajudicially pursuant to the provisions of Act No. 3135.
Article 1307. Innominate contracts shall be regulated Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose
P. Dizon met. Gaborro became interested in the lands of Dizon.
by the stipulations of the parties, by the provisions of Dizon originally intended to lease to Gaborro the property which
Titles I and II of this Book, by the rules governing the
most analogous nominate contracts, and by the
customs of the place. (n)
had been lying idle for some time. But as the mortgage was mortgage debts of petitioner which would be acceptable to the
already foreclosed by the DPB trial the bank in fact purchased bank. but partaking of the nature of the antichresis insofar as the
the lands at the foreclosure sale on May 26, 1959, they principal parties, petitioner Dizon and respondent Gaborro, are
abandoned the projected lease. concerned.
The second contract executed the same day, October 6, 1959 is

called Option to Purchase Real Estate. In the case of PEREZ vs MUMAR, the services of an
The sum of P131,813.91 which purports to be the consideration of
interpreter were secured because it was during the
the sale was not actually paid by Alfredo G. Gaborro to the
petitioner. The said amount represents the aggregate debts of
Japanese occupation. He was hired to interpret. They did
the petitioner with the Development Bank of the Philippines trial not specifically agree with the compensation.
the Philippine National Bank.
So, nag-uban na siya sa layo na lugar, nag-interpret siya
After the execution of said contracts, Alfredo G. Gaborro took didto. After how many months, he asked for payment.
possession of the three parcels of land in question. Kadtong nagkuha sa iyang services niingon, “Did we
agree on a specific compensation? We did not, so your
After the execution of the conditional deed of sale to him, services is gratuitous.”
Gaborro made several payments to the DBP and PNB. He
introduced improvements, cultivated the kinds raised sugarcane
Is he entitled to compensation? Was there a contract
and other crops and appropriated the produce to himself. He
also paid the land taxes thereon.
between them? Yes, it was an innominate contract, I do
(I interpret) so that you may give.
On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo
Abola, wrote a letter to Gaborro informing him that he is formally In that case, that should be governed by the most
offering to reimburse Gaborro of what he paid to the banks but analogous contract, employer-employee relationship.
without, however, tendering any cash, and demanding an Thus, he will be entitled to compensation. How much?
accounting of the income and of the proceeds contending that According to the customs of the place on what is the
the transaction they entered into was one of antichresis. reasonable compensation for those services.
Gaborro did not accede to the demands of the petitioner,
whereupon, on JULY 30, 1962, Jose P. Dizon instituted a
complaint in the Court of First Instance of Pampanga, Gaborro,
alleging that the documents Deed of Sale With Assumption of
Mortgage and the Option to Purchase Real Estate did not Article 1308. The contract must bind both contracting
express the true intention and agreement between the parties. parties; its validity or compliance cannot be left to the
will of one of them. (1256a)
Petitioner Dizon, as Plaintiff below, contended that the two
deeds constitute in fact a single transaction that their real
agreement was not an absolute e of the d of land but merely an
equitable mortgage or conveyance by way of security for the This is a very important provision.
reimbursement or refund by Dizon to Gaborro of any and all
sums which the latter may have paid on account of the This is the concept of mutuality of contracts.
mortgage debts in favor of the DBP and the PNB. Plaintiff prayed
that defendant Gaborro be ordered to accept plaintiff's offer to Both parties are bound by the contract. One party
reimburse him of what he paid to the banks; to surrender the
cannot say that he no longer wants the contract even if
possession of the lands to plaintiff; to make an accounting of all
the fruits, produce, harvest and other income which he had he thinks it is not favorable to him anymore, unless the
received from the three (3) parcels of land; and to pay the other party would agree.
plaintiff for the loss of two barns and for damages.
If there is a five-year period stipulated in the contract,
In its answer, the DBP specifically denied the material averments and it is still the third year, both parties must push through
of the complaint and stated that on October 6, 1959, the plaintiff with the contract until the fifth year.
Dizon was no longer the owner of the land in question because
the DBP acquired them at the extrajudicial foreclosure sale held If any pre-termination shall be made, that has to be
on May 26, 1959, and that the only right which plaintiff possessed mutually agreed by both of them unless the right to pre-
was a mere right to redeem the lands under Act 3135 as
amended.
terminate had been stipulated in the contract.
HELD: In the light of the foreclosure proceedings and sale of the Any change, amendment, pre-termination or
properties, a legal point of primary importance here, as well as modification in the contract should be agreed upon by
other relevant facts and circumstances, We agree with the both parties. One party cannot decide that the contract
findings of the trial and appellate courts that the true intention of is valid, it must bind both contracting parties.
the parties is that respondent Gaborro would assume and pay
the indebtedness of petitioner Dizon to DBP and PNB, and in When we go to defective contracts, if there is really a
consideration therefor, respondent Gaborro was given the defect in the contract, that can be used as a ground for
possession, the enjoyment and use of the lands until petitioner
annulment or declaration of nullity. But insofar as valid
can reimburse fully the respondent the amounts paid by the
latter to DBP and PNB, to accomplish the following ends: (a)
contracts are concerned, both parties are bound.
payment of the bank obligations; (b) make the lands productive
for the benefit of the possessor, respondent Gaborro, (c) assure As I said, the contract has to bind both contracting
the return of the land to the original owner, petitioner Dizon, thus parties. One party cannot decide for himself as to
rendering equity and fairness to all parties concerned. modifications or any changes in the contract.
In view of all these considerations, the law and Jurisprudence, CASE: LL AND COMPANY DEVELOPMENT AND AGRO-
and the facts established. We find that the agreement between INDUSTRIAL CORPORATION, vs. HUANG CHAO CHUM
petitioner Dizon and respondent Gaborro is one of those
innominate contracts under Art. 1307 of the New Civil Code
whereby petitioner and respondent agreed "to give and to do"
certain rights and obligations respecting the lands and the
In the case of L&L, the conflict here was about the
stipulation in the lease contract stating that the five-year 2. In the present case, the disagreement of the parties
term is subject to an option to renew. over the increased rental rate and private respondents
failure to pay it, precluded the possibility of a mutual
renewal.
The question is: whose option is it to renew? Is it of the
lessor or of the lessee? 3. The fact that the lessor allowed the lessee to intro-
duce improvements on the property was indicative, not
The Supreme Court said that it shall be understood to be of the former‘s intention to extend the contract
both by the lessor and by the lessee. Otherwise, it will automatically (Buce v. CA, 332 SCRA 151 [2000]), but
violate the principle on mutuality of contracts. It shall be merely of its obedience to its express terms allowing the
interpreted to be reciprocal in character. improvements. After all, at the expiration of the lease,
those improvements were to ――become its property.‖
When the language shows an intent to allow the lessee to
exercise it unilaterally, such option shall be deemed to As to the contention that it is not fair to eject respondents from
the premises after only 5 years, considering the value of the
benefit both the lessor and the lessee.
improvements they introduced therein, suffice it to say that they
did so with knowledge of the risk – the contract had plainly
So one party cannot just decide to extend unless the provided for a 5-year lease period.
option has been given to him. Since it is silent, ―Option to
Renew‖, so whose option? Both parties. That is the case Parties are free to enter into any contractual stipulation,
of L&L. provided it is not illegal or contrary to public morals. When such
agreement, freely and voluntarily entered into, turn out to be
disadvantageous to a party, courts cannot rescue it without
crossing the constitutional right to contract. They are not
LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL authorized to extricate parties from the necessary consequences
CORPORATION, vs. HUANG CHAO CHUM of their acts, and the fact that the contractual stipulations may
turn out to be financially disadvantageous will not relieve the
FACTS: Petitioner alleged that respondents Huang Chao Chun latter of their obligations. (Torres v. CA, 320 SCRA 430 [1999]).
and Yang Tung Fa violated their amended lease contract over a
1,112 square meter lot it owns, designated as Lot No. 1-A-1, when
they did not pay the monthly rentals thereon in the total amount CASE: ALLIED BANKING CORPORATION vs. CA
of P4,322,900.00. It also alleged that the amended lease
contract already expired on September 16, 1996 but Now in the case of Allied Banking Corporation, the
respondents refused to surrender possession thereof plus the stipulation was like this: ―The contract will be renewed for
improvements made thereon, and pay the rental arrearages
a like term at the option of the lessee.‖ Is this contract
despite repeated demands.
violative of the provision on mutuality?
Petitioner argues that respondents should be ejected for non-
payment of the new rental rates. That is, the monthly rental is No. The SC said that in the first place, the lessee had the
subject to increase. Said increase shall be based upon the choice when the contract was being negotiated,
imposition of Real Estate Tax for every two years upon whether or not to agree to such stipulation, so was the
presentation of the increased real estate tax to the lessees, but lessor.
said increase shall not be less than 25%.
The lessor, given that the stipulation stated ―…be
Respondents, upon the other hand, counter that they did not renewed at the option of the lessee‖, if he does not like
agree to these new rates. The former denied petitioner‘‘s
that provision, he can simply reject it and negotiate for
allegations, claiming instead that their failure to pay the monthly
rentals on the property was due to petitioner‘‘s fault when it the deletion of that provision but he agreed. So, there
attempted to increase the amount of rent in violation of their was equality between the lessor and the lessee when
contract. they negotiated the contract.
HELD: A unilateral increase in the rental rate cannot be This is just like enforcing the provisions of a contract. The
authorized considering that: (1) the option to renew is reciprocal contract provides for an option to renew on the part of
and, thus, the terms and conditions thereof including the rental the lessee so that can be enforced.
rate must likewise be reciprocal; and (2) the contracted clause
authorizing an increase ―upon presentation of the increased real There is also a limitation here because it says ―for a like
estate tax to lessees ― has not been complied with, in the instant
term at the option of the lessee‖. Meaning, under the
case, by petitioner.
same terms and conditions of the old contract. That is the
A stipulation in a lease contract stating that it is subject to ――an case of Allied Banking.
option to review‖‖ shall be interpreted to be reciprocal in
character. Unless the language shows an intent to allow the ALLIED BANKING CORPORATION VS. COURT OF APPEALS
lessee to exercise it unilaterally, such option shall be deemed to
benefit both the lessor and the lessee who must both consent to FACTS: Spouses Filemon Tanqueco and Lucia Domingo-
the extension or renewal, as well as to its specific terms and Tanqueco owned a 512-square meter lot.
conditions.
On 30 June 1978 they leased the property to petitioner Allied
In the instant case, there was nothing in the aforesaid stipulation Banking Corporation (ALLIED) for a monthly rental of P1,000.00 for
or in the actuation of parties that showed they intended an the first three (3) years, adjustable by 25% every three (3) years
automatic renewal or extension of the term of the contract. Thus: thereafter.
1. Demonstrating petitioner‘s disinterest in renewing the The lease contract specifically states in its Provision No. 1 that
contract was its letter dated Aug. 23, 1996, demanding "the term of this lease shall be fourteen (14) years commencing
that respondents vacate the premises for failure to pay from April 1, 1978 and may be renewed for a like term at the
rentals since 1993. As a rule, the owner-lessor has the option of the lessee."
prerogative to terminate the lease upon its expiration.
(Vda. de Roxas v. CA, 63 SCRA 302 [1975]).
Pursuant to their lease agreement, ALLIED introduced an provision of the lease carrying an undertaking on the part of the
improvement on the property consisting of a concrete building lessor to act conditioned on the performance by the lessee. It is
with a floor area of 340-square meters which it used as a branch a purely executory contract and at most confers a right to
office. As stipulated, the ownership of the building would be obtain a renewal if there is compliance with the conditions on
transferred to the lessors upon the expiration of the original term which the rights is made to depend. The right of renewal
of the lease. constitutes a part of the lessee's interest in the land and forms a
substantial and integral part of the agreement.
Sometime in February 1988 the Tanqueco spouses executed a
deed of donation over the subject property in favor of their four The fact that such option is binding only on the lessor and can
(4) children, namely, private respondents herein Oscar D. be exercised only by the lessee does not render it void for lack of
Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and mutuality.
Nestor D. Tanqueco, who accepted the donation in the same
public instrument. After all, the lessor is free to give or not to give the option to the
lessee. And while the lessee has a right to elect whether to
continue with the lease or not, once he exercises his option to
On 13 February 1991, a year before the expiration of the continue and the lessor accepts, both parties are thereafter
contract of lease, the Tanquecos notified petitioner ALLIED that bound by the new lease agreement. Their rights and obligations
they were no longer interested in renewing the lease. ALLIED become mutually fixed, and the lessee is entitled to retain
replied that it was exercising its option to renew their lease under possession of the property for the duration of the new lease, and
the same terms with additional proposals. Respondent Ruben D. the lessor may hold him liable for the rent therefor. The lessee
Tanqueco, acting in behalf of all the donee-lessors, made a cannot thereafter escape liability even if he should subsequently
counter-proposal. decide to abandon the premises. Mutuality obtains in such a
contract and equality exists between the lessor and the lessee
ALLIED however rejected the counter-proposal and insisted on since they remain with the same faculties in respect to
fulfillment.
Provision No. 1 of their lease contract.
When the lease contract expired in 1992 private respondents The case of Lao Lim v. Court of Appeals relied upon by the trial
demanded that ALLIED vacate the premises. But the latter court is not applicable here. In that case, the stipulation in the
disputed compromise agreement was to the effect that the
asserted its sole option to renew the lease and enclosed in its
reply letter a cashier's check in the amount of P68,400.00 lessee would be allowed to stay in the premises "as long as he
representing the advance rental payments for six (6) months needs it and can pay the rents." In the present case, the
taking into account the escalation clause. Private respondents questioned provision states that the lease "may be renewed for
a like term at the option of the lessee." The lessor is bound by the
however returned the check to ALLIED, prompting the latter to
consign the amount in court. option he has conceded to the lessee. The lessee likewise
becomes bound only when he exercises his option and the lessor
An action for ejectment was commenced. cannot thereafter be executed from performing his part of the
agreement.
After trial, the MeTC-Br. 33 declared Provision No. 1 of the lease
contract void for being violative of Art. 1308 of the Civil Code. With respect to the meaning of the clause "may be renewed for
On appeal to the Regional Trial Court, and later to the Court of a like term at the option of the lessee," we sustain petitioner's
contention that its exercise of the option resulted in the
Appeals, the assailed decision was affirmed.
automatic extension of the contract of lease under the same
On 20 February 1993, while the case was pending in the Court of terms and conditions. The subject contract simply provides that
"the term of this lease shall be fourteen (14) years and may be
Appeals ALLIED vacated the leased premises by reason of the
controversy. renewed for a like term at the option of the lessee." As we see it,
the only term on which there has been a clear agreement is the
ALLIED insists before us that Provision No. 1 of the lease contract period of the new contract, i.e., fourteen (14) years, which is
evident from the clause "may be renewed for a like term at the
was mutually agreed upon hence valid and binding on both
parties, and the exercise by petitioner of its option to renew the option of the lessee," the phrase "for a like term" referring to the
contract was part of their agreement and in pursuance thereof. period. It is silent as to what the specific terms and conditions of
the renewed lease shall be. Shall it be the same terms and
conditions as in the original contract, or shall it be under the
ISSUE: Whether a stipulation in a contract of lease to the effect
that the contract "may be renewed for a like term at the option terms and conditions as may be mutually agreed upon by the
of the lessee" is void for being potestative or violative of the parties after the expiration of the existing lease?
principle of mutuality of contracts under Art. 1308 of the Civil
In Ledesma v. Javellana this Court was confronted with a similar
Code.
problem. In the case the lessee was given the sole option to
HELD: It is valid. renew the lease, but the contract failed to specify the terms and
conditions that would govern the new contract. When the lease
expired, the lessee demanded an extension under the same
Article 1308 of the Civil Code expresses what is known in law as
the principle of mutuality of contracts. It provides that "the terms and conditions. The lessor expressed conformity to the
contract must bind both the contracting parties; its validity or renewal of the contract but refused to accede to the claim of
the lessee that the renewal should be under the same terms and
compliance cannot be left to the will of one of them." This
binding effect of a contract on both parties is based on the conditions as the original contract.
principle that the obligations arising from the contracts have the
force of law between the contracting parties, and there must be The settled rule is that in case of uncertainty as to the meaning
of a provision granting extension to a contract of lease, the
mutuality between them based essentially on their equality
under which it is repugnant to have one party bound by the tenant is the one favored and not the landlord. "As a general
contract while leaving the other free therefrom. The ultimate rule, in construing provisions relating to renewals or extensions,
purpose is to render void a contract containing a condition where there is any uncertainty, the tenants is favored, and not
the landlord, because the latter, having the power of stipulating
which makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties. in his own favor, has neglected to do so; and also upon the
principle that every man's grant is to be taken most strongly
An express agreement which gives the lessee the sole option to against himself (50 Am Jur. 2d, Sec. 1162, p. 48; see also 51 C.J.S.
599).
renew the lease is frequent and subject to statutory restrictions,
valid and binding on the parties. This option, which is provided in
the same lease agreement, is fundamentally part of the Besides, if we were to adopt the contrary theory that the terms
consideration in the contract and is no different from any other and conditions to be embodied in the renewed contract were
still subject to mutual agreement by and between the parties, A contract of adhesion becomes void only when the dominant
then the option which is an integral part of the consideration for party takes advantage of the weakness of the other party,
the contract would be rendered worthless. For then, the lessor completely depriving the latter of the opportunity to bargain on
could easily defeat the lessee's right of renewal by simply equal footing.
imposing unreasonable and onerous conditions to prevent the
parties from reaching an agreement, as in the case at bar. As in That was not the case here. As the trial court noted, if the terms
a statute no word, clause, sentence, provision or part of a and conditions offered by Equitable had been truly prejudicial to
contract shall be considered surplusage or superfluous, respondents, they would have walked out and negotiated with
meaningless, void, insignificant or nugatory, if that can be another bank at the first available instance. But they did not.
reasonably avoided. To this end, a construction which will render Instead, they continuously availed of Equitable's credit facilities
every word operative is to be preferred over that which would for five long years.
make some words idle and nugatory.
Escalation clauses are not void per se. However, one "which
grants the creditor an unbridled right to adjust the interest
CASE: EQUITABLE PCI BANK vs. NG SHEUNG NGOR independently and upwardly, completely depriving the debtor
of the right to assent to an important modification in the
agreement" is void. Clauses of that nature violate the principle of
In the case of Equitable PCI Bank, in the promissory note it
mutuality of contracts.
was stated ―the subsequent extensions shall be at such
rate as shall be determined by the bank. ― Article 1308 of the Civil Code holds that a contract must bind
both contracting parties; its validity or compliance cannot be
Is it valid to increase the interest at such rate as shall be left to the will of one of them.
determined by the bank?
For this reason, we have consistently held that a valid escalation
The SC said this is an escalation clause. Are escalation clause provides:
clauses valid? Yes, if there is only a de-escalation clause.
1. that the rate of interest will only be increased if the
What is a de-escalation clause? It says that the stipulated applicable maximum rate of interest is increased by
law or by the Monetary Board; and
rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the 2. that the stipulated rate of interest will be reduced if the
monetary board. applicable maximum rate of interest is reduced by law
or by the Monetary Board (de-escalation clause).
So you have to add a de-escalation clause to a de-
escalation clause for an escalation clause to be valid. The RTC found that Equitable's promissory notes uniformly stated:
Otherwise, it will be violative of the principle on mutuality If subject promissory note is extended, the interest for subsequent
of contracts. extensions shall be at such rate as shall be determined by the
bank.
EPCIB vs. NG SHEUNG NGOR
Equitable dictated the interest rates if the term (or period for
FACTS: On October 7, 2001, respondents Ng Sheung Ngor, Ken repayment) of the loan was extended. Respondents had no
Appliance Division, Inc. and Benjamin E. Go filed an action for choice but to accept them. This was a violation of Article 1308 of
annulment and/or reformation of documents and the Civil Code. Furthermore, the assailed escalation clause did
contracts against petitioner Equitable PCI Bank (Equitable) and not contain the necessary provisions for validity, that is, it neither
its employees, Aimee Yu and Bejan Lionel Apas, in the Regional provided that the rate of interest would be increased only if
Trial Court (RTC), Branch 16 of Cebu City. allowed by law or the Monetary Board, nor allowed de-
escalation. For these reasons, the escalation clause was void.
They claimed that Equitable induced them to avail of its peso
and dollar credit facilities by offering low interest rates so they
accepted Equitable's proposal and signed the bank's pre-
printed promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained
identical escalation clauses granting Equitable authority to
increase interest rates without their consent.
Equitable, in its answer, asserted that respondents knowingly

accepted all the terms and conditions contained in the
promissory notes. In fact, they continuously availed of and
benefited from Equitable's credit facilities for five years.
ISSUE: WON the escalation clause is violative of the principle on

mutuality of contracts.
HELD:
Provision in the promissory note: If subject promissory note is

extended, the interest for subsequent extensions shall be at such
rate as shall be determined by the bank.
A contract of adhesion is a contract whereby almost all of its

provisions are drafted by one party. The participation of the
other party is limited to affixing his signature or his "adhesion" to
the contract. For this reason, contracts of adhesion are strictly
construed against the party who drafted it.
It is erroneous, however, to conclude that contracts of adhesion

are invalid per se. They are, on the contrary, as binding as
ordinary contracts. A party is in reality free to accept or reject it.
Article 1309. The determination of the performance
may be left to a third person, whose decision shall not
be binding until it has been made known to both
contracting parties. (n)
Article 1309 is actually an exception to Article 1308.
So, a third person may determine the performance. Like

for example, the usual practice of referring a dispute to
an arbiter or to an arbitration. So the arbiter here is the
third party who determines the performance of the
contract. That is valid and the parties are bound by the
decision of the arbiter. That is an exception to the rule
that the performance or validity of a contract cannot be
delegated to one of the parties. It cannot be to one of
the parties but to a third person. This is the principle of the relativity of contracts.
Usually, the contract would take effect between the

Article 1310. The determination shall not be obligatory parties, kadtong mga walay labot sa contract, you
cannot invoke any benefit from that contract but it is
if it is evidently inequitable. In such case, the courts
transmitted to their heirs or assigns.
shall decide what is equitable under the
circumstances. (n) General Rule: Obligations arising out of contracts are
transmissible except when a contract expressly states that
these rights and obligations are not transmissible or when
If the determination made by the third person is evidently they are purely personal, or if by their nature, they cannot
inequitable, that will not be binding; you can still go to be transmitted.
court.
CASE: LA VISTA ASSOCIATION vs CA
So, even if the arbitration clause says it is final, resort to
court can be availed of if it is inequitable. That is the case of La Vista. Although the contract was
originally between Tuason and PBC but their assigns and
Usually, sa contracts karon naa gyud na siya’y reference successors are likewise bound by that contract. That right
sa arbitration and arbitration is actually preferred. and obligation is actually transmissible by the series of
sales that happened in the case.
LA VISTA ASSOCIATION VS. COURT OF APPEALS
FACTS: The area comprising the 15-meter wide roadway was

originally part of a vast tract of land owned by the Tuasons in
Quezon City and Marikina.
On 1 July 1949 the Tuasons sold to Philippine Building Corporation

a portion of their landholdings by virtue of a Deed of Sale with
Mortgage. Paragraph three (3) of the deed provides that ". . .
the boundary line between the property herein sold and the
adjoining property of the VENDORS shall be a road fifteen (15)
meters wide, one-half of which shall be taken from the property
herein sold to the VENDEE and the other half from the portion
adjoining belonging to the VENDORS."
On 7 December 1951 the Philippine Building Corporation, which

was then acting for and in behalf of Ateneo de Manila University
(ATENEO) in buying the properties from the Tuasons, sold,
assigned and formally transferred in a Deed of Assignment with
Assumption of Mortgage, with the consent of the Tuasons, the
subject parcel of land to ATENEO which assumed the mortgage.
The Tuasons developed a part of the estate adjoining the portion
sold to Philippine Building Corporation into a residential village
known as La Vista Subdivision. Thus the boundary between LA
VISTA and the portion sold to Philippine Building Corporation was
the 15-meter wide roadway known as the Mangyan Road.
On 6 June 1952 ATENEO sold to MARYKNOLL the western portion

of the land adjacent to Mangyan Road.
Subsequently, in an amicable settlement, MARYKNOLL agreed to

remove the wall and restore Mangyan Road to its original width
of 15 meters.
Meanwhile, the Tuasons developed its 7.5-meter share of the 15-

Article 1311. Contracts take effect only between the meter wide boundary. ATENEO deferred improvement on its
parties, their assigns and heirs, except in case share and erected instead an adobe wall on the entire length of
where the rights and obligations arising from the the boundary of its property parallel to the 15-meter wide
contract are not transmissible by their nature, or by
stipulation
Revelen Solis andorMizzy
by Mareé
provision of law. The heir is not
liable beyond the value of the property he received
from the decedent.
If a contract should contain some stipulation in favor

of a third person, he may demand its fulfillment
roadway. General Rule: Property rights are transmissible unless by
stipulation they are made intransmissible or unless there is
On 30 January 1976 ATENEO informed LA VISTA of the former's a specific provision of law or when the obligation is purely
intention to develop some 16 hectares of its property along
personal.
Mangyan Road into a subdivision.
In response, LA VISTA President Manuel J. Gonzales clarified
certain aspects with regard to the use of Mangyan Road.
The law says the heir is liable for the obligations of the
predecessor. The heir is liable for the obligations of the
On 28 April 1976 LA VISTA President Manuel J. Gonzales, in a predecessor. The heir is not liable beyond the value of the
letter to ATENEO President Fr. Jose A. Cruz, S. J., offered to buy estate of the decedent. Meaning, he is liable but not
under specified conditions the property ATENEO was intending beyond the value (of the estate). If your predecessor has
to develop. One of the conditions stipulated by the LA VISTA properties worth 10M which you inherited and his death is
President was that "[i]t is the essence of the offer that the mutuaI worth 12M, you are still liable only up to 10M. So, in effect,
right of way between the Ateneo de Manila University and La
mura’g wala gihapon kay nadawat kay gibayad na man
Vista Homeowners' Association will be extinguished." The offer of
LA VISTA to buy was not accepted by ATENEO. Instead, on 10
sa utang. But, it cannot be held that you are still liable for
May 1976 ATENEO offered to sell the property to the public the debt of the decedents.
subject to the condition that the right to use the 15-meter
roadway will be transferred to the vendee who will negotiate This is the concept of relativity of contracts.
with the legally involved parties regarding the use of such right
as well as the development costs for improving the access road. CASE: DKC HOLDINGS vs CA
LA VISTA became one of the bidders. However it lost to Solid DKC HOLDINGS VS. CA
Homes, Inc., in the bidding. Thus on 29 October 1976 ATENEO
executed a Deed of Sale in favor of Solid Homes, Inc., over FACTS: The subject of the controversy is a 14,021 square meter
parcels of land. parcel of land located in Malinta, Valenzuela, Metro Manila
Subsequently, Solid Homes, Inc., developed a subdivision now which was originally owned by private respondent Victor U.
known as Loyola Grand Villas and together they now claim to Bartolome's deceased mother, Encarnacion Bartolome, under
have an easement of right-of-way along Mangyan Road Transfer Certificate of Title No. B-37615 of the Register of Deeds of
through which they could have access to Katipunan Avenue. Metro Manila, District III. This lot was in front of one of the textile
plants of petitioner and, as such, was seen by the latter as a
LA VISTA President Manuel J. Gonzales however informed Solid potential warehouse site.
Homes, Inc., that LA VISTA could not recognize the right-of-way
over Mangyan Road because, first, Philippine Building On March 16, 1988, petitioner entered into a Contract of Lease
Corporation and its assignee ATENEO never complied with their with Option to Buy with Encarnacion Bartolome, whereby
obligation of providing the Tuasons with a right-of-way on their petitioner was given the option to lease or lease with purchase
7.5-meter portion of the road and, second, since the property the subject land, which option must be exercised within a period
was purchased for commercial purposes, Solid Homes, Inc., was of two years counted from the signing of the Contract. In turn,
no longer entitled to the right-of-way as Mangyan Road was petitioner undertook to pay P3,000.00 a month as consideration
established exclusively for ATENEO in whose favor the right-of- for the reservation of its option. Within the two-year period,
way was originally constituted. LA VISTA, after instructing its petitioner shall serve formal written notice upon the lessor
security guards to prohibit agents and assignees of Solid Homes, Encarnacion Bartolome of its desire to exercise its option. The
Inc., from traversing Mangyan Road, then constructed one- contract also provided that in case petitioner chose to lease the
meter high cylindrical concrete posts chained together at the property, it may take actual possession of the premises. In such
middle of and along the entire length of Mangyan Road thus an event, the lease shall be for a period of six years, renewable
preventing the residents of LOYOLA from passing through. for another six years, and the monthly rental fee shall be
P15,000.00 for the first six years and P18,000.00 for the next six
ISSUE: WON there is a contract between La Vista and Solid years, in case of renewal.
Homes.
Petitioner regularly paid the monthly P3,000.00 provided for by
HELD: Tuason – La Vista the Contract to Encarnacion until her death in January 1990.
PBC – Ateneo – Solid Homes Thereafter, petitioner coursed its payment to private respondent
Victor Bartolome, being the sole heir of Encarnacion. Victor,
That there is no contract between LA VISTA and Solid Homes, however, refused to accept these payments.
Inc., and thus the court could not have declared the existence
of an easement created by the manifest will of the parties, is Meanwhile, on January 10, 1990, Victor executed an Affidavit of
devoid of merit. The predecessors-in-interest of both LA VISTA Self-Adjudication over all the properties of Encarnacion,
and Solid Homes, Inc., i.e., the Tuasons and the Philippine including the subject lot. Accordingly, respondent Register of
Building Corporation, respectively, clearly established a Deeds cancelled Transfer Certificate of Title No. B-37615 and
contractual easement of right-of-way over Mangyan Road. issued Transfer Certificate of Title No. V-14249 in the name of
When the Philippine Building Corporation transferred its rights Victor Bartolome.
and obligations to ATENEO the Tuasons expressly consented and
agreed thereto. Meanwhile, the Tuasons themselves developed On March 14, 1990, petitioner served upon Victor, via registered
their property into what is now known as LA VISTA. On the other mail, notice that it was exercising its option to lease the property,
hand, ATENEO sold the hillside portions of its property to Solid tendering the amount of P15,000.00 as rent for the month of
Homes, Inc., including the right over the easement of right-of- March. Again, Victor refused to accept the tendered rental fee
way. In sum, when the easement in this case was established by and to surrender possession of the property to petitioner.
contract, the parties unequivocally made provisions for its
observance by all who in the future might succeed them in Petitioner thus opened Savings Account No. 1-04-02558-I-1 with
dominion. the China Banking Corporation, Cubao Branch, in the name of
Victor Bartolome and deposited therein the P15,000.00 rental fee
for March as well as P6,000.00 reservation fees for the months of
In a Contract of Lease with Option to Buy, are the rights February and March.
and obligations in the contract transmissible? Yes,
Petitioner also tried to register and annotate the Contract on the
because usually they just involve property rights.
title of Victor to the property. Although respondent Register of
Deeds accepted the required fees, he nevertheless refused to
register or annotate the same or even enter it in the day book or
primary register. In 1952, it was ruled that if the predecessor was duty-bound to
reconvey land to another, and at his death the reconveyance
Thus, on April 23, 1990, petitioner filed a complaint for specific had not been made, the heirs can be compelled to execute the
performance and damages against Victor and the Register of proper deed for reconveyance. This was grounded upon the
Deeds. principle that heirs cannot escape the legal consequence of a
transaction entered into by their predecessor-in-interest because
ISSUE: WON the Contract of Lease with Option to Buy entered they have inherited the property subject to the liability affecting
into by the late Encarnacion Bartolome with petitioner was their common ancestor.
terminated upon her death
It is futile for Victor to insist that he is not a party to the contract
HELD: Both the lower court and the Court of Appeals held that because of the clear provision of Article 1311 of the Civil Code.
the said contract was terminated upon the death of Indeed, being an heir of Encarnacion, there is privity of interest
Encarnacion Bartolome and did not bind Victor because he was between him and his deceased mother. He only succeeds to
not a party thereto. what rights his mother had and what is valid and binding against
her is also valid and binding as against him.
Article 1311 of the Civil Code provides, as follows-
This is clear from Parañaque Kings Enterprises vs. Court of
"ART. 1311. Contracts take effect only between the Appeals, where this Court rejected a similar defense.
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are With respect to the contention of respondent Raymundo that he
not transmissible by their nature, or by stipulation or by is not privy to the lease contract, not being the lessor nor the
provision of law. The heir is not liable beyond the value lessee referred to therein, he could thus not have violated its
of the property he received from the decedent. provisions, but he is nevertheless a proper party. Clearly, he
The general rule, therefore, is that heirs are bound by stepped into the shoes of the owner-lessor of the land as, by
contracts entered into by their predecessors-in-interest virtue of his purchase, he assumed all the obligations of the lessor
except when the rights and obligations arising under the lease contract. Moreover, he received benefits in the
therefrom are not transmissible by (1) their nature, (2) form of rental payments. Furthermore, the complaint, as well as
stipulation or (3) provision of law. the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between
In the case at bar, there is neither contractual stipulation nor him and respondent Santos which defeated the exercise by
legal provision making the rights and obligations under the petitioner of its right of first refusal.
contract intransmissible. More importantly, the nature of the
rights and obligations therein are, by their nature, transmissible. In order then to accord complete relief to petitioner, respondent
The nature of intransmissible rights as explained by Arturo Raymundo was a necessary, if not indispensable, party to the
Tolentino, an eminent civilist, is as follows: case. A favorable judgment for the petitioner will necessarily
affect the rights of respondent Raymundo as the buyer of the
"Among contracts which are intransmissible are those which are property over which petitioner would like to assert its right of first
purely personal, either by provision of law, such as in cases of option to buy.
partnerships and agency, or by the very nature of the
obligations arising therefrom, such as those requiring special In the case at bar, the subject matter of the contract is likewise a
personal qualifications of the obligor. It may also be stated that lease, which is a property right. The death of a party does not
contracts for the payment of money debts are not transmitted to excuse nonperformance of a contract which involves a property
the heirs of a party, but constitute a charge against his estate. right, and the rights and obligations thereunder pass to the
Thus, where the client in a contract for professional services of a personal representatives of the deceased. Similarly,
lawyer died, leaving minor heirs, and the lawyer, instead of nonperformance is not excused by the death of the party when
presenting his claim for professional services under the contract the other party has a property interest in the subject matter of
to the probate court, substituted the minors as parties for his the contract. Under both Article 1311 of the Civil Code and
client, it was held that the contract could not be enforced jurisprudence, therefore, Victor is bound by the subject Contract
against the minors; the lawyer was limited to a recovery on the of Lease with Option to Buy.
basis of quantum meruit."
That being resolved, we now rule on the issue of whether
In American jurisprudence, "(W)here acts stipulated in a contract petitioner had complied with its obligations under the contract
require the exercise of special knowledge, genius, skill, taste, and with the requisites to exercise its option. The payment by
ability, experience, judgment, discretion, integrity, or other petitioner of the reservation fees during the two-year period
personal qualification of one or both parties, the agreement is of within which it had the option to lease or purchase the property
a personal nature, and terminates on the death of the party who is not disputed.
is required to render such service."
It has also been held that a good measure for determining

whether a contract terminates upon the death of one of the
parties is whether it is of such a character that it may be
performed by the promissor‘s personal representative. Contracts
to perform personal acts which cannot be as well performed by
others are discharged by the death of the promissor. Conversely,
where the service or act is of such a character that it may as
well be performed by another, or where the contract, by its
terms, shows that performance by others was contemplated,
death does not terminate the contract or excuse
nonperformance.
In the case at bar, there is no personal act required from the late
Encarnacion Bartolome. Rather, the obligation of Encarnacion in
the contract to deliver possession of the subject property to
petitioner upon the exercise by the latter of its option to lease
the same may very well be performed by her heir Victor.
As early as 1903, it was held that "(H)e who contracts does so for
himself and his heirs."
Article 1311 article gives us the principle of relativity of
contracts. Petitioner contends that it cannot be faulted for its cashier's
refusal to accept private respondent's BANKARD credit card, the
GENERAL RULE: Only the parties to the contracts are same not being a legal tender.
bound by the contracts. Only they can claim benefits
It argues that private respondent's offer to pay by means of
under the contract and can assail the contract. credit card partook of the nature of a proposal to novate an
existing obligation for which petitioner, as creditor, must first give
There are exceptions to the principle of relativity. These its consent otherwise there will be no binding contract between
are discussed in the cases below. them.
1.) Stipulation pour autri RULING: Mandarin Villa Seafood Village is affiliated with
BANKARD. In fact, an agreement entered into by the parties
This is discussed in the case of Mandarin vs CA provided that credit cards issued by the company shall be
and Intergrated Packing Corp. vs CA. honored in the establishment.
2.) In contracts creating real rights, third persons

who come into possession of the object of the While private respondent may not be a party to the said
agreement, the agreement conferred a favor upon the private
contract are bound thereby, subject to the
respondent, a holder of credit card validly issued by BANKARD.
provisions of the Mortgage Law and the Land
Registration Laws (Article 1312).
This stipulation is a stipulation pour autri and under Article 1311 of
the Civil Code private respondent may demand its fulfillment
3.) Creditors are protected in cases of contracts
provided he communicated his acceptance to the petitioner
intended to defraud them (Article 1313) before its revocation.
This is accion pauliana which is contemplated In this case, private respondent's offer to pay by means of his
under Article 1381 and Article 1383. BANKARD credit card constitutes not only an acceptance of the
said stipulation but also an explicit communication of his
4.) Any third person who induces another to violate acceptance to the obligor.
his contract shall be liable for damages to the
other contracting party (Article 1314) In addition, the record shows that petitioner posted a logo inside
Mandarin Villa Seafood Village stating that "Bankard is accepted
This is the concept of tortuous interference. This is here.‖ This representation is conclusive upon the petitioner which
discussed in the case of Gilchrist vs Cuddy and it cannot deny or disprove as against the private respondent,
the case of Lagon vs CA. the party relying thereon.
CASE: MANDARIN VILLA Petitioner, therefore, cannot disclaim its obligation to accept
private respondent's BANKARD credit card without violating the
There is a stipulation pour autri, in that case, in favor of equitable principle of estoppel.
the credit card holder. His presentation of the credit card
to the establishment is a signification of his acceptance
of that benefit conferred in his favor. CASE: INTEGRATED PACKING CORP vs CA
MANDARIN VILLA vs CA According to Integrated Packing, its failure to comply

with its contract between PhilaCor was by reason of the
FACTS: In the evening of October 19, 1989, private respondent, failure of Fil-Anchor Paper to release or deliver the paper.
Clodualdo de Jesus, a practicing lawyer and businessman, Is that contention correct? In the contract between
hosted a dinner for his friends at the petitioner's restaurant the integrated packing and Philippine Anchor, is there a
Mandarin Villa Seafoods Village.
stipulation pour autri in favor of Philacor?
After dinner, the waiter handed to him the bill in the amount of
P2,658.50. Private respondent offered to pay the bill through his
By reason of the principle of relativity of contracts,
credit card issued by Philippine Commercial Credit Card Inc. PhilaCor could not invoke any benefit in the contract
(BANKARD). between Philippine Anchor and Integrated Packing
because it‘s not a party. There is no stipulation
This card was accepted by the waiter who immediately whatsoever in the contract between Integrated Packing
proceeded to the restaurant's cashier for card verification. and Philippine Anchor in favor of PhilaCor. So, it is within
Ten minutes later, however, the waiter returned and audibly the general principle of relativity of contracts. There is no
informed private respondent that his credit card had expired.
stipulation pour autri. It will not apply in this case.
Private respondent remonstrated that said credit card had yet to
expire on September 1990, as embossed on its face.
INTEGRATED PACKING CORP vs CA and FIL-ANCHOR PAPER, CO.
The waiter was unmoved, thus, private respondent and two of
FACTS: Petitioner and private respondent executed on May 5,
his guests approached the restaurant's cashier who again
1978, an order agreement whereby private respondent bound
passed the credit card over the verification computer. The
itself to deliver to petitioner 3,450 reams of printing paper worth
same information was produced, i.e., CARD EXPIRED.
P1,040,060.00. In accordance with the standard operating
practice of the parties, the materials were to be paid within a
Thereupon, private respondent left the restaurant and got his BPI
minimum of thirty days and maximum of ninety days from
Express Credit Card from his car and offered it to pay their
delivery.
bill. This was accepted and honored by the cashier after
verification. Petitioner and his companions left afterwards.
Later, on June 7, 1978, petitioner entered into a contract with
Philippine Appliance Corporation (Philacor) to print three
The incident triggered the filing of a suit for damages by private
volumes of "Philacor Cultural Books" with a minimum of 300,000
respondent.
copies at a price of P10.00 per copy or a total cost of
P3,000,000.00.
Furthermore, the demand made by Philacor upon petitioner for
As of July 30, 1979, private respondent had delivered to the latter to comply with its printing contract is dated February
petitioner 1,097 reams of printing paper out of the total 3,450 15, 1984, which is clearly made long after private respondent
reams stated in the agreement. Petitioner alleged it wrote had filed its complaint on August 14, 1981. This demand relates
private respondent to immediately deliver the balance because to contracts with Philacor dated April 12, 1983 and May 13, 1983,
further delay would greatly prejudice petitioner. P which were entered into by petitioner after private respondent
filed the instant case.
Private respondent delivered again to petitioner various
quantities of printing paper amounting to P766,101.70. However, To recapitulate, private respondent did not violate the order
petitioner encountered difficulties paying private respondent agreement it had with petitioner. Likewise, private respondent
said amount. Accordingly, private respondent made a formal could not be held liable for petitioner's breach of contract with
demand upon petitioner to settle the outstanding account. Philacor. It follows that there is no basis to hold private
Petitioner made partial payments totalling P97,200.00 which was respondent liable for damages. Accordingly, the appellate court
applied to its back accounts. did not err in deleting the damages awarded by the trial court to
petitioner.
Meanwhile, petitioner entered into an additional printing
contract with Philacor. Unfortunately, petitioner failed to fully
comply with its contract with Philacor for the printing of books CASE: KAUFFMAN vs PNB
VIII, IX, X and XI. Thus, Philacor demanded compensation from
petitioner for the delay and damage it suffered on account of
Just like when you send money, for example, the
petitioner's failure.
contract is between the one who sends the money and
Private respondent filed with the RTC a collection suit against the company. But the person to whom the money is
petitioner for the sum of P766,101.70, representing the unpaid being sent can also claim benefit because that contract
purchase price of printing paper bought by petitioner on credit. has a stipulation pour autri in his favor.
By way of counterclaim, petitioner alleged that private What is the fairest test to determine whether a contract is
respondent was able to deliver only 1,097 reams of printing a stipulation pour autri?
paper which was short of 2,875 reams, in total disregard of their
agreement; that private respondent failed to deliver the The contract should seek to confer a direct interest to the
balance of the printing paper despite demand therefor, hence,
third party for that to be considered as a stipulation pour
petitioner suffered actual damages and failed to realize
expected profits; and that petitioner's complaint was autri; not merely an incidental interest.
prematurely filed.
Example:
The trial court rendered judgment declaring that petitioner
should pay private respondent the sum of P763,101.70 A and B agreed that A will construct a road to the house
representing the value of printing paper delivered by private of B. Incidentally, X also passes through hat road. If A
respondent from June 5, 1980 to July 23, 1981. decides to close the road or change the road, X cannot
complain because he is not a party to that contract.
However, the lower court also found petitioner's counterclaim Although he benefits but his benefit is merely incidental. It
meritorious. It ruled that were it not for the failure or delay of
was not directly conferred upon him by the original
private respondent to deliver printing paper, petitioner could
have sold books to Philacor and realized profit of P790,324.30 parties to the contract.
from the sale. It further ruled that petitioner suffered a dislocation
of business on account of loss of contracts and goodwill as a KAUFFMAN vs PNB
result of private respondent's violation of its obligation, for which
the award of moral damages was justified. FACTS: At the time of the transaction which gave rise to this
litigation the plaintiff, George A. Kauffman, was the president of
On appeal, the respondent Court of Appeals reversed and set a domestic corporation engaged chiefly in the exportation of
aside the judgment of the trial court. hemp from the Philippine Islands and known as the Philippine
Fiber and Produce Company, of which company the plaintiff
ISSUE: Whether or not private respondent is liable for petitioner's apparently held in his own right nearly the entire issue of capital
breach of contract with Philacor stock. The board of directors of said company, declared a
dividend of P100,000 from its surplus earnings for the year 1917, of
RULING: Petitioner contends that private respondent should be which the plaintiff was entitled to the sum of P98,000.
held liable for petitioner's breach of contract with Philacor. This
claim is manifestly devoid of merit. On October 9, 1918, George B. Wicks, treasurer of the Philippine
Fiber and Produce Company, presented himself in the
As correctly held by the appellate court, private respondent exchange department of the Philippine National Bank in Manila
cannot be held liable under the contracts entered into by and requested that a telegraphic transfer of $45,000 should be
petitioner with Philacor. Private respondent is not a party to said made to the plaintiff in New York City, upon account of the
agreements. It is also not a contract pour autrui. Aforesaid Philippine Fiber and Produce Company. He was informed that
contracts could not affect third persons like private respondent the total cost of said transfer, including exchange and cost of
because of the basic civil law principle of relativity of contracts message, would be P90,355.50.
which provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third Accordingly, Wicks, as treasurer of the Philippine Fiber and
person, even if he is aware of such contract and has acted with Produce Company, thereupon drew and delivered a check for
knowledge thereof. that amount on the Philippine National Bank; and the same was
accepted by the officer selling the exchange in payment of the
Indeed, the order agreement entered into by petitioner and transfer in question. As evidence of this transaction a document
private respondent has not been shown as having a direct was made out and delivered to Wicks, which is referred to by the
bearing on the contracts of petitioner with Philacor. As pointed bank's assistant cashier as its official receipt.
out by private respondent and not refuted by petitioner, the
paper specified in the order agreement between petitioner and On the same day the Philippine National Bank dispatched to its
private respondent are markedly different from the paper New York agency a cablegram instructing the latter to pay
involved in the contracts of petitioner with Philacor. George Kauffman the amount of $45, 000. Upon receiving this
telegraphic message, the bank's representative in New York sent to maintain the present action is clear enough; for it is
a cable message in reply suggesting the advisability of undeniable that the bank's promise to cause a definite sum of
withholding this money from Kauffman, in view of his reluctance money to be paid to the plaintiff in New York City is a stipulation
to accept certain bills of the Philippine Fiber and Produce in his favor within the meaning of the paragraph above quoted;
Company. The Philippine National Bank acquiesced in this and and the circumstances under which that promise was given
dispatched to its New York agency another message to withhold disclose an evident intention on the part of the contracting
the Kauffman payment as suggested. parties that the plaintiff should have the money upon demand in
New York City. The recognition of this unqualified right in the
Meanwhile Wicks, the treasurer of the Philippine Fiber and plaintiff to receive the money implies in our opinion the right in
Produce Company, cabled to Kauffman in New York, advising him to maintain an action to recover it; and indeed if the
him that $45,000 had been placed to his credit in the New York provision in question were not applicable to the facts now
agency of the Philippine National Bank; and in response to this before us, it would be difficult to conceive of a case arising
advice Kauffman presented himself at the office of the under it.
Philippine National Bank in New York and demanded the
money. By this time, however, the message from the Philippine It will be noted that under the paragraph cited a third person
National Bank, directing the withholding of payment had been seeking to enforce compliance with a stipulation in his favor
received in New York, and payment was therefore refused. must signify his acceptance before it has been revoked. In this
In view of these facts, the plaintiff Kauffman instituted the case the plaintiff clearly signified his acceptance to the bank by
present action in the Court of First Instance of the city of Manila demanding payment; and although the Philippine National Bank
to recover said sum, with interest and costs; and judgment had already directed its New York agency to withhold payment
having been there entered favorably to the plaintiff, the when this demand was made, the rights of the plaintiff cannot
defendant appealed. be considered to as there used, must be understood to imply
ISSUE: is the lack of privity with the contract on the part of the revocation by the mutual consent of the contracting parties, or
plaintiff fatal to the maintenance of an action by him? at least by direction of the party purchasing he exchange.
RULING: The only express provision of law that has been cited as
bearing directly on this question is the second paragraph of
article 1257 of the Civil Code; and unless the present action can
Article 1312. In contracts creating real rights, third
be maintained under the provision, the plaintiff admittedly has persons who come into possession of the object of the
no case. This provision states an exception to the more general contract are bound thereby, subject to the provisions
rule expressed in the first paragraph of the same article to the of the Mortgage Law and the Land Registration Laws.
effect that contracts are productive of effects only between the (n)
parties who execute them; and in harmony with this general rule
are numerous decisions of this court.
The paragraph introducing the exception which we are now to This is another exception to the general rule of relativity of
consider is in these words: contracts.
Should the contract contain any stipulation in favor of Example:

a third person, he may demand its fulfillment, provided
he has given notice of his acceptance to the person A mortgaged his land to B and the subsequently, he sold
bound before the stipulation has been revoked. (Art.
the land to X. X is bound by that mortgage because the
1257, par. 2, Civ. Code.)
mortgage creates a real right.
In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is
found an elaborate dissertation upon the history and ―subject to the provisions of the Mortgage Law and the
interpretation of the paragraph above quoted and so complete Land Registration Laws‖
is the discussion contained in that opinion that it would be idle
for us here to go over the same matter. Suffice it to say that If the land is not registered, then X is not bound by that
Justice Trent, speaking for the court in that case, sums up its mortgage.
conclusions upon the conditions governing the right of the
person for whose benefit a contract is made to maintain an
action for the breach thereof in the following words:
So, we believe the fairest test, in this jurisdiction at least,

whereby to determine whether the interest of a third
person in a contract is a stipulation pour autrui, or
merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract.
If a third person claims an enforcible interest in the
contract, the question must be settled by determining
whether the contracting parties desired to tender him
such an interest. Did they deliberately insert terms in
their agreement with the avowed purpose of
conferring a favor upon such third person? In resolving
this question, of course, the ordinary rules of
construction and interpretation of writings must be
observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
Further on in the same opinion he adds: "In applying this test to a

stipulation pour autrui, it matters not whether the stipulation is in
the nature of a gift or whether there is an obligation owing from
the promise to the third person. That no such obligation exists
may in some degree assist in determining whether the parties
intended to benefit a third person, whether they stipulated for
him." (Uy Tam and Uy Yet vs. Leonard, supra.)
In the light of the conclusion thus stated, the right of the plaintiff
Article 1313. Creditors are protected in cases of
contracts intended to defraud them. (n)
RULING: The right on the part of Gilchrist to enter into a contract
with Cuddy for the lease of the film must be fully recognized and
admitted by all. That Cuddy was liable in an action for damages
for the breach of that contract, there can be no doubt. Were
This is accion pauliana which is contemplated under the appellants likewise liable for interfering with the contract
Article 1381 and Article 1383. between Gilchrist and Cuddy, they not knowing at the time the
identity of one of the contracting parties?
Example:
The appellants claim that they had a right to do what they did.
A borrowed 1M from B. At that time, A has several The ground upon which the appellants base this contention is,
that there was no valid and binding contract between Cuddy
properties. Then after the debt, A sold all his properties to
and Gilchrist and that, therefore, they had a right to compete
his son, X. When B goes to A for collection he says, ―I with Gilchrist for the lease of the film, the right to compete being
don‘t have money anymore because I don‘t have a justification for their acts. If there had been no contract
properties even. I sold them to my son.‖ between Cuddy and Gilchrist this defense would be tenable, but
the mere right to compete could not justify the appellants in
That sale can be classified as a sale intended to defraud intentionally inducing Cuddy to take away the appellee's
the creditor. Even if B is not a party to the contract of sale contractual rights.
between A and his son, he can impugn that, he can
contest that for being in fraud of his right as a creditor. Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said:
"Everyone has a right to enjoy the fruits and advantages of his
own enterprise, industry, skill and credit. He has no right to be
That is an accion pauliana which is an exception to the
free from malicious and wanton interference, disturbance or
principle of relativity. annoyance. If disturbance or loss comes as a result of
competition, or the exercise of like rights by others, it is damnum
He is not a party to that sale but he can question that absque injuria, unless some superior right by contract or
sale. otherwise is interfered with."
In Read vs. Friendly Society of Operative Stonemasons ([1902] 2

K. B., 88), Darling, J., said: "I think the plaintiff has a cause of
action against the defendants, unless the court is satisfied that,
Article 1314. Any third person who induces another to
when they interfered with the contractual rights of plaintiff, the
violate his contract shall be liable for damages to the defendants had a sufficient justification for their interference; . . .
other contracting party. (n) for it is not a justification that `they acted bona fide in the best
interests of the society of masons,' i. e., in their own interests. Nor
is it enough that `they were not actuated by improper motives.' I
think their sufficient justification for interference with plaintiff's
This is the concept of tortuous interference. right must be an equal or superior right in themselves, and that
no one can legally excuse himself to a man, of whose contract
Example: he has procured the breach, on the ground that he acted on a
wrong understanding of his own rights, or without malice, or
There is a contract between A and B so only A and B are bona fide, or in the best interests of himself, or even that he
bound by that contract. X, a third person, induces B to acted as an altruist, seeking only good of another and careless
violate that contract with A. In that case, X can be liable of his own advantage." (Quoted with approval in Beekman vs.
for damages by reason of interfering unlawfully with the Marsters, 195 Mass., 205.)
contract between A and B.
It is said that the ground on which the liability of a third party for
interfering with a contract between others rests, is that the
CASE: GILCHRIST vs CUDDY interference was malicious. The contrary view, however, is taken
by the Supreme Court of the United States in the case of Angle
Is it necessary for the one who interferes to know the vs. Railway Co. (151 U. S., 1). The only motive for interference by
identity of the parties to the original contract? No, it is not the third party in that case was the desire to make a profit to the
necessary. injury of one of the parties of the contract. There was no malice
in the case beyond the desire to make an unlawful gain to the
Is there a justification that can be advanced by the third detriment of one of the contracting parties.
party in interfering with the contract? Can there be a
valid justification? It can be a valid defense that you In the case at bar the only motive for the interference with the
Gilchrist Cuddy contract on the part of the appellants was a
acted in good faith; that you did not act with malice.
desire to make a profit by exhibiting the film in their theater.
That is the proper defense. There was no malice beyond this desire; but this fact does not
relieve them of the legal liability for interfering with that contract
GILCHRIST vs CUDDY and causing its breach. It is, therefore, clear, under the above
authorities, that they were liable to Gilchrist for the damages
FACTS: It appears in this case that Cuddy was the owner of the caused by their acts, unless they are relieved from such liability
film Zigomar and that on the 24th of April he rented it to C. S. by reason of the fact that they did not know at the time the
Gilchrist for a week for P125, and it was to be delivered on the identity of the original lessee (Gilchrist) of the film.
26th of May, the week beginning that day. A few days prior to
this Cuddy sent the money back to Gilchrist, which he had The liability of the appellants arises from unlawful acts and not
forwarded to him in Manila, saying that he had made other from contractual obligations, as they were under no such
arrangements with his film. The other arrangements was the obligations to induce Cuddy to violate his contract with Gilchrist.
rental to these defendants Espejo and his partner for P350 for the So that if the action of Gilchrist had been one for damages, it
week and the injunction was asked by Gilchrist against these would be governed by chapter 2, title 16, book 4 of the Civil
parties from showing it for the week beginning the 26th of May. Code. Article 1902 of that code provides that a person who, by
act or omission, causes damages to another when there is fault
ISSUE: Were the appellants likewise liable for interfering with the or negligence, shall be obliged to repair the damage do done.
contract between Gilchrist and Cuddy, they not knowing at the There is nothing in this article which requires as a condition
time the identity of one of the contracting parties? precedent to the liability of a tort-feasor that he must know the
identity of a person to whom he causes damages. In fact, the collecting rent from the tenants of the building.
chapter wherein this article is found clearly shows that no such
knowledge is required in order that the injured party may
ISSUE: The core issue here is whether the purchase by Lagon of
recover for the damage suffered.
the subject property, during the supposed existence of
Menandro Lapuz‘s lease contract with the late Bai Tonina Sepi,
constituted tortuous interference for which Lagon should be held
CASE: LAGON vs CA liable for damages.
Actual knowledge of the contract is not actually RULING: No, Lagon is not liable. Article 1314 of the Civil Code
necessary as long as there are facts which would lead to provides that any third person who induces another to violate his
knowledge and then you did not make this inquiry so that contract shall be liable for damages to the other contracting
is your fault. party. The tort recognized in that provision is known as
interference with contractual relations. The interference is
The usual defense is that there is no malice. penalized because it violates the property rights of a party in a
contract to reap the benefits that should result therefrom.
What do you call that damage which is not offensible(?)
here? Damnun absque injuria or damage without injury. The Court, in the case of So Ping Bun v. Court of Appeals, laid
Even if there was damage but the elements of tortuous down the elements of tortuous interference with contractual
interference were not all present so you could not hold relations: (a) existence of a valid contract; (b) knowledge on the
the third person liable for damages. part of the third person of the existence of the contract and (c)
interference of the third person without legal justification or
excuse. In that case, petitioner So Ping Bun occupied the
For example, all the elements are present, can the third
premises which the corporation of his grandfather was leasing
person be held liable for breach of contract? No. He is from private respondent, without the knowledge and permission
not a party to the contract. He is liable for tort or quasi- of the corporation. The corporation, prevented from using the
delict. That is why it is called tortuous interference. premises for its business, sued So Ping Bun for tortuous
interference.
As regards the first element, the existence of a valid contract

LAGON vs CA must be duly established. To prove this, Menandro Lapuz
presented in court a notarized copy of the purported lease
renewal. While the contract appeared as duly notarized, the
notarization thereof, however, only proved its due execution and
delivery but not the veracity of its contents. Nonetheless, after
FACTS: In the complaint, Menandro Lapuz, claimed that he
undergoing the rigid scrutiny of petitioner‘s counsel and after the
entered into a contract of lease with the late Bai Tonina Sepi
trial court declared it to be valid and subsisting, the notarized
Mengelen Guiabar over three parcels of land (the ―property‖) in
copy of the lease contract presented in court appeared to be
Sultan Kudarat, Maguindanao beginning 1964. One of the
incontestable proof that Menandro Lapuz and the late Bai
provisions agreed upon was for Menandro Lapuz to put up
Tonina Sepi actually renewed their lease contract. Settled is the
commercial buildings which would, in turn, be leased to new
rule that until overcome by clear, strong and convincing
tenants. The rentals to be paid by those tenants would answer
evidence, a notarized document continues to be prima facie
for the rent Menandro Lapuz was obligated to pay Bai Tonina
evidence of the facts that gave rise to its execution and delivery.
Sepi for the lease of the land. In 1974, the lease contract ended
but since the construction of the commercial buildings had yet
to be completed, the lease contract was allegedly renewed. The second element, on the other hand, requires that there be
knowledge on the part of the interferer that the contract exists.
Knowledge of the subsistence of the contract is an essential
When Bai Tonina Sepi died, Menandro Lapuz started remitting his
element to state a cause of action for tortuous interference. A
rent to the court-appointed administrator of her estate. But when
defendant in such a case cannot be made liable for interfering
the administrator advised him to stop collecting rentals from the
with a contract he is unaware of. While it is not necessary to
tenants of the buildings he constructed, he discovered that
prove actual knowledge, he must nonetheless be aware of the
Lagon, representing himself as the new owner of the property,
facts which, if followed by a reasonable inquiry, will lead to a
had been collecting rentals from the tenants.
complete disclosure of the contractual relations and rights of the
parties in the contract.
He thus filed a complaint against the latter, accusing petitioner
of inducing the heirs of Bai Tonina Sepi to sell the property to him,
In this case, petitioner claims that he had no knowledge of the
thereby violating his leasehold rights over it.
lease contract. His sellers (the heirs of Bai Tonina Sepi) likewise
allegedly did not inform him of any existing lease contract.
In his answer to the complaint, petitioner denied that he
induced the heirs of Bai Tonina to sell the property to him,
After a careful perusal of the records, we find the contention of
contending that the heirs were in dire need of money to pay off
petitioner meritorious. He conducted his own personal
the obligations of the deceased. He also denied interfering with
investigation and inquiry, and unearthed no suspicious
Menandro Lapuz‘s leasehold rights as there was no lease
circumstance that would have made a cautious man probe
contract covering the property when he purchased it; that his
deeper and watch out for any conflicting claim over the
personal investigation and inquiry revealed no claims or
property. An examination of the entire property‘s title bore no
encumbrances on the subject lots.
indication of the leasehold interest of Menandro Lapuz. Even the
registry of property had no record of the same.
Petitioner claimed that before he bought the property, he went
to Atty. Benjamin Fajardo, the lawyer who allegedly notarized
Assuming ex gratia argumenti that petitioner knew of the
the lease contract between Menandro Lapuz and Bai Tonina
contract, such knowledge alone was not sufficient to make him
Sepi, to verify if the parties indeed renewed the lease contract
liable for tortuous interference. Which brings us to the third
after it expired in 1974. Petitioner averred that Atty. Fajardo
element. According to our ruling in So Ping Bun, petitioner may
showed him four copies of the lease renewal but these were all
be held liable only when there was no legal justification or
unsigned. Lagon added that he only learned of the alleged
excuse for his action or when his conduct was stirred by a
lease contract when he was informed that Menandro Lapuz was
wrongful motive. To sustain a case for tortuous interference, the
defendant must have acted with malice or must have been
driven by purely impious reasons to injure the plaintiff. In other
words, his act of interference cannot be justified.
Furthermore, the records do not support the allegation of

Menandro Lapuz that petitioner induced the heirs of Bai Tonina This is a general rule: contracts are perfected by mere
Sepi to sell the property to him. The word ―induce‖ refers to consent.
situations where a person causes another to choose one course
of conduct by persuasion or intimidation. The records show that But we are talking here only of a consensual contract.
the decision of the heirs of the late Bai Tonina Sepi to sell the There are actually other kinds of contracts other than a
property was completely of their own volition and that petitioner
consensual contract.
did absolutely nothing to influence their judgment. Menandro
Lapuz himself did not proffer any evidence to support his
claim. In short, even assuming that private respondent was able
But a consensual contract, as long they are in
to prove the renewal of his lease contract with Bai Tonina Sepi, agreement, there is a contract.
the fact was that he was unable to prove malice or bad faith on
the part of petitioner in purchasing the property. Therefore, the Example:
claim of tortuous interference was never established.
Nanligaw ka. Musugat ba ka na kita na? Magsulat siya, ―I
In So Ping Bun, the Court discussed whether interference can be accept.‖ So, that‘s an agreement. By mere consent, no
justified at all if the interferer acts for the sole purpose of other formalities required, in a consensual contract.
furthering a personal financial interest, but without malice or bad
faith. As the Court explained it: There are other contracts. Like Article 1316.
x x x, as a general rule, justification for interfering with

the business relations of another exists where the Article 1316. Real contracts, such as deposit, pledge
actor‘s motive is to benefit himself. Such justification and commodatum, are not perfected until the
does not exist where the actor‘s motive is to cause delivery of the object of the obligation. (n)
harm to the other. Added to this, some authorities
believe that it is not necessary that the interferer‘s
interest outweigh that of the party whose rights are Real contracts are perfected by the delivery. Even if you
invaded, and that an individual acts under an already agree na magdeposit; nisugot na, as long as
economic interest that is substantial, not merely de there is no delivery et, there is still no contract of deposit.
minimis, such that wrongful and malicious motives are
What you have is a contract to constitute a future
negatived, for he acts in self-protection. Moreover,
justification for protecting one‘s financial position contract of deposit but not yet a contract of deposit.
should not be made to depend on a comparison of his
economic interest in the subject matter with that of the The other kind of contract is a formal or solemn contract.
others. It is sufficient if the impetus of his conduct lies in That is perfected by the observance of the forms and
a proper business interest rather than in wrongful solemnities required by law.
motives.
The foregoing disquisition applies squarely to the case at bar. In Article 1317. No one may contract in the name of
our view, petitioner‘s purchase of the subject property was another without being authorized by the latter, or
merely an advancement of his financial or economic interests, unless he has by law a right to represent him.
absent any proof that he was enthused by improper motives. In
the very early case of Gilchrist v. Cuddy, the Court declared that
a person is not a malicious interferer if his conduct is impelled by A contract entered into in the name of another by
a proper business interest. In other words, a financial or profit one who has no authority or legal representation, or
motivation will not necessarily make a person an officious who has acted beyond his powers, shall be
interferer liable for damages as long as there is no malice or bad unenforceable, unless it is ratified, expressly or
faith involved.
impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other
In sum, we rule that, inasmuch as not all three elements to hold contracting party. (1259a)
petitioner liable for tortuous interference are present, petitioner
cannot be made to answer for Menandro Lapuz‘s losses.
This case is one of damnun absque injuria or damage without Example:

injury. ―Injury‖ is the legal invasion of a legal right while
―damage‖ is the hurt, loss or harm which results from the Your father has a land and you are the child. Can you sell
injury.[22] In BPI Express Card Corporation v. Court of your father‘s land? No, because you are not even the
Appeals,,[23] the Court turned down the claim for damages of a
owner of the land yet.
cardholder whose credit card had been cancelled by petitioner
corporation after several defaults in payment. We held there
that there can be damage without injury where the loss or harm
What happens of you sell that land of your father? The
is not the result of a violation of a legal duty. In that instance, the contract is unenforceable. As you will discuss later on in
consequences must be borne by the injured person alone since defective contracts, an unenforceable contract is
the law affords no remedy for damages resulting from an act actually a valid contract although it cannot be enforced.
which does not amount to legal injury or wrong.[24] Indeed, lack If you sold your father‘s land, the buyer cannot compel
of malice in the conduct complained of precludes recovery of you to deliver. He cannot file an action for specific
damages. performance. You cannot also file an action against him
for collection of the money because that contract is
Article 1315. Contracts are perfected by mere unenforceable; it cannot be enforced.
consent, and from that moment the parties are
bound not only to the fulfillment of what has been
expressly stipulated but also to all the
consequences which, according to their nature,
maySolis
Revelen be and
in keeping withMartinez
Mizzy Mareé good faith, usage and law. TAU MU Page 189 of 262
(1258)
Can it be enforced later on? Is there a possibility that
such contract may be given effect? Yes, if it is ratified
expressly.
How can it be ratified expressly? Your father can say

verbally or in writing that he agrees to the sale.
Article 1319 gives us when consent is manifested; when
Impliedly if he gets from the proceeds of the sale. That is there is presence of consent: “meeting of the offer and
already an implied ratification. the acceptance upon the thing and the cause which are
to constitute the contract.”
An unenforceable contract is a valid contract but it
cannot be enforced although it is subject to ratification. Example:
II.ESSENTIAL REQUIISITES OF CONTRACTS I‘m selling this land to you at 1M cash. If you say, ―Okay, I
accept,‖ there is now acceptance. There is meeting of
(ARTICLE 1318) the minds.
If you say, ―Okay, I will buy but can it be 2 gives, 2

Article 1318. There is no contract unless the following installments?‖ Is there a perfected contract? You agree
requisites concur: on the price but you said 2 gives. That is not a perfected
contract. That is what we call a qualified acceptance or
(1) Consent of the contracting parties; conditional acceptance which constitutes a counter-
offer.
(2) Object certain which is the subject matter
of the contract; If he says, ―Sugot ko ug 2 gives pero naay interest of 5%.‖
Is there a perfected contract? No, there is a qualified
acceptance.
(3) Cause of the obligation which is
established. (1261) If he says, ―Sige, magbayad ko ug interest pero dili 5%,
pwede 2% lang?‖ There is still no perfected contract. It is
still a qualified acceptance.
What kind of contacts is being mentioned under Article
1318? If he says, ―Sige, 1%. 1Million, 2 gives, payable within one
year with interest of 1% per month.‖ In that case, wala na
As I discussed before, we have a: lahi na counter-offer, there is now a perfected contract.
There is now consent.
1.) Consensual contract
2.) Real contract “Acceptance made by letter or telegram”
3.) Formal or solemn contract
So, you offer on January 1. Nadawat sa pikas ang
We are talking here of a consensual contract. When you imuhang offer sa January 3. Ingon siya, “Oo, musugot
speak of consensual contract, these are the only ko.” Pero wala pa siya nakaingon sa imoha. Nitubag siya
essential requisites and no other. January 4 pero iyang gi-telegram sa hapon. Narecieve
sa pikas January 6. When is the contract perfected?
In formal contracts, are these the only requisites? No, the January 6, at the time when the letter or telegram
other requisite in formal contracts is form. reaches the offerer and the acceptance comes to his
knowledge.
In real contracts, what is the additional requisite? There
should be delivery. CASE: MALBAROSA vs CA
We are only talking here of a consensual contract. If you In my example above, on January 5 the offeror changed
are asked, ―What are the essential requisites of his mind and offered it to another person and that other
contracts?‖ person accepted. What happens now to the
acceptance made by the offeree. Is there a perfected
A more complete answer would be, ―In consensual
contract? No, because the offer was withdrawn before
contracts, the following are the requisites (Article 1318). In
the acceptance came to the knowledge of the offeror.
formal contracts, in addition, there is a need for the
That is the principle in acceptance.
observance of the proper forms and solemnities. In real
contracts, delivery is an additional essential requisite.‖ There are actually 4 theories of perfection:
III.CONSENT 1.) Manifestation theory – there is perfection of the

(ARTICLES 1319 – 1346) contract from the time that the acceptance is
manifested. Insofar as telegrams and letters are
concerned, from the time na gisulat niya sa
Article 1319. Consent is manifested by the meeting of papel, there is perfection.
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer 2.) Expedition theory – from the time that he mailed
must be certain and the acceptance absolute. A his acceptance in the mailbox
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not

bind the offerer except from the time it came to his
knowledge.
Revelen The contract,
Solis and Mizzy in such a case, is presumed
to have been entered into in the place where the offer
was made. (1262a)
3.) Reception theory – from the time that the offer is The respondent decided to withdraw Offer. The respondent then
accepted even if the offerer has not yet read the demanded from the petitioner for the return of the car.
letter.
Petitioner wrote the counsel of Philtectic Corporation informing
the latter that he cannot comply with said demand as he
4.) Cognition theory – at the time that the already accepted the March 14, 1990 Letter-offer of the
acceptance came to the knowledge of the respondent when he affixed on March 28, 1990 his signature on
offeror. This is the one being used in our the original copy of the letter-offer.
jurisdiction. This is the one mentioned under
Article 1319. The petitioner enclosed a xerox copy of the original copy of the
March 14, 1990 Letter-offer of the respondent, bearing his
MALBAROSA vs CA signature on the space provided therefore dated March 28,
1990.
FACTS: Philtectic Corporation and Commonwealth Insurance
Co., Inc. were only two of the group of companies wholly- With the refusal of the petitioner to return the vehicle, the
owned and controlled by respondent S.E.A. Development respondent filed a complaint against the petitioner, for recovery
Corporation (SEADC). of personal property with replevin with damages and attorney's
fees.
The petitioner Salvador P. Malbarosa was the president and
general manager of Philtectic Corporation, and an officer of The trial court issued an order for the issuance of a writ of
other corporations belonging to the SEADC group of companies. replevin. The Sheriff served the writ on the petitioner and was
The respondent assigned to the petitioner one of its able to take possession of the vehicle in question. On May 15,
vehicles described as a 1982 model Mitsubishi Gallant Super 1990, the petitioner was able to recover the possession of the
Saloon, with plate number PCA 180 for his use. vehicle upon his filing of the counter-bond.
He was also issued membership certificates in the Architectural The petitioner, alleged that he had already agreed on March 28,
Center, Inc. Louis Da Costa was the president of the respondent 1990 to the March 14, 1990 Letter-offer of the respondent and
and Commonwealth Insurance Co., Inc., while Senen Valero was had notified the said plaintiff of his acceptance; hence, he had
the Vice-Chairman of the Board of Directors of the respondent the right to the possession of the car. Philtectic Corporation had
and Vice-Chairman of the Board of Directors of Philtectic no right to withdraw the offer of the respondent SEADC.
Corporation.
The trial court stated that there existed no perfected contract
Petitioner intimated to Senen Valero his desire to retire from the between the petitioner and the respondent on the latter's March
SEADC group of companies and requested that his 1989 14, 1990 Letter-offer for failure of the petitioner to effectively
incentive compensation as president of Philtectic Corporation notify the respondent of his acceptance of said letter-offer
be paid to him. Petitioner sent a letter to Senen Valero tendering before the respondent withdrew the same.
his resignation from all his positions in the SEADC group of
companies, and reiterating therein his request for the payment The Court of Appeals rendered its Decision, affirming the
of his incentive compensation for 1989. decision of the trial court. The Court of Appeals stated that the
petitioner had not accepted the respondent's March 14, 1990
Louis Da Costa met with the petitioner on two occasions to Letter-offer before the respondent withdrew said offer on April 4,
discuss the amount of the 1989 incentive compensation 1990.
petitioner was entitled to, and the mode of payment thereof. Da
Costa ventured that the petitioner would be entitled to an ISSUE: (a) whether or not there was a valid acceptance on his
incentive compensation in the amount of P395,000. part of the March 14, 1990 Letter-offer of the respondent; and
Respondent, through Senen Valero, signed a letter-offer (b) whether or not there was an effective withdrawal by the
addressed to the petitioner stating therein that petitioner's respondent of said letter-offer.
resignation from all the positions in the SEADC group of
companies had been accepted by the respondent, and that he RULING:
was entitled to an incentive compensation in the amount of No valid acceptance
P251,057.67. Respondent proposed that petitioner‘s incentive Under Article 1318 of the Civil Code, the essential requisites of a
compensation be satisfied by transferring the company car to contract are as follows:
petitioner and that the membership share of respondent‘s
subsidiary, Tradestar International, Inc. in the Architectural Art. 1318. There is no contract unless the following
Center, Inc. will also be transferred to petitioner. This Letter-offer requisites concur:
was dated March 14, 1990. (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
The respondent required that if the petitioner agreed to the contract;
offer, he had to affix his conformity on the space provided (3) Cause of the obligation which is established.
therefor and the date thereof on the right bottom portion of the
letter. Under Article 1319 of the New Civil Code, the consent by a party
is manifested by the meeting of the offer and the acceptance
The petitioner was dismayed when he read the letter and upon the thing and the cause which are to constitute the
learned that he was being offered an incentive compensation contract. An offer may be reached at any time until it is
of only P251,057.67. He told Da Costa that he was entitled to no accepted. An offer that is not accepted does not give rise to a
less than P395,000 as incentive compensation. consent.
The petitioner refused to sign the letter-offer on the space The contract does not come into existence. To produce a
provided therefor. He received the original of the letter and contract, there must be acceptance of the offer which may be
wrote on the duplicate copy of the letter-offer retained by Da express or implied but must not qualify the terms of the offer. The
Costa, the words: "Rec'd original for review purposes." acceptance must be absolute, unconditional and without
variance of any sort from the offer.
Despite the lapse of more than two weeks, the respondent had
not received the original of the Letter-offer of the respondent The acceptance of an offer must be made known to the
with the conformity of the petitioner on the space provided offeror. Unless the offeror knows of the acceptance, there is no
therefor. meeting of the minds of the parties, no real concurrence of offer
and acceptance. The offeror may withdraw its offer and revoke
the same before acceptance thereof by the offeree. to the petitioner. Besides, when he testified, Senen Valero stated
that the April 4, 1990 letter of Philtectic Corporation to the
The contract is perfected only from the time an acceptance of petitioner was upon his instruction and conformably with the
an offer is made known to the offeror. If an offeror prescribes the aforesaid resolution of the Board of Directors of the respondent.
exclusive manner in which acceptance of his offer shall be
indicated by the offeree, an acceptance of the offer in the
manner prescribed will bind the offeror. Article 1320. An acceptance may be express or
implied. (n)
On the other hand, an attempt on the part of the offeree to
accept the offer in a different manner does not bind the offeror
as the absence of the meeting of the minds on the altered type
of acceptance. An offer made inter praesentes must be Okay, so, express or implied. Express = yes.
accepted immediately. If the parties intended that there should
be an express acceptance, the contract will be perfected only
upon knowledge by the offeror of the express acceptance by Example;
the offeree of the offer.
Nanligaw ka. Gisugot na ko nimo? Muuingon siya ug yes.
An acceptance which is not made in the manner prescribed by
the offeror is not effective but constitutes a counter-offer which So, that is express.
the offeror may accept or reject. The contract is not perfected if
the offeror revokes or withdraws its offer and the revocation or Kung, halimbawa, wala siya nitingog unya ni-kiss siya sa
withdrawal of the offeror is the first to reach the offeree. The imoha kalit. Unsa na siya? Acceptance? For me, it is. That
acceptance by the offeree of the offer after knowledge of the
can be implied. Or nag-holding hands na kayo after.
revocation or withdrawal of the offer is inefficacious. The
termination of the contract when the negotiations of the parties
terminate and the offer and acceptance concur, is largely a So, the same with contracts.
question of fact to be determined by the trial court.
In this case, the respondent made its offer through its Vice-
Chairman of the Board of Directors, Senen Valero. On March 16, Article 1321. The person making the offer may fix the
1990, Da Costa handed over the original of the March 14, 1990 time, place, and manner of acceptance, all of
Letter-offer of the respondent to the petitioner. The respondent which must be complied with. (n)
required the petitioner to accept the offer by affixing his
signature on the space provided in said letter-offer and writing
the date of said acceptance, thus foreclosing an implied
acceptance or any other mode of acceptance by the
So, kung unsa tong gi-ingon sa offeror (like in the case of
petitioner. However, when the letter-offer of the respondent was
delivered to the petitioner on March 16, 1990, he did not accept Malbarosa) na gitagaan siya ug offer. The offer was
or reject the same for the reason that he needed time to decide made in the letter and then it was even mentioned there
whether to reject or accept the same. ―Please signify your acceptance by signing in the blank
provided for.‖
There was no contract perfected between the petitioner and
the respondent corporation. Although the petitioner claims that
he had affixed his conformity to the letter-offer on March 28,
In that case, it was not done earlier. It was done only
1990, the petitioner failed to transmit the said copy to the when the offerer had already offered the same thing to
respondent. It was only on April 7, 1990 when the petitioner another person. There was no perfected contract here
appended to his letter to the respondent a copy of the said because the offeree here did not indicate his
March 14, 1990 Letter-offer bearing his conformity that he acceptance in the manner requested or required by the
notified the respondent of his acceptance to said offer. But then, offerer. Kung niingon si offerer na dapat mupirma ka diha
the respondent, through Philtectic Corporation, had already sa blank space, mao na siya ang imong manner of
withdrawn its offer and had already notified the petitioner of
acceptance. You cannot just text him that you accepted
said withdrawal via respondent's letter dated April 4, 1990 which
was delivered to the petitioner on the same day. Indubitably,
the offer. That is not within the tenor required by the
there was no contract perfected by the parties on the March 14, offerer.
1990 Letter-offer of the respondent.
The petitioner's plaint that he was not accorded by the

respondent reasonable time to accept or reject its offer does not
persuade. It must be underscored that there was no time frame
fixed by the respondent for the petitioner to accept or reject its
offer. When the offeror has not fixed a period for the offeree to
accept the offer, and the offer is made to a person present, the
acceptance must be made immediately.
Effective Withdrawal
Petitioner avers that Philtectic Corporation, although a wholly-

owned and controlled subsidiary of the respondent, had no
authority to withdraw the offer of the respondent.
We do not agree with the petitioner. Implicit in the authority

given to Philtectic Corporation to demand for and recover from
the petitioner the subject car and to institute the appropriate
action against him to recover possession of the car is the
authority to withdraw the respondent's March 14, 1990 Letter-
offer. It cannot be argued that respondent authorized Philtectic
Corporation to demand and sue for the recovery of the car and
yet did not authorize it to withdraw its March 14, 1990 Letter-offer
Article 1322. An offer made through an agent is When is there an option contract? If that option is
accepted from the time acceptance is founded upon a consideration. Like, okay, I will give you
communicated to him. (n) 10K for my option to buy within one month. So, within one
month, you cannot offer or sell that same land to another
person because you are bound by that option contract.
―Him‖ here refers to the agent. As long as you already If,, for example, you sell the land to another person within
communicated to the agent, that is equivalent to one month, in breach of the option contract, he can be
acceptance. held liable for damages but not breach of contract of
sale but breach of the option contract.
Article 1323. An offer becomes ineffective upon the If there is no consideration at all. He just promised to give
death, civil interdiction, insanity, or insolvency of you one month and then he changed his mind and sole it
either party before acceptance is conveyed. (n) to another person, he cannot be held liable for that. That
is just an unaccepted offer.
This is self-explanatory. Namatay siya or he is under civil

The law says, ―Upon a consideration, as something paid
interdiction, buang siya before niya na-convey and iyang
or promised.‖ The consideration here is not necessarily
acceptance then the offer becomes ineffective.
money.
Article 1324. When the offerer has allowed the

It can be money but it can also be other things like ―I will
offeree a certain period to accept, the offer may be
lease to you my house for 10K. That amount is relatively
withdrawn at any time before acceptance by
higher but that is high because I‘m giving to you a
communicating such withdrawal, except when the
contract of lease with option to buy.‖ You agree. Then
option is founded upon a consideration, as
the lessor sold the same property to another person. Is he
something paid or promised. (n)
liable for breach? Is there an option? Is he bound by the
option; contract of lease with option to buy?
This is a very important provision.
Yes, because the consideration of that option is the same
consideration for the contract of lease. You would not
As I already mentioned to you, as long as the offer has
have rented the house for 10K were it not for the option
not yet been accepted, the offerer can still withdraw the
to buy. In that case, that is also a valuable consideration.
offer. If the offer is made with telegram of letter, as long
He same consideration that supports the contract of
as the acceptance has not yet reached the knowledge
lease can be the same consideration that supports the
of the offerer, he can still withdraw the offer.
contract of option.
EXCEPT when an option contract is involved.

ADELFA PROPERTIES vs CA
What is an option? FACTS: Herein private respondents and their brothers, Jose and
Dominador Jimenez, were the registered co-owners of a parcel
of land consisting of 17,710 square meters.
CASE: ADELFA PROPERTIES vs CA
On July 28, 1988, Jose and Dominador Jimenez sold their share
I think we discussed before the distinction between an consisting of one-half of said parcel of land, specifically the
option money and al earnest money. eastern portion thereof, to herein petitioner pursuant to a
"Kasulatan sa Bilihan ng Lupa." Subsequently, a "Confirmatory
Extrajudicial Partition Agreement" was executed by the
An option money, when you give an option money, it is Jimenezes, wherein the eastern portion of the subject lot, with an
not evidence of a perfected contract. What you have is area of 8,855 square meters was adjudicated to Jose and
merely a perfected contract of option; meaning ―I want Dominador Jimenez, while the western portion was allocated to
to buy your land but I‘m still thinking if I can really afford it herein private respondents.
so I want you to give me one month within which to buy
Thereafter, herein petitioner expressed interest in buying the
your land‖ and the offerer said, ―Okay, I‘ll give you one
western portion of the property from private respondents.
month.‖ Accordingly, on November 25, 1989, an "Exclusive Option to
Purchase" was executed between petitioner and private
If before one month, the mind of the offerer changed, he respondents, under the following terms and conditions:
offered the same land within 15 days to another person,
1. The selling price of said 8,655 square meters of the
X, and X accepted. Is the offeror in breach of his option
subject property is TWO MILLION EIGHT HUNDRED
contract with you? In the first place, is there an option FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS
contract with you? ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from
In that case, there is no option contract. What you have ADELFA PROPERTIES, INC. as an option money shall
is merely an offer; an unaccepted offer. He can withdraw be credited as partial payment upon the
consummation of the sale and the balance in the
it anytime prior to acceptance. He is not bound to give
sum of TWO MILLION EIGHT HUNDRED SIX
you one month. THOUSAND ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before November
When can he be bound to give you one month? When 30, 1989;
there is an option contract. 3. In case of default on the part of ADELFA
PROPERTIES, INC. to pay said balance in
accordance with paragraph 2 hereof, this option
shall be cancelled and 50% of the option money fees to private respondents, with costs.
to be forfeited in our favor and we will refund the
remaining 50% of said money upon the sale of said On appeal, respondent Court of appeals affirmed in toto the
property to a third party; decision of the court a quo and held that the failure of petitioner
to pay the purchase price within the period agreed upon was
Before petitioner could make payment, it received summons tantamount to an election by petitioner not to buy the property;
together with a copy of a complaint filed by the nephews and that the suspension of payment constituted an imposition of a
nieces of private respondents against the latter, Jose and condition which was actually a counter-offer amounting to a
Dominador Jimenez, and herein petitioner for annulment of the rejection of the option
deed of sale in favor of Household Corporation and recovery of
ownership of the property. RULING: An analysis of the facts obtaining in this case, as well as
the evidence presented by the parties, irresistibly leads to the
As a consequence, in a letter, petitioner informed private conclusion that the agreement between the parties is a contract
respondents that it would hold payment of the full purchase to sell, and not an option contract or a contract of sale.
price and suggested that private respondents settle the case
with their nephews and nieces, adding that ". . . if possible, The distinction between a contract to sell and a contract of sale
although November 30, 1989 is a holiday, we will be waiting for is important for in contract of sale, the title passes to the vendee
you and said plaintiffs at our office up to 7:00 p.m." Another letter upon the delivery of the thing sold; whereas in a contract to sell,
of the same tenor and of even date was sent by petitioner to by agreement the ownership is reserved in the vendor and is not
Jose and Dominador Jimenez. Respondent Salud Jimenez to pass until the full payment of the price. In a contract of sale,
refused to heed the suggestion of petitioner and attributed the the vendor has lost and cannot recover ownership until and
suspension of payment of the purchase price to "lack of word of unless the contract is resolved or rescinded; whereas in a
honor." contract to sell, title is retained by the vendor until the full
payment of the price, such payment being a positive suspensive
Petitioner caused to be annotated on the title of the lot its condition and failure of which is not a breach but an event that
option contract with private respondents, and its contract of sale prevents the obligation of the vendor to convey title from
with Jose and Dominador Jimenez. becoming effective. Thus, a deed of sale is considered absolute
in nature where there is neither a stipulation in the deed that title
Private respondents sent Francisca Jimenez to see Atty. to the property sold is reserved in the seller until the full payment
Bernardo, in his capacity as petitioner's counsel, and to inform of the price, nor one giving the vendor the right to unilaterally
the latter that they were cancelling the transaction. In turn, Atty. resolve the contract the moment the buyer fails to pay within a
Bernardo offered to pay the purchase price provided that fixed period.
P500,000.00 be deducted therefrom for the settlement of the civil There are two features which convince us that the parties never
case. This was rejected by private respondents. On December intended to transfer ownership to petitioner except upon the full
22, 1989, Atty. Bernardo wrote private respondents on the same payment of the purchase price. Firstly, the exclusive option to
matter but this time reducing the amount from P500,000.00 to purchase, although it provided for automatic rescission of the
P300,000.00, and this was also rejected by the latter. contract and partial forfeiture of the amount already paid in
case of default, does not mention that petitioner is obliged to
On February 23, 1990, the Regional Trial Court of Makati return possession or ownership of the property as a consequence
dismissed Civil Case No. 89-5541. Thus petitioner caused to be of non-payment. There is no stipulation anent reversion or
annotated anew on TCT No. 309773 the exclusive option to reconveyance of the property to herein private respondents in
purchase as Entry No. 4442-4.On the same day, private the event that petitioner does not comply with its obligation.
respondents executed a Deed of Conditional Salein favor of With the absence of such a stipulation, although there is a
Emylene Chua over the same parcel of land for P3,029,250, of provision on the remedies available to the parties in case of
which P1,500,000.00 was paid to private respondents on said breach, it may legally be inferred that the parties never intended
date, with the balance to be paid upon the transfer of title to to transfer ownership to the petitioner to completion of payment
the specified one-half portion. of the purchase price.
Atty. Bernardo wrote private respondents informing the latter In effect, there was an implied agreement that ownership shall
that in view of the dismissal of the case against them, petitioner not pass to the purchaser until he had fully paid the price.
was willing to pay the purchase price, and he requested that the Consequently, an implied stipulation to that effect is considered
corresponding deed of absolute sale be executed. This was valid and, therefore, binding and enforceable between the
ignored by private respondents. parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is
Private respondents' counsel sent a letter to petitioner enclosing considered a contract to sell.
therein a check for P25,000.00 representing the refund of fifty
percent of the option money paid under the exclusive option to Secondly, it has not been shown there was delivery of the
purchase. Private respondents then requested petitioner to property, actual or constructive, made to herein petitioner. The
return the owner's duplicate copy of the certificate of title of exclusive option to purchase is not contained in a public
respondent Salud Jimenez. instrument the execution of which would have been considered
equivalent to delivery. Neither did petitioner take actual,
Petitioner failed to surrender the certificate of title, hence private physical possession of the property at any given time.
respondents a civil case for annulment of contract with
damages, praying, among others, that the exclusive option to Irrefragably, the controverted document should legally be
purchase be declared null and void; that defendant, herein considered as a perfected contract to sell.
petitioner, be ordered to return the owner's duplicate certificate
of title; and that the annotation of the option contract on TCT On this particular point, therefore, we reject the position and
No. 309773 be cancelled. Emylene Chua, the subsequent ratiocination of respondent Court of Appeals which, while
purchaser of the lot, filed a complaint in intervention. awarding the correct relief to private respondents, categorized
the instrument as "strictly an option contract."
The trial court rendered judgment therein holding that the
agreement entered into by the parties was merely an option The important task in contract interpretation is always the
contract, and declaring that the suspension of payment by ascertainment of the intention of the contracting parties and
herein petitioner constituted a counter-offer which, therefore, that task is, of course, to be discharged by looking to the words
was tantamount to a rejection of the option. The trial court then they used to project that intention in their contract, all the words
directed the cancellation of the exclusive option to purchase, not just a particular word or two, and words in context not words
declared the sale to intervenor Emylene Chua as valid and standing alone. Moreover, judging from the subsequent acts of
binding, and ordered petitioner to pay damages and attorney's the parties which will hereinafter be discussed, it is undeniable
that the intention of the parties was to enter into a contract to
sell. In addition, the title of a contract does not necessarily Petitioner was supposed to pay the same on November 25, 1989,
determine its true nature. Hence, the fact that the document but it later offered to make a down payment of P50,000.00, with
under discussion is entitled "Exclusive Option to Purchase" is not the balance of P2,806,150.00 to be paid on or before November
controlling where the text thereof shows that it is a contract to 30, 1989. Private respondents agreed to the counter-offer made
sell. by petitioner. As a result, the so-called exclusive option to
purchase was prepared by petitioner and was subsequently
An option, as used in the law on sales, is a continuing offer or signed by private respondents, thereby creating a perfected
contract by which the owner stipulates with another that the contract to sell between them.
latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain It cannot be gainsaid that the offer to buy a specific piece of
terms and conditions, or which gives to the owner of the land was definite and certain, while the acceptance thereof
property the right to sell or demand a sale. It is also sometimes was absolute and without any condition or qualification. The
called an "unaccepted offer." An option is not of itself a agreement as to the object, the price of the property, and the
purchase, but merely secures the privilege to buy. It is not a sale terms of payment was clear and well-defined. No other
of property but a sale of the right to purchase. It is simply a significance could be given to such acts that than they were
contract by which the owner of property agrees with another meant to finalize and perfect the transaction. The parties even
person that he shall have the right to buy his property at a fixed went beyond the basic requirements of the law by stipulating
price within a certain time. He does not sell his land; he does not that "all expenses including the corresponding capital gains tax,
then agree to sell it; but he does sell something, that it is, the right cost of documentary stamps are for the account of the vendors,
or privilege to buy at the election or option of the other party. and expenses for the registration of the deed of sale in the
Its distinguishing characteristic is that it imposes no binding Registry of Deeds are for the account of Adelfa properties, Inc."
obligation on the person holding the option, aside from the Hence, there was nothing left to be done except the
consideration for the offer. Until acceptance, it is not, properly performance of the respective obligations of the parties.
speaking, a contract, and does not vest, transfer, or agree to We do not subscribe to private respondents' submission, which
transfer, any title to, or any interest or right in the subject matter, was upheld by both the trial court and respondent court of
but is merely a contract by which the owner of property gives the appeals, that the offer of petitioner to deduct P500,000.00, (later
optionee the right or privilege of accepting the offer and buying reduced to P300,000.00) from the purchase price for the
the property on certain terms. settlement of the civil case was tantamount to a counter-offer. It
must be stressed that there already existed a perfected contract
On the other hand, a contract, like a contract to sell, involves a between the parties at the time the alleged counter-offer was
meeting of minds two persons whereby one binds himself, with made. Thus, any new offer by a party becomes binding only
respect to the other, to give something or to render some when it is accepted by the other. In the case of private
service. Contracts, in general, are perfected by mere respondents, they actually refused to concur in said offer of
consent, which is manifested by the meeting of the offer and the petitioner, by reason of which the original terms of the contract
acceptance upon the thing and the cause which are to continued to be enforceable.
constitute the contract. The offer must be certain and the
acceptance absolute. At any rate, the same cannot be considered a counter-offer for
the simple reason that petitioner's sole purpose was to settle the
The distinction between an "option" and a contract of sale is that civil case in order that it could already comply with its obligation.
an option is an unaccepted offer. It states the terms and In fact, it was even indicative of a desire by petitioner to
conditions on which the owner is willing to sell the land, if the immediately comply therewith, except that it was being
holder elects to accept them within the time limited. If the holder prevented from doing so because of the filing of the civil case
does so elect, he must give notice to the other party, and the which, it believed in good faith, rendered compliance
accepted offer thereupon becomes a valid and binding improbable at that time. In addition, no inference can be drawn
contract. If an acceptance is not made within the time fixed, the from that suggestion given by petitioner that it was totally
owner is no longer bound by his offer, and the option is at an abandoning the original contract.
end. A contract of sale, on the other hand, fixes definitely the
relative rights and obligations of both parties at the time of its More importantly, it will be noted that the failure of petitioner to
execution. The offer and the acceptance are concurrent, since pay the balance of the purchase price within the agreed period
the minds of the contracting parties meet in the terms of the was attributed by private respondents to "lack of word of honor"
agreement. on the part of the former. The reason of "lack of word of honor" is
to us a clear indication that private respondents considered
A perusal of the contract in this case, as well as the oral and petitioner already bound by its obligation to pay the balance of
documentary evidence presented by the parties, readily shows the consideration. In effect, private respondents were
that there is indeed a concurrence of petitioner's offer to buy demanding or exacting fulfillment of the obligation from herein
and private respondents' acceptance thereof. petitioner with the arrival of the period agreed upon by the
parties, petitioner was supposed to comply with the obligation
The rule is that except where a formal acceptance is so incumbent upon it to perform, not merely to exercise an option
required, although the acceptance must be affirmatively and or a right to buy the property.
clearly made and must be evidenced by some acts or conduct
communicated to the offeror, it may be made either in a formal The obligation of petitioner on November 30, 1993 consisted of
or an informal manner, and may be shown by acts, conduct, or an obligation to give something, that is, the payment of the
words of the accepting party that clearly manifest a present purchase price. The contract did not simply give petitioner the
intention or determination to accept the offer to buy or sell. Thus, discretion to pay for the property. It will be noted that there is
acceptance may be shown by the acts, conduct, or words of a nothing in the said contract to show that petitioner was merely
party recognizing the existence of the contract of sale. given a certain period within which to exercise its privilege to
buy. The agreed period was intended to give time to herein
The records also show that private respondents accepted the petitioner within which to fulfill and comply with its obligation,
offer of petitioner to buy their property under the terms of their that is, to pay the balance of the purchase price. No evidence
contract. At the time petitioner made its offer, private was presented by private respondents to prove otherwise.
respondents suggested that their transfer certificate of title be The test in determining whether a contract is a "contract of sale
first reconstituted, to which petitioner agreed. As a matter of or purchase" or a mere "option" is whether or not the agreement
fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who could be specifically enforced. There is no doubt that the
assisted private respondents in filing a petition for reconstitution. obligation of petitioner to pay the purchase price is specific,
After the title was reconstituted, the parties agreed that definite and certain, and consequently binding and
petitioner would pay either in cash or manager's check the enforceable. Had private respondents chosen to enforce the
amount of P2,856,150.00 for the lot. contract, they could have specifically compelled petitioner to
pay the balance of P2,806,150.00. This is distinctly made manifest request; that since defendants failed to specify the terms and
in the contract itself as an integral stipulation, compliance with conditions of the offer to sell and because of information
which could legally and definitely be demanded from petitioner received that defendants were about to sell the property,
as a consequence. plaintiffs were compelled to file the complaint to compel
defendants to sell the property to them.
This is not a case where no right is as yet created nor an
obligation declared, as where something further remains to be The trial court found that defendants' offer to sell was never
done before the buyer and seller obligate themselves. An accepted by the plaintiffs for the reason that the parties did not
agreement is only an "option" when no obligation rests on the agree upon the terms and conditions of the proposed sale,
party to make any payment except such as may be agreed on hence, there was no contract of sale at all. Nonetheless, the
between the parties as consideration to support the option until lower court ruled that should the defendants subsequently offer
he has made up his mind within the time specified. An option, their property for sale at a price of P11-million or below, plaintiffs
and not a contract to purchase, is effected by an agreement to will have the right of first refusal.
sell real estate for payments to be made within specified time
and providing forfeiture of money paid upon failure to make Plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a
payment, where the purchaser does not agree to purchase, to decision promulgated on September 21, 1990, this Court
make payment, or to bind himself in any way other than the affirmed with modification the lower court's judgment.
forfeiture of the payments made. As hereinbefore discussed, this The decision of this Court was brought to the Supreme Court by
is not the situation obtaining in the case at bar. petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and substances."
In other words, the alleged option money of P50,000.00 was While CA-G.R. CV No. 21123 was pending consideration by this
actually earnest money which was intended to form part of the Court, the Cu Unjieng spouses executed a Deed of Sale (Annex
purchase price. The amount of P50,000.00 was not distinct from D, Petition) transferring the property in question to herein
the cause or consideration for the sale of the property, but was petitioner Buen Realty and Development Corporation.
itself a part thereof. It is a statutory rule that whenever earnest Petitioner as the new owner of the subject property wrote a
money is given in a contract of sale, it shall be considered as letter to the lessees demanding that the latter vacate the
part of the price and as proof of the perfection of the contract. premises.
It constitutes an advance payment and must, therefore, be
deducted from the total price. Also, earnest money is given by The lessees wrote a reply to petitioner stating that petitioner
the buyer to the seller to bind the bargain. brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT
There are clear distinctions between earnest money and option No. 105254/T-881 in the name of the Cu Unjiengs.
money, viz.: (a) earnest money is part of the purchase price,
while option money ids the money given as a distinct The lessees filed a Motion for Execution dated August 27, 1991 of
consideration for an option contract; (b) earnest money is given the Decision in Civil Case No. 87-41058 as modified by the Court
only where there is already a sale, while option money applies to of Appeals in CA-G.R. CV No. 21123.
a sale not yet perfected; and (c) when earnest money is given,
the buyer is bound to pay the balance, while when the would- Respondent Judge issued an quoted as follows:
be buyer gives option money, he is not required to buy.
The aforequoted characteristics of earnest money are apparent It is the observation of the Court that this property in
in the so-called option contract under review, even though it dispute was the subject of theNotice of Lis
was called "option money" by the parties. In addition, private Pendens and that the modified decision of this Court
respondents failed to show that the payment of the balance of promulgated by the Court of Appeals which had
the purchase price was only a condition precedent to the become final to the effect that should the defendants
acceptance of the offer or to the exercise of the right to buy. On decide to offer the property for sale for a price of P11
the contrary, it has been sufficiently established that such Million or lower, and considering the mercurial and
payment was but an element of the performance of petitioner's uncertain forces in our market economy today, the
obligation under the contract to sell. same right of first refusal to herein plaintiffs/appellants in
the event that the subject property is sold for a price in
excess of Eleven Million pesos or more.
CASE: ANG YU ASUNCION vs CA WHEREFORE, defendants are hereby ordered to
execute the necessary Deed of Sale of the property in
This is a very good discussion on an option. When is there litigation in favor of plaintiffs Ang Yu Asuncion, Keh
a separate consideration that would support the option Tiong and Arthur Go for the consideration of P15 Million
contract? pesos in recognition of plaintiffs' right of first refusal and
that a new Transfer Certificate of Title be issued in favor
of the buyer.
ANG YU ASUNCION vs CA
The appellate court, on appeal to it by private respondent, set
FACTS: On July 29, 1987 a Complaint for Specific Performance aside and declared without force and effect the above
was filed by Ang Yu Asuncion and Keh Tiong, et al., against questioned orders of the court a quo.
Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before RTC,
alleging, among others, that plaintiffs are tenants or lessees of In this petition for review on certiorari, petitioners contend that
residential and commercial spaces owned by defendants; that Buen Realty can be held bound by the writ of execution by
they have occupied said spaces since 1935 and have been virtue of the notice of lis pendens, carried over on TCT No.
religiously paying the rental and complying with all the 195816 issued in the name of Buen Realty, at the time of the
conditions of the lease contract. latter's purchase of the property on 15 November 1991 from the
Cu Unjiengs.
They further allege that on several occasions before October 9,
1986, defendants informed plaintiffs that they are offering to sell RULING: We affirm the decision of the appellate court.
the premises and are giving them priority to acquire the same;
that during the negotiations, Bobby Cu Unjieng offered a price A not too recent development in real estate transactions is the
of P6-million while plaintiffs made a counter offer of P5-million. adoption of such arrangements as the right of first refusal, a
Plaintiffs thereafter asked the defendants to put their offer in purchase option and a contract to sell.
writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them asking that they specify An obligation is a juridical necessity to give, to do or not to do
the terms and conditions of the offer to sell; that when plaintiffs (Art. 1156, Civil Code). The obligation is constituted upon the
did not receive any reply, they sent another letter with the same concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause Let us elucidate a little. A negotiation is formally initiated by an
established by the various sources of obligations (law, contracts, offer. An imperfect promise (policitacion) is merely an offer.
quasi-contracts, delicts and quasi-delicts); (b) the object which is Public advertisements or solicitations and the like are ordinarily
the prestation or conduct; required to be observed (to give, to construed as mere invitations to make offers or only as proposals.
do or not to do); and (c) the subject-persons who, viewed from These relations, until a contract is perfected, are not considered
the demandability of the obligation, are the active (obligee) binding commitments. Thus, at any time prior to the perfection of
and the passive (obligor) subjects. the contract, either negotiating party may stop the negotiation.
The offer, at this stage, may be withdrawn; the withdrawal is
Among the sources of an obligation is a contract (Art. 1157, Civil effective immediately after its manifestation, such as by its
Code), which is a meeting of minds between two persons mailing and not necessarily when the offeree learns of the
whereby one binds himself, with respect to the other, to give withdrawal.
something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or Where a period is given to the offeree within which to accept
preparation, its perfection and, finally, its consummation. the offer, the following rules generally govern:
Negotiation covers the period from the time the prospective (1) If the period is not itself founded upon or supported by
contracting parties indicate interest in the contract to the time a consideration, the offeror is still free and has the right
the contract is concluded (perfected). The perfection of the to withdraw the offer before its acceptance, or, if an
contract takes place upon the concurrence of the essential acceptance has been made, before the offeror's
elements thereof. A contract which is consensual as to coming to know of such fact, by communicating that
perfection is so established upon a mere meeting of minds, i.e., withdrawal to the offeree (see Art. 1324, Civil Code).
the concurrence of offer and acceptance, on the object and
on the cause thereof. A contract which requires, in addition to (2) If the period has a separate consideration, a contract
the above, the delivery of the object of the agreement, as in a of "option" is deemed perfected, and it would be a
pledge or commodatum, is commonly referred to as breach of that contract to withdraw the offer during
a real contract. In a solemn contract, compliance with certain the agreed period. The option, however, is an
formalities prescribed by law, such as in a donation of real independent contract by itself, and it is to be
property, is essential in order to make the act valid, the distinguished from the projected main agreement
prescribed form being thereby an essential element thereof. The (subject matter of the option) which is obviously yet to
stage of consummationbegins when the parties perform their be concluded. If, in fact, the optioner-offeror withdraws
respective undertakings under the contract culminating in the the offer before its acceptance (exercise of the option)
extinguishment thereof. by the optionee-offeree, the latter may not sue
for specific performance on the proposed contract
Until the contract is perfected, it cannot, as an independent ("object" of the option) since it has failed to reach its
source of obligation, serve as a binding juridical relation. In sales, own stage of perfection. The optioner-offeror, however,
particularly, to which the topic for discussion about the case at renders himself liable for damages for breach of the
bench belongs, the contract is perfected when a person, called option. In these cases, care should be taken of the real
the seller, obligates himself, for a price certain, to deliver and to nature of the consideration given, for if, in fact, it has
transfer ownership of a thing or right to another, called the been intended to be part of the consideration for the
buyer, over which the latter agrees. main contract with a right of withdrawal on the part of
the optionee, the main contract could be deemed
When the sale is not absolute but conditional, such as in a perfected; a similar instance would be an "earnest
"Contract to Sell" where invariably the ownership of the thing sold money" in a contract of sale that can evidence its
is retained until the fulfillment of a positive suspensive condition perfection (Art. 1482, Civil Code).
(normally, the full payment of the purchase price), the breach of
the condition will prevent the obligation to convey title from In the law on sales, the so-called "right of first refusal" is an
acquiring an obligatory force. 2 In Dignos vs. Court of innovative juridical relation. Needless to point out, it cannot be
Appeals (158 SCRA 375), we have said that, although deemed a perfected contract of sale under Article 1458 of the
denominated a "Deed of Conditional Sale," a sale is still absolute Civil Code. Neither can the right of first refusal, understood in its
where the contract is devoid of any proviso that title is reserved normal concept, per se be brought within the purview of an
or the right to unilaterally rescind is stipulated, e.g., until or unless option under the second paragraph of Article 1479,
the price is paid. Ownership will then be transferred to the buyer aforequoted, or possibly of an offer under Article 1319 of the
upon actual or constructive delivery (e.g., by the execution of a same Code.
public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of An option or an offer would require, among other things, a clear
the condition would prevent such perfection. If the condition is certainty on both the object and the cause or consideration of
imposed on the obligation of a party which is not fulfilled, the the envisioned contract. In a right of first refusal, while the object
other party may either waive the condition or refuse to proceed might be made determinate, the exercise of the right, however,
with the sale (Art. 1545, Civil Code). would be dependent not only on the grantor's eventual intention
to enter into a binding juridical relation with another but also on
An unconditional mutual promise to buy and sell, as long as the terms, including the price, that obviously are yet to be later
object is made determinate and the price is fixed, can be firmed up. Prior thereto, it can at best be so described as merely
obligatory on the parties, and compliance therewith may belonging to a class of preparatory juridical relations governed
accordingly be exacted. not by contracts (since the essential elements to establish
the vinculum juris would still be indefinite and inconclusive) but
An accepted unilateral promise which specifies the thing to be by, among other laws of general application, the pertinent
sold and the price to be paid, when coupled with a valuable scattered provisions of the Civil Code on human conduct.
consideration distinct and separate from the price, is what may It is likewise quite obvious to us that the decision in Civil Case No.
properly be termed a perfected contract of option. This contract 87-41058 could not have decreed at the time the execution of
is legally binding. any deed of sale between the Cu Unjiengs and petitioners.
Observe, however, that the option is not the contract of sale

itself. 7 The optionee has the right, but not the obligation, to buy.
Insofar as the option is concerned, the offeree (the one
Once the option is exercised timely, i.e., the offer is accepted offered the offer) does not have the obligation to buy but
before a breach of the option, a bilateral promise to sell and to he has the privilege. He may exercise that privilege or he
buy ensues and both parties are then reciprocally bound to may just abandon it by the mere fact of the non-exercise
comply with their respective undertakings. of that option. That is the nature of an option contract.
Article 1325. Unless it appears otherwise, business

Revelen Solis and Mizzy Mareé Martinez advertisements of things for saleTAU are
MUnot
Pagedefinite
197 of 262
offers, but mere invitations to make an offer. (n)
So, there are actually special laws, which we will discuss
in void contracts, which declare that certain contracts
are void and certain persons are disqualified to enter into
Makita ninyo sa mga bulletin boards ―for sale.‖ Those are a contract (like husband and wife cannot enter into a
not really invitations but mere invitations to make an offer. contract of sale or donation). Those are other
You cannot expect na naa kay nakit-an na “for sale” sa disqualifications which we will discuss later.
bulletin board, adtuon nako. Paliton nako. Is there a
perfected contract? Not yet. Once you have actually
said na “Paliton nako,‖ that is your offer. If they accept Article 1330. A contract where consent is given
then there is a perfected contract. through mistake, violence, intimidation, undue
influence, or fraud is voidable. (1265a)
Article 1326. Advertisements for bidders are simply

invitations to make proposals, and the advertiser is These are vices of consent. These will be discussed in the
not bound to accept the highest or lowest bidder, subsequent articles.
unless the contrary appears. (n)
Article 1331. In order that mistake may invalidate
consent, it should refer to the substance of the thing
That is actually the same as business advertisements. They which is the object of the contract, or to those
are just invitations to make an offer. conditions which have principally moved one or both
parties to enter into the contract.
Even if you tender the lowest or the highest bid, you
cannot insist that you be awarded the contract. That is Mistake as to the identity or qualifications of one of
just an invitation to make a proposal. What you have by the parties will vitiate consent only when such identity
tendering the highest offer, is actually a proposal. It or qualifications have been the principal cause of the
depends upon the advertiser to accept your proposal. contract.
A simple mistake of account shall give rise to its

correction. (1266a)
Article 1327. The following cannot give consent to a
contract:
When will mistake vitiate consent in order for it to
invalidate the contract?
(1) Unemancipated minors;
Mistake will only invalidate consent if it refers to the
(2) Insane or demented persons, and deaf- substance of the thing.
mutes who do not know how to write. (1263a) Like for example, you bought a lot for the purpose of
planting crops. You thought that the land is really suitable
for the planting of crops but it turns out that it is not
Those who are below 18 because as long as you are because it is rocky.
below 18, you cannot legally enter into a contract. If you
enter into a contract, the contract is still valid but So, in that case, the mistake refers to the substance if the
voidable. It can be annulled on the ground of vitiated thing. Had you only known that such is the condition of
consent. Your consent is vitiated because of your minority the land, you never have consented to the sale. Those
or insanity. conditions which have principally deceived one of the
parties to enter into the contract.
As to the identity, for example, kadtong owner kay

parehas ug pangalan atong crush nimo sauna,human dili
diay mao, pareha lang diay ug pangalan. That is not the
Article 1328. Contracts entered into during a lucid main reason. The real reason is that you really want to
interval are valid. Contracts agreed to in a state of buy the land to for the crops. That is not the main reason.
drunkenness or during a hypnotic spell are voidable. Incidental circumstances will not invalidate consent.
(n) So, identity will only vitiate consent if that is as to the
principal cause of the contract.
Lucid interval – meaning insane persons but at times they Example:

are sane; they are normal. Normally, when they enter into
a contract during a lucid interval, the contract is valid. You hired a person named Sarah Geronimo. You were
Drunkenness – you were so drunk that you signed a led to believe that she was really Sarah Geronimo, the
contract selling your house or you were hypnotized so the famous singer. Pero lahi diay to, ka-pangalan lang diay
contract is voidable. niya. In that case, that is the main reason why you
contracted her to sing in the concert you produced.
In that case, it will invalidate consent because the

Article 1329. The incapacity declared in article 1327 mistake goes into the substance of the contract.
is subject to the modifications determined by law,
and is understood to be without prejudice to special Simple lang, mistake of account, like for example, cost of
disqualifications established in the laws. (1264)
the land, 5k/sq. meter and then you bought 500. Pila man them for it did not own parcel no. 4 in the first place.
na? P500K and ang nakabutang didto, P5M. So that is just
a simple mistake, it can be corrected.
The mistake in the identity of the lots is traceable to the
CASE: SPOUSES THEIS vs CA erroneous survey conducted in 1985.
SPS. THEIS VS. COURT OF APPEALS To remedy the mistake, private respondent offered parcel nos. 1
and 2 covered by TCT Nos. 15515 and 15516, respectively, as
these two were precisely the two vacant lots which private
respondent owned and intended to sell when it entered into the
FACTS: Private respondent Calsons Development Corporation is transaction with petitioners. Petitioners adamantly rejected the
the owner of three (3) adjacent parcels of land covered by TCT good faith offer. They refused to yield to reason and insisted on
Nos. 15515 (parcel no. 1), 15516 (parcel no. 2) and 15684 (parcel taking parcel no. 3, covered by TCT No. 155864 and upon which
no. 3), with the area of 1,000 square meters, 226 square meters a two-storey house stands, in addition to parcel no. 2, covered
and 1,000 square meters, respectively. All three parcels of land by TCT No. 15516, on the ground that these TCTs have already
are situated along Ligaya Drive, Barangay Francisco, Tagaytay been cancelled and new ones issued in their name.
City. Adjacent to parcel no. 3, which is the lot covered by TCT
No. 15684, is a vacant lot denominated as parcel no. 4. Such refusal of petitioners prompted private respondent to make
another offer, this time, the return of an amount double the price
In 1985, private respondent constructed a two-storey house on paid by petitioners. Petitioners still refused and stubbornly insisted
parcel no. 3. The lots covered by TCT No. 15515 and TCT No. in their stand.
15516, which are parcel no. 1 and parcel no. 2, respectively,
remained idle. Private respondent was then compelled to file an action for
annulment of deed of sale and reconveyance of the properties
subject thereof in the RTC.
However, in a survey conducted in 1985, parcel no. 3, where the
two-storey house stands, was erroneously indicated to be ISSUE: WON the contract is void on the ground of mistake.
covered not by TCT No. 15684 but by TCT No. 15515, while the
two idle lands (parcel nos. 1 and 2) were mistakenly surveyed to HELD: In the case at bar, the private respondent obviously
be located on parcel no. 4 instead (which was not owned by committed an honest mistake in selling parcel no. 4. As correctly
private respondent) and covered by TCT Nos. 15516 and 15684. noted by the Court of Appeals, it is quite impossible for said
private respondent to sell the lot in question as the same is not
On October 26, 1987, unaware of the mistake by which private owned by it. The good faith of the private respondent is evident
respondent appeared to be the owner of parcel no. 4 as in the fact that when the mistake was discovered, it immediately
indicated in the erroneous survey, and based on the erroneous offered two other vacant lots to the petitioners or to reimburse
information given by the surveyor that parcel no. 4 is covered by them with twice the amount paid. That petitioners refused either
TCT No. 15516 and 15684, private respondent, through its option left the private respondent with no other choice but to file
authorized representative, one Atty. Tarcisio S. Calilung, sold said an action for the annulment of the deed of sale on the ground
parcel no. 4 to petitioners. of mistake.
Upon execution of the Deed of Sale, private respondent Art. 1331 of the New Civil Code provides for the situations
delivered TCT Nos. 15516 and 15684 to petitioners who, on whereby mistake may invalidate consent.
October 28, 1987, immediately registered the same with the
Registry of Deeds of Tagaytay City. Thus, TCT Nos. 17041 and Tolentino explains that the concept of error in this article must
17042 in the names of the petitioners were issued. include both ignorance, which is the absence of knowledge with
respect to a thing, and mistake properly speaking, which is a
Indicated on the Deed of Sale as purchase price was the wrong conception about said thing, or a belief in the existence
amount of P130,000.00. The actual price agreed upon and paid, of some circumstance, fact, or event, which in reality does not
however, was P486,000.00. This amount was not immediately exist. In both cases, there is a lack of full and correct knowledge
paid to private respondent; rather, it was deposited in escrow in about the thing. The mistake committed by the private
an interest-bearing account in its favor with the United Coconut respondent in selling parcel no. 4 to the petitioners falls within the
Planters Bank in Makati City. TheP486,000.00 in escrow was second type. Verily, such mistake invalidated its consent and as
released to, and received by, private respondent on December such, annulment of the deed of sale is proper.
4, 1987.
The petitioners cannot be justified in their insistence that parcel
Thereafter, petitioners did not immediately occupy and take no. 3, upon which private respondent constructed a two-storey
possession of the two (2) idle parcels of land purchased from house, be given to them in lieu of parcel no. 4. The cost of
private respondent. Instead, petitioners went to Germany. construction in 1985 for the said house (P1,500,000.00) far
exceeds the amount paid by the petitioners to the private
respondent (P486,000.00). Moreover, the trial court, in
In the early part of 1990, petitioners returned to the Philippines.
questioning private respondent's witness, Atty. Tarciso Calilung
When they went to Tagaytay to look over the vacant lots and to
(who is also its authorized representative) clarified that parcel no.
plan the construction of their house thereon, they discovered
4, the lot mistakenly sold, was a vacant lot.
that parcel no. 4 was owned by another person. They also
discovered that the lots actually sold to them were parcel nos. 2
and 3 covered by TCT Nos. 15516 and 15684, respectively. Parcel Thus, to allow the petitioners to take parcel no. 3 would be to
no. 3, however, could not have been sold to the petitioners by countenance unjust enrichment. Considering that petitioners
the private respondents as a two-storey house, the construction intended at the outset to purchase a vacant lot, their refusal to
cost of which far exceeded the price paid by the petitioners, accept the offer of the private respondent to give them two (2)
had already been built thereon even prior to the execution of other vacant lots in exchange, as well as their insistence on
the contract between the disputing parties. parcel no. 3, which is a house and lot, is manifestly
unreasonable.
Petitioners insisted that they wanted parcel no. 4, which is the
idle lot adjacent to parcel no. 3, and persisted in claiming that it That is very clear. There was a mistake in the survey. They
was parcel no. 4 that private respondent sold to them. However, sold a land which is not supposed to be the subject of the
private respondent could not have possibly sold the same to thing. They will now insist on the delivery of the parcel of
land which is more difficult than the purchase price of the for indemnification and payment of attorney‘s fees. He also
land. Here, the mistake really went into the very questioned the validity of the Agreement in that it was not
substance of the thing. So, it invalidated the consent. supported by any valuable consideration. He argued that he
affixed his signature to the Agreement unaware of its legal
import and without any intention to be bound by it.
That is the case of Theis vs. CA.
Dandan harps on vitiation of consent and lack of consideration
Remember the explanation of Tolentino here about to exculpate himself from the legal consequences of the
mistake. It may be that you did not know at all or you Agreement. He claims that he was merely implored to sign the
knew but your knowledge was not correct or it was Agreement as an act of accommodation, not understanding its
mistaken. So, both can invalidate consent. legal import and never intending to assume any further liability
other than what he paid for under the Deed of Absolute Sale.
When a document is acknowledged before a notary
Arfel Realty counters that Dandan voluntarily signed the
public, actually the notary public here is a step to ensure Agreement and fully understood its contents.
that the document is voluntarily and intelligently entered
into. That is the essence of notarization. So, when the It explains that during the negotiation of the sale of the property
document is notarized, since it is already a public to Dandan, the latter was advised of the previous transaction
document, it enjoys the presumption of regularity. with the Sauros. Based on such information, Dandan allegedly
negotiated to pay only half of the true value of the property to
Naturally, one would not sign without reading. Malay mo which Arfel Realty obliged but on the condition that they would
execute an Agreement providing that Dandan shall hold Arfel
gipa-pirma na ka and ang nakabutang diay didto kay
Realty free from any liability in the event that the Sauros file any
naa kay utang sa iya na 10M. You should read suit against it.
documents presented to you before signing. There is no
evidence here that Dandal is illiterate. He is presumed to ISSUE: WON there was vitiation of consent.
have taken the usual diligence that a person gives to his
ordinary affairs. HELD: The determination of the existence of a valid consent
principally rests on the provisions of the Agreement itself. Of
That is the case of Dandan. course, the finding that Dandan was made aware of the
previous transaction between Arfel Realty and the Sauros prior to
the signing of the Agreement is a great boost. Arfel Realty‘s
CASE: DANDAN vs ARFEL assertion that Dandan knew of the previous contract between it
and the Sauros was not rebutted by the latter.
DANDAN VS. ARFEL
In upholding the existence of consent, both the HLURB and the
FACTS: On 7 March 1992, Arfel Realty, represented by its Court of Appeals relied on the clear and plain language of the
president and general manager Rafael Felix, sold to Dandan a Agreement which expressly mentions that Dandan was aware of
parcel of land.The sale is evidenced by a Deed of Absolute Sale. the transaction between Arfel Realty and the Sauros when he
The lot was previously the subject of a Contract to Sell executed bought the subject property.
between Arfel Realty and the spouses Emerita and Carlito Sauro
(the Sauros). Under this contract, the Sauros undertook to pay It can be clearly inferred from the Agreement that Dandan was
the purchase price of P690,000.00, with a 50% down payment aware of the previous contract to sell from which Arfel received
of P345,000.00 and the balance payable in sixty (60) equal partial payment from the Sauros. Thus, when said property was
installments of P9,528.52 including interest of 22% per annum. sold to Dandan, he had the benefit of paying only the remaining
balance due from the said previous contract. It is for this
While the Sauros claimed to have fully paid for the subject lot in consideration that Dandan agreed to expressly assume all the
the total amount of P799,601.59 and demanded the delivery of liabilities that might arise by reason of the sale to him.
title, Arfel Realty asserted that the several checks drawn by the
Sauros to effect payment were either dishonored by the bank Viewed from a different standpoint, the Agreement was
due to insufficiency of funds or were drawn against a closed contemporaneously executed with the Deed of Absolute Sale
account. Thus, the Sauros allegedly still had an unpaid balance thereby making the former a supplement to the latter. Therefore,
of P299,614.23. the Agreement should be construed as a mere continuation of
the Deed of Absolute Sale with the same consideration
According to Arfel Realty, Dandan was made aware of its supporting both contracts, that is, Dandan‘s advantage of
previous transaction with the Sauros. On 10 April 1992, a paying only the remaining balance due under the previous
Memorandum of Agreement (the Agreement) was executed contract to sell to the Sauros.
between Arfel Realty and Dandan with the consideration
representing the balance due to Arfel Realty from the previous The naked claim that Dandan signed the Agreement without
sale to the Sauros. understanding its legal import will not exculpate him from its
legal ramifications. Mistake may invalidate consent when it refers
The Agreement, bound Dandan to assume all liabilities arising to the substance of the thing which is the object of the contract
from the Deed of Absolute Sale and held Arfel Realty free from or to those conditions which have principally moved one or both
any suit or judgment by reason of said sale. parties to enter into the contract.
On 2 June 1992, the Sauros filed a complaint for specific Mistake of law as a rule will not vitiate consent.
performance against Arfel Realty before the Housing and Land
Use Regulatory Board (HLURB).
Arfel Realty filed its answer with a counterclaim for moral Article 1332. When one of the parties is unable to read,
damages and attorney‘s fees. Arfel Realty followed this on 23 or if the contract is in a language not understood by
September 1992 with a third-party complaint against Dandan, him, and mistake or fraud is alleged, the person
praying indemnification from Dandan for whatever is adjudged
against it in favor of the Sauros. enforcing the contract must show that the terms
thereof have been fully explained to the former. (n)
Dandan filed his Position Paper, contending that the HLURB had
no jurisdiction over the third-party complaint as the case did not
involve the sale of a house and lot but rather a personal action CASE: BUNYI vs REYES
Here, it is given that one of the parties is unable to read. BUNYI VS. REYES
So, it is incumbent upon the other party to explain to the
one who is not able to read. That is if mistake or fraud is FACTS: Petitioner Teodora Gonzales Bunyi was the defendant in
alleged. an action for reconveyance, on the ground of fraud, of a parcel
of land.
Respondents filed the suit on May 30, 1961 as heirs of the

previous registered owner of the land, Gil Joaquin, who had died
on June 10, 1950, leaving respondents as his heirs, namely, his
surviving spouse, Sabina Reyes; his daughter, Luz Joaquin; and
his minor grandchildren, Elvira, Rosendo, Jr. and Lualhati, all
surnamed Joaquin (children of a deceased son, Rosendo), and
represented by their mother, Loida Vivo, as their guardian ad
litem.
On September 24, 1935, Gil Joaquin executed a deed of "Venita

con Pacto de Retro", whereby for and in consideration of the
sum of P100.00 paid to him. by petitioner, he ceded and
transferred to petitioner the land then titled in his name, expressly
excluding the house or houses built thereon, with the right of
repurchasing the same within two years thereafter, and
assuming the payment of the land taxes and agreeing to pay an
annual rental of P12.00 as lessee thereof during the stipulated
period of redemption.
On July 5, 1941, after Gil Joaquin had failed to repurchase the

land, petitioner executed an affidavit of consolidation of
ownership and Joaquin's title was accordingly cancelled and a
new certificate of title issued on July 7, 1941 in petitioner's name.
The trial court rendered judgment holding that the questioned

deed spoke "in unequivocal terms of a sale and the
conveyance of the land with the right to repurchase. In the face
of its plain terms, there is nothing to justify our construing that
contract as a mere mortgage.
Respondents appealed the trial court's decision to the Court of

Appeals. The appellate court did not make any factual findings
of its own, much less overturn those of the trial court.
It, however, pitted the lone testimony of petitioner as against

that of respondent Sabina Reyes, and declared that under
Article 1332 of the Philippine Civil Code, the burden was on
petitioner as vendee a retro to show that the Joaquin spouses
fully understood the contents of the deed and that her "bare
testimony" was not sufficient to discharge the burden. It held that
petitioner had consolidated her ownership in a "surreptitious
manner" and that "under the facts, defendant [petitioner] has
not discharged the burden of proof, hence presumption of
mistake, if not fraud, under the law stands unrebutted and
controlling" and that the consent to the Joaquin spouses to the
deed was therefore null and void, as was the deed itself. It finally
held the respondents' action to be "one for declaration of the
inexistence of the contract which does not prescribe."
The appellate court therefore reversed the trial court's judgment

and granted the reconveyance of the land as prayed for in
respondents' complaint,
ISSUE: WON the contract is void.
HELD: Article 1332, which was designed for the protection of

illiterates and of a party to a contract who "is a disadvantage on
account of his ignorance, mental weakness or other handicap,"
provides that:
Art. 1332. When one of the parties is unable to read, or

if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing
the contract must show that the terms thereof have
been fully explained to the former. (n)
For the proper application of said article to the case at bar, it

has first to be established convincingly by respondents that Gil
Joaquin could not read or that the contract was written in a
language not understood by him. This factual basis was far from
shown. On the contrary, the trial court duly found — and the
appellate court made in contrary finding — that "Gil Joaquin, ...
had been vice mayor of Muntinglupa; he spoke and understood
Spanish; it is hard to believe that he signed the document
without understanding its contents."
The trial court, therefore, properly ruled that it was respondents,

as plaintiffs, who failed to overcome by clear, strong and
convincing evidence the positive value and effect of the
notary's certificate that the Joaquin spouses duly executed the
"Venta con Pacto de Retro" and acknowledged the fact of its
execution of their sworn and free will before him.
Take note that for Article 1332 to apply, the person

alleging that he cannot read really have to prove. So, it
should be a given that he could not read. He really have
to prove that he cannot understand the language used
Article 1335 defines what is violence or intimidation. So,
in the contract before the other party has the burden of
violence involves physical force. Intimidation, involves
proving that the terms have been fully explained to the
moral compulsion or moral force, not physical.
one complaining. That should be established first.
Example:
In this case, the circumstances would show that the party
alleging that he was not able to read was really in a A has an armalite. A told B, ―B, pirmahi ning contract,
position to know. First, he was vice mayor and he was ibaligya nimo sa ako imong yuta.” Dili mosugot si B so gi-
even the one who facilitated the preparation of the dukol ni A ug armalite si B. Kusog kaayo to. What is that?
contract. Intimidation or violence? That is violence.
So, dili pwede na diretso na lang na moingon ka na Now, gi-tutok lang ang armalite sa temple ni B, wala siya
“Illiterate ko.” You really have to prove first. gi-dukol. What is that? Intimidation. There is no physical
violence, only moral compulsion.
Take note, when we say intimidation, it is not only

Article 1333. There is no mistake if the party alleging it directed to the property of the party but also to his
knew the doubt, contingency or risk affecting the spouse, ascendant, descendant, to give his consent.
object of the contract. (n)
Also, you have to take into account the age, sex and
condition of the person.
If you knew, for example, that the land is under litigation
Sumbagon tika, para imoha ng pirmahan. Pero ikaw, 6
and the litigants are contesting the ownership of the
footer, tapos siya 4’2 lang. The court will not believe you if
seller. Subsequently, it is ruled by the court that the seller
you claim that you were intimidated.
has no right to the land. In that case, the buyer knew. The
risk is that you knew the doubt, contingency or risk
A threat to enforce once claim, for example: ―File-an tika
affecting the contract.
ug kaso or ibaligya nimo sa ako imong yuta? Kabalo
baya ko naa mo’y gibuhat sa akong asawa.” What is
Article 1334. Mutual error as to the legal effect of an that? A threat to enforce one‘s claim. If the claim is just
agreement when the real purpose of the parties is or legal, it does not vitiate consent.
frustrated, may vitiate consent. (n)
If it is really true that he has an affair with the wife, it is
legal. Wala siya nag-ingon na patyon taka, ana lang siya
For example, the parties entered into a contract of sale. na mag-file ug kaso. Bisan pa ug nahadlok siya, that
threat is legal. Pero kung moingon ka na “Pusilon taka
Example: kay kabalo ko naa mo’y affair sa akong asawa, kana
siya, dili na legal.
A and B entered into a contract. It was denominated as
a Contract of Sale. But, to A, his understanding is that is CASE: CALLANTA vs NLRC
has the effect of a lease. To B, his understanding is that it
has the effect of a mortgage. They were both mistaken CALLANTA VS. NLRC
as to the understanding of the parties. So in that case,
FACTS: From June 18, 1986 to December 31, 1986, petitioner was
there was no meeting of the minds. appointed as sub-agent by respondent company under
supervision of Edgar Rodriguez with specific assignment at Iligan
Here, consent is vitiated so there was really a ground to City and Lanao Province.
annul or invalidate the contract.
In October of 1986, or before the expiration his appointment,
petitioner was promoted to the position of national promoter
salesman of respondent company for Iligan City, Lanao del
Norte and Lanao del Sur.
On 28 April 1987, a however, a "spot audit" was conducted and

Article 1335. There is violence when in order to wrest petitioner was found to have a tentative shortage in amount of
consent, serious or irresistible force is employed. P49,005.59.
On 30 April 1987, petitioner rendered his resignation to private
There is intimidation when one of the contracting
parties
Revelen Solisisand
compelled
Mizzy Mareéby 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.
respondent Julius T. Limpe, effective on the same date. Remember this, violence or intimidation even if it was not
employed by the contracting party.
Seven months thereafter, petitioner wrote a letter to private
respondent Limpe complaining about his false resignation and For example, the contracting party says: ―Pirma na lagi
demanding for the refund of the amount of P76,465.81 as well as
diha.” Pero naa’y tig-bugbog didto sa isa. That is still
reinstatement to his former position.
violence or intimidation.
Respondent company ignored above demands and on March
21, 1988, petitioner filed a complaint against, respondent Kani sila, violence or intimidation even if employed by a
company before the NLRC Regional Arbitration Branch No. X for third person, will vitiate consent.
illegal dismissal, unpaid commission and receivable and/or
claims due, non-payment of vacation leaves, holiday pays, 13th
month pay, COLA and other company benefits and damages. Article 1337. There is undue influence when a person
On the basis of the petition papers submitted by the parties, the takes improper advantage of his power over the will
Labor Arbiter rendered a decision declaring termination of of another, depriving the latter of a reasonable
petitioner's services illegal.
freedom of choice. The following circumstances shall
Aggrieved by the decision, respondent company appealed the be considered: the confidential, family, spiritual and
same to the Fifth Division of the NLRC in Cagayan de Oro City on other relations between the parties, or the fact that
March 20, 1989. On October 16, 1989 respondent NLRC issued an
the person alleged to have been unduly influenced
order requiring private respondent company as appellant
therein, to post a cash or surety bond in the amount equal to the was suffering from mental weakness, or was ignorant
monetary award in the Labor Arbiter's judgment. Pursuant to the or in financial distress. (n)
provisions of the then newly promulgated Republic Act No. 6715,
the NLRC also ordered immediate reinstatement of petitioner to
his former position either physically or in the payroll, at the option Another form of a vice of consent is undue influence. So,
of respondent company. Two (2) months from the date of the here, wala‘y violence, force or intimidation. But because
Order, private respondent filed the required bond but did not of the moral ascendancy of the other party over the
reinstate petitioner. other contracting party, and because of the condition of
the other one whose consent was unduly influenced, his
ISSUE: WON the resignation by petitioner was made with force or
intimidation. consent was vitiated.
HELD: It is a well-settled principle that for intimidation to vitiate Another example, there is a priest and a dying person. So,
consent, petitioner must have been compelled by a reasonable he confessed to the priest. In his confession, he
and well-grounded fear of an imminent and grave evil upon his mentioned that he has so many properties, etc. The priest
person or property, or upon the person or property of his spouse, said, ―Manong, kana imong yuta bas a Calinan, kung
descendants or ascendants (Article 1335, par. 2 New Civil ihatag lang na nimo ug P100k sa simbahan, sure gyud
Code).
ban a ma-langit ka.” So, he sold the land to the church.
In present case, what allegedly constituted the "intimidation" was Was the consent vitiated? Yes, because there is undue
the threat by private respondent company to file a case for influence.
estafa against petitioner unless the latter resigns.
If the condition, for example, naghingalo na siya,
In asserting that the above-described circumstance constituted siyempre gusto gyud ka mahilangit diba? So, ibaligya na
intimidation, petitioner missed altogether the essential ingredient lang nimo.”
that would qualify the act complained of as intimidation, i.e.
that the threat must be of an unjust act. In the present case, the That can be considered as undue influence.
threat to prosecute for estafa not being an unjust act, but rather
a valid and legal act to enforce a claim, cannot at all be In fact, in Succession, that is conclusively presumed as
considered as intimidation. A threat to enforce one's claim
undue influence. If a dying person makes a legacy or
through competent authority, if the claim is just or legal, does not
vitiate consent. device in favor of a priest with whom he made the last
confession, that legacy or device cannot be given effect
That is very clear. They will file a case for estafa against because the law conclusively presumes that there is
him if he will not resign. So, even if he was really forced to undue influence.
resign, it was because the threat was legal. So, it cannot
Conclusive, meaning, wala na’y proof na ihatag to the
vitiate consent even if he was truly moved to tend his
contrary. Kana gyud siya, naa’y undue influence.
resignation because of that. It is not a vice of consent
that the court recognizes.
Article 1338. There is fraud when, through insidious

words or machinations of one of the contracting
Article 1336. Violence or intimidation shall annul the parties, the other is induced to enter into a contract
obligation, although it may have been employed which, without them, he would not have agreed to.
by a third person who did not take part in the (1269)
contract. (1268)
We discussed in Article 1170 another kind of fraud which
is fraud in the performance. Here, we are talking of fraud
in the execution.
This is the fraud employed by the other party to the party CASE: AZZARAGA vs GAY
who gave his consent in the contract.
AZZARAGA VS. GAY
In that case, the contract can be annulled. It is voidable.
If fraud in the performance, the remedy is damages. You FACTS: By a public document Exhibit A, dated January 17, 1921,
the plaintiff sold two parcels of lands to the defendant for the
can claim for damages but you cannot annul the
lump sum of P47,000, payable in installments.
contract. There was already a contract entered into and
the fraud was committed only during the performance. The plaintiff here claims the sum of P22,000, with legal interest
from the month of April 1921 on the sum of P10,000, and from
There are several classes of fraud. When you say fraud, April 1922 on the sum of P12,000, until full payment of the
there are a variety of fraud that you encounter everyday. amounts claimed.
Halimbawa, “uy, singsing! Diamond ni ba. Adto pa ta sa The defendant admits that she purchased the two parcels of
akong amigo ipatan-aw nato ni didto. It turns out, ka- land referred to by plaintiff, by virtue of the deed of sale Exhibit
A, but alleges in defense: (a) That the plaintiff knowing that the
kuntsaba diay niya tong iyang amigo. Ingon siya na
second parcels of land he sold had an area of 60 hectares, by
diamond pero lubot ra diay to sa baso. misrepresentation lead the defendant to believe that said
second parcel contained 98 hectares, and thus made it appear
You were deceived into buying that jewelry. So, there is in the deed of sale and induced the vendee to bind herself to
fraud in that case. pay the price of P47,000 for the two parcels of land, which he
represented contained an area of no less than 200 hectares, to
which price the defendant would not have bound herself had
Article 1339. Failure to disclose facts, when there is a she known that the real area of the second parcel was 60
hectares, and, consequently, she is entitled to a reduction in the
duty to reveal them, as when the parties are bound
price of the two parcels in proportion to the area lacking, that is,
by confidential relations, constitutes fraud. (n) that the price be reduced to P38,000; (b) that the defendant, in
addition to the amounts acknowledged by the plaintiff, had
paid other sums amounting to P4,000; and (c) that the
Failure to disclose facts, ordinarily, does not constitute
defendants never refused to pay the justly reduced price, but
fraud. But, when the parties are bound by confidential the plaintiff refused to receive the just amount of the debt.
relations, then, the failure to disclose becomes fraud.
And by way of cross-complaint, the defendant prays that she be
Example: indemnified in the sum of P15,000 for damages sustained by her
by reason of the malicious filing of the instant complaint.
A knows that X is selling his land for 1M. A also knows that
B is looking for a land. He offered the land to B for 1.5M. B The plaintiff, replying to the amended answer, alleges that the
is interested, so he bought the land. He paid 1.5M to A. A contract of sale in question was made only for the lump sum of
didi not disclose to B that A is selling the land for only 1M. P47,000, and not at the rate of so much per hectare, and that
the defendant's claim for alleged damages has prescribed.
Is there fraud in that case?
As a question of fact the trial court found from the evidence
No. Failure of X to disclose the fact does not constitute adduced by the parties, that the plaintiff had not practiced any
fraud. X is not in obligation to disclose such fact. deception in agreeing with the defendant upon the sale of the
two parcels of land described in Exhibit A.
Example, A and B are partners. A knows that X is looking
for properties at a certain price. A convinced his partner We concur with the trial court in this conclusion. It appears of
B to sell his property which is part of the partnership. record that before the execution of the contract Exhibit A, the
defendant went over the plaintiff's land and made her own
Halimbawa, ang gusto na presyo ni A is 1.5M, gi-convince calculations as to the area of said two parcels. But this not all.
ni B si A na “Gusto ka ibaligya imong land for 1M, that The plaintiff delivered to the defendant the documents covering
the land he was trying to sell. As to the first parcel there is no
property which is part of our partnership? Ibaligya sa
question whatever and the defendant's contention is limited
akoa..” B agreed, and sold the land to A and solely to the actual area of the second parcel. The defendant
subsequently, A sold the land to another for profit. had document Exhibit 4 in her possession which is the deed by
which the plaintiff acquired the land from the original owner,
Failure to disclose on the part of A, in that case, Crispulo Beramo, in which document it appears that the area of
constitutes fraud. As partners, they are bound dby the second parcel is about 70 hectares.
confidential relations. He should have informed B about
that offer to buy partnership property at a higher price by It was the defendant who entrusted the drawing of the deed of
sale Exhibit A to her attorney and notary, Hontiveros, and it is to
a third person. But instead, he bought the property at a
be presumed that both she and the lawyer who drew the
lower price and sold it to the other party. document Exhibit A, had read the contents of the document
Exhibit 4. The plaintiff declares that he signed the document
In that case, B can annul the sale he made to A and between 5 and 7 in the afternoon of that day and he did not
consequently, the sale made by A to the third person. pay any attention to the area of the second parcel, probably in
the belief that in the drawing of the document the data
The sale in that case can be annulled because of fraud. concerning the area of the land had been taken from the said
Failure to disclose in that case constitutes fraud. Again, Exhibit 4. The defendant testified that she received from the
because they are partners. In a partnership, there is trust plaintiff a note or piece of paper containing the data to be
and confidence. inserted in the contract Exhibit A.
The plaintiff denies this and said note or piece of paper was not
presented at the trial. We are of opinion that this testimony of the
Article 1340. The usual exaggerations in trade, when
the other
Revelen party
Solis and had
Mizzy an opportunity
Mareé Martinez to know the facts, TAU MU Page 204 of 262
are not in themselves fraudulent. (n)
defendant's is unimportant, because, in reality, if the plaintiff had So, expression of opinion. Like, for example, one says, ―I
delivered Exhibit 4 to the defendant, there was no need to think this land is suitable for crops.‖ That is merely an
deliver to her another note to indicate the area of the second opinion. But, if he is really a soil expert, consulted on that
which already appeared in the said Exhibit 4.
particular issue, whether or not the soil is suitable for that
If, notwithstanding the fact that it appeared in Exhibit 4 that the
particular crop, and he said yes when in fact it is not, that
area of the second parcel was, approximately, 70 hectares, the is considered fraud because he is an expert. Otherwise,
defendant, however, stated in said document Exhibit A that said that is not fraud.
second parcel contained 98 hectares as was admitted by him in
his interviews with the plaintiff in the months of April and June, Like lawyers, naa’y mangayo ug legal opinion, and
1924, then she has no right to claim from the plaintiff the usahay baya mamali ang opinion sa lawyer. Can you say
shortage in area of the second parcel. Furthermore, there is no ―Atty., manloloko man diay ka, ingon ka modaog ko
evidence of record that the plaintiff made representation to the Atty.?” No, even if a lawyer cannot say that he is an
defendant as to the area of said second parcel, and even if he
expert. That‘s just his opinion.
did make such false representations as are now imputed to him
by the defendant, the latter accepted such representations at
her own risk and she is the only one responsible for the Article 1342. Misrepresentation by a third person does
consequences of her inexcusable credulousness.
not vitiate consent, unless such misrepresentation has
The defendant had ample opportunity to appraise herself of the created substantial mistake and the same is mutual.
condition of the land which she purchased, and the plaintiff did (n)
nothing to prevent her from making such investigation as she
deemed fit, when the purchaser proceeds to make
investigations by himself, and the vendor does nothing to Take note here, the misrepresentation is committed by a
prevent such investigation from being as complete as the former third person.
might wish, the purchaser cannot later allege that the vendor It does not, as a general rule, vitiate consent. Unless, it has
made false representations to him.
created substantial mistake and it is mutual.
HELD: Considering the facts of the present controversy, it seems
clear to us that the rule formulated for the second paragraph or Actually, what vitiates consent here is the substantial and
article 1471 is inapplicable in the instant case inasmuch as all the mutual mistake. Not really the misrepresentation.
land included within the boundaries of the two parcels sold has
been delivered in its entirety to the vendee. There is no division of There may have been a misrepresentation but that is not
the land enclosed within the boundaries of the properties sold; substantial and there is no mutual mistake on the part of
the determinate object which is the subject matter of the both parties, it will not vitiate consent.
contract has been delivered by the vendor in its entirety as he
obligate himself to do. Take note of this. In violence and intimidation, if
committed by a third person, still will vitiate consent. If
Therefore, there is no right to complain either on the part of the
vendor, even if there be a greater area than that stated in the
misrepresentation by a third person, it is considered a
deed, or on the part of the vendee, though the area of the vice of consent only when it results to substantial and
second parcel be really much smaller. mutual mistake.
Actually, if you are buying lands, what is your duty as the
buyer?
Article 1343. Misrepresentation made in good faith is
First, you should check with the Register of Deeds the title, not fraudulent but may constitute error. (n)
the status.
Bisan tagaan pa ka niya ug original, wala ka kabalo If you have no intention to deceive, then that is not
daghan na diay kaayo ug adverse claim didto sa ROD or fraudulent. That is actually your defense that even if there
mga notice of lis pendens, mortgage, kay usually ang was misrepresentation, it was made in good faith. So, it‘s
mga adverse claim wala na nakabutang sa Owner’s just error.
Copy, naa na siya sa ROD. So, you really have to check.
Article 1344. In order that fraud may make a
Also, you have to conduct a survey. You are buying 98 contract voidable, it should be serious and should
hectares then it turned out, it is only 60 hectares. That is a not have been employed by both contracting
very big difference. It is really recklessness on the part of parties.
the buyer if you fail to verify that fact.
Incidental fraud only obliges the person employing it
Usual exaggerations in trade, like in TV ads, I‘m sure to pay damages. (1270)
nailad na mo ana. Like kanang Rejoice, sinaw kaayo ug
buhok, tapos pagkahuman diay mao lang gihapon
imong buhok. Can you sue the company? Is that You know the principle that he who comes to court must
fraudulent? come with clean hands, He who comes to court must
come with equity, and the doctrine of in pari delicto.
That‘s usual. So, the duty here of the buyer is to be aware,
caveat emptor, buyer‘s beware. So, if both of you committed fraud, you have no remedy
or relief against the other. The court may leave you
where you are.
Article 1341. A mere expression of an opinion does
not signify fraud, unless made by an expert and the We already discussed incidental fraud. It only obliges the
other party has relied on the former's special person to pay damages because it does not go with the
knowledge. (n) perfection of the contract. It does not affect consent, it
merely goes into the performance.
the reconveyance of the title to the property to the estate of
Mary Ruth Elizalde or, in the alternative, to assign all shares of
Parex to said estate.
Article 1345. Simulation of a contract may be
absolute or relative. The former takes place when the Petitioner, in his capacity as special administrator of the intestate
parties do not intend to be bound at all; the latter, estate of Mary Ruth Elizalde, brought an action against private
respondents William H. Quasha, Cirilo F. Asperilla, Jr., Sylvia E.
when the parties conceal their true agreement. (n)
Marcos, Delfin A. Manuel, Jr., Cirilo E. Doronilla and Parex, for
reconveyance of the parcel of land subject of the aforesaid
sale. 11 Petitioner alleged that the sale of the property by Elizalde
CASE: BLANCO vs QUASHA to Parex was absolutely simulated and fictitious and, therefore,
null and void.
In this case, the heirs of Elizalde were claiming that the
ISSUE: WON there was simulation.
sale made by Elizalde was fictitious because if that is
fictitious then the land will remain in her estate and they HELD: Simulation of a contract may be absolute or relative. The
would inherit the land. That is the reason why they former takes place when the parties do not intend to be bound
alleged that the sale was fictitious. at all; the latter, when the parties conceal their true agreement.
An absolutely simulated or fictitious contract is void. A relative
In that case, it was not a simulated contract, it was really simulation, when it does not prejudice a third person and is not
an actual and a genuine contract. There was a sale but intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real
subsequently, the property sold was leased to the former
agreement.
owner. Actually, the price of the sale is the same with the
consideration of the lease. So, for over 25 years, Elizalde The characteristic of simulation is the fact that the apparent
was not paying for the rent because there was offsetting. contract is not really desired nor intended to produce legal
effects nor in any way alter the juridical situation of the parties.
As long as the parties intended to be bound by the Thus, where a person, in order to place his property beyond the
contract and there was no intent to defraud, it will be reach of his creditors, simulates a transfer of it to another, he
respected as a valid contract. does not really intend to divest himself of his title and control of
the property; hence, the deed of transfer is but a sham. This
Simulation means kanang magbuhat-buhat ka ug
characteristic of simulation was defined by this Court in the case
contract but you do not intend to be bound by the of Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA
contract. 908.
BLANCO VS. QUASHA In order to determine whether or not the sale-lease-back

agreement is simulated, there is a need to look into the true
FACTS: Mary Ruth C. Elizalde was an American national who intent or agreement of the parties. To do so, however, is to pass
owned a house and lot. During her lifetime, on May 22, 1975, she, upon a factual issue, a function that is not within the province of
through attorney-in-fact Don Manuel Elizalde, entered into a this Court.
Deed of Sale over the property in favor of Parex Realty
Corporation for and in consideration of the amount of While in this case the Court of Appeals reversed the decision of
P625,000.00 payable in twenty-five (25) equal annual installments the trial court, the former's findings are nonetheless binding and
of P25,000.00 commencing on May 22, 1975 and ending on May conclusive on us. Especially, the conclusion of the appellate
22, 1999. court is more in accord with the documents on record. Thus, we
affirm the Court of Appeals' decision holding that the requisites
Also on May 22, 1975, simultaneously with the execution of the of a contract of sale provided for in Article 1458 of the Civil Code
Deed of Sale, Parex executed a Contract of Lease with Mary have been complied with, and that the parties intended to be
Ruth C. Elizalde, whereby the same parcel of land was leased to bound by the deed of sale and for it to produce legal effects.
the latter for a term of twenty five (25) years for a monthly rental
of P2,083.34, or P25,000.08 a year.
The rental payments shall be credited to and applied in Article 1346. An absolutely simulated or fictitious
reduction of the agreed yearly installments of the purchase price
of the property. contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for
By virtue of the sale, TCT No. S-6798 was issued in the name of any purpose contrary to law, morals, good customs,
Parex Realty Corporation on May 27, 1975.
public order or public policy binds the parties to their
On October 17, 1975, Mary Ruth Elizalde executed a real agreement. (n)
Confirmation and Ratification of the Deed of Sale executed in
her behalf by her attorney-in-fact, Don Manuel Elizalde. Despite
the transfer of title, however, Mary Ruth Elizalde continued to
pay the Forbes Park Association dues and garbage fees until her Simulation may be absolute or relative.
demise in 1990. Likewise, she undertook to pay the realty taxes
on the property during the term of the lease, pursuant to Section It is absolute when the parties do not intend to be bound
4 of the Contract of Lease. at all. That is void because there is really no contract to
speak of.
Mary Ruth C. Elizalde passed away on March 1, 1990. On March
26, 1990, Atty. Daisy P. Arce of the law firm of Quasha, Asperilla, Like when a debtor who wants to evade all his creditors,
Ancheta, Peña and Nolasco, on behalf of some heirs of Mary
he sold all his properties to his son. The properties are
Ruth Elizalde, sent a letter to Peter Wohlfeiler, Esq., who was
handling the legal affairs of the other heirs, informing him that worth 10M but it was stated as only 10K in the Deed of
Elizalde left property situated at 515 Buendia Avenue, Forbes Sale and in reality there was really no exchange of
Park, Makati, i.e., the land subject of this case. money. Gipangalan lang sa anak para dili makuha sa
creditors. That is absolute simulation and that is void
Petitioner J.R. Blanco, special administrator of the estate of Mary under Art. 1346.
Ruth Elizalde, by letter dated June 13, 1990, demanded from
respondents, the individual stockholders and directors of Parex, Relative when there is a real agreement but the written
agreement is not the one intended. Example:
Example: Your parents are billionaires. They have several properties.

Can you sell your parents properties like their houses and
Gusto ni A i-mortgage iyang land kay B. But it was their lands while they are still alive? No, because your
evidenced by a deed of sale with right to repurchase. rights to those properties are inchoate. When you say
Gibuhat lang na nila kay sa mortgage, dapat i-register ―inchoate,‖ that is mere expectancy. For all you know,
pa nimo and i-forclose pa if dli makabayad. They made you may predecease your parents so you have nothing
that para maadto na diretso kay B. to inherit in the first place. That is not allowed.
The real agreement was a mortgage contract and they Except in case of partition. There can be partition even
just made it appear as a pacto de retro sale. during the lifetime of the decedent. The person can
actually, during his lifetime, already make a partition of
In that case, they are not bound by the pacto de retro his properties although that partition will not yet transfer
sale, they are bound by the mortgage contract. The ownership over the properties. What will transfer
remedy there is reformation. ownership will be succession upon his death but there
can be partition. That partition itself is a contract which is
allowed. But it‘s not a conveyance of property. That is
IV.OBJECT why it is an exception to the rule that no contract will be
entered into upon future inheritance.
(ARTICLES 1347 – 1349)
Article 1347. All things which are not outside the

Article 1348. Impossible things or services cannot be
commerce of men, including future things, may be
the object of a contract. All rights which are not the object of contracts. (1272)
intransmissible may also be the object of contracts.
What kind of impossibility are we referring to here?
No contract may be entered into upon future
inheritance except in cases expressly authorized by It may be legal impossibility or physical impossibility. These
law. things cannot be the object of contracts.
All services which are not contrary to law, morals, The impossibility may be absolute meaning in all cases,
good customs, public order or public policy may they cannot be the object of the contract.
likewise be the object of a contract. (1271a)
Or the impossibility may be relative or subjective like the
impossibility applies only to certain persons like husband
and wife. They cannot enter into a contract of sale of
any property. As to them, that is relative. The object is
What may be the object of a contract?
relatively impossible. But with respect to other persons,
these objects can be the subject or the object of a
When you say ―object,‖ it may be a thing or a service.
contract.
Under Article 1347, all things which are not outside the
commerce of man may be the object of contract. Article 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is
What are outside the commerce of man? not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to
1.) Res nullius – those not owned by anyone. Like the
stars, the moon, the fishes swimming in the determine the same, without the need of a new
ocean. contract between the parties. (1273)
2.) Res communes – those owned by everyone. Like

public property, bridges, etc. At least the object must be determinate as to its kind. Like
to deliver a car.
3.) Those which are contrary to law, good customs,
public order or public policy. Like prohibited Example:
drugs. They are things but they are contrary to
law. They are not allowed to be traded. These A and B entered into a contract for A to deliver to B a
are outside the commerce of man. car.
4.) Rights which are intransmissible – like purely At least there is a kind or class specified. If the contract
personal rights. The right to support. Those rights says only ―A will deliver something to B‖ is it valid? No,
which are inherent in a person like your political because the object itself is not even
rights. These cannot be object of a contract. determinate/determinable. Even as to its kind, you don‘t
These are intransmissible. have to specify which car, engine number, plate
number; that it also a valid object, but at least the
minimum requirement is ―determinate as to its kind.‖
The law says, “no contracts may be entered into upon
future inheritance.” Is the quantity important? The law says it may be possible
to enter into a contract even if the quantity is not stated
as long as it can be determined without need of a new 1350, it is the prestation or promise of a thing or
agreement between the parties. service by the other.
In one case decided by the Supreme Court, the contract Again, if you enter into a contract of sale, if you
speaks of an obligation to deliver the rice harvested from are the buyer, the cause for you is the land. You
the farm of A, for example, not below 3, 000 bags want to get the land. The cause for you is the
minimum. It was contended that the contract is not valid promise of the other to deliver the land. IF you
because the quantity is not made determinate. Is it are the seller, the cause for you is the money
correct? which the buyer promises to pay. That is the
compelling reason.
No, because you can determine the quantity. If all the
crops is harvested from the far, as long as it is not below
2.) Remuneratory Contracts - the cause is the service
the minimum, then that is the obligation of A to deliver.
or benefit which is being remunerated. That is
So, the quantity can be determined in that case, even if
why you enter into that contract.
at the time of the contract, it was not mentioned but it
can be determined at a future time without need of a
new agreement of the parties.
3.) Contract of Pure Beneficence – like donation. The
That is an example of the second sentence of Article cause is the liberality of the benefactor. IT‘s not
1349. correct to say that in contract of pure
beneficence there is no cause. There is a cause:
that is the generosity or liberality of the donor.
If you notice, like in a contract of sale, if you are the

buyer the cause for you is the acquisition of the land. If
you are the seller, the cause for you is the price to be
paid. So, if you examine it, the cause for one is actually
the object for the other.
In a contract of sale, from the viewpoint of the buyer, the

object is the money to be paid but for him the cause is
the land to be acquired. From the viewpoint of the seller,
the object is the land which he is bound to deliver but the
cause for him is the acquisition of the purchase price.
Remember is reciprocal contracts, the cause for one is

the object for the other.
V.CAUSE In accessory contracts (mortgage, pledge) what is the
(ARTICLES 1350 – 1355) cause?
Example:
Article 1350. In onerous contracts the cause is
You borrow 1M; that‘s the contract of loan. To secure the
understood to be, for each contracting party, the
obligation, you mortgage your house. That‘s a contract
prestation or promise of a thing or service by the other; of mortgage. In every contract, there has to be a cause
in remuneratory ones, the service or benefit which is because cause is an essential requisite of a contract. In
remunerated; and in contracts of pure beneficence, all contracts (consensual, formal or real contracts) there
the mere liberality of the benefactor. (1274) has to be a cause. Without cause, there is no valid
contract.
In accessory contracts, what would be the cause?

Cause of Contracts. Remember, in accessory contracts, the cause is the same
as that of the principal obligation. You cannot say that
We have different contract mentioned under Article there is no cause; there is: the sale as to the principal
1350. What do you mean by the ―cause of the
obligation.
contract?‖
As defined, the cause is the essential and compelling Article 1351. The particular motives of the parties in
reason why a party assumes an obligation. That is the entering into a contract are different from the cause
reason why you entered into a contract like you want to thereof. (n)
buy so the cause for you is the land. You want to acquire
the land, that is why you entered into a contract of sale.
The motive into entering into the contract.
As we mentioned before, the cause is the impelling

Under Article 1350, there are different kinds of contracts reason why a party enters into a contract. What is the
mentioned‖ motive?
1.) Onerous contracts – we have a valuable cause The motive may be something which exists in the mind of
or consideration. As mentioned under Article the party.
Example: the appellees as heirs of Lopez by the court of First Instance,
since 1949.
I want to buy a gun. The cause for me is the acquisition of
the gun. What would be my motive in acquiring the gun? The Court of Appeals found that the deed of donation was
prepared by the Justice of the Peace of Mati, Davao, before
Maybe because I want to kill somebody or I would just
whom it was signed and ratified on the date aforesaid. At the
want to feel protected. That is my motive. time, the appellant Liguez was a minor, only 16 years of age.
The motive is different from the cause. Usually, even if the The Court of Appeals found that when the donation was made,
motive is illegal, as long as the cause is legal, the contract Lopez had been living with the parents of appellant for barely a
is valid. Like in the acquisition of the gun. As long as you month; that the donation was made in view of the desire of
have the proper documents but your motive is illegal, Salvador P. Lopez, a man of mature years, to have sexual
that does not affect the validity of the contract, as a relations with appellant Conchita Liguez; that Lopez had
general rule. confessed to his love for appellant to the instrumental witnesses,
with the remark that her parents would not allow Lopez to live
with her unless he first donated the land in question; that after
CASE: LIGUEZ vs CA
the donation, Conchita Liguez and Salvador P. Lopez lived
together in the house that was built upon the latter's orders, until
How old was Lopez? He was 56. Lopez was killed on July 1st, 1943, by some guerrillas who
believed him to be pro-Japanese.
They happen to get the land but the heirs of Lopez
refused on the ground that the contract is null and void. It was also ascertained by the Court of Appeals that the
As we discussed before, motive is different from the donated land originally belonged to the conjugal partnership of
cause. So, even if your motive is illegal, it would not affect Salvador P. Lopez and his wife, Maria Ngo; that the latter had
the validity of the contract. met and berated Conchita for living maritally with her husband,
sometime during June of 1943; that the widow and children of
Lopez were in possession of the land and made improvements
Here, did the motive pre-determine the cause? Yes.
thereon; that the land was assessed in the tax rolls first in the
name of Lopez and later in that of his widow.; and that the deed
How? Because, here, the real purpose or motive of Lopez of donation was never recorded.
in donating the land was the desire to cohabit with
Conchita. Were it not for that, he would not have Upon these facts, the Court of Appeals held that the deed of
donated the land. So, it pre-determined the donation was inoperative, and null and void (1) because the
purpose/cause of the contract. That‘s the real reason. husband, Lopez, had no right to donate conjugal property to the
Without that, he would not have given the land. It was plaintiff appellant; and (2) because the donation was tainted
not really because of his generosity or liberality but with illegal cause or consideration, of which donor and donee
were participants.
because of his desire.
Appellant vigorously contends that the Court of First Instance as
In that case, the Supreme Court said the donation is null well as the Court of Appeals erred in holding the donation void
and void. for having an illicit cause or consideration. It is argued that under
Article 1274 of the Civil Code of 1889 (which was the governing
Can the heirs of Lopez get the land? No. The donation is law in 1948, when the donation was executed), "in contracts of
void. Therefore, if the donation is void, the proper pure beneficence the consideration is the liberality of the
consequence should have been for Conchita to return donor", and that liberality per se can never be illegal, since it is
the land to the estate of Lopez. But the Supreme Court neither against law or morals or public policy.
said no. The heirs of Lopez cannot get the land.
RULING: The flaw in this argument lies in ignoring that under
For what reason? Between Conchita and Lopez, Article 1274, liberality of the do or is deemed causa in those
Conchita was the minor so she was more innocent contracts that are of "pure" beneficence; that is to say, contracts
designed solely and exclusively to procure the welfare of the
compared to the old man. The old man himself, if he
beneficiary, without any intent of producing any satisfaction for
were alive, he could not get back the land because he the donor; contracts, in other words, in which the idea of self-
did not have clean hands. He did not possess the interest is totally absent on the part of the transferor. For this very
innocence that would exculpate him from the reason, the same Article 1274 provides that in remuneratory
consequences of his acts. contracts, the consideration is the service or benefit for which
the remuneration is given; causa is not liberality in these cases
So, as his heirs stand in his shoes, then his heirs stand in the because the contract or conveyance is not made out of pure
same situation as Lopez. If Lopez could not get that land beneficence, but "solvendi animo."
because he was not innocent then his heirs who merely
Here the facts as found by the Court of Appeals (and which we
step into his shoes should also not be allowed to get that.
cannot vary) demonstrate that in making the donation in
question, the late Salvador P. Lopez was not moved exclusively
In that case, even if the deed of donation was void, the by the desire to benefit appellant Conchita Liguez, but also to
law left the parties as they are. The land was still with secure her cohabiting with him, so that he could gratify his sexual
Conchita and the heirs could not recover the land. impulses. This is clear from the confession of Lopez to the
witnesses Rodriguez and Ragay, that he was in love with
LIGUEZ vs CA appellant, but her parents would not agree unless he donated
the land in question to her. Actually, therefore, the donation was
FACTS: The case began upon complaint filed by petitioner- but one part of an onerous transaction (at least with appellant's
appellant against the widow and heirs of the late Salvador P. parents) that must be viewed in its totality. Thus considered, the
Lopez to recover a parcel of 51.84 hectares of land. Plaintiff conveyance was clearly predicated upon an illicit causa.
averred to be its legal owner, pursuant to a deed of donation of
said land, executed in her favor by the late owner, Salvador P. In the present case, it is scarcely disputable that Lopez would not
Lopez. The defense interposed that the donation was null and have conveyed the property in question had he known that
void for having an illicit causa or consideration, which was the appellant would refuse to cohabit with him; so that the
plaintiff's entering into marital relations with Salvador P. Lopez, a cohabitation was an implied condition to the donation, and
married man; and that the property had been adjudicated to being unlawful, necessarily tainted the donation itself.
As to the distinctions between motive and cause:
In our opinion, the Court of Appeals erred in applying to the
present case the pari delicto rule. First, because it can not be 1.) Motive may vary in every contract. The cause is
said that both parties here had equal guilt when we consider always the same.
that as against the deceased Salvador P. Lopez, who was a man
advanced in years and mature experience, the appellant was a
mere minor, 16 years of age, when the donation was made; that
Whatever may be the motive of one party into
there is no finding made by the Court of Appeals that she was entering into the contract may not be the same
fully aware of the terms of the bargain entered into by and as the motive of the other party.
Lopez and her parents; that, her acceptance in the deed of
donation (which was authorized by Article 626 of the Old Civil 2.) Motive may be unknown to the other party. The
Code) did not necessarily imply knowledge of conditions and cause is always known because it‘s an essential
terms not set forth therein; and that the substance of the requisite of the contract.
testimony of the instrumental witnesses is that it was the
appellant's parents who insisted on the donation before allowing
her to live with Lopez. These facts are more suggestive of
3.) The presence of motive cannot clear the
seduction than of immoral bargaining on the part of appellant. It absence of cause. Cause has to exist. It is an
must not be forgotten that illegality is not presumed, ut must be essential requisite of a contract. Without a cause,
duly and adequately proved. the contract is void. Even if you have a motive
but motive is different from a cause, as a general
In the second place, the rule that parties to an illegal contract, if rule. Although in the case of Liguez, if it
equally guilty, will not be aided by the law but will both be left predetermines the purposes of the contract,
where it finds them, has been interpreted by this Court as barring
motive may be regarded as the cause.
the party from pleading the illegality of the bargain either as a
cause of action or as a defense.
Said this Court in Perez vs. Herranz:

Article 1352. Contracts without cause, or with
unlawful cause, produce no effect whatever. The
It is a familiar principle that the courts will not aid either
party to enforce an illegal contract, but will leave them cause is unlawful if it is contrary to law, morals, good
both where it finds them; but where the plaintiff can customs, public order or public policy. (1275a)
establish a cause of action without exposing its
illegality, the vice does not affect his right to recover.
The American authorities cited by the plaintiff fully That‘s another requisite. A contract without a cause is
sustain this doctrine. The principle applies equally to a void. A contract with an unlawful cause is likewise void.
defense. The law in those islands applicable to the case
is found in article 1305 of the Civil Code, shutting out The requisites for a contract insofar as the cause, to be
from relief either of the two guilty parties to an illegal or valid:
vicious contract.
1.) The cause must be present. It should exist at the
The situation confronting us is exactly analogous. The appellant
seeks recovery of the disputed land on the strength of a
time of the contract.
donation regular on its face. To defeat its effect, the appellees 2.) It must be a true cause. It cannot k=just be
must plead and prove that the same is illegal. But such plea on simulated.
the part of the Lopez heirs is not receivable, since Lopez, himself, 3.) The cause must be lawful.
if living, would be barred from setting up that plea; and his heirs,
as his privies and successors in interest, can have no better rights That is why an absolutely simulated contract is void.
than Lopez himself. Because in reality, there is no cause or consideration for
that contract. Like you enter into a contract of sale with
Appellees, as successors of the late donor, being thus precluded
your son just for the purpose of placing your property
from pleading the defense of immorality or illegalcausa of the
donation, the total or partial ineffectiveness of the same must be beyond the reach of your creditors so there is no cash
decided by different legal principles. involved there. There is no cause. That is why it is void.
There is no cause. Cause should exist.
In this regard, the Court of Appeals correctly held that Lopez
could not donate the entirety of the property in litigation, to the
prejudice of his wife Maria Ngo, because said property was
conjugal in character and the right of the husband to donate
community property is strictly limited by law (Civil Code of 1889, Article 1353. The statement of a false cause in
Arts. 1409, 1415, 1413; Baello vs. Villanueva, 54 Phil. 213). contracts shall render them void, if it should not be
The text of the articles makes it plain that the donation made by proved that they were founded upon another
the husband in contravention of law is not void in its entirety, but cause which is true and lawful. (1276)
only in so far as it prejudices the interest of the wife. To determine
the prejudice to the widow, it must be shown that the value of
her share in the property donated can not be paid out of the
husband's share of the community profits. The requisite data, Even if you state a cause in the contract but it‘s not the
however, are not available to us and necessitate a remand of true cause, the contract would be void unless there is
the records to the court of origin that settled the estate of the another cause which is true and lawful.
late Salvador P. Lopez.
In view of the foregoing, the decisions appealed from are Article 1354. Although the cause is not stated in the
reversed and set aside, and the appellant Conchita Liguez
contract, it is presumed that it exists and is lawful,
declared entitled to so much of the donated property as may
be found, upon proper liquidation, not to prejudice the share of unless the debtor proves the contrary. (1277)
the widow Maria Ngo in the conjugal partnership with Salvador
P. Lopez or the legitimes of the forced heirs of the latter.
Remember this article. Even if there is no cause stated in Article 1098. A partition, judicial or extra-judicial, may also be
the contract (even if you did not mention the price in the rescinded on account of lesion, when any one of the co-heirs
contract), you cannot say that the contract is already received things whose value is less, by at least one-fourth, than
the share to which he is entitled, considering the value of the
void because the presumption is the cause exists. It is not
things at the time they were adjudicated. (1074a)
the burden of the party to prove that there is a cause.
The other has the burden of proving that there is no
In those 2 cases, even if there is no fraud, mistake or
cause.
undue influence, that would be a cause for rescinding a
The presumption is there is a cause even if not mentioned contract because that is expressly provided by law.
in the contract. The party alleging that there is no cause But in Article 1355, there has to be fraud, mistake or
has to prove that indeed there is no cause. undue influence before lesion can invalidate a contract.
Article 1355. Except in cases specified by law, lesion

or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or
undue influence. (n)
Lesion or Inadequacy of Cause
Example:
The value of the property is 10M but its merely stated as

2M so there is inadequacy of cause or lesion. That itself
will not invalidate the contract unless there is fraud,
mistake or undue influence together with lesion. Then that
will invalidate the contract.
There are also cases expressly provided by law where

lesion will invalidate the contract:
1.) Article 1381, par. 1 and par. 2 - Lesion by more

than one-fourth
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians

whenever the wards whom they represent suffer lesion
by more than one-fourth of the value of the things
which are the object thereof;
(2) Those agreed upon in 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 other manner collect the claims
due them;
(4) Those which refer to things under litigation if they

have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be

subject to rescission. (1291a)
2.) Article 1098 – in that case, there is lesion by at

least one-fourth
VI.FORM OF CONTRACTS lifetime of the donor.
(ARTICLES 1356 – 1358) If the acceptance is made in a separate

instrument, the donor shall be notified thereof in an
Article 1356. Contracts shall be obligatory, in whatever authentic form, and this step shall be noted in both
instruments. (633)
form they may have been entered into, provided all
the essential requisites for their validity are present. If it is real property, regardless of the value, it
However, when the law requires that a contract be in has to be in a public document. Both the
some form in order that it may be valid or enforceable, donation and the acceptance have to be in
or that a contract be proved in a certain way, that a public document.
requirement is absolute and indispensable. In such
b.) Partnership – In a partnership, where real
cases, the right of the parties stated in the following
property is contributed.
article cannot be exercised. (1278a)
Article 1771. A partnership may be constituted in

any form, except where immovable property or
real rights are contributed thereto, in which case a
GENERAL RULE: Contracts shall be obligatory in whatever
public instrument shall be necessary. (1667a)
form they may have been entered into.
Whether it is verbal, written or just a private document, Article 1772. Every contract of partnership having
a capital of three thousand pesos or more, in
that would be valid. Unless if the law requires a certain
money or property, shall appear in a public
form or certain requisites for the contract to be valid or instrument, which must be recorded in the Office
enforceable. of the Securities and Exchange Commission.
We discussed before the different kinds of contracts:

Failure to comply with the requirements of the
preceding paragraph shall not affect the liability
1.) Consensual Contract – when you say consensual, of the partnership and the members thereof to
that is perfected by mere consent. third persons. (n)
2.) Real Contracts – these are perfected by delivery. Article 1773. A contract of partnership is void,
An example of real contracts would be contracts whenever immovable property is contributed
of deposit or commodatum. thereto, if an inventory of said property is not
made, signed by the parties, and attached to the
3.) Formal/Solemn Contracts – They require certain public instrument. (1668a)
forms for them to be valid. Examples:
That is when immovable property is
a.) Donation – Articles 748 and 749 discuss the contributed to the partnership. There has to
formalities of donation. be a public instrument, there has to be
registration, and there has to be an inventory
Article 748. The donation of a movable may be attached to the public instrument.
made orally or in writing.
Without the observance of that form, that
An oral donation requires the simultaneous delivery contract is void.
of the thing or of the document representing the
right donated. c.) Contract of Antichresis
If the value of the personal property donated Article 2134. The amount of the principal and of
exceeds five thousand pesos, the donation and the interest shall be specified in writing; otherwise,
the acceptance shall be made in writing. the contract of antichresis shall be void. (n)
Otherwise, the donation shall be void. (632a)
That is the form required. The principal and
Article 748 is with respect to a movable. It the interest must be in writing. A verbal
may be orally or in writing. If it is oral there contract will not suffice. If you just enter into
has to be simultaneous delivery. But if the a verbal contract of antichresis, that is void. It
value exceeds P5000, the donation and has to be in writing.
acceptance should be in writing.
d.) Agency to Sell Property (Real Property or an
Interest therein)
Article 749. In order that the donation of an
immovable may be valid, it must be made in a Article 1874. When a sale of a piece of land or any
public document, specifying therein the property interest therein is through an agent, the authority
donated and the value of the charges which the of the latter shall be in writing; otherwise, the sale
donee must satisfy. shall be void. (n)
The acceptance may be made in the same deed The law says ―the sale of a piece of land.‖
of donation or in a separate public document, but
it shall not take effect unless it is done during the Example:
Somebody goes to you and says ―I‘ll sell you
this land for 2M. I am the agent.‖ You ask
him, ―Where is your principal? He will say that
the principal is in Canada.
And then you say, ―Where is your authority?‖

The agent will say, ―He said to me that I have As to form, you have to remember 3 things:
authority.‖ Then you bought the land for 2M.
Can you get the land from the owner? 1.) There might be cases when form is required for
validity.
No, because your sale is void. Even if he was
really authorized but it‘s not in writing then Like the ones we mentioned before. The 8
the authority as well as the subsequent sale contracts we enumerated. In those cases, form is
are void. It has to be in writing. Of course, the required for validity. The contract is void without
principal can always ratify pero kung wala, observing those forms.
remember Article 1874.
2.) Form may be required for enforceability.
e.) Article 1956
The contract will still be valid but it cannot be
Article 1956. No interest shall be due unless it has enforced because it fails to observe the required
been expressly stipulated in writing. (1755a) form. It can be ratified.
If you lend money and you charge interest, 3.) Form may be required only for convenience.
the contract has to be in writing otherwise
you cannot claim or collect the interest The law says it has to be in a public document
which is not agreed upon in writing. but it is merely for convenience so that the
contract is still valid and it is still enforceable but
f.) Article 1744 the contract is valid again, you can compel the
other party to observe the form
Article 1744. A stipulation between the common
carrier and the shipper or owner limiting the liability These are the contracts mentioned in Article 1358. Article
of the former for the loss, destruction, or 1357 refers to contracts which require form merely for
deterioration of the goods to a degree less than convenience. When you say convenience, the contract
extraordinary diligence shall be valid, provided it is valid and you can enforce it against the other party.
be:
Example:
(1) In writing, signed by the shipper or
owner; In a sale of land where you already paid the price but
there is no document or there is a document but it‘s only
(2) Supported by a valuable a private document and then the seller no longer wants
consideration other than the service to execute another deed of Absolute Sale. You can
rendered by the common carrier; and compel him to observe the form. If he hasn‘t delivered
the land and you already paid, the contract is valid so
(3) Reasonable, just and not contrary to you can file a case against him for delivery so specific
public policy. performance and at the same time compel him to sign
the Deed of Sale and have it notarized.
Here, there can actually be a stipulation
limiting the liability to a degree less than That is under Article 1357. ―The contracting parties may
extraordinary diligence. But these are the compel each other to observe that form, once the
formalities to be observed: Article 1744. contract has been perfected. This right may be exercised
Otherwise, that stipulation is void. simultaneously with the action upon the contract.‖
g.) Under the Chattel Mortgage Law – The In Article 1358 the law says these contracts must appear
Chattel Mortgage has to comply with in a public document. But actually, the requirement of a
Section 5 of the Chattel Mortgage Law. public document is not for validity (because the contract
There has to be signature by at least 2 is valid), not for enforceability (because the contract is
witnesses. There should be an affidavit of enforceable) but merely for convenience.
good faith. It should be under oath or
acknowledged. It should be recorded in the
Chattel Mortgage Register.
For the sake of large cattle, that has to be

entered in the book of the Principal Treasurer.
If you sell large cattle, you have to comply
with the forms under Act No. 1147. Otherwise
the sale is void. Article 1358. The following must appear in a public
Article 1357. If the law requires a document or other document:
special form, as in the acts and contracts enumerated
in the following article, the contracting parties may (1) Acts and contracts which have for their
object the creation, transmission,
compel each other to observe that form, once the
modification or extinguishment of real rights
contract has been perfected. This right may be over immovable property; sales of of
real
Revelen Solis and
exercised Mizzy Mareé Martinez
simultaneously with the action upon the TAU MU Page 213 262
property or of an interest therein are
contract. (1279a) governed by articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of

hereditary rights or of those of the conjugal
REFORMATION
What you have to remember in reformation:
There is meeting of the minds between the parties but the

contract did not express their true agreement.
Nagkasinabot gyud sila about a certain contract or

transaction but because of fraud, accident, mistake
negligence, etc., the contract as written did not express
their true agreement.
Example:
Just remember Article 1358. Under this article, the law
says ―must appear in a public document‖ but that is They agreed on a mortgage but the contract is Sale with
merely for convenience. Right of Repurchase. The remedy here is reformation.
(1) Acts and contracts which have for their object Reformation will only come into the picture if the other
the creation, transmission, modification or party does not agree voluntarily. ―Ay, A, didn‘t we agree
extinguishment of real rights over immovable to a mortgage only? Why is thisa Deed of Sale?‖ And
property; sales of real property or of an interest then A will say, ―Tama diay. Sige, usabon nato.‖ In this
therein are governed by articles 1403, No. 2, and case, there is no problem.
1405;
But if A will say that it really was a Deed of Sale that you
Under number one, the law says ―sales of real property or agreed on and you will insist that it was only a Mortgage,
of an interest therein are governed by articles 1403, No. now you have to go to court for reformation.
2‖ because sales of real property are governed by the
You will not go to court if A already agreed to the
Statue of Frauds. There, the minimum requirement is, it has
reformation. Gasto-gasto lang ka.If A will not agree and
to be in writing for it to be enforceable. It is an exception.
the contract did not express the true agreement, you go
You cannot enforce these contracts if they are not to court for reformation.
writing but otherwise all the contracts in 1358 are
If there is no meeting of the minds:
enforceable and valid even if not in writing and even if it
is in a private document, but for convenience, they have
Example:
to be in a public document.
All other contracts where the amount involved I want a mortgage and you want a lease. What is stated
exceeds five hundred pesos must appear in in the contract is sale. There is really no meeting of the
writing, even a private one. But sales of goods, minds in the first place because we are not on the same
chattels or things in action are governed by wavelength.
articles, 1403, No. 2 and 1405.
It is different if I want a mortgage and you want a
Under the last paragraph, sales of goods, chattels or mortgage but the contract says sale. There is meeting of
things in action are also governed by the Statute of the minds so the remedy is reformation.
Frauds.
If I want a mortgage and you want a lease but what is
Form, in this contract, is required for enforceability. stated in the contract is sale then the remedy here is
annulment. Because in the first place, there is no
Remember 1358, the contracts are valid and contract. There is no meeting of the minds.
enforceable in whatever form. The form here is just for
convenience. That is the first principle that you have to remember in
reformation.
VII.REFORMATION OF INSTRUMENTS
(ARTICLES 1359 – 1369) Article 1360. The principles of the general law on the
reformation of instruments are hereby adopted
Article 1359. When, there having been a meeting of insofar as they are not in conflict with the provisions
the minds of the parties to a contract, their true of this Code.
intention is not expressed in the instrument
purporting
Revelen Solis andtoMizzy
embody
Mareéthe agreement, by reason of
mistake, fraud, inequitable conduct or accident,
one of the parties may ask for the reformation of the
instrument to the end that such true intention may be
expressed.
insurance in the character of a mortgage creditor only, and that
the owner of said property upon the date the policies were
There might be jurisprudence relating to reformation. issued was one D. P. Dunn who was later succeeded as owner
Actually, they are already mentioned in the new Civil by one Henry Harding. Accordingly said Harding was made a
defendant, as a person interested in the subject of the litigation.
Code. The provisions in the Civil Code are the prevailing
ones. Other provisions under the General Law, if they are The peculiar form of the latter part of the prayer is evidently due
not the same as the provisions in the Civil Code, will be to the design of the plaintiff to lay a foundation for Harding to
disregarded. They can be applied only if they are in recover the difference between the plaintiff's credit and the
accordance with the provisions of the New Civil Code on amount for which the property was insured.
reformation.
Accordingly, as was to be expected, Harding answered,
admitting the material allegations of the complaint and claiming
Article 1361. When a mutual mistake of the parties for himself the right to recover the difference between the
causes the failure of the instrument to disclose their plaintiff's mortgage credit and the face value of the policies. The
two insurance companies also answered, admitting in effect
real agreement, said instrument may be reformed.
their liability to the San Miguel Brewery to the extent of its
mortgage credit, but denying liability to Harding on the ground
that under the contracts of insurance the liability of the
Mutual mistake but there is a meeting of the minds. insurance companies was limited to the insurable interest of the
Again, the remedy is reformation. plaintiff therein.
CASE: SAN MIGUEL BREWERY vs LAW UNION AND ROCK Soon after the action was begun the insurance companies
INSURANCE CO. effected a settlement with the San Miguel Brewery by paying the
full amount of the credit claimed by it, with the result that the
There was a mortgage contract and the subject matter litigation as between the original plaintiff and the two insurance
of the mortgage was insured. To whom shall the companies came to an end, leaving the action to be
prosecuted to final judgment by the defendant Harding with
proceeds in the insurance go? Should it go to the owner
respect to the balance claimed to be due to him upon the
or the mortgagee? It should go to the owner because it policies.
was very clear in the contract of insurance that it was the
intention and because it was not proves that there was The trial judge came to the conclusion that Harding had no right
mistake or fraud or etc. which caused the contract not to of action whatever against the companies and absolved them
express the true agreement. It was actually the true from liability without special finding as to costs. From this decision
agreement of the parties that the proceeds go to the the said Henry Harding has appealed.
owner.
The two insurance companies who are named as defendants do
not dispute their liability to the San Miguel Brewery, to the extent
Example:
already stated, and the only question here under discussion is
that of the liability of the insurance companies to Harding.
If you are the mortgagee so the property is mortgaged to In this connection it appears that on January 12, 1916, D. P.
you but the property is also insured by the owner. The Dunn, then the owner of the property to which the insurance
owner is the one who mortgages. You cannot mortgage relates, mortgaged the same to the San Miguel Brewery to
if you are not the owner. The mortgagor is the owner. secure a debt of P10,000. In the contract of mortgage Dunn
Then, the property as mortgagee would be your security agreed to keep the property insured at his expense to the full
if the mortgagor cannot pay. amount of its value in companies to be selected by the Brewery
Company and authorized the latter in case of loss to receive the
If the property is lost, the question is, where will the proceeds of the insurance and to retain such part as might be
necessary to cover the mortgage debt.
proceeds of the insurance go? Willl it go to the
mortgagee because that is your security? Or will it go to At the same time, in order more conveniently to accomplish the
the owner because it was his property? That would end in view, Dunn authorized and requested the Brewery
depend on the contract of insurance; where the Company to effect said insurance itself. Accordingly on the
proceeds will go. If it is clear in the contract that the same date Antonio Brias, general manager of the Brewery,
proceeds will go to the owner then the proceeds will go made a verbal application to the Law Union and Rock Insurance
to the owner. Company for insurance to the extent of P15,000 upon said
property. In reply to a question of the company's agent as to
What is your remedy as mortgagee? You can collect on whether the Brewery was the owner of the property, he stated
that the company was interested only as a mortgagee. No
the loan or you can ask for another equivalent property
information was asked as to who was the owner of the property,
as collateral. But you cannot invoke any right on the and no information upon this point was given.
contract of insurance and you cannot ask for any
reformation because there is no mistake in the contract. It seems that the insurance company to whom this application
It is not unusual that the proceeds will go to the was directed did not want to carry more than one-half the risk. It
mortgagor even if the property is mortgaged. therefore issued its own policy for P7,500 and procured a policy
in a like amount to be issued by the "Filipinas" Compania de
SAN MIGUEL BREWERY vs LAW UNION AND ROCK INSURANCE CO. Seguros. Both policies were issued in the name of the San Miguel
Brewery as the assured, and contained no reference to any
FACTS: This action was begun on October 8, 1917, in the Court of other interest in the property. A year later the policies were
First Instance of the city of Manila by the plaintiff, the San Miguel renewed, without change, the renewal premiums being paid by
Brewery, for the purpose of recovering upon two policies of the Brewery, supposedly for the account of the owner. In the
insurance underwritten respectively by Law Union and Rock month of March of the year 1917 Dunn sold the insured property
Insurance Company (Ltd.), and the "Filipinas" Compania de to the defendant Henry Harding, but not assignment of the
Seguros, for the sum of P7,500 each, insuring certain property insurance, or of the insurance policies, was at any time made to
which has been destroyed by fire. The plaintiff, the San Miguel him.
Brewery, is named as the party assured in the two policies
referred to, but it is alleged in the complaint that said company RULING: We agree with the trial court that no cause of action in
was in reality interested in the property which was the subject of Henry Harding against the insurance companies is show. He is
not a party to the contracts of insurance and cannot directly the owner or intended to make themselves liable to that extent.
maintain an action thereon. His claim is merely of an equitable If during the negotiations which resulted in the writing of this
and subsidiary nature and must be made effective, if at all, insurance, it had been agreed between the contracting parties
through the San Miguel Brewery in whose name the contracts that the insurance should be so written as to protect not only the
are written. interest of the mortgagee but also the residuary interest of the
owner, and the policies had been, by inadvertence, ignorance,
Now the Brewery, as mortgagee of the insured property, or mistake written in the form in which they were issued, a court
undoubtedly had an insurable interest therein; but it could not, in would have the power to reform the contracts and give effect
any event, recover upon these policies an amount in excess of to them in the sense in which the parties intended to be bound.
its mortgage credit. In this connection it will be remembered that But in order to justify this, it must be made clearly to appear that
Antonio Brias, upon making application for the insurance, the minds of the contracting parties did actually meet in
informed the company with which the insurance was placed agreement and that they labored under some mutual error or
that the Brewery was interested only as a mortgagee. It would, mistake in respect to the expression of their purpose.
therefore, be impossible for the Brewery mortgage on the insured
property. Thus, in Bailey vs. American Central Insurance Co. (13 Fed., 250),
it appeared that a mortgage desiring to insure his own insurable
This conclusion is not only deducible from the principles interest only, correctly stated his interest, and asked that the
governing the operation and effect of insurance contracts in same be insured. The insurance company agreed to accept the
general but the point is clearly covered by the express provisions risk, but the policy was issued in the name of the owner, because
of sections 16 and 50 of the Insurance Act (Act No. 2427). In the of the mistaken belief of the company's agent that the law
first of the sections cited, it is declared that "the measure of an required it to be so drawn. It was held that a court of equity had
insurable interest in property is the extent to which the insured the power, at the suit of the mortgage, to reform the instrument
might be damnified by loss or injury thereof" (sec. 16); while in the and give judgment in his favor for the loss thereunder, although it
other it is stated that "the insurance shall be applied exclusively had been exactly as it was.
to the proper interest of the person in whose name it is made
unless otherwise specified in the policy" (sec. 50). Said the court:
These provisions would have been fatal to any attempt at "If the applicant correctly states his interest and
recovery even by D. P. Dunn, if the ownership of the property distinctly asks for an insurance thereon, and the agent
had continued in him up to the time of the loss; and as regards of the insurer agrees to comply with his request, and
Harding, an additional insuperable obstacle is found in the fact assumes to decide upon the form of the policy to be
that the ownership of the property had been charged, prior to written for that purpose, and by mistake of law adopts
the loss, without any corresponding change having been the wrong form, a court of equity will reform the
effected in the policy of insurance. instrument so as to make it insurance upon the interest
named." Similarly, in cases where the mortgage is by
Undoubtedly these policies of insurance might have been so mistake described as owner, the court may grant
framed as to have been "payable to the Sane Miguel Brewery, reformation and permit a recovery by the mortgage in
mortgagee, as its interest may appear, remainder to his character as such.
whomsoever, during the continuance of the risk, may become
the owner of the interest insured." (Sec 54, Act No. 2427.) Such a We have before us a contract from which by mistake, material
clause would have proved an intention to insure the entire stipulations have been omitted, whereby the true intent and
interest in the property, not merely the insurable interest of the meaning of the parties are not fully or accurately expressed.
San Miguel Brewery, and would have shown exactly to whom There was a definite concluded agreement as to insurance,
the money, in case of loss, should be paid. But the policies are which, in point of time, preceded the preparation and delivery
not so written. of the policy, and this is demonstrated by legal and exact
evidence, which removes all doubt as to the sense and
It is easy to collect from the facts stated in the decision of the undertaking of the parties. In the agreement there has been a
trial judge, no less than from the testimony of Brias, the manager mutual mistake, caused chiefly by that contracting party who
of the San Miguel Brewery, that, as the insurance was written up, now seeks to limit the insurance to an interest in the property less
the obligation of the insurance companies was different from than that agreed to be insured. The written agreement did not
that contemplated by Dunn, at whose request the insurance effect that which the parties intended. That a court of equity
was written, and Brias. can afford relief in such a case, is, we think, well settled by the
authorities.
In the contract of mortgage Dunn had agreed, at his own
expense, to insure the mortgaged property for its full value and But to justify the reformation of a contract, the proof must be of
to indorse the policies in such manner as to authorize the the most satisfactory character, and it must clearly appear that
Brewery Company to receive the proceeds in case of loss and to the contract failed to express the real agreement between the
retain such part thereof as might be necessary to satisfy the parties.
remainder then due upon the mortgage debt.
In the case now before us the proof is entirely insufficient to
Instead, however, of effecting the insurance himself Dunn authorize the application of the doctrine state in the foregoing
authorized and requested the Brewery Company to procure cases, for it is by means clear from the testimony of Brias — and
insurance on the property in the amount of P15,000 at Dunn's none other was offered — that the parties intended for the
expense. The Brewery Company undertook to carry this policy to cover the risk of the owner in addition to that of the
mandate into effect, and it of course became its duty to mortgagee. It results that the defendant Harding is not entitled
procure insurance of the character contemplated, that is, to to relief in any aspect of the case.
have the policies so written as to protect not only the insurable
interest of the Brewery, but also the owner.
Brias seems to have supposed that the policies as written had this Article 1362. If one party was mistaken and the other
effect, but in this he was mistaken. It was certainly a hardship on
acted fraudulently or inequitably in such a way that
the owner to be required to pay the premiums upon P15,000 of
insurance when he was receiving no benefit whatever except in the instrument does not show their true intention, the
protection to the extent of his indebtedness to the Brewery. The former may ask for the reformation of the instrument.
blame for the situation thus created rests, however, with the
Brewery rather than with the insurance companies, and there is
nothing in the record to indicate that the insurance companies
were requested to write insurance upon the insurable interest of
One party was mistaken and the other acted fraudulently
and by reason of that the contract does not express their
true agreement. Again, remember, there is meeting of Article 1366. There shall be no reformation in the
the minds so here, the remedy is reformation. following cases:
(1) Simple donations inter vivos wherein no

condition is imposed;
Article 1363. When one party was mistaken and the
other knew or believed that the instrument did not (2) Wills;
state their real agreement, but concealed that fact
from the former, the instrument may be reformed. (3) When the real agreement is void.
Again, only one party is mistaken and the other one is not
but the latter just kept quiet about the mistake then the Take note of Article 1366. Under these cases, reformation
contract may still be reformed. is not available as a remedy.
Article 1364. When through the ignorance, lack of skill, (1) Simple donations inter vivos wherein no
negligence or bad faith on the part of the person condition is imposed;
drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the (2) Wills;
parties, the courts may order that the instrument be
In donation, the cause is the liberality or generosity of the
reformed.
donor. In wills, the cause here is also the generosity or
liberality of the testator.
Another instance when reformation is possible because
of the ignorance, lack of skill, negligence or bad faith on Example:
the part of the one drafting the instrument. So, the
contract does not express the true agreement. The You will be given land in a will. Then, you talked with the
contract may be reformed. testator before, where he agreed to give you 10 hectares
in his will. Then when the donation was placed in the will,
Example: it was only 1 hectare. Then the testator will no longer
agree to change it so you file a case in court for
If the consideration is 1M but what was placed in the reformation.
instrument was 10M and the parties did not read it, they
just signed right away. Then the seller demands for the In that case, the donor or the testator may even revoke
payment of 10M but the buyer insists that the payment is the legacy or the donation. Dili nimo siya dapat pugson
only 1M. Then the seller says that 10M is the price placed kay generosity lang na siya. Wala’y agreement. Iyaha
in the contract so he will not anymore recognize their lang na siyang unilateral act. So, pasalamat na gani ka
agreement for 1M. na gitagaan ka ug 1 hectare. Dili na nimo siya filan ug
kaso for reformation.
In that case, the remedy is reformation because if you will
not have it reformed then the seller will keep demanding But if the testator agrees, then he can change it
for 10M. In that case, there was an agreement as to the voluntarily. He cannot be ordered by the court to
1M but because of the ignorance, lack of skill or change what has been stated in his Deed of Donation or
negligence of the typist, it was typed as 10M. in his will.
(3) When the real agreement is void.

Article 1365. If two parties agree upon the mortgage
or pledge of real or personal property, but the When the agreement is void, there is nothing to reform
instrument states that the property is sold absolutely because a void contract in legal contemplation does not
or with a right of repurchase, reformation of the exist. There is nothing to reform.
instrument is proper.
Article 1367. When one of the parties has brought an
action to enforce the instrument, he cannot
This is the usual scenario in reformation. The bottom line subsequently ask for its reformation.
here, in all the articles which we discussed previously in
reformation, there is meeting of the minds but the
contract does not express the true agreement. In those The principle that applies here is estoppel.
cases, reformation would be possible.
If you file an action for specific performance, that means
Why did the contract not express the true intention? you are saying that this contract is what it is as written. This
Maybe because there was mutual mistake or only on the is really the contact between us so it should be enforced.
part of one party or there was fraud or there was Then subsequently, you want to have it reformed. No, you
negligence, lack of skill, etc. Those are the possible are estopped.
reasons but as longs as there was meeting of the minds,
the remedy of reformation would be available.
When you enforce the contract, you cannot Beta, on the other hand, sub-contracted the works to
subsequently change your mind and file an action for Allied Plumbing Company. That was their arrangement.
reformation.
Under the contract of Beta and Allied, there was a
stipulation that the work finished by Allied shall be paid by
UP if approved by them. So, the work of Allied shall still be
Article 1368. Reformation may be ordered at the accepted and approved by UP.
instance of either party or his successors in interest, if
In this case, Beta did not pay Allied. Thus, Allied sued UP
the mistake was mutual; otherwise, upon petition of
for collection of the services rendered under the
the injured party, or his heirs and assigns. construction contract.
The issue is WON UP shall be held liable for the works

Who can file an action for reformation?
performed by Allied.
When it is mistake, either party.
In resolving the dispute, the Supreme Court referred to
Otherwise, if it is fraud, the one who committed the fraud
the sub-contract between Allied and Beta. In the sub-
cannot file an action for reformation. He who comes to
contract, it was stipulated that UP shall pay the works
court must come with clean hands. It should be the
which are accepted and approved by UP.
innocent or the injured party or the heirs and assigns who
can file the action for reformation.
The liability of UP would only arise if it has accepted and
approved the works done by Allied. In this case, the work
Article 1369. The procedure for the reformation of was not yet accepted and approved by UP.
instrument shall be governed by rules of court to be
So, the stipulation in the sub-contract is clear and leaves
promulgated by the Supreme Court.
no doubt as to the intention of the contracting parties.
Consequently, the literal meaning of the stipulation shall
What is the procedure for reformation? That is under the control. This is the law between the contracting parties.
Rules of Court. You will discuss that when you go to Civil
procedure. That is covered under the provision on It is essential that there must be approval of the works
Declaratory Relief. That is the proper procedure. completed by the private respondent Allied before UP
can be made liable under the sub-contract.
You will ask the court to declare that there is a mistake in
the agreement as written and then it has to be corrected In this case, applying the general rule, then, Allied had no
and this is the proper context of the document. recourse against UP although they can go against Beta
because it had a contract with them but not against UP.
We will start with the Rules on Interpretation of Contracts.
Under the contract also, it was not stipulated that Up and
Beta shall be solidarily liable. UP‘s liability will only arise if it
has accepted and approved (the work).
So, that should be applied literally.

U.P. COLLEGE OF AGRICULTURE VS. GABRIEL
FACTS: On December 27, 1966, the UP and Beta, Construction

VII. INTERPRETATION OF CONTRACTS Co., Inc., entered into a contract for the latter to construct the
Biological Science Building of the U.P. College of Agriculture at
(ARTICLES 1370 – 1379) Los Baños, Laguna for a total lump sum price of Three Million
Seven Hundred Ninety Two Thousand Two Hundred Eighteen
Article 1370. If the terms of a contract are clear and Pesos and Seven Centavos (P3,792,218.07).
leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall On January 4, 1967, Beta, sub-contracted its plumbing works to
control. private respondent Allied Plumbing Company represented by its
general manager Domingo P. Gabriel for the total amount of
One Hundred Fifty Five Thousand Eighteen Hundred Twenty Eight
If the words appear to be contrary to the evident and 60/100 Pesos (P155,828.60).
intention of the parties, the latter shall prevail over the
former. (1281) The plumbing contract was duly approved by the U.P. Bidding
Committee.
On the ground that after Allied Plumbing Company completed

If there is no doubt, if the words of the contract are clear its works, Beta, refused to remit the balance of P64,626.08. plus
and there is no doubt as to the meaning, how do we the payment of additional works asked by Beta, in the total
interpret the contract? Literally. So, literal construction, amount of P4,017.90, the former filed a complaint for "sum of
according to what is written. money with damages" against U.P. and Beta, with the Court of
First Instance of Rizal.
CASE: UP vs GABRIEL
The defendants denied the allegations of the plaintiff that the
latter had completed its plumbing works under the sub-contract.
In the case of UP VS. GABRIEL, this involved a construction They contended that there was delay in payment due to the
contract. There was a construction contract between UP improper and faulty plumbing connections made by the plaintiff;
and BETA Construction for the construction and plumbing that the plaintiff was unable to complete the work stipulated in
and extra works at the Biological Science building of UP. the sub-contract and that the work completed including the
additional works by the plaintiff were later found to be grossly
defective and had to be repaired and re-done by Beta; that
because of the incompetence of the plaintiff, Beta, was Article 1371. In order to judge the intention of the
compelled to engage the services of another plumbing
contractor who repaired the work; and that Beta overpaid the
contracting parties, their contemporaneous and
amount of P81,686.00 under the plumbing sub-contract which subsequent acts shall be principally considered.
plaintiff is under obligation to return to Beta. (1282)
ISSUE: WON UP shall be held liable for the works performed by

Allied.
Article 1371 is another rule in the construction and
HELD: The sub-contract between private respondent Allied interpretation of contracts.
Plumbing Company represented by its General Manager
Domingo P. Gabriel and Beta provides that:
Again, please bear in mind that the rules on
xxx xxx xxx interpretation and construction will only apply if there is a
The terms of payment shall be on a monthly basis as per doubt.
work accomplished and approved by theUNIVERSITY OF
THE PHILIPPINES COLLEGE OF AGRICULTURE. (p. 16, If there is no doubt, there is no use in resorting to rules in
Record on Appeal; Emphasis supplied). interpretation.
The petitioner became party to this sub-contract when it was
We apply the contract as it is written.
approved by the UP Bidding Committee.
CASE: SAN DIEGO vs EVANGELISTA
This stipulation in the sub-contract is clear and leaves no doubt
as to the intention of the contractor parties. Consequently, the The case of SAN DIEGO VS. EVANGELISTA involves a
literal meaning of the stipulation shall control. This is the first rule in tenancy dispute.
the interpretation of contracts (Article 1370, New Civil Code; La
Suerte Cigar & Cigarette Factory v. Director of the Bureau of If you have encountered the law on Comprehensive
Labor Relations, 123 SCRA 679). This is the law between the Agrarian Reform Program (CARP) or R.A. 3844.
parties.
It is essential that there must be approval of the works

You have an agricultural land then there is a person who
completed by the private respondent before UP can be made cultivates the produce in that land and he shares the
liable under the sub-contract. It is of no moment that the private harvest as his leasehold rentals and the purpose is
respondent, wrote UP that Beta, the contractor had not yet paid agricultural production.
all its obligations to the former. This does not necessarily mean
approval of the private respondent's works. Under RA 3844, there is a tenancy relationship between
the landowner and the one who cultivates (the land).
Moreover, it is to be noted that this letter was forwarded to Beta,
for clarification. And in a letter dated August 13, 1969 addressed
to the Office of the Project Manager, Technical & Administrative
If you are the landowner, it is unfortunate because being
Unit, UPCA 5-year Development Program, College, Los Baños, the tenant, you cannot just evict him. He has security of
Laguna, Beta, stated that — tenure. If you want to evict him, you have to pay
disturbance compensation equivalent to the last five
It is not true that we had stopped paying Mr. Gabriel since July, years of gross harvest.
1968, the truth being that we were forced to make the
purchases of materials ourselves and pay his laborers due to Mr. You have to be careful kung naa’y mananghid na “Sir,
Gabriel's own consistent inability to perform his work with
pwede ba ko magtukod sa ug payag diri sa imong yuta
reasonable efficiency and within allowable time. There have
been several written communications from us to Mr. Gabriel
kay wala pa may nagpuyo?”
regarding this matter. We even reiterated in writing our invitation
to Mr. Gabriel for a conference on this matter, but he had For the landowner, my advice is don‘t allow him. It would
consistently disregarded our invitations for conference. The be better that your sharing, para dili siya mag-tenant,
UPCA has been fully aware of this matter since the outset, as per dapat mag-kasulatan na lang mo na caretaker siya and
reports of its engineers. bayaran na lang nimo siya ug sweldo. Ayaw na nang
mag-sharing ug harvest kay dali ra kaayo na ingnon niya
In fact, Mr. Domingo Gabriel had been overpaid by us over and
na tenant ka.
above his contract price based on an accomplishment of 91.1 %
given by UPCA as of our last collection on October 15, 1968.
Of course, if anak mo sa tenant, i-insist ninyo ang sharing
of harvest, “Sharing lang ta ug harvest Sir, at least, dli na
We are even assessing the damage suffered by us as a result of ka mokuot sa imong bulsa, gikan na sa proceeds.”
the failure of Mr. Gabriel to perform his work.
Here, there was actually a Leasehold Agreement and the
We are therefore suggesting that you disregard the unfounded contract mentioned about a particular title number over
claims of Mr. Gabriel as acts of pure harassment against us. We a land.
are in fact aggrieved parties of Mr. Gabriel's negligence and
malice. (pp. 29-30, Record on Appeal; Emphasis supplied).
The land here consisted of 3 hectares. It was contended
Face with these two conflicting claims, the petitioner should not by the tenant that he was the tenant of the entire 3
be faulted for relying on the contractor's claim that it paid all its hectares. But, it was contended by the landowner that
obligations to the private respondent and at the same time the tenancy was limited only to 1 hectare.
disregarding the latter's claim. There is no evidence showing
approval of the works performed by the private respondent So, wala’y nakabutang sa contract kung pila ka hectares
pursuant to the terms of the sub-contract. ang coverage sa tenancy but the 2 hectares is bamboo
land and 1 hectare is Riceland.
Hence, we agree with the Solicitor General that the private
respondent had no valid claim against the petitioner.
The tenant alleged that he was a tenant both as to the effect.
bamboo land and the Riceland.
On the contrary, it was established in the Affidavits or
"Sinumpaang Salaysay" of several neighbors of petitioner, one of
Nothing was written in the contract. Thus, resort was
whom is a Barangay Chairman, that as early as 1957, Andres
made to an examination of the subsequent and Evangelista during his lifetime was the one in possession of the
contemporaneous acts of the parties. bamboo land and actively administered the cutting of the
bamboo trees thereon, which upon the death of Andres
Based on the records and receipts, it was shown that the Evangelista was carried on by petitioner when he inherited the
tenant was actually remitting to the landowner palay. So, bamboo land in question.
his payment of rentals was palay and nothing was
mentioned at all about bamboos. It is quite intriguing to one‘s conscience if there is any truth to the
claim of plaintiff that he was the one who planted the bamboo
trees existing in the landholding in question for it must be taken
The actual scenario of the case, the tenant only judicial notice of the fact that during the recent years, specially
occupied the Riceland, not the bamboo land. so at the age of the plaintiff, that it is no longer usual for a person
of his age to claim that he was the one who planted the
In fact, the bamboos existed long before the tenancy bamboo trees on the bamboo land portion of the landholding in
agreement was entered into. question."
The Supreme Court here, applying Art. 1371 said that the
tenancy is only over the Riceland. This is supported by the Moreover, the annual payment of lease made by private
respondent, listed merely in a piece of paper, as kept by the late
fact that the tenant remitted only rice, not bamboos. So,
Andres Evangelista during his lifetime, clearly showed that the
if the tenant contends that he is a tenant of the bamboo said payments corresponds only to the yield of rice over the
land as well, he should have proof that he also share to portion of riceland and not on the disputed bamboo land.
the landowner portion of the proceeds of the bamboo Again, no mention was made about the yield of the bamboo
land. But, there was no such document presented. land as to how much per year was the harvest. All told, private
respondent is not a tenant in the subject bamboo land."
Here, the contemporaneous act was the sharing of the
proceeds over the Riceland. That was considered by the
Supreme Court in resolving the dispute, WON the tenancy
included the bamboo land or the tenancy was limited
only to the Riceland.
SAN DIEGO VS. EVANGELISTA
FACTS: Petitioner Monico San Diego has been an agricultural

tenant in a parcel of land in the name of Andres Evangelista.
After Andres Evangelista died in 1994, his son respondent
Eufrocinio Evangelista inherited the property which has a total
area of three hectares, 21,000 square meters of which are
planted with rice and the remaining 11,200 square meters with
bamboo.
On June 6, 1996, petitioner filed a complaint before the

Department of Agrarian Reform Adjudication Board (DARAB)
Region III Office, Malolos, Bulacan against respondent for
maintenance of peaceful possession, enjoyment, and damages
with respect to the bambooland portion of the property.
He complained that respondent and some unidentified

companions "forcibly entered the [bamboo-planted portion of
the property] and without authority of law and by means of
force and intimidation cut down some of the bamboo trees
[which he had] planted [thereon]," without giving him his lawful
share, and they threatened to continue cutting down the
remaining bamboo trees and tried to dispossess him as
agricultural tenant thereof.
Respondent countered that petitioner is a tenant only with

respect to the riceland portion of the property, the bambooland
portion not being tenanted. And he denied petitioner‘s claim of
having planted the bamboo trees, he claiming that they have
been existing since 1937.
ISSUE: WON the contract covers both the Riceland and bamboo
land.
HELD: The wordings of the agricultural leasehold contract itself

which pertains only to the produce of rice belies private
respondent‘s claim in paragraph 4 of his Complaint that "…the
subject bamboo trees were planted by herein plaintiff (now
private respondent) when the latter started working as
agricultural tenant on the subject landholding." Thus, no
evidence of personal cultivation of bamboo trees was presented
by private respondent other than his bare allegations to this
Article 1372. However general the terms of a contract made of record. On the 3d of March, 1909, the trial court
may be, they shall not be understood to overruled the opposition of Limjap and decreed the
comprehend things that are distinct and cases that adjudication and registration of the aforesaid property in favor
of Canuto Reyes, after declaring a General default. The
are different from those upon which the parties
opponent excepted to the foregoing decision and moved for a
intended to agree. (1283) new trial, on the ground that the judgment was contrary to law
and not sustained by the evidence; the motion was overruled;
the petitioner excepted and gave notice of his intention to
appeal by the corresponding bill of exceptions which was
CASE: REYES vs LIMJAP presented, approved, and submitted to this court.
I think we discussed the case of REYES VS. LIMJAP. It appears to have been admitted by the opponent, who did
not impugn in due course the document marked as Exhibit B of
That case where the deed of sale included a parcel of the applicant, that Crisostomo Marero was the original owner
land not owned by the seller and there were warranties and possessor of said land, and, as it does not appear that
made in the deed of sale. Marero had transferred his control over the property to Braulia
Cuepangco, no possible reason exists under the law for
considering the latter to be the lawful owner of the land;
The Supreme Court said that even if the land was therefore, she could neither have disposed of it nor sold it to the
included in the deed of sale, but it could not have been opponent Limjap.
contemplated by the parties and it could not have been
agreed upon or included in the agreement because As a matter of fact Cuepangco, as stated by her son-in-law and
however broad or general the terms of the deed of sale attorney-in-fact or representative, Dalmacio Guidote, in his
might be, it could only be limited to those lands which affidavit, folio 99 of the record, never possessed nor pretended
to own the said parcel of land situated between two lots
are within the disposal of the seller.
belonging to his mother-in-law, and when he sold them in her
behalf he did not include the intermediate lot, which was the
A person cannot sell what he does not own. property of one Marero, who subsequently sold it to the
Chinaman Vicente Francisco, and the latter to Irineo Felix, and
So, it could not have been included in the sale. this fact was stated to the notary Manikis; and even though at
first he refused to subscribed the instrument of sale drawn up by
Even if the terms or the provisions of the deed of sale the said notary, because it referred to lands of larger area, he
were too general such that, if you read that it would afterwards did so because after consulting with Attorney Sotelo,
the notary assured him that as the writing contained no clause
include the neighboring land but it could not have been
providing for the protection of purchaser from interference,
included there because it would be a legal impossibility.
nothing serious could happen.
Thus, only those which could have been contemplated
by the parties may be included. property during the period of redemption." When the vendee
acknowledged the right of the vendor to retain possession of the
Had the parties known that dili kamo ang tag-iya ana, he property the contract is one of loan guaranteed by mortgage,
could not have sold that. not a conditional sale or an option to repurchase. (Macoy vs.
Trinidad, et al., 95 Phil. 192).
That is an example of Article 1372.
The respondents' contention that the right to possess, use, or
build on the lots embodied in the contract was a mere "right"
REYES VS. LIMJAP and not actual possession appears to be sophistry. The records
show that the Bundalians construction equipment such as
FACTS: By a writing presented on the 3d of January, 1906, the tractors, payloaders, and bulldozers were on the lots. A shop was
representative of Ireneo Felix requested the registration of a built on the premises. Mr. Bundalian testified that from the time
parcel of land belonging to the latter, situated in the town of he purchased the property from the estate of Mrs. Virata up to
Antipolo, Rizal Province, bounded on the north by Calle Real; on the "minute" he testified, he never lost possession. The Bundalians
the east by lots owned by Braulia Cuepangco and Engracia paid the real estate taxes on the lots. As against the express
Loalhati; on the south by Calle Martinez; and on the west by lots provision of the contract and the actual possession by the
belonging to Gregorio Lim and Braulia Cuepangco; it has an petitioners, the private respondents come up with a far fetched
area of 815.98 square meters and its description and boundaries argument that since the titles to the lots were in their hands, they
are stated in the plan attached to the petition; the said were the ones in legal possession. Parenthetically, the titles in
property, as alleged, was acquired by purchase from the owner their hands were still in the name of the estate of Agapita Sarao
of the same, Vicente Francisco Ayco, was assessed at the last Vda. de Virata, the original vendor-owner.
assessment at $110 United States currency, and is free from all
encumbrances, no one having any right or interest therein; it is ISSUE: WON the land in question was intended to be included in
now occupied by the applicant who, after the hearing of this the sale.
case and before judgment was rendered in the premises,
conveyed the said land by means of an absolute sale to Canuto HELD: The mere fact that in the instrument of sale of the lands of
Reyes for the sum of P600, according to the notarial instrument Cuepangco to Limjap a greater extension was stated than the
appearing at folio 78. actual area, including a parcel which belonged to another and
not the property of the vendors, and not have conferred any
On the 4th of April, 1907, the representative of Jacinto Limjap right whatever to the purchase over the land improperly
made written opposition to the foregoing application, included, eventhough he consented to have the clause of
requesting that the same be dismissed and that the registration eviction and warranty suppresed in the document, because the
of the said property in favor of Irineo Felix with cost be denied; inclusion was made without the knowledge or consent of the
he alleged that the opponent is the owner and present real owner of the land, and Cuepangco, who did not own the
possessor of the land and denied that the applicant or his property, could not disposed of it or sell it; and the pretension of
predecessors or principals had ever been in legal or material the opponent is all the more unsustainable inasmuch as the
possession of the same, and also denied all the other allegations representative of the vendor, who acted in her behalf in
not expressly or implicitly denied in the previous paragraphs. negotiating and closing the sale, franckly and spontaneously
acknowledged that an error had been committed by including
The case came up for trial and evidence was adduced by both in the document the land of the applicant which has not been,
parties to the suit, the documents exhibited by them being and could not be included in the sale, that he had endeavored
to correct the error, and that if he subsequently subscribed the build on, the property during the period pending redemption.
instrument it was through the advice of the lawyer, who assured
him that nothing could happen if said clause of eviction and On August 26, 1976, the petitioners filed a petition for declaratory
warranty were supressed. relief and/or reformation of instrument before the Court of First
Instance of Rizal at Pasig, Metro Manila to declare the Deed of
Article 1281, paragraph 2 of the Civil Code provides that "If the Sale with Right to Repurchase an equitable mortgage and the
words should appear contrary to the evident intention of the entire portion of the same deed referring to the accelerating
contracting parties, the intention shall prevail." repurchase price null and void for being usurious, and to reduce
the loan obligation to P474,200.00, contending that the amount
actually loaned was only P474,200.00 and the petitioners put up
Article 1373. If some stipulation of any contract P25,000.00 of the wife's money when the purchase from the
should admit of several meanings, it shall be estate of Mrs. Virata was consummated.
understood as bearing that import which is most
ISSUE: WON Deed of Sale with Right to Repurchase should be
adequate to render it effectual. (1284)
declared as an equitable mortgage.
HELD: This statement appearing in the supposed pacto de retro

Article 1374. The various stipulations of a contract sale confirms the real intention of the parties to secure the
shall be interpreted together, attributing to the payment of the loan acquired by the petitioners from the private
respondents.
doubtful ones that sense which may result from all of
them taken jointly. (1285) The contract also provides that "it is agreed that the vendor shall
have the right to possess, use, and build on, the The sale with the
In interpreting the contract, you should interpret it as a right to repurchase of the three parcels of land was for
P499,200.00, which was exactly the same amount paid to the
whole. You do not interpret it piece by piece. The
estate of the deceased Agapita Sarao Vda. de Virata- After
interpretation should reconcile or harmonize all the having purchased the three lots for P499,200.00, the vendors
provisions of the contract. should at least have earned a little profit or interest if they really
intended to resell the lots the following day. Instead, they
CASE: BUNDALIAN vs CA suffered a loss of P25,000.00 because the amount borrowed, and
we find grounds to believe their statement of having advanced
I already explained it before in other provisions. P25,000.00 of their own funds as earnest money, was actually
only P474,000.00. The petitioners also bound themselves to pay
exceedingly stiff prices for the privilege of repurchase. The intent
Even if the contract is written as a Deed of Sale but there
of the parties is further shown by the fact that the Bundalians
are circumstances which would show that it was really P500,000.00 collectibles due from the government for completed
intended to be a mortgage, like the price of the sale is construction contracts could not be collected on time to pay for
very low, the seller remains to be in possession of the the lots advertised for sale in Bulletin Today. The petitioners had
property, the seller still pays the real property taxes over to run to the private respondents who had money to lend. The
the property, there is such a close or intimate relationship Bundalians received the accounts due from the government
between the deed of sale and the mortgage contract or only in 1977 after the proceedings in the trial court were well
the documents. Like for example, it could be interpreted underway.
that the purchase price is actually a loan which is
The stipulation in the contract sharply escalating the repurchase
granted and the property which is being sold is actually price every month enhances the presumption that the
just given as a collateral, so, you could still relate the two transaction is an equitable mortgage. Its purpose is to secure the
contracts. return of the money invested with substantial profit or interest, a
In this particular case, there was also an increase in the common characteristic of loans.
alleged redemption price.
The private respondents try to capitalize on an admission by Mrs.
The Supreme Court actually construed that as the interest Bundalian that she "accepted" the transaction knowing it to be
a contract of sale with right of repurchase. The reliance is
to be imposed.
grounded on shaky foundations. The Bundalians were in the
construction business and knew quite well what they were
signing. But vendors covered by Article 1602 of the Civil Code
BUNDALIAN VS. COURT OF APPEALS are usually in no position to bargain with the vendees and will
sign onerous contracts to get the money they need. It is precisely
FACTS: On July 1, 1975, the petitioners purchased from the Estate this evil which the Civil Code guards against. It is not the
of the Deceased Agapita Sarao Vda. de Virata three (3) knowledge of the vendors that they are executing a contract of
contiguous parcels of land for and in consideration of the sale pacto de retro which is the issue but whether or not the real
amount of P499,200.00. contract was one of sale or a loan disguised as a pacto de retro
sale.
The following day, July 2, 1975, the petitioners, in a contract
denominated as Deed of Sale with Right to Repurchase, sold to
the private respondents the same three contiguous parcels of
land for the same amount of P499,200.00 under specified terms
and conditions.
One of the terms and conditions was that the repurchase price
would escalate month after month, depending on when
repurchase would be effected. The price would be P532,480.66
computed at P160.00 per square meter after the first month;
P565,760.00 computed at P170.00 per square meter after the
second month; P599,040.00 computed at P180.00 per square
meter after the third month; and P632,320.00 computed at
P190.00 per square meter after the fourth month, from and after
the date of the instrument. It was also stipulated in the same
contract that the vendor shall have the right to possess, use, and
follow that the delegated power is invalid. In support of this
Article 1375. Words which may have different contention reliance is placed upon article 1713 of the Civil
significations shall be understood in that which is most Code, by which it is provided that "an agency stated in general
in keeping with the nature and object of the contract. terms only includes acts of administration," and that "in order to
compromise, alienate, mortgage, or to execute any other act of
(1286)
strict ownership an express commission is required."
ISSUE: WON the assailed act is within the power granted by the
CASE: GERMANN CO vs DONALDSON, SIM & CO. power of attorney.
Now we go to the case of GERMANN CO. VS. HELD: By this instrument Tornow constitutes Kammerzell his "true
DONALDSON, SIM & CO. So, Kamerzell here was and lawful attorney with full power to enter the firm name of
authorized under a Power of Attorney and pursuant to Germann & Co. in the Commercial Registry of the city of Manila
that authorization, he instituted an action for collection. as a branch of the house of Germann & Co. in Berlin, it being the
purpose of this power to invest said attorney will full legal powers
and authorization to direct and administer in the city of Manila
It was contended that he had no authority to institute an
for us and in our name a branch of our general commercial
action for collection because to institute such action, it is business of important and exportation, for which and employ
considered as an act of ownership and what was suitable assistants, as well as sign every kind of documents,
conferred upon him is merely an authority to administer, accounts, and obligations connected with the business which
only an act of administration. may be necessary, take charge in general of the receipt and
delivery of merchandise connected with the business, sign all
If your power is merely an act of administration, you receipts for sums of money and collect them and exact their
cannot include in that power an act which would payment by legal means, and in general execute all the acts
and things necessary for the perfect carrying on of the business
amount to an act of ownership like instituting a case.
committed to his charge in the same manner as we could do
They were arguing that an act of instituting a suit is an act ourselves if we were present in the same place."
of strict ownership and it is not included in his general
power to administer. We should not be inclined to regard in institution of a suit like the
present, which appears to be brought to collect a claim
Here, would it matter whether or not an act of instituting accruing in the ordinary course of the plaintiff's business, as
a case is an act of administration or an act of strict properly belonging to the class of acts described in article 1713
ownership? of the Civil Code as acts "of strict ownership." It seems rather to
be something which is necessarily a part of the mere
So, whether or not the act of instituting a suit is an act of
administration of such a business as that described in the
ownership or just an act of administration, it does not instrument in question and only incidentally, if at all, involving a
actually matter. power to dispose of the title to property.
That act of instituting a case was already included in the But whether regarded as an act of strict ownership or not, it
power given to Kamerzell. Where? In that law stating ―to appears to be expressly and specially authorized by the clause
exact payment by legal means.‖ That would cover an conferring the power to "exact the payment" of sums of money
act to bring an action or to institute a suit or to file a case "by legal means." This must mean the power to exact the
payment of debts due the concern by means of the institution of
for collection.
suits for their recovery. If there could be any doubt as to the
meaning of this language taken by itself, it would be removed
That was covered in the authorization given. It could be by a consideration of the general scope and purpose of the
derived from the authorization pursuant to the rule in Art. instrument in which it occurs.
1375.
The main object of the instrument is clearly to make Kammerzell
the manager of the Manila branch of the plaintiff's business, with
GERMANN CO. VS. DONALDSON, SIM & CO. the same general authority with reference to its conduct which
his principal would himself possess if he were personally directing
FACTS: The action is to recover a sum claimed to be due for it. It can not be reasonably supposed, in the absence of very
freight under a charter party. It was brought by virtue of a clear language to that effect, that it was the intention of the
general power for suits, executed in Manila October 27, 1900, by principal to withhold from his agent a power so essential to the
Fernando Kammerzell, and purporting to be a substitution in efficient management of the business entrusted to his control as
favor of several attorneys of powers conferred upon Kammerzell that to sue for the collection of debts.
in an instrument executed in Berlin, Germany, February 5, 1900,
by Max Leonard Tornow, the sole owner of the business carried
on in Berlin and Manila under the name of Gemann & Co. The
first-named instrument was authenticated by a notary with the Article 1376. The usage or custom of the place shall
formalities required by the domestic laws. The other was not so be borne in mind in the interpretation of the
authenticated. Both Tornow and Kammerzell are citizens of ambiguities of a contract, and shall fill the omission
Germany. Tornow is a resident of Berlin and Kammerzell of
Manila. of stipulations which are ordinarily established.
(1287)
The defendants claim that the original power is invalid under
article 1280, No. 5, of the Civil Code, which provides that powers
for suits must be contained in a public instrument. No claim is CASE: ANDREAS vs BPI
made that the document was not executed with the formalities
required by the German law in the case of such an instrument. Assuming that the bank was able to prove the existence
We see no reason why the general principle that the formal of a custom or usage with respect to the charging of
validity of contracts is to be tested by the laws of the country interest because the Supreme Court said it was not
where they are executed should not apply. proved.
The defendants also claim that the original power can not be
construed as conferring upon Kammerzell authority to institute or
defend suits, from which contention, if correct, it would of course
Assuming it was proved, could you say that the bank
would be able to collect the interest pursuant to The application which the plaintiff signed in the nature of
Article1376? a "request for foreign credit" was accepted by the defendant,
and in legal effect it became the written contract between the
parties, and it is in writing, and nothing whatever is said about
Possibly in that case because it was mentioned by the the payment of interest to the defendant. If it had been the
Supreme Court. The conclusion is, if it had been proven, it purpose and intent of the defendant to collect and receive the
could be collected but under our present state of loss, interest in question, it should have been specified and provided
could you collect interest by proving that there is a for in the contract, and if in the making of such interest charges
custom or practice to that effect even if that is not the defendant relied upon an established usage and custom, it
stipulated? should have alleged that fact as a further and separate
defense, and the existence of them would then become a
question of fact.
We learned before that the stipulation to pay interest
should be in writing. Otherwise, it is void. It is one of the It is contended that the plaintiff, having paid the interest charges
formal contracts that we discussed before; a contract to the defendant, has ratified the payment, and for such reason
where interest is to be paid, there is another essential he is now estopped to recover the money. That would be true if
requisite that has to be observed which is the form, it has he had paid such charges with a full knowledge of all the facts.
to be in writing.
It is very apparent that at the time the plaintiff paid the interest
It cannot be enforced just because there is a custom or charges to the defendant he did not know that they were made
by the defendant bank for its sole use and benefit, and the
practice to that effect.
record shows that when he first learned the actual facts, he
made timely protest.
ANDREAS VS. BPI
With all due respect to the able brief of the appellant, we are
FACTS: Plaintiff is a resident business man of the City of Manila. clearly of the opinion that there is no merit in the defense.
The defendant is a banking corporation, organized under the
laws of the Philippine Islands, with its principal place of business in
Manila. In the case of Yañez de Barnuevo v. Fuster, there was an
agreement to pay a sum of money and the currency
Plaintiff alleges that on May 31, 1920, the American Trading mentioned was pesetas.
Company of Australia drew a bill of exchange at Sydney upon
the plaintiff as drawee for the sum of 5,050:0:0 pounds, payable It was doubtful whether or not that pesetas should refer to
to the order of the bank of New South Wales thirty days after Spanish or Mexican pesetas.
sight. That the draft was duly endorsed to the order of the
defendant, and was accepted by the plaintiff on June 21, 1920.
In resolving that issue, the Supreme Court looked into the
About July 13, 1920, the plaintiff on the demand of the
defendant paid to it the full amount of the bill of exchange, and customs of the place.
in addition thereto, and through an error, paid to defendant as
interest thereon the sum of P1,136.96. That no part of such What was the usual currency in that place? The Supreme
money paid by the plaintiff to the defendant has been returned Court said that in that particular locality where the
or refunded by the defendant, and that demand therefor was contract was entered into, Mexican pesetas were more
duly made February 9, 1921, and at other times. commonly used than Spanish pesetas. The Supreme
Court held that the term “―pesetas”‖ should be
Like allegations, as to such interest charges on other drafts, are
made in three other causes of action, and plaintiff prays for construed to mean Mexican pesetas.
judgment against the defendant for P8,260.33, with interest on
P5,132.67 from February 9, 1921, at the rate of 6 per cent per That is an example when the customs or usage of the
annum, and on P3,127.66 from January 20, 1922, at such rate, place may be inquired into to resolve doubts in the
and for costs. contract.
For answer the defendant makes a general and specific denial

of all the material allegations of the complaint, and prays that Article 1377. The interpretation of obscure words or
the complaint be dismissed, with costs.
stipulations in a contract shall not favor the party who
Defendant sought to prove that there was an established usage caused the obscurity. (1288)
and custom of the banks in Manila in like cases of charging and
collecting such interest from the time the draft is paid here, until
the money is emitted by the local bank, in the ordinary course of This particularly applies to a contract of adhesion.
business, to the London bank.
If the contract is drafted by one party and the other has
ISSUE: WON there exists an established custom or usage with
no option but just to accept or reject the ready-made
respect to the collection of interests.
contract, that is the contract of adhesion.
HELD: If a custom be general in character, and therefore
presumed to be known by the parties, the rule is that such In case of doubt, the doubt shall be resolved strictly
custom may be proved without being specifically pleaded. This against the one who drafted the contract.
is particularly true when a general custom is offered in evidence
to throw light upon a contract, the terms of which are obscure,
and which is dependent upon evidence of such general custom
to make it plain. If, on the other hand, the customs be local in
character, the party who proposes to rely upon it should aver it
in his pleadings, and a local custom or usage applying to a
special or particular kind of business (like the custom of
――discounting notes‖‖) may not be proved to explain even the
ambiguous terms of a contract, unless the existence of such
custom or usage is pleaded.
CASE: FIELDMAN INSURANCE COMPANY vs SONGCO was the driver of the vehicle in question. Except for the fact, that
they were not fare paying passengers, their status as
FIELDMEN INSURANCE COMPANY VS. SONGCO AND COURT OF beneficiaries under the policy is recognized therein."
APPEALS
Even if it be assumed that there was an ambiguity, an excerpt
FACTS: Federico Songco of Floridablanca, Pampanga, a man of from the Qua Chee Gan decision would reveal anew the
scant education being only a first grader owned a private weakness of petitioner's contention. Thus: "Moreover, taking into
jeepney. account the well known rule that ambiguities or obscurities must
be strictly interpreted against the party that caused them, the
On September 15, 1960, as such private vehicle owner, he was 'memo of warranty' invoked by appellant bars the latter from
induced by Fieldmen's Insurance Company Pampanga agent questioning the existence of the appliances called for in the
Benjamin Sambat to apply for a Common Carrier's Liability insured premises, since its initial expression, 'the undernoted
Insurance Policy covering his motor vehicle. appliances for the extinction of fire being kept on the premises
insured hereby, it is hereby warranted ...,' admits of interpretation
Upon paying an annual premium of P16.50, defendant as an admission of the existence of such appliances which
Fieldmen's Insurance Company, Inc. issued on September 19, appellant cannot now contradict, should the parol evidence
1960, Common Carriers Accident Insurance Policy, the duration rule apply."
of which will be for one (1) year, effective September 15, 1960 to
September 15, 1961. On September 22, 1961, the defendant To the same effect is the following citation from the same
company, upon payment of the corresponding premium, leading case: "This rigid application of the rule on ambiguities
renewed the policy by extending the coverage from October has become necessary in view of current business practices. The
15, 1961 to October 15, 1962. courts cannot ignore that nowadays monopolies, cartels and
concentration of capital, endowed with overwhelming
This time Federico Songco's private jeepney carried Plate No. J- economic power, manage to impose upon parties dealing with
68136-Pampanga-1961. them cunningly prepared 'agreements' that the weaker party
may not change one whit, his participation in the 'agreement'
On October 29, 1961, during the effectivity of the renewed being reduced to the alternative to 'take it or leave it' labelled
policy, the insured vehicle while being driven by Rodolfo since Raymond Saleilles 'contracts by adherence' (contrats
Songco, a duly licensed driver and son of Federico (the vehicle d'adhesion), in contrast to those entered into by parties
owner) collided with a car, as a result of which mishap Federico bargaining on an equal footing, such contracts (of which
Songco (father) and Rodolfo Songco (son) died, Carlos Songco policies of insurance and international bills of lading are prime
(another son), the latter's wife, Angelita Songco, and a family examples) obviously call for greater strictness and vigilance on
friend by the name of Jose Manuel sustained physical injuries of the part of courts of justice with a view to protecting the weaker
varying degree. party from abuses and imposition, and prevent their becoming
traps for the unwary.
It was further shown according to the decision of respondent
Court of Appeals: "Amor Songco, 42-year-old son of deceased
Are contracts of adhesion valid? They are valid. Don‘t
Federico Songco, testifying as witness, declared that when
insurance agent Benjamin Sambat was inducing his father to
commit the mistake of saying that they are not valid
insure his vehicle, he butted in saying: 'That cannot be, Mr. because they are. But, in case of doubt, it should be
Sambat, because our vehicle is an "owner" private vehicle and construed against the party who prepared or who
not for passengers,' to which agent Sambat replied: 'whether our caused the obscurity.
vehicle was an "owner" type or for passengers it could be insured
because their company is not owned by the Government and A classic example of a contract of adhesion is an
the Government has nothing to do with their company. So they insurance contract.
could do what they please whenever they believe a vehicle is
insurable.
In the case of Rizal (no citation mentioned),his is also a
In spite of the fact that the present case was filed and tried in contract of insurance. The policy mentioned ―finished,
the CFI of Pampanga, the defendant company did not even unfinished or raw materials and supplies of any kind, the
care to rebut Amor Songco's testimony by calling on the witness- properties of the insurer, owned or held by them in trust,
stand agent Benjamin Sambat, its Pampanga Field on commission or on joint account with others or for
Representative.‖ which they are responsible in case of loss, while
contained and stored during the currency of this policy in
The basis for the favorable judgment is the doctrine announced
the premises occupied by them forming part of the
in Qua Chee Gan v. Law Union and Rock Insurance Co.,
Ltd., with Justice J. B. L. Reyes speaking for the Court. It is now
buildings situated within the compound at Magdalo St.,
beyond question that where inequitable conduct is shown by an Bo. Ugong, Pasig, Metro Manila.‖
insurance firm, it is "estopped from enforcing forfeitures in its
favor, in order to forestall fraud or imposition on the insured." In short, the insurance was for the building or the contents
of the building or compound. A fire occurred affecting
HELD: There is no merit to the alleged error of respondent Court not the main building but the annex building, a two-
that no legal liability was incurred under the policy by petitioner. storey building. The main building in the compound was a
Why liability under the terms of the policy was inescapable was
four-storey building. There was a fire in the compound,
set forth in the decision of respondent Court of Appeals.
which happened in the two-storey annex building.
Thus: "Since some of the conditions contained in the policy
issued by the defendant-appellant were impossible to comply The insured wanted to claim the insurance proceeds for
with under the existing conditions at the time and 'inconsistent the loss and damage sustained by the goods and portion
with the known facts,' the insurer 'is estopped from asserting of the two-storey building.
breach of such conditions.' From this jurisprudence, we find no
valid reason to deviate and consequently hold that the decision The insurance company denied liability because
appealed from should be affirmed. The injured parties, to wit,
according to the insurance company, it was only liable
Carlos Songco, Angelito Songco and Jose Manuel, for whose
hospital and medical expenses the defendant company was
for the loss or damage to the main building and to its
being made liable, were passengers of the jeepney at the time contents.
of the occurrence, and Rodolfo Songco, for whose burial
expenses the defendant company was also being made liable
The insurance company contended that the annex contract of sale with a right of repurchase or a contract
building was not included, it was only an annex, not a of mortgage. How do we resolve the doubt?
part of the main building, But, a closer inspection would It shall be resolved in favor of the mortgage contract
reveal that the annex building was still really a part of the because in sale, the owner loses ownership. In mortgage,
main building. he still has hope of acquiring back the property. Insofar as
the creditor is concerned, he can simply pay. So, it is for
The structure was really connected to the main building, the mutual interest of both.
it was an integral part of the main building.
If for example, your seatmate. Niana ang teacher, “Be
The Supreme Court also noted that the two-storey annex quiet, if I hear anybody talking, minus 10.” So, wala’y
building was already in existence at the time the nagsaba. Na-realize nimo na wala kay ballpen, imohang
insurance policy was procured. OS, if the insurance gikuhit imong katapad. Naay ballpen imong seatmate,
company wanted that building to be excluded, it should gihatag sa imoha. After sa exam, gibawi na sa imong
have stated so in the insurance policy. It should have seatmate ang ballpen. Dili nimo iuli kay ingon ka
expressly excluded that building but it did not. So, doubt donation to.
in the interpretation of that contract shall be resolved
against the insurance company because it had the In case of doubt, how do we resolve? Is it a
opportunity to exclude the annex building had it chosen commodatum, meaning you borrowed only, or a
to do so. donation which means gihatag sa imoha? It is a
commodatum. Why? Because mere commodatum has
This is again a classic example of a contract of adhesion. the least transmission of rights and interests. In
commodatum, there is no transfer of ownership. You can
still give it back. In donation, there is a transfer of
Article 1378. When it is absolutely impossible to settle ownership. That is an example.
doubts by the rules established in the preceding
articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least Article 1379. The principles of interpretation stated in
transmission of rights and interests shall prevail. If the
Rule 123 of the Rules of Court shall likewise be
contract is onerous, the doubt shall be settled in favor
of the greatest reciprocity of interests. observed in the construction of contracts. (n)
If the doubts are cast upon the principal object of the I mentioned before, there are rules of interpretation
contract in such a way that it cannot be known what under the Rules of Court. Those will also be discussed
may have been the intention or will of the parties, the when you go to the Law on Evidence.
contract shall be null and void. (1289)
This article speaks of doubts in the principal condition,

doubts in the incidental circumstances of the contract.
If the doubts refer to the incidental circumstances of the
contract, you have to consider whether the contract is
onerous or gratuitous.
What do you mean by onerous? There is an equivalent

consideration given.
If that is an onerous contract, the doubt shall be resolved

in favor of the greatest reciprocity of rights and interests.
What do you mean by gratuitous? The consideration is

the liberality or generosity of the transferor, the donor, the
giver. That would be resolved in favor of the least
transmission of rights.
If the doubt refers to the principal conditions of the

contract, there is no longer interpretation because the
contract is void. You cannot understand what the
contract refers to. So, there is no room for interpretation
because a substantial portion of the contract is affected.
The contract cannot stand without that principal
condition.
An example of a doubt in an onerous contract wherein
the doubt shall be resolved in favor of the greatest
reciprocity of rights and interests: There is a doubt
whether that contract is a contract of sale with right of
repurchase or a contract of mortgage, both are onerous
contracts. There is a doubt whether that contract is a
Here, the guardian is supposed to advance the interest of
DEFECTIVE CONTRACTS the ward. So, as much as possible, he should get the best
deal for his ward. If the value of the property of his ward is
IX. RESCISSIBLE CONTRACTS 1M and he sold it for just P500, 000, that means the ward is
(ARTICLES 1380 – 1389) definitely prejudiced by one-half (more than one-fourth).
So that contract is rescissible.
Article 1380. Contracts validly agreed upon may be
rescinded in the cases established by law. (1290) (2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number;
We are now discussing rescissible contracts. In Article

It‘s the same concept as number 1.
1191, we also mentioned about rescissible contracts. But
that is another kind of rescissible contracts. The proper
term that we used for Article 1191 is resolution. It‘s not (3) Those undertaken in fraud of creditors when
rescission. Rescission is the proper term for the procedure the latter cannot in any other manner collect the
in Article 1380. claims due them;
Based on Article 1380, rescissible contracts are valid This is what we call accion pauliana: when the latter
contracts but they may be rescinded as may be cannot in any manner collect the claims due to them.
provided for by law.
CASE: CHINA BANKING vs CA
What are the grounds? Generally, because of lesion or
because the contract is in fraud of creditors. That is why,
even if the contract is valid, it can be rescinded or Who was the complaining creditor in this case? China
exterminated or extinguished. Bank.
Why? What is the credit of China Bank? Was that prayer

of China Bank granted? Why was the decision in favor of
Article 1381. The following contracts are rescissible:
China Bank issued? It was in 1985.
(1) Those which are entered into by guardians

What happened when there was rescission rendered in
whenever the wards whom they represent
favor of China Bank?
suffer lesion by more than one-fourth of the
value of the things which are the object
thereof; What was the test mentioned by the Supreme Court to
determine whether or not the conveyance is fraudulent?
(2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated Can it be a defense that the conveyance was with a
in the preceding number; consideration? No. The transaction must have been
voluntary and in good faith. Those two elements must
concur for there to be a valid defense on the part of the
(3) Those undertaken in fraud of creditors
debtor.
when the latter cannot in any other manner
collect the claims due them;
Here, remember the alienation happened after the
judgment was rendered in favor of China Bank. And after
(4) Those which refer to things under litigation
that, the debtor virtually had no property left to pay off
if they have been entered into by the
his obligation. If he had other properties then there is no
defendant without the knowledge and
problem. The creditor can proceed against those other
approval of the litigants or of competent
properties and rescission would not be proper. But here,
judicial authority;
that is the only property left so that is the only property
that could have been proceeded against by the
(5) All other contracts specially declared by creditors.
law to be subject to rescission. (1291a)
CHINA BANKING vs CA
As we discussed before, when you say lesion, we are
FACTS: By virtue of the adverse decision of the RTC in a Civil
referring to economic injury. The basis for rescission under
Case, the residential land covered by Transfer Certificate of Title
Article 1381 would be economic injury. In Article 1191, the No. 410603 in the name of spouses Alfonso Roxas Chua and
basis was breach of faith; although it should be Kiang Ming Chu Chua was levied on execution. Kiang Ming Chu
substantial breach. Chua filed an action questioning the levy on the ground that the
land was conjugal partnership property. This resulted in a
What are the specific cases? compromise agreement to the effect that the levy shall be valid
only to the extent of the ½ share pertaining to Alfonso Roxas
Chua. Accordingly, an alias notice of levy was issued affecting
(1) Those which are entered into by guardians the said ½ undivided portion of the property. After the execution
whenever the wards whom they represent suffer sale, a certificate of sale was executed in favor of Metrobank,
lesion by more than one-fourth of the value of the the judgment creditor and the same was annotated on TCT No.
things which are the object thereof; 410603
Meanwhile, China Banking Corporation filed a complaint for sum
of money against Pacific Multi Agro-Industrial Corporation and (4) Those which refer to things under litigation if
Alfonso Roxas Chua. On November 7, 1985, judgment was they have been entered into by the defendant
rendered ordering defendants to pay Chinabank the aggregate without the knowledge and approval of the
amount of P2,500,000.00 plus interests, penalties and attorney‘s
litigants or of competent judicial authority;
fees. Thus, notice of levy on execution was issued against the
right and interest of Alfonso Roxas Chua in TCT No. 410603. The
same was later sold at public auction and a certificate of sale If the property is subject matter of a pending case and it
was executed in favor of Chinabank, and inscribed on TCT was disposed without authority of the court, that is
410603. considered to be fraudulent.
Previously, however, on November 21, 1988, Alfonso Roxas Chua
executed in favor of his son, Paulino Roxas Chua, an "Assignment (5) All other contracts specially declared by law
of Right to Redeem," pertaining to his right to redeem the ½ to be subject to rescission.
undivided portion of the land sold to Metrobank. On January 11,
1989, Paulino redeemed the property from Metrobank. On We discussed this before. We enumerated.
March 14, 1989, the Assignment of Right to Redeem and the
redemption by Paulino Roxas Chua of the property from
Metrobank were annotated on TCT No. 410603. Article 1382. Payments made in a state of insolvency
for obligations to whose fulfillment the debtor could
Private respondents Paulino Roxas Chua and Kiang Ming Chu
Chua filed before the RTC alleging that Paulino has a prior and not be compelled at the time they were effected, are
better right over Chinabank inasmuch as the assignment to him also rescissible. (1292)
of the right to redeem and his redemption of Alfonso‘s share in
the property were inscribed on the title on an earlier date than
the annotation of the notice of levy and certificate of sale in
favor of Chinabank. Both the trial court and the Court of Here, the debtor is insolvent and he paid debts which are
Appeals ruled in favor of private respondents and enjoined not yet due. That is also considered as rescissible because
Chinabank, the Sheriff of Manila and the Register of Deeds of if it is not yet due then you have no obligation yet to pay
San Juan from causing the transfer of possession, ownership and and considering that you are insolvent, why would you
certificate of title, or otherwise disposing of the property covered insist on paying these obligation ahead of those which
by TCT No. 410603 in favor of Chinabank or any other person. already matured? The creditors of the oblgiaiton which
We rendered the now assailed Decision reversing the judgment
have already matured may assail the payment made to
of the Court of Appeals and rescinding the Assignment of Right
to Redeem executed by Alfonso in favor of Paulino Roxas Chua, those obligations that have not yet matured, if the debtor
for having been entered into in fraud of creditors. is insolvent.
RULING: Under their first ground, private respondents argue that If the debtor is not yet insolvent then payments made by
there was sufficient evidence to overthrow the presumption that him would net be considered as fraudulent even if those
the assignment of the right to redeem was in fraud of creditors. debts had not yet matured. It‘s his choice because he
After a re-examination of the evidence, we agree with private has a lot of money. But if he is insolvent and you are the
respondents. creditor, you can assail the payment.
Indeed, Article 1387 of the Civil Code provides that alienations
made by a debtor by gratuitous title are presumed fraudulent Article 1383. The action for rescission is subsidiary; it
when the donor did not reserve sufficient property to pay his
cannot be instituted except when the party suffering
outstanding debts. Likewise, alienations by onerous title are
presumed fraudulent when made by persons against whom damage has no other legal means to obtain
some judgment has been rendered or some writ of attachment reparation for the same. (1294)
has been issued. These, however, are mere presumptions which
are in no way conclusive. The presumption of fraud can be
overthrown by evidence showing that the conveyance was
made in good faith and for a sufficient and valuable We discussed this before. The action for rescission is
consideration. subsidiary; meaning it is the last resort. If there is no other
remedy available to the creditor, it is only then that he
In the case at bar, private respondents sufficiently established can avail of rescission. That is best illustrated in the case
that the conveyance was made in good faith and for valuable of Sy Guan vs Lim.
consideration. Paulino maintains that he had no knowledge of
his father Alfonso‘s financial problem with petitioner Chinabank
until he was about to cause the cancellation of TCT No. 410603.
CASE: SIGUAN vs LIM
Furthermore, he paid the sum of P100,000.00 to Alfonso for the
right to redeem, and paid the redemption amount of When was the Deed of Donation executed? The Deed of
P1,463,375.39 to Metrobank. Donation was executed in 1989. When was the debt
contracted? In 1990.
Expectedly, petitioner refutes these, saying that the amounts
paid by Paulino were grossly disproportionate to the right to So, why did the creditor allege that they were affiliated?
redeem the property, which is a residential house and lot What was the event that happened which led them to
located in North Greenhills, San Juan, Metro Manila. But as conclude that the Deeds of Donation were affiliated?
correctly pointed out by private respondents, the amount of
How did the creditor discover about the donations?
P100,000.00 paid by Paulino to Alfonso was not for the property
itself, but merely for the right to redeem the same. As a matter of
fact, Paulino still had to pay Metrobank the redemption price of
In that case, the Deeds of Donation were registered in
P1,463,375.39. Whether or not the latter amount was adequate is the Office of the Register of Deeds on July 2, 1991. That
beyond the scope of this inquiry. Suffice it to state that registration was subsequent to the debt but the
Metrobank accepted the same and reconveyed the property to execution was actually dated 1989.
Paulino. Moreover, only Alfonso‘s conjugal share in the property
was affected, and the determination of its value was still subject Are these requisites present in this case? No.
to liquidation of debts and charges against the conjugal
partnership.
What was the requisite that was not satisfied? there must be a credit existing prior to the celebration of the
contract; and (2) there must be a fraud, or at least the intent to
In this case, the creditor did not even allege that he commit fraud, to the prejudice of the creditor seeking the
resorted to some other action, that he pursued or rescission. No antedating of the Deed of Donation was made,
there being no convincing evidence on record to indicate that
exhausted all other remedies. He just immediately filled
the notary public and the parties did antedate it. Since LIM's
an action for rescission or accion pauliana. indebtedness to petitioner was incurred in August 1990, or a year
after the execution of the Deed of Donation, the first
The Supreme Court also mentioned here that, in relation requirement for accion pauliana was not met.
to Article 1387, there are several presumptions so that you
can conclude that the alienation is in fraud of creditors. Anent petitioner's contention that assuming that the Deed of
But aside from those enumerations, we also have the Donation was not antedated it was nevertheless in fraud of
Badges of Fraud. Remember these 7 Badges of Fraud. creditors because Victoria Suarez became LIM's creditor on 8
October 1987, the Court of Appeals found the same untenable,
Aside from these Badges of Fraud, we have other for the rule is basic that the fraud must prejudice the creditor
seeking the rescission.
instances when fraud can be presumed. That would be
on a case-to-case basis. ISSUE: whether the questioned Deed of Donation was made in
fraud of petitioner and, therefore, rescissible.
Remember this case.
RULING: In the case at bar, one of the recognized exceptions
SIGUAN vs LIM warranting a review by this Court of the factual findings of the
Court of Appeals exists, to wit, the factual findings and
FACTS: On 25 and 26 August 1990, LIM issued two Metrobank conclusions of the lower court and Court of Appeals are
checks in the sums of P300,000 and P241,668, respectively, conflicting, especially on the issue of whether the Deed of
payable to "cash." Upon presentment by petitioner with the Donation in question was in fraud of creditors.
drawee bank, the checks were dishonored for the reason
"account closed." Demands to make good the checks proved Art. 1381 of the Civil Code enumerates the contracts which are
futile. As a consequence, a criminal case for violation of BP Blg. rescissible, and among them are "those contracts undertaken in
22 were filed by petitioner against LIM with the RTC. In its fraud of creditors when the latter cannot in any other manner
decision, the court a quo convicted LIM as charged. The case is collect the claims due them."
pending before this Court for review and docketed as G.R. No.
134685. The action to rescind contracts in fraud of creditors is known
as accion pauliana. For this action to prosper, the following
It also appears that on 31 July 1990 LIM was convicted of estafa requisites must be present: (1) the plaintiff asking for rescission
by the RTC of Quezon City in Criminal Case No. Q-89-2216 filed has a credit prior to the alienation, although demandable later;
by a certain Victoria Suarez. This decision was affirmed by the (2) the debtor has made a subsequent contract conveying a
Court of Appeals. On appeal, however, this Court, in a patrimonial benefit to a third person; (3) the creditor has no
decision promulgated on 7 April 1997, acquitted LIM but held her other legal remedy to satisfy his claim; (4) the act being
civilly liable in the amount of P169,000, as actual damages, plus impugned is fraudulent; (5) the third person who received the
legal interest. property conveyed, if it is by onerous title, has been an
accomplice in the fraud.
Meanwhile, on 2 July 1991, a Deed of Donation conveying 4
parcels of land and purportedly executed by LIM on 10 August The general rule is that rescission requires the existence of
1989 in favor of her children, Linde, Ingrid and Neil, was creditors at the time of the alleged fraudulent alienation, and
registered with the Office of the Register of Deeds of Cebu City. this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior
Petitioner filed an accion pauliana against LIM and her children existing debt, there can neither be injury nor fraud. While it is
before the RTC to rescind the questioned Deed of Donation and necessary that the credit of the plaintiff in the accion
to declare as null and void the new transfer certificates of title pauliana must exist prior to the fraudulent alienation, the date of
issued for the lots covered by the questioned Deed. Petitioner the judgment enforcing it is immaterial. Even if the judgment be
claimed therein that sometime in July 1991, LIM, through a Deed subsequent to the alienation, it is merely declaratory, with
of Donation, fraudulently transferred all her real property to her retroactive effect to the date when the credit was constituted.
children in bad faith and in fraud of creditors, including her; that In the instant case, the alleged debt of LIM in favor of petitioner
LIM conspired and confederated with her children in antedating was incurred in August 1990, while the deed of donation was
the questioned Deed of Donation, to petitioner's and other purportedly executed on 10 August 1989.
creditors' prejudice; and that LIM, at the time of the fraudulent
conveyance, left no sufficient properties to pay her obligations. We are not convinced with the allegation of the petitioner that
the questioned deed was antedated to make it appear that it
As regards the questioned Deed of Donation, LIM maintained was made prior to petitioner's credit. Notably, that deed is a
that it was not antedated but was made in good faith at a time public document, it having been acknowledged before a
when she had sufficient property. Finally, she alleged that the notary public. As such, it is evidence of the fact which gave rise
Deed of Donation was registered only on 2 July 1991 because to its execution and of its date.
she was seriously ill.
It bears repeating that notarial documents, except last wills and
The trial court ordered the rescission of the questioned deed of testaments, are public documents and are evidence of the facts
donation; (2) declared null and void the transfer certificates of that gave rise to their execution and of their date.
title issued in the names of private respondents Linde, Ingrid and
Neil Lim; (3) ordered the Register of Deeds of Cebu City to In the present case, the fact that the questioned Deed was
cancel said titles and to reinstate the previous titles in the name registered only on 2 July 1991 is not enough to overcome the
of Rosa Lim; and (4) directed the LIMs to pay the petitioner, presumption as to the truthfulness of the statement of the date in
jointly and severally, the sum of P10,000 as moral damages; the questioned deed, which is 10 August 1989. Petitioner's claim
P10,000 as attorney's fees; and P5,000 as expenses of litigation. against LIM was constituted only in August 1990, or a year after
the questioned alienation. Thus, the first two requisites for the
On appeal, the Court of Appeals, in a decision promulgated on rescission of contracts are absent.
20 February 1998, reversed the decision of the trial court and
dismissed petitioner's accion pauliana. It held that two of the Even assuming arguendo that petitioner became a creditor of
requisites for filing an accion paulianawere absent, namely, (1) LIM prior to the celebration of the contract of donation, still her
action for rescission would not fare well because the third In her further attempt to support her action for rescission,
requisite was not met. Under Article 1381 of the Civil Code, petitioner brings to our attention the 31 July 1990 Decision of the
contracts entered into in fraud of creditors may be rescinded RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216.
only when the creditors cannot in any manner collect the claims LIM was therein held guilty of estafa and was ordered to pay
due them. Also, Article 1383 of the same Code provides that the complainant Victoria Suarez the sum of P169,000 for the
action for rescission is but a subsidiary remedy which cannot be obligation LIM incurred on 8 October 1987. This decision was
instituted except when the party suffering damage has no other affirmed by the Court of Appeals. Upon appeal, however, this
legal means to obtain reparation for the same. The term Court acquitted LIM of estafa but held her civilly liable for
"subsidiary remedy" has been defined as "the exhaustion of all P169,000 as actual damages.
remedies by the prejudiced creditor to collect claims due him
before rescission is resorted to." It is, therefore, "essential that the It should be noted that the complainant in that case, Victoria
party asking for rescission prove that he has exhausted all other Suarez, albeit a creditor prior to the questioned alienation, is not
legal means to obtain satisfaction of his claim. Petitioner neither a party to this accion pauliana. Article 1384 of the Civil Code
alleged nor proved that she did so. On this score, her action for provides that rescission shall only be to the extent necessary to
the rescission of the questioned deed is not maintainable even if cover the damages caused. Under this Article, only the creditor
the fraud charged actually did exist." who brought the action for rescission can benefit from the
rescission; those who are strangers to the action cannot benefit
The fourth requisite for an accion pauliana to prosper is not from its effects. And the revocation is only to the extent of the
present either. plaintiff creditor's unsatisfied credit; as to the excess, the
alienation is maintained. Thus, petitioner cannot invoke the
Art. 1387, first paragraph, of the Civil Code provides: "All credit of Suarez to justify rescission of the subject deed of
contracts by virtue of which the debtor alienates property by donation.
gratuitous title are presumed to have been entered into in fraud
of creditors when the donor did not reserve sufficient property to
pay all debts contracted before the donation. Likewise, Article CASE: LALICON vs NHA
759 of the same Code, second paragraph, states that the
donation is always presumed to be in fraud of creditors when at
In this case, the NHA sought to annul the sales made by
the time thereof the donor did not reserve sufficient property to
pay his debts prior to the donation.
the NHA to housing beneficiaries because when NHA sold
houses to the different beneficiaries, there was a
For this presumption of fraud to apply, it must be established that condition that these beneficiaries could not sell these
the donor did not leave adequate properties which creditors houses to some other person within a specified period.
might have recourse for the collection of their credits existing
before the execution of the donation. They sold to different person within the prohibitory period.
That is why NHA sought to annul the sale.
As earlier discussed, petitioner's alleged credit existed only a
year after the deed of donation was executed. She cannot, The contention here was that, the rescission sought by
therefore, be said to have been prejudiced or defrauded by
NHA has already prescribed because rescission under
such alienation.
Article 1381 and 1383 is only up to 4 years.
Nevertheless, a creditor need not depend solely upon the
presumption laid down in Articles 759 and 1387 of the Civil Code. So, the question is has it already prescribed?
Under the third paragraph of Article 1387, the design to defraud
may be proved in any other manner recognized by the law of The Supreme Court said we have to look into the nature
evidence. Thus in the consideration of whether certain transfers of the rescission sought by NHA. Does it fall under Article
are fraudulent, the Court has laid down specific rules by which 1381 or Article 1383? No, because it is not based on
the character of the transaction may be determined. The lesion. It is not also in fraud of creditors.
following have been denominated by the Court as badges of
fraud:
That is actually a breach of faith because there was a
provision that the housing beneficiaries could not sell the
(1) The fact that the consideration of the conveyance
is fictitious or is inadequate; houses awarded to them within the prohibitory period.
(2) A transfer made by a debtor after suit has begun They violated that provision. Therefore, this kind of
and while it is pending against him; rescission is actually one under Article 1191 and the
(3) A sale upon credit by an insolvent debtor; prescriptive period under Article 1191 is 10 years. So, the
(4) Evidence of large indebtedness or complete action here is well within the prescriptive period.
insolvency;
(5) The transfer of all or nearly all of his property by a LALICON vs NHA
debtor, especially when he is insolvent or greatly
embarrassed financially; FACTS: This case is about (a) the right of the National Housing
(6) The fact that the transfer is made between father Authority to seek annulment of sales made by housing
and son, when there are present other of the above beneficiaries of lands they bought from it within the prohibited
circumstances; and period and (b) the distinction between actions for rescission
(7) The failure of the vendee to take exclusive instituted under Article 1191 of the Civil Code and those
possession of all the property. instituted under Article 1381 of the same code.
The above enumeration, however, is not an exclusive list. The On November 25, 1980 the National Housing Authority (NHA)
circumstances evidencing fraud are as varied as the men who executed a Deed of Sale with Mortgage over a Quezon City lot
perpetrate the fraud in each case. This Court has therefore in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros).
declined to define it, reserving the liberty to deal with it under The deed of sale provided, among others, that the Alfaros could
whatever form it may present itself. sell the land within five years from the date of its release from
mortgage without NHA‘s prior written consent.
Petitioner failed to discharge the burden of proving any of the
circumstances enumerated above or any other circumstance About nine years later or on November 30, 1990, while the
from which fraud can be inferred. Accordingly, since the four mortgage on the land subsisted, the Alfaros sold the same to
requirements for the rescission of a gratuitous contract are not their son, Victor Alfaro, who had taken in a common-law wife,
present in this case, petitioner's action must fail. Cecilia, with whom he had two daughters, petitioners Vicelet
and Vicelen Lalicon (the Lalicons). Cecilia, who had the means,
had a house built on the property and paid for the amortizations. In Article 1191, it is a principal action retaliatory in
After full payment of the loan or on March 21, 1991 the NHA character. In Article 1381, it is subsidiary remedy.
released the mortgage. Six days later or on March 27 Victor
transferred ownership of the land to his illegitimate daughters.
2.) As to Grounds for Rescission
About four and a half years after the release of the mortgage or
on October 4, 1995, Victor registered the November 30, 1990 sale
In Article 1191, the only ground is non-
of the land in his favor, resulting in the cancellation of his performance of obligation or what is incumbent
parents‘ title. upon him. In Article 1381, there are 5 grounds for
rescission. A rescissible contract is enumerated in
On December 14, 1995 Victor mortgaged the land to Marcela Article 1381. Non-performance by the other party
Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Subsequently, on is not important.
February 14, 1997 Victor sold the property to Chua, one of the
mortgagees, resulting in the cancellation of his TCT 140646 and
3.) As to applicability
the issuance of TCT N-172342 in Chua‘s name.
A year later or on April 10, 1998 the NHA instituted a case before In Article 1191, it is only applicable in reciprocal
the RTC for the annulment of the NHA‘s 1980 sale of the land to obligations. In Article 1381, it applies to both
the Alfaros, the latter‘s 1990 sale of the land to their son Victor, unilateral and reciprocal obligations.
and the subsequent sale of the same to Chua, made in violation
of NHA rules and regulations. 4.) As to the Person Who Can Institute an Action
The RTC ruled that, although the Alfaros clearly violated the five-
In Article 1191, only a party to a contract may
year prohibition, the NHA could no longer rescind its sale to them
since its right to do so had already prescribed, applying Article
demand fulfillment or seek the rescission of the
1389 of the New Civil Code. The NHA and the Lalicons, who contract. In Article 1381, even a third person who
intervened, filed their respective appeals to the Court of Appeals is prejudiced by the contract may demand the
(CA). rescission of the contract.
The CA reversed the RTC decision and found the NHA entitled to 5.) As to Fixing of the Period
rescission. The CA declared TCT 277321 in the name of the
Alfaros and all subsequent titles and deeds of sale null and void.
In Article 1191, the court may fix the period or
It ordered Chua to reconvey the subject land to the NHA but the
latter must pay the Lalicons the full amount of their amortization,
grant an extension of the time for fulfillment of
plus interest, and the value of the improvements they the obligation. In Article 1381, the court cannot
constructed on the property. grant extension of the time for fulfillment of the
obligation.
ISSUE: Whether or not the NHA‘s right to rescind has prescribed
6.) As to Purpose
RULING: Invoking the RTC ruling, the Lalicons claim that under
Article 1389 of the Civil Code the "action to claim rescission must In Article 1191, its purpose is to cancel the
be commenced within four years" from the time of the contract. In Article 1381, its purpose is to seek
commission of the cause for it.
reparation for the damage or injury caused thus
But an action for rescission can proceed from either Article 1191
allowing partial rescission of the contract.
or Article 1381. It has been held that Article 1191 speaks of
rescission in reciprocal obligations within the context of Article 7.) As to Prescriptive Period
1124 of the Old Civil Code which uses the term "resolution."
Resolution applies only to reciprocal obligations such that a In Article 1191, it is 10 years. In Article 1381, it is 4
breach on the part of one party constitutes an implied resolutory years.
condition which entitles the other party to rescission. Resolution
grants the injured party the option to pursue, as principal actions,
either a rescission or specific performance of the obligation, with
payment of damages in either case.
Rescission under Article 1381, on the other hand, was taken from
Article 1291 of the Old Civil Code, which is a subsidiary action,
not based on a party‘s breach of obligation. The four-year
prescriptive period provided in Article 1389 applies to rescissions
under Article 1381.
Here, the NHA sought annulment of the Alfaros‘ sale to Victor

because they violated the five-year restriction against such sale
provided in their contract. Thus, the CA correctly ruled that such
violation comes under Article 1191 where the applicable
prescriptive period is that provided in Article 1144 which is 10
years from the time the right of action accrues.1avvphi1 The
NHA‘s right of action accrued on February 18, 1992 when it
learned of the Alfaros‘ forbidden sale of the property to Victor.
Since the NHA filed its action for annulment of sale on April 10,
1998, it did so well within the 10-year prescriptive period.
What are the distinctions between 1381 and 1191?
1.) As to Nature:
SUMMARY:
DISTINCTION ARTICLE 1191 ARTICLE 1381

NATURE a principal subsidiary
action retaliatory remedy The ward and the absentee. Even if there is lesion, if the
in character contract is perfectly valid and cannot be rescinded.
GROUNDS the only ground there are 5
is non- grounds for
performance of rescission Article 1387. All contracts by virtue of which the debtor
obligation alienates property by gratuitous title are presumed to
APPLICABILITY only applicable applies to both have been entered into in fraud of creditors, when the
in reciprocal unilateral and donor did not reserve sufficient property to pay all
obligations reciprocal debts contracted before the donation.
obligations
WHO CAN only a party to a even a third Alienations by onerous title are also presumed
IINSTITUTE AN contract can person who is fraudulent when made by persons against whom
ACTION institute an prejudiced by some judgment has been rendered in any instance or
action for the contract may some writ of attachment has been issued. The
rescission demand for decision or attachment need not refer to the property
rescission alienated, and need not have been obtained by the
FIXING OF THE court may fix the court cannot party seeking the rescission.
PERIOD period or grant grant extension
an extension of of the time for In addition to these presumptions, the design to
the time for fulfillment of the defraud creditors may be proved in any other manner
fulfillment of the obligation recognized by the law of evidence. (1297a)
obligation
PURPOSE to cancel the seek reparation
contract for the damage We already discussed these in the cases which you
or injury caused mentioned (Lim and China Banking).
(partial rescission
is allowed)
PRESCRIPTIVE 10 years 4 years
PERIOD Article 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
Article 1384. Rescission shall be only to the extent
impossible for him to return them.
necessary to cover the damages caused. (n)
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively. (1298a)
If you are impugning a contract in fraud of creditors, only
up to your credit. You cannot impugn the whole
contract. Only as to the extent that you are damaged.
If mutual restitution is no longer possible then indemnity
for damages shall be the remedy here. If there are two or
more acquirers, imong adtuon first ang liable fist. Kung
Article 1385. Rescission creates the obligation to return kulang pa, didto na pud sa kaduha and so on and so
the things which were the object of the contract, forth.
together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be Article 1389. The action to claim rescission must be
obliged to restore. commenced within four years.
Neither shall rescission take place when the things For persons under guardianship and for absentees, the
which are the object of the contract are legally in the period of four years shall not begin until the
possession of third persons who did not act in bad faith. termination of the former's incapacity, or until the
domicile of the latter is known. (1299)
In this case, indemnity for damages may be
demanded from the person causing the loss. (1295)
This is the one I mentioned. The prescriptive period is 4

The same as rescission in Article 1191: mutual restitution is years.
required. Mutual restitution would not be possible if the
things are already in possession of third persons who are
in good faith. In that case, indemnity for damages may
be demanded.
Article 1386. Rescission referred to in Nos. 1 and 2 of

article 1381 shall not take place with respect to
contracts
Revelen approved
Solis and by the
Mizzy Mareé courts. (1296a)
X. VOIDABLE CONTRACTS
(ARTICLES 1390 – 1402)
Article 1390. The following contracts are voidable or

annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is

incapable of giving consent to a contract;
(2) Those where the consent is vitiated by

mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are

annulled by a proper action in court. They are Take note of the action and the prescriptive period. It is 4
susceptible of ratification. (n) years. 4 years from when? You should remember if it is by
reason of intimidation, violence or undue influence – from
that time that these defects cease.
Take note, voidable contracts are valid contracts. If they
are not assailed, they remain to be existing, they remain Mistake or fraud – from the time that they are discovered.
to be enforceable and valid.
Minority or insanity – from the time that they cease.
What is the reason that a contract is voidable?
What if you failed to file the action for annulment within
the prescriptive period?
(1) Those where one of the parties is incapable of
giving consent to a contract;
Then the contract is cleansed of its defects. You can no
longer file an action to annul. It is, again, another way of
Because one of the parties is incapable of giving consent ratification; when you know the defect and you did not
Like he is insane or a minor. He is incapable of giving act for 4 years. The contract is now perfectly ratified; it is
consent. He cannot intentionally enter into a contract. valid. If it remains to be valid, it can no longer be
annulled.
(2) Those where the consent is vitiated by
mistake, violence, intimidation, undue influence
or fraud
Article 1392. Ratification extinguishes the action to
When there is vitiated consent. What are the voices of
annul a voidable contract. (1309a)
consent? We have mistake, violence, intimidation, undue
influence and fraud.
When there is ratification, the person who is supposedly
Because of these defects, the contract can be annulled. entitled to annul a contract can no longer do so
They can be terminated or extinguished. because of his ratification.
Who can annul the contract? It is the court that will How can you ratify? Article 1393.
declare that the contract is annulled.
Article 1393. Ratification may be effected expressly or
Although Article 1390 says they are susceptible of
tacitly. It is understood that there is a tacit ratification
ratification. The defect can actually be cleansed.
if, with knowledge of the reason which renders the
contract voidable and such reason having ceased,
the person who has a right to invoke it should
execute an act which necessarily implies an intention
to waive his right. (1311a)
Example:
You entered into a contract when you were 17. When

you reached 18, you ratified the contract. You
acknowledged that the contract is valid and you agreed
to be bound by the contract.
Article 1391. The action for annulment shall be

brought within four years.
This period shall begin:
In cases of intimidation, violence or undue

influence, from the time the defect of the consent
ceases.
Example:
He was insane at the time when he entered into the

contract and he was paid the price. Then when he
regained sanity, he learned of the contract and then he
spent the money – that is also an act of ratification.
Or if he did not act during the prescriptive period; he did

not file an action for annulment and it is already 5 years –
the contract is also ratified. It can no longer be annulled.
Remember, the action for annulment can be instituted
Acceptance of benefit – that is also inconsistent with filing only by the parties or their assigns or their successors-in-
an action for annulment. If you accepted knowing the interest. Those who are not parties to the contract cannot
benefits under the contract and you have reached the assail the contract for being voidable.
age of majority or attained capacity or no longer under
force, violence, intimidation – then again, that is And the principle that ―He who comes to court must
ratification. come with clean hands.‖ must also apply here. Only the
innocent party can seek for the annulment of the
contract; not the one who asserted undue influence,
Article 1394. Ratification may be effected by the violence, intimidation, etc. And only the incapacitated
guardian of the incapacitated person. (n) person, not the one who was legally capacitated.
An incapacitated person, on his own, cannot enter into a That is the principle in voidable contracts.
contract. So if an insane person enters into a contract,
the contract is voidable. If his guardian is discovered that CASE: EARTH MINERALS vs DEPUTY EXECUTIVE SECRETARY
he entered into a contract and then the guardian CATALINO MACARAIG, JR.
agreed to the contract then the contract is now ratified.
So, the guardians can ratify the contract in behalf of the Take note that the Supreme Court here said he made an
minor o insane. action for nullity. Technically, this should apply to a void
contract because this is the same principle in a void
If the minor or insane is already of legal age, he can no contract (those who are not parties cannot file an action
longer say that he no longer wants to be bound by the to declare the nullity of a contract except when their
contract. No more because it was already ratified before rights and interests are prejudiced directly.)
by your parents or guardian.
So, the ruling in the case of Earth Minerals is actually more
on the nullity; so void contract. But the general principle
Article 1395. Ratification does not require the in voidable contracts: only those parties who are bound
conformity of the contracting party who has no right principally or subsidiarily can file an action for annulment.
to bring the action for annulment. (1312)
What is an example of ―subsidiairly?‖ In a contract, who
are subsidiarily liable? Like, a principal debtor and
Only the incapacitated person, his guardian or the principal creditor are principal parties in the contract,
innocent party can ratify the contract. who are subsidiary parties in that contract? The
guarantors. They are subsidiarily obliged under the
The act is unilateral. If he was a minor at the time he contract. Or sureties. So, even if they are not the principal
entered into the contract and mow he is 18 and he says, parties, still, they can assail the contract for being
―I like this contract so I will ratify this contract.‖ It is already voidable.
ratified. The other party cannot say, ―No, no! I don‘t want
you to ratify the contract. I want it to remain as EARTH MINERALS vs DEPUTY EXECUTIVE SECRETARY CATALINO
voidable.‖ The guilty party or the party who was not MACARAIG, JR.
incapacitated does not have to agree to the ratification.
FACTS: Zambales Chromite Mining Co., Inc. (Zambales Chromite,
It does not require his consent.
for short) is the exclusive owner of ten (10) patentable chromite
mining claims.
Article 1396. Ratification cleanses the contract from all
its defects from the moment it was constituted. (1313) On September 11, 1980, Zambales Chromite, as claim-owner, on
one hand, and Philzea Mining and Development Corporation
(Philzea Mining, for short, herein private respondent) as operator,
That is the consequence of ratification: retroactive. It is as on the other, entered into a "Contract of Development,
if the contract was never defective from the very Exploitation and Productive Operation" on the ten (10)
beginning. The effect of ratification will retroact to the patentable mining claims.
moment it was constituted.
During the lifetime of such contract, Earth Minerals Exploration,
Inc. (Earth Minerals, for short, herein petitioner) submitted a Letter
of Intent on June 30, 1984 to Zambales Chromite whereby the
former proposed and the latter agreed to operate the same
mining area subject of the earlier agreement between Zambales
Chromite and Philzea Mining. On August 10, 1984, Zambales
Chromite and Earth Minerals concretized their aforementioned
Letter of Intent when they entered into an "Operating
Agreement" for the latter to operate the same mining area.
Consequently, the same mining property of Zambales Chromite
became the subject of different agreements with two separate
Article 1397. The action for the annulment of contracts
may be instituted by all who are thereby obliged
Revelen Solis and
principally orMizzy Mareé Martinez
subsidiarily. However, persons who are TAU MU Page 234 of 262
capable cannot allege the incapacity of those with
whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action
and distinct operators. rule that an action for the annulment of contracts can only be
maintained by those who are bound either principally or
On November 29, 1984, petitioner Earth Minerals filed with the subsidiarily by virtue thereof. The rule, however, admits of an
Bureau of Mines and Geo-Sciences (BMGS, for short) a petition exception. The Court, in Teves v. People's Homesite and Housing
for cancellation of the contract between Zambales Chromite Corporation (23 SCRA 1141 [1968]) held that a person who is not
and Philzea Mining. obliged principally or subsidiarily in a contract may exercise an
action for nullity of the contract if he is prejudiced in his rights
In its petition, Earth Minerals alleged, among others, that Philzea with respect to one of the contracting parties, and can show the
Mining committed grave and serious violations of the latter's detriment which could positively result to him from the contract
contract with Zambales Chromite among which are: failure to in which he had no intervention.
produce the agreed volume of chromite ores; failure to pay ad
valorem taxes; failure to put up assay buildings and offices, all Petitioner Earth Minerals seeks the cancellation of the contract
resulting in the non-productivity and non-development of the between Zambales Chromite and Philzea Mining, not as a party
mining area. to the contract but because his rights are prejudiced by the said
contract. The prejudice and detriment to the rights and interest
Philzea Mining filed a motion to dismiss on the grounds that Earth of petitioner stems from the continued existence of the contract
Minerals is not the proper party in interest and that the petition between Zambales Chromite and private respondent Philzea
lacks cause of action. Mining. Unless and until the contract between Zambales
Chromite and Philzea Mining is cancelled, petitioner's contract
The motion to dismiss was, however, denied by the BMGS with the former involving the same mining area cannot be in
holding that "there appears some color of right" on Earth Minerals effect and it cannot perform its own obligations and derive
to initiate the petition for cancellation. benefits under its contract.
Thereafter, Philzea Mining elevated the case to then Ministry
(now Department) of Natural Resources (MNR, for short) which in Moreover, the record amply shows that the decision of the
its order dismissed the appeal for the reason that the order of the Director of Mines as affirmed by the Minister of Natural Resources
BMGS was an interlocutory order that could not be the proper was supported by substantial evidence. As found by the Bureau
subject of an appeal. of Mines in its decision dated July 23, 1985, the violations
Philzea Mining appealed to the Office of the President the order committed by Philzea Mining were not only violations of its
of MNR. During the pendency thereof, Earth Minerals filed with operating agreement with Zambales Chromite but of mining
the MNR a motion for execution of the MNR order of April 23, laws as well.
1985.
The MNR issued an order directing the BMGS to conduct the

necessary investigation in order to hasten the development of Article 1398. An obligation having been annulled, the
the mining claims in question. In compliance therewith, the contracting parties shall restore to each other the
BMGS on June 7, 1985, ordered the private respondent Philzea things which have been the subject matter of the
Mining to file its answer to Earth Mineral's petition for rescission. contract, with their fruits, and the price with its
interest, except in cases provided by law.
Philzea Mining moved to reconsider but the motion was denied.
Philzea Mining did not submit its answer. Accordingly, the BMGS
resolved the petition for rescission on the basis of documents In obligations to render service, the value thereof
submitted ex parte by herein petitioner. Finding that Philzea shall be the basis for damages. (1303a)
Mining grossly violated the terms and conditions of the mining
contract between Philzea Mining and Zambales Chromite, the
BMGS rendered a decision finding that the Operating
Agreement dated September 11, 1980 executed by and Just like rescission under Article 1191 and rescission under
between Zambales Chromite and Philzea Mining should be, as is Articles 1380, 1381 and 1383, mutual restitution is also
hereby cancelled.
required in annulment of contracts. Once the contract is
annulled, the parties shall restore to each other what they
A motion for reconsideration dated July 12,1986 (Annex
"U", Rollo, p. 190) was filed by petitioner Earth Minerals which, have received. Except in cases provided by law.
however, was denied by the then Deputy Executive Secretary
Catalino Macaraig in his resolution dated May 5, 1987. GENERAL RULE: Mutual restitution.
Hence, this petition If it is service then the value shall be the basis of
damages. If it is a thing, the fruits and the price with
ISSUE: whether or not the petitioner Earth Minerals is the proper interest.
party to seek cancellation of the operating agreement between
Philzea Mining and Zambales Chromite. CASE: MUNICIPALITY OF CAVITE vs ROJAS
RULING: The public respondent argues that the petitioner Earth
What is the reason why the contract here is cancelled?
Minerals is not the proper party to file the petition for
cancellation of the contract between Zambales Chromite and
Philzea Mining citing Article 1311 of the Civil Code which Actually, again, the case refers to a void contract
provides that a contract takes effect only between the parties, because the subject matter is outside the commerce of
their assigns and heirs. man. But the principle in Article 1398 is the same: that
there should be mutual restitution.
The contention is untenable.
In all defective contracts (rescission under Article 1191,
Indeed, a contract takes effect only between the parties who rescissible contracts proper under Article 1380, voidable,
made it, and also their assigns and heirs, except in cases where and void contracts), when the contracts are cancelled
the rights and obligations arising from the contract are not
or terminated, there should be mutual restitution.
transmissible by their nature, or by stipulation or by provision of
law (Article 1311, New Civil Code). Since a contract may be
violated only by the parties thereto as against each other, in an MUNICIPALITY OF CAVITE vs ROJAS
action upon that contract, the real parties in interest, either as
plaintiff or as defendant must be parties to said contract. In FACTS: The provincial fiscal of Cavite, representing the
relation thereto, Article 1397 of the Civil Code lays the general municipality of that name, filed a complaint in the Court of First
Instance of said province alleging that the plaintiff municipal the said Palza Soledad, with objection on the part of Maria Jose
corporation, duly organized and constituted in accordance with et al. who is sought that inscription be decreed in their name of
Act No. 82, and as the successor to the rights s aid entity had the parcels of land in this plaza occupied by them, this court
under the late Spanish government, and by virtue of Act No. decided that neither the municipality nor the objectors were
1039, had exclusive right, control and administration over the entitled to inscription, for with respect to the objectors said plaza
streets, lanes, plazas, and public places of the municipality of belonged to the municipality of Cavite and with respect to the
Cavite. latter the said Plaza Soledad was not transferable property of
that municipality to be inscribed in its name, because he
The complaint further stated that the defendants, by virtue of a intention of Act No. 1039 was that the said plaza and other
lease secured from the plaintiff municipality, occupy a parcel of places therein enumerated should be kept open for public
land 93 square meters in area that forms part of the public plaza transit; herefore there can be no doubt that the defendant has
known under the name of Soledad, belonging to the no right to continue to occupy the land of the municipality
municipality of Cavite, the defendants having constructed leased by her, for it is an integral portion of Plaza Soledad, which
thereon a house, through payment to the plaintiff for if for public use and is reserved for the common benefit.
occupation thereof of a rental of P5,58 a quarter in advance,
said defendants being furthermore obligated to vacate the The said Plaza Soledad being a promenade for public use, the
leased land within sixty days subsequent to plaintiff's demand to municipal council of Cavite could not in 1907 withdraw or
that effect. exclude from public use a portion thereof in order to lease it for
the sole benefit of the defendant Hilaria Rojas. In leasing a
The plaintiffs further allege that the defendants have been portion of said plaza or public place to the defendant for private
required by the municipality to vacate and deliver possession of use the plaintiff municipality exceeded its authority in the
the said land, but more than the sixty days within which they exercise of its powers by executing a contract over a thing of
having done so to date; that the lease secured from the which it could not dispose, nor is it empowered so to do.
municipality of Cavite, by virtue whereof the defendants occupy The Civil Code, articles 1271, prescribes that everything which is
the land that is the subject matter of the complaint, is ultra not outside he commerce of man may be the object of a
vires and therefore ipso facto null and void and of no force or contract, and plazas and streets are outside of this commerce,
effect, for the said land is an integral portion of a public plaza of as was decided by the supreme court of Spain in its decision of
public domain and use, and the municipal council of Cavite has February 12, 195, which says: "Communal things that cannot be
never at any time had any power or authority to withdraw it from soud because they are by their very nature outside of
public use, and to lease it to a private party for his own use, and commerce are those for public use, such as the plazas, streets,
so the defendants have never had any right to occupy or to common lands, rivers, fountains, etc."
retain the said land under leasehold, or in any other way, their Therefore, it must be concluded that the contract, Exhibit C,
occupation of the parcel being furthermore illegal; and whereby he municipality of Cavite leased to Hilaria Rojas a
therefore prayed that judgment be rendered declaring that portion of the Plaza Soledad is null and void and of no force or
possession of the said land lies with the plaintiff and ordering the effect, because it is contrary to the law and the thing leased
defendants to vacate the land and deliver possession thereof to cannot be the object of a contract. On the hyphotesis that the
said plaintiff, with the costs against the defendants. said lease is null and void in accordance with the provisions of
article 1303 of the Civil Code, the defendant must restore and
The defendants admitted some of the allegations contained in deliver possession of the land described in the complaint to the
the complaint but denied that the parcel of land which they municipality of Cavite, which in its turn must restore to the said
occupy and to which the complaint refers forms an integral part defendant all the sums it may have received from her in the
of Plaza Soledad, or that the lease secured by them from the nature of rentals just as soon as she restores the land improperly
municipality of Cavite was null and void and ultra vires, stating if leased. For the same reasons as have been set forth, and as said
they refused to vacate said land it was because they had contract is null and void in its origin, it can produce no effect
acquired the right of possession thereof. and consequently the defendant is not entitled to claim that the
plaintiff municipality indemnity her for the damages she may
As a special defense they alleged that, according to the lease, suffer by the removal of her house from the said land.
they could only be ordered to vacate the land leased when the
plaintiff municipality might need it for decoration or other public
use, which does not apply in the present case.
In a cross-complaint they alleged that on the land which is the

subject matter of the complaint the defendants have erected a
house of strong materials, assessed at P3,000, which was
constructed under a license secured from the plaintiff
municipality; that if they should be ordered to vacate the said
land they would suffer damages to the extent of P3,000,
wherefore they prayed that they be absolved from the
complaint, or in the contrary case that the plaintiff be sentenced
to indemnify them in the sum of P3,000 as damages, and to pay
the costs.
RULING: The boundary line between the properties of the

municipality of Cavite and the naval reservation, as fixed in Act
No. 1039 of the Philippine Commission, appears in the plan
prepared by a naval engineer and submitted as evidence by
the plaintiff, Exhibit C of civil case No. 274 of the Cavite court
and registered in this court as No. 9071. According to said plan,
defendant's house is erected on a plat of ground that forms part
of the promenade called Plaza Soledad, and this was also so
proven by the testimony of the plaintiff's witnesses.
By section 3 of the said Act No. 1039, passed January 12, 1904,
the Philippine Commission granted to the municipality of Cavite
all the land included in the tract called Plaza Soledad. In the
case of Nicolas vs. Jose (6 Phil. Rep., 589), wherein the
municipality of Cavite, represented by its president Catalino
Nicolas, sought inscription in its name of the land comprised in
Article 1399. When the defect of the contract consists contract should not be prejudiced by the loss of the thing
in the incapacity of one of the parties, the which was not by reason of his fraud or fault.
incapacitated person is not obliged to make any
restitution except insofar as he has been benefited Article 1402. As long as one of the contracting parties
by the thing or price received by him. (1304) does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon
Remember the principle in case of incapacity. Is the him. (1308)
incapacitated person required to return?
GENERAL RULE: No. When the other does not return the thing itself or the
equivalent value of the thing then the other party who is
But is does not prevent the annulment of the contract. also bound to return has no obligation to deliver yet.
Because, there is incapacity, so there is a defective Dapat simultaneous. When the other is not yet ready then
consent, but insofar as mutual restitution is concerned, it is the other has no obligation to return.
only required of the incapacitated person if he has
benefitted from the thing or he kept the thing. That is the principle under voidable contracts.
It‘s very easy, the principle under void contracts: it is valid

Article 1400. Whenever the person obliged by the unless it is annulled. But you can annul it only for a certain
decree of annulment to return the thing can not do period of time. You can also ratify it. When the contract is
so because it has been lost through his fault, he shall ratified, the contract is now cleansed of its defects which
return the fruits received and the value of the thing at will retroact from the very beginning of the contract. The
the time of the loss, with interest from the same date. fact that the contract is voidable can be assailed only by
(1307a) parties to the contract and by those who are bound
subsidiarily. And there is the requirement of mutual
restitution.
Here, we are referring to the other party (the guilty party).
The one who exerted violence, intimidation or undue
influence. Or the one who was capacitated.
Just because he lost the thing does not mean that his
obligation to return the thing already ceases. In that
case, he shall return the fruits received and the value with
interest.
There is still mutual restitution but not the thing itself

because it was lost but the value plus fruits and interest.
Article 1401. The action for annulment of contracts

shall be extinguished when the thing which is the
object thereof is lost through the fraud or fault of the
person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of

any one of the contracting parties, the loss of the
thing shall not be an obstacle to the success of the
action, unless said loss took place through the fraud
or fault of the plaintiff. (1314a)
Here, in Article 1400, the guilty party or the capacitated

party was the one who lost the thing so the action for
annulment will still prosper.
But here in Article 1401, it is the once who has the right to
institute the action (the innocent party or the one who
capacitated) lost the thing by reason of his fraud or fault.
In that case, he can no longer file an action for
annulment. Because he cannot return the thing and the
loss of the thing is by reason of his fraud or fault. He who
comes to court must come with clean hands.
That is the principle in Article 1401. But, of course, if the

loss was not by reason of his fraud or fault, he can still
institute the action for annulment because, in this case,
the loss is not due to his fault so his right to annul the
XI. UNENFORCEABLE CONTRACTS owner is B. The contract between A and X is
unenforceable.
(ARTICLES 1403 – 1408)
Or B authorized A to lease the land. So, he has the
authority only to lease. But if a sold the land to X, that is
Article 1403. The following contracts are unenforceable, unless already in excess of his authority. That sale is again,
they are ratified: unenforceable.
(1) Those entered into in the name of another person by (2) Those that do not comply with the Statute of
one who has been given no authority or legal Frauds as set forth in this number.
representation, or who has acted beyond his powers;
Those which do not comply with the Statute of Frauds
(2) Those that do not comply with the Statute of Frauds as (Article 1403, (2))
set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by What is the Statute of Frauds?
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party CASE: ORDUNA vs FUENTABELLA
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a What is the nature of the Statute of Frauds, as discussed in
secondary evidence of its contents: this case?
(a) An agreement that by its terms is not to be How about the term ―Statue of Frauds,‖ what does it
performed within a year from the making thereof; mean?
(b) A special promise to answer for the debt, Article 1403 (2) is our Stature of Frauds. They require that
default, or miscarriage of another; the contracts enumerated under Article 1403 (2) should
be in writing otherwise the contracts are unenforceable.
(c) An agreement made in consideration of When you say, unenforceable, are thse contracts valid?
marriage, other than a mutual promise to marry; They are valid but they cannot be enforced; meaning
you cannot maintain any action with respect to these
(d) An agreement for the sale of goods, chattels contracts.
or things in action, at a price not less than five
hundred pesos, unless the buyer accept and Example:
receive part of such goods and chattels, or the
evidences, or some of them, of such things in If you bought a land orally; so you agreed for 1M and
action or pay at the time some part of the then you were already willing to pay the purchase price
purchase money; but when a sale is made by but the seller is not willing to deliver the land. If you file an
auction and entry is made by the auctioneer in
action in court to compel delivery or for specific
his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale,
performance, your action will fail because the sale of a
price, names of the purchasers and person on real property is covered under the Statute of Frauds. It
whose account the sale is made, it is a sufficient cannot just be a verbal or oral contract. You need a
memorandum; written document for it to be enforceable. Even if it is
valid, you cannot enforce it; you cannot compel the
(e) An agreement for the leasing for a longer other party to perform.
period than one year, or for the sale of real
property or of an interest therein; So, what makes it different from a void contract
(because in a void contract, you cannot also maintain
(f) A representation as to the credit of a third any action)? A contract covered by the Statute of Frauds
person. can be ratified whereas a void contract cannot be
ratified.
(3) Those where both parties are incapable of giving
consent to a contract. What is the purpose of the Statute of Frauds? The purpose
is to prevent fraud and perjury. Because if you rely on oral
testimony, chances are these persons would lie or maybe
There are 3 kinds of unenforceable contracts: they have already forgotten the details of the contract.
Because sometimes it will take time for the witness to
eventually testify. That is why, to prevent fraud and
(1) Those entered into in the name of another person perjury, there should be a written document.
by one who has been given no authority or legal
representation, or who has acted beyond his powers; They have to be in writing to be enforceable. What is the
requirement under the Statute of Frauds?
These are unauthorized contracts (Article 1403, (1))
There has to be at least a written document. Should it be
What are these unauthorized contracts? Those entered a formal document? The law says memorandum is
into in the name of another. One who has been given no required. Let‘s just discuss later what is a sufficient
authority. memorandum.
Example: ORDUNA vs FUENTABELLA
A sold the land owned by B without any authority at all. A FACTS: Central to the case is a residential lot with an area of 74
sold the land to X. X is the buyer, A is the seller but the square meters located at Fairview Subdivision, Baguio City,
originally registered in the name of Armando Gabriel, Sr. The appellate court rendered the assailed Decision affirming the
RTC decision.
Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot
to petitioner Antonita Orduña (Antonita), but no formal deed ISSUE: whether or not the sale of the subject lot by Gabriel Sr. to
was executed to document the sale. The contract price was Antonita is unenforceable under the Statute of Frauds
apparently payable in installments as Antonita remitted from
time to time and Gabriel Sr. accepted partial payments. RULING: The petition is meritorious.
As early as 1979, however, Antonita and her sons, Dennis and The CA, just as the RTC, ruled that the contract is unenforceable
Anthony Orduña, were already occupying the subject lot on the for non-compliance with the Statute of Frauds.
basis of some arrangement undisclosed in the records and even
constructed their house thereon. We disagree for several reasons. Foremost of these is that the
Statute of Frauds expressed in Article 1403, par. (2), of the Civil
After the death of Gabriel Sr., his son and namesake, respondent Code applies only to executory contracts, i.e., those where no
Gabriel Jr., secured TCT No. T-71499 over the subject lot and performance has yet been made. Stated a bit differently, the
continued accepting payments from the petitioners. On legal consequence of non-compliance with the Statute does
December 12, 1996, Gabriel Jr. wrote Antonita authorizing her to not come into play where the contract in question is completed,
fence off the said lot and to construct a road in the adjacent executed, or partially consummated.
lot. Through a letter dated May 1, 1997, Gabriel Jr.
acknowledged that petitioner had so far made an aggregate The Statute of Frauds, in context, provides that a contract for the
payment of PhP 65,000, leaving an outstanding balance of PhP sale of real property or of an interest therein shall be
60,000. A receipt Gabriel Jr. issued dated November 24, 1997 unenforceable unless the sale or some note or memorandum
reflected a PhP 10,000 payment. thereof is in writing and subscribed by the party or his agent.
However, where the verbal contract of sale has been partially
Despite all those payments made for the subject lot, Gabriel Jr. executed through the partial payments made by one party duly
would later sell it to Bernard Banta (Bernard) obviously without received by the vendor, as in the present case, the contract is
the knowledge of petitioners, as later developments would taken out of the scope of the Statute.
show.
The purpose of the Statute is to prevent fraud and perjury in the
Badly in need of money, Gabriel Jr. borrowed from Bernard the enforcement of obligations depending for their evidence on the
amount of PhP 50,000, payable in two weeks at a fixed interest unassisted memory of witnesses, by requiring certain
rate, with the further condition that the subject lot would answer enumerated contracts and transactions to be evidenced by a
for the loan in case of default. Gabriel Jr. failed to pay the loan writing signed by the party to be charged. The Statute requires
and this led to the execution of a Deed of Sale. certain contracts to be evidenced by some note or
memorandum in order to be enforceable. The term "Statute of
Subsequently, Bernard sold to the Cids the subject lot for PhP Frauds" is descriptive of statutes that require certain classes of
80,000. Armed with a Deed of Absolute Sale of a Registered contracts to be in writing. The Statute does not deprive the
Land dated January 19, 2000, the Cids were able to cancel TCT parties of the right to contract with respect to the matters therein
No. T-72782 and secure TCT No. 72783 covering the subject lot. involved, but merely regulates the formalities of the contract
Just like in the immediately preceding transaction, the deed of necessary to render it enforceable.
sale between Bernard and the Cids had respondent Eduardo J.
Fuentebella (Eduardo) as one of the instrumental witnesses. Since contracts are generally obligatory in whatever form they
Marcos and Benjamin, in turn, ceded the subject lot to Eduardo may have been entered into, provided all the essential requisites
through a Deed of Absolute Sale. for their validity are present, the Statute simply provides the
method by which the contracts enumerated in Art. 1403 (2)
As successive buyers of the subject lot, Bernard, then Marcos may be proved but does not declare them invalid because they
and Benjamin, and finally Eduardo, checked, so each claimed, are not reduced to writing. In fine, the form required under the
the title of their respective predecessors-in-interest with the Statute is for convenience or evidentiary purposes only.
Baguio Registry and discovered said title to be free and
unencumbered at the time each purchased the property. There can be no serious argument about the partial execution of
Furthermore, respondent Eduardo, before buying the property, the sale in question. The records show that petitioners had, on
was said to have inspected the same and found it unoccupied separate occasions, given Gabriel Sr. and Gabriel Jr. sums of
by the Orduñas. money as partial payments of the purchase price. These
payments were duly receipted by Gabriel Jr. To recall, in his
Sometime in May 2000, or shortly after his purchase of the subject letter of May 1, 1997, Gabriel, Jr. acknowledged having received
lot, Eduardo, through his lawyer, sent a letter addressed to the the aggregate payment of PhP 65,000 from petitioners with the
residence of Gabriel Jr. demanding that all persons residing on balance of PhP 60,000 still remaining unpaid. But on top of the
or physically occupying the subject lot vacate the premises or partial payments thus made, possession of the subject of the sale
face the prospect of being ejected. had been transferred to Antonita as buyer. Owing thus to its
partial execution, the subject sale is no longer within the purview
Learning of Eduardo‘s threat, petitioners went to the residence of the Statute of Frauds.
of Gabriel Jr. There, they met Gabriel Jr.‘s estranged wife,
Teresita, who informed them about her having filed an affidavit- Lest it be overlooked, a contract that infringes the Statute of
complaint against her husband and the Cids for falsification of Frauds is ratified by the acceptance of benefits under the
public documents. According to Teresita, her signature on the contract. Evidently, Gabriel, Jr., as his father earlier, had
June 30, 1999 Gabriel Jr.–Bernard deed of sale was a forgery. benefited from the partial payments made by the petitioners.
Teresita further informed the petitioners of her intent to honor the Thus, neither Gabriel Jr. nor the other respondents—successive
aforementioned 1996 verbal agreement between Gabriel Sr. purchasers of subject lots—could plausibly set up the Statute of
and Antonita and the partial payments they gave her father-in- Frauds to thwart petitioners‘ efforts towards establishing their
law and her husband for the subject lot. lawful right over the subject lot and removing any cloud in their
title. As it were, petitioners need only to pay the outstanding
Petitioners, joined by Teresita, filed a Complaintfor Annulment of balance of the purchase price and that would complete the
Title, Reconveyance with Damages against the respondents execution of the oral sale.
before the RTC.
Let‘s now go to the specific contracts under the Statute if
The RTC ruled for the respondents, as defendants a quo, and Frauds:
against the petitioners, as plaintiffs therein.
(a) An agreement that by its terms is not to Yes, because that is not the one contemplated under the
be performed within a year from the making Statute of Frauds. Breach of promise to marry is not one
thereof; which is made in consideration of marriage and you
learned in Persons and Family Relation that general rule:
Meaning, the performance is postponed from 1 year. breach of promise to marry is not actionable unless the
act would constitute a violation of the law on Human
Example: Relations. In that case, the guilty party is liable for
damages only. You cannot compel with specific
A and B agree to lease the land for 5 months. It is not performance.
covered by the Statute of Frauds, supposedly, but if, for
example, the lease would start 1 and a half years from
the execution, that agreement has to be in writing for it to
be enforceable.
(d) An agreement for the sale of goods,
chattels or things in action, at a price not less
Because, if it is not in writing and then 1 and a half years
than five hundred pesos, unless the buyer
have already elapsed and the prospective lessee has
accept and receive part of such goods and
already demanded, he cannot enforce that lease
chattels, or the evidences, or some of them,
contract if it is just verbal. There has to be at least a
of such things in action or pay at the time
written agreement.
some part of the purchase money; but when
Again, the purpose is, dugay pa man gud ang a sale is made by auction and entry is made
performance, so at least, basig makalimut na ang mga by the auctioneer in his sales book, at the
parties so there has to be a written document to time of the sale, of the amount and kind of
evidence that transaction. property sold, terms of sale, price, names of
the purchasers and person on whose
Example: account the sale is made, it is a sufficient
memorandum;
The contract is: A and B enter into an agreement that for
1 year from today, A will not pass by the road in front of ―Sale of goods, chattels or things in action, at a price not
B‘s house. It is verbal. Is that covered by Article 1403 less than five hundred pesos.‖
(2)(a)?
Sale of goods – like movables, cellphone, iPad, laptop,
No, because the term of the contract will already be
chair, furniture, jewelry below 500. If it is 500 and up, it has
performed immediately. What is the term? Not to pass, so
to be in writing otherwise the Contract of Sale in
it is immediately enforceable. It is different from one
unenforceable.
which is to be enforced at least one year from the
execution.
(e) An agreement for the leasing for a longer
period than one year, or for the sale of real
(b) A special promise to answer for the debt,
property or of an interest therein;
default, or miscarriage of another;
Lease of real property for more than one year has to be

Like you act as a guarantor. Your guaranty should be in
in writing.
writing otherwise it is unenforceable.
Lease of real property for less than one year is not

(c) An agreement made in consideration of
required to be in writing.
marriage, other than a mutual promise to
marry;
Take note, ―more than one year.‖
What are examples of these agreements?
Sale of real property or an interest therein regardless of
the amount, it has to be in writing.
Donation propter nuptias – made in consideration of
marriage, made in consideration of marriage. You will
donate to each other properties in consideration of
properties.
Marriage settlement – that is an agreement in

consideration of marriage. It has to be in writing for it to
be enforceable.
How about a breach of promise to marry?
A told B that he will marry her. It‘s verbal. They prepared

invitations, they reserved a hotel and then at the last
minute, a backed out. Can B file an action for damages
against A? Can A allege that ―No, because it‘s not in
writing. I did not promise you in writing, it was just oral.‖?
Can he be liable for damages?
(f) A representation as to the credit of a third The rule on papers connected: The rule is frequently
person. applied to two or more, or a series of letters or telegrams,
or letters and telegrams sufficiently connected to allow
This is different from a special promise to answer for the their consideration together; but the rule is not confined
debt. Here, you don‘t promise to answer. You just say that in its application to letters and telegrams; any other
―this debtor is good, he can pay you.‖ documents can be read together when one refers to the
other. Thus, the rule has been applied so as to allow the
Example: consideration together, when properly connected, of a
letter and an order of court, a letter and order for goods,
A borrowed 1M from B. and then B isn‘t sure of a so he a letter and a deposition, letters or telegrams and
asked X kung makabayad ba gyud si A; kung gwapo undelivered deeds, wills, corresponding and related
bagyund ang record ni A. Then X says “yes, okay kayo na papers, a check and a letter, a receipt and a check,
siya. On time na siya nagabayad.” And then it turned out deeds and a map, a memorandum of agreement and a
na dili. And then the representation was just verbal. Can deed, a memorandum of sale and an abstract of title, a
you hold X liable for damages because of his memorandum of sale and a will, a memorandum of sale
misrepresentation? and a receipt, and a contract, deed and instruction to a
depository in escrow. The number of papers connected
No, because it is just verbal. For it to be enforceable, for X to make out a memorandum is immaterial.
to be liable in his representation, it should be in writing.
All those papers can be considered together to prove
(3) Those where both parties are incapable of giving the existence of a contract. Those documents or letter or
consent to a contract. papers would be sufficient memorandum under the
Statute of Frauds. Dili kinahnglan ug formal contract as
long as you can gather from these documents the
Example: existence of a contract and the essential requisites of a
contract and these letters and documents are
A and B entered into a contract. A is insane while B is a
transcribed or signed by the parties charged.
minor. What is the status of the contract? Unenforceable.
BERG vs MAGDALENA ESTATE
Duha sila buang or duha sila minor. What‘s the status? Still
unenforceable. FACTS: The complaint avers that plaintiff and defendant are co-
owners of said property, the former being the owner of one-third
If one is normal, the other is insane, what is the status? interest and the latter of the remaining two-thirds.
Voidable.
Hemady (defendant) claims that on September 22, 1943, it sold
But if both, that becomes unenforceable. to Berg (plaintiff) one-third of the property in litigation subject to
the express condition that should either vendor or vendee
The law says there should be a sufficient note or decide to sell his or its undivided share, the party selling would
grant to the other part first an irrevocable option to purchase the
memorandum to at least comply with the Statute of
same at the seller's price.
Frauds. Dili kinahanglan ug formal contract as long as you
can gather from the written document, note or It avers that on January 1946 plaintiff fixed the sum of P200,000 as
memorandum, the essential requisites of the contract. the price of said share and offered to sell it to defendant, which
That was discussed in the case of Berg vs Magdalena. offer was accepted, and for the payment of said price plaintiff
gave defendant a period of time which, including the extensions
CASE: BERG vs MAGDALENA granted, would expire on May 31, 1947. Defendant claims that,
in spite of the acceptance of the offer, plaintiff refused to
In that case, there was no formal contract. There was just accept the payment of the price.
a series of latters; exchanges of communication.
It is an undisputed fact that since September 22, 1943, plaintiff
and defendant were co-owners pro indiviso of the property
It was alleged that that transaction was not covered by known as Crystal Arcade in the proportion of one-third interest
the Statute of Frauds because there was no sufficient belonging to the former and two-thirds to the latter. In the deed
note or memorandum. of sale executed by the parties on said date, they stipulated
that, should either of them decide to sell his or her share, the
I would like to discuss the nature of the written document other party will have an irrevocable option to purchase it at the
required under the Statute of Frauds. seller's price. Then a disagreement ensued between the parties
as to what really occurred concerning the deal.
As discussed in this case, the Supreme Court said, no
particular form of language or instrument is necessary to Thus, while Berg claims that his negotiations with Hemady ended
when an offer by the latter to the former to buy his interest for
constitute a memorandum or note in writing under the
the sum of P350,000, Hemady on the other hand claims that Berg
Statute of Frauds. Any document or writing, formal or offered to sell it to him for P200,000 subject to the condition that
informal, written either for the purpose of furnishing the necessary permit be obtained from the United States
evidence of a contract or for another purpose, which Treasury Department.
satisfies all the requirements of the Statue as to contents
and signature, is a sufficient memorandum or note. The It should be stated that, aside from the testimony of Berg and
memorandum may be written as with lead pencil as with Hemady, no document has been presented evidencing that
pen and ink. It may also be filled in on a printed form. alleged agreement to sell, and so when defendant made
attempts to prove, through the testimony of Hemady, that
plaintiff made an offer to sell his interest to defendant for the sum
So, even if not in a single document, even if there are
of P200,000, the attempt met the vigorous opposition of plaintiff
various papers, as long as you can connect these papers invoking the rule that such agreement can only be established
you can relate them and they are signed by the parties, by a contract in writing, or by a note or memorandum
they will be sufficient. subscribed by the party sought to be charged, as prescribed by
the statute of frauds. It was then that defendant submitted in consideration together; but the rule is not confined in its
evidence exhibits "3" and "4", contending that these documents, application to letters and telegrams; any other
read in connection with the option to sell embodied in exhibit documents can be read together when one refers to
"1", constitute a written proof contemplated by said statute the other. Thus, the rule has been applied so as to allow
the consideration together, when properly connected,
ISSUE: whether said exhibits partake of the nature of a note or of a letter and an order of court, a letter and order for
memorandum within the purview of said statute as contended goods, a letter and a deposition, letters or telegrams
by defendant. and undelivered deeds, wills, corresponding and
related papers, a check and a letter, a receipt and a
RULING: Under the provisions of this Act both Berg and Hemady check, deeds and a map, a memorandum of
could not sell or dispose of their properties without first securing agreement and a deed, a memorandum of sale and
the permit required by it, and so to comply this requirement, an abstract of title, a memorandum of sale and a will,
both Berg and Hemady filed separately an application with said a memorandum of sale and a receipt, and a contract,
Department for the purchase and sale of the property in deed and instruction to a depository in escrow. The
litigation. These applications are the ones marked as exhibits "3" number of papers connected to make out a
and "4". In the application exhibit "3", Ernest berg stated that he memorandum is immaterial. (37 C.J.S. sec. 656-659).
desires a license in order to sell his interest in the Crystal Arcade,
Escolta, Manila, for P200,000 in cash to Magdalena Estate, Inc. Bearing in mind the foregoing rules, we are of the opinion that
asking at the same time for permission to place the amount in an the applications marked exhibits "3" and "4", whether considered
account in his name or in the name of the company he separately or jointly, satisfy all the requirements of the statute as
represents and to apply the same from time to time to the to contents and signature and, as such, they constitute sufficient
payment of the obligations of Red Star Store Inc. In the proof to evidence the agreement in question. And we say so
application exhibit "4", defendant in turn stated, through its because in both applications all the requirements of a contract
president K. H. Hemady, that it desires a license in order "to use a are present, namely, the parties, the price or consideration, and
portion of the P400,000 requested as a loan from the National the subject-matter.
City Bank of New York, Manila, or from any other bank in Manila,
together with funds to be collected from old and new sales of his In the application exhibit "3", Ernest Berg appears as the seller
real estate properties, for the purchase of the one-third (1/3) of and the Magdalena Estate Inc. as the purchaser, the former's
the Crystal Arcade property in the Escolta, Manila, belonging to interest in the Crystal Arcade as the subject-matter, and the sum
Mr. Ernest Berg." of P200,000 as the consideration. As the application appears
signed by Ernest Berg, the party sought to be charged by the
It is now defendant's position that if the option granted in exhibit obligation. In other words, it can clearly be implied that between
"1" (deed of sale containing the irrevocable option) is Ernest Berg and the Magdalena Estate Inc. there has been a
considered in relation to Berg's application exhibit "3" and clear agreement to sell said property for P200,000. From the
defendant's application exhibit "4", these documents constitute language of the application no other logical conclusion can be
a sufficient note or memorandum of the parties' alleged drawn for if there has not been any previous agreement
contract of purchase and sale within the purview of the statute between the parties it is fool hardly to suppose that Ernest Berg
of frauds. This claim is disputed by Ernest Berg, appellee herein. would take the trouble of filling an application with the Treasury
Which of these contentions is correct? Department of the United States to secure a license to sell the
property.
Before we proceed, it is important to state at this juncture some
principles governing the meaning, extent and scope of the rule We do not agree with the claim that the application Exhibit "4"
underlying the statute of frauds relative to the note or submitted by the Magdalena Estate Inc. does not harmonize
memorandum that may serve as proof to determine the with the terms appearing in the application Exhibit "3", for,
existence of an oral contract or agreement contemplated by it, contrary to the claim, those two applications, considered
and for our purpose, it suffices for us to quote the following together, harmonize and complement each other.
authorities:
And we say so because the application Exhibit "4" states
No particular form of language or instrument is specifically that a portion of the sum of P400,000 which is desired
necessary to constitute a memorandum or note in to be raised as a loan will be used for the purchase of the one-
writing under the statute of frauds; any document or third interest of Ernest Berg, which portion undoubtedly refers to
writing, formal or informal, written either for the purpose the sum of P200,000 mentioned in the application Exhibit "3". This
of furnishing evidence of the contract or for another can be plainly seen by harmonizing together the two
purpose, which satisfies all the requirements of the applications. As the rule well points out, the sufficiency of the
statute as to contents and signature, as discussed two documents will depend on whether, taken together, they
respectively infra secs. 178-200, and infra secs. 201-215, meet the requirements of the statute as to contents and as to
is a sufficient memorandum or note. A memorandum signature, and here both requirements are met because the two
may be written as well as with lead pencil as with pen documents should be consider as a whole. Whether, therefore,
and ink. It may also be filled in on a printed form (37 we consider the two applications jointly or separately, it is safe to
C.J.S., 653-654). state that they meet the requirements of the principle underlying
the statutes of frauds.
The note or memorandum required by the statute of
fraud need not be contained in a single document,
nor, when contained in two or more papers, need
each paper to be sufficient as to contents and
signature to satisfy the statute. Two or more writings
properly connected may be considered together,
matters missing or uncertain in one may be supplied or
rendered certain by another, and their sufficiency will
depend on whether, taken together, they meet the
requirement of the statute as to contents and the
requirements of the statute as to signature, as
considered respectively infra secs. 179-200 and secs.
201-215.
Papers connected. — The rule is frequently applied to

two or more, or a series of letters or telegrams, or letters
and telegrams sufficiently connected to allow their
Article 1404. Unauthorized contracts are governed by
We disagree for several reasons. Foremost of these is that the
article 1317 and the principles of agency in Title X of Statute of Frauds expressed in Article 1403, par. (2), of the Civil
this Book. Code applies only to executory contracts, i.e., those where no
performance has yet been made. Stated a bit differently, the
legal consequence of non-compliance with the Statute does
not come into play where the contract in question is completed,
We discussed already Article 1317.
executed, or partially consummated.
The 3 classes of unenforceable contract again: The Statute of Frauds, in context, provides that a contract for the
sale of real property or of an interest therein shall be
1.) An unauthorized contract unenforceable unless the sale or some note or memorandum
thereof is in writing and subscribed by the party or his agent.
2.) Those which do not comply with the Statute of However, where the verbal contract of sale has been partially
Frauds; and executed through the partial payments made by one party duly
received by the vendor, as in the present case, the contract is
3.) Those where both parties are incapacitated to taken out of the scope of the Statute.
enter into a contract.
The purpose of the Statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses, by requiring certain
Article 1405. Contracts infringing the Statute of Frauds, enumerated contracts and transactions to be evidenced by a
referred to in No. 2 of article 1403, are ratified by the writing signed by the party to be charged. The Statute requires
certain contracts to be evidenced by some note or
failure to object to the presentation of oral evidence to memorandum in order to be enforceable. The term "Statute of
prove the same, or by the acceptance of benefit Frauds" is descriptive of statutes that require certain classes of
under them. contracts to be in writing. The Statute does not deprive the
parties of the right to contract with respect to the matters therein
involved, but merely regulates the formalities of the contract
Those contracts, even if they do not comply with the necessary to render it enforceable.
Statute of Frauds, so supposedly they should be
unenforceable but they can be ratified.
Another ramification is: failure to object to the
How can they be ratified? presentation of oral evidence.
1.) By the failure to object to the presentation of oral This is where your role of lawyers is very important.
evidence
Example:
2.) Acceptance of benefits.
A and B enter into a verbal contract of Sale over a parcel
of land. Under the Statute of Frauds, it should be in writing
but it is not in writing. Then, there is no payment yet. A is
CASE: ORDUNA vs FUENTABELLA
the seller. B is the buer. B would liketo get the land and he
Remember, even if the contract is not covered is ready to pay. But A refuses to deliver. So, B filed an
supposedly by any note or memorandum so it should be action against A for specific performance.
unenforceable but once there is performance, whether
partial or total then you can no longer avail of the If you are the lawyer for A, your first defense should have
defenses under the Statute of Frauds. You can no longer been to file a motion to dismiss on the ground that the
contract is unenforceable. Or you file an answer and
say that the contract is unenforceable.
allege that as an affirmative defense, that the contract is
If you are the seller and you entered into a verbal unenforceable. That‘s your first role.
contract of sale but you accepted payments, and then
you refused to deliver because the contract is What if you failed to allege that? Nakalimut ka sa
unenforceable, you cannot rely on that Statute of Frauds imohang ObliCon.
anymore.
Under the Omnibus Rule in Civil Procedure, the defenses
You cannot say that the contract is unenforceable and objections not raised in the motion to dismiss or in the
because precisely, the reason why we have the Statute answer are deemed waived.
of Frauds is to prevent perjury and fraud so even if you
In that case, you waived your defense under the Statute
are allowed to deny the contract just because it is not in
of Frauds. So, B can prove the existence of that sale. He
writing and you already benefitted from the contract,
can ask the barangay captain who was present na nag-
that would be instead perpetrating fraud. So, that is not
ingon sila, na nagsabot sila na magpalit ug yuta. He can
the purpose of the Statue of Frauds.
testify. That is one duty. You have to allege the defense in
Again, if there is already performance, even if the the motion to dismiss or in the answer.
contract is not in writing and it should be covered by the
For example, you alleged it in the motion to dismiss so
Statute of Frauds, the contract is already enforceable.
okay ka. Dili waived. Then, during trial, gitawag sa lawyer
That is one ramification: acceptance of benefit. ni B ang barangay captain. Then the purpose of his
testimony would be to prove that there was a sale
between A and B.
ORDUNA vs FUENTABELLA As lawyer for A, you should object to that presentation or

the testimony of the barangay captain. You should
object because it is not allowed under the Statute of
Frauds. Dili nimo siya ipa-testify because his testimony is In June 1990, the lessees received a letter from Atty. Erlinda
not admissible. Bisan tinuod na naay kontrata but its not Aguila demanding that they vacate the premises so that the
demolition of the building be undertaken. They refused to leave
the issue. The issue is on whether or not his testimony is
the premises. In that same month, de Leon refused to accept
admissible. So, it is not because he cannot prove an oral the lessees‘ rental payment claiming that they have run out of
contract of sale. It is unenforceable under the Statute of receipts and that a new collector has been assigned to receive
Frauds. the payments. Thereafter, they received a letter from Eufrocina
de Leon offering to sell to them the property they were leasing
Pero basig nagsige lang ka text-text didto or nakalimot n for P2,000,000.00.
aka sa imong Evidence ug sa imohang ObliCon so gipa-
testify nimo si barangay captain kay excited na kaayo ka The lessees offered to buy the property from de Leon for the
mag-cross examine. In that case, you again waive your amount of P1,000,000.00. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer was
defense under the Statute of Frauds. Kung maayo
given by de Leon as to their offer to buy the property. However,
pagkatestify ni barangnay captain, pwede nila maprove in November 1990, Rene Joaquin came to the leased premises
ang existence of the contract of sale. introducing himself as its new owner.
Even if you allege that in your answer or in your motion to In January 1991, the lessees again received another letter from
dismiss but you failed to object to the presentation of oral Atty. Aguila demanding that they vacate the premises. A month
evidence. So, again, the defense under the Statute of thereafter, the lessees received a letter from de Leon advising
Frauds is deemed waived. Pwede lang gihapon na ma- them that the heirs of the late spouses Tiangcos have already
enforce ang contract if it is proved by the testimony that sold the property to Rosencor. The following month Atty. Aguila
wrote them another letter demanding the rental payment and
there was really a sale.
introducing herself as counsel for Rosencor/Rene Joaquin, the
new owners of the premises.
That is another ramification of the unenforceable The lessees requested from de Leon why she had disregarded
contract covered by the Statute of Frauds. the pre-emptive right she and the late Tiangcos have promised
them. They also asked for a copy of the deed of sale between
Remember, the enumerated contracts under Article 1403 her and the new owners thereof but she refused to heed their
(2) are exclusive. So, we don‘t have other contract request. In the same manner, when they asked Rene Joaquin a
governed by the Statute of Frauds. Only these contracts. copy of the deed of sale, the latter turned down their request
and instead Atty. Aguila wrote them several letters demanding
CASE: ROSENCOR vs INQUING that they vacate the premises. The lessees offered to tender their
rental payment to de Leon but she refused to accept the same.
It is not yet a sale because if it is a sale of real property or
In April 1992 before the demolition can be undertaken by the
any interest therein, it should be covered by the Statute
Building Official, the barangay interceded between the parties
of Frauds. But here, it is just an option or a right of first herein after which Rosencor raised the issue as to the rental
refusal given to the prospective buyer to buy within a payment of the premises. It was also at this instance that the
specified period of time. lessees were furnished with a copy of the Deed of Sale and
discovered that they were deceived by de Leon since the sale
What other contracts are mentioned by the Supreme between her and Rene Joaquin/Rosencor took place in
Court here as not covered by the Statute of Frauds? September 4, 1990 while de Leon made the offer to them only in
October 1990 or after the sale with Rosencor had been
They are not covered because they are not mentioned in consummated. The lessees also noted that the property was sold
only for P726,000.00.
Article 1403 (2). That is why I said you have to memorize
although not word for word. Basta kabalo lang mo unsa The lessees offered to reimburse de Leon the selling price of
tong mga transaction covered so that you will know if a P726,000.00 plus an additional P274,000.00 to complete their
certain transaction is covered or not prara makatubag P1,000.000.00 earlier offer. When their offer was refused, they
pud mo kung pangutanan mo. filed the present action praying for the following: a) rescission of
the Deed of Absolute Sale between de Leon and Rosencor
ROSENCOR vs INQUING dated September 4, 1990; b) the defendants Rosencor/Rene
Joaquin be ordered to reconvey the property to de Leon; and
FACTS: This action was originally for the annulment of the Deed c) de Leon be ordered to reimburse the plaintiffs for the repairs
of Absolute Sale dated September 4, 1990 between defendants of the property, or apply the said amount as part of the price for
Rosencor and Eufrocina de Leon but later amended praying for the purchase of the property in the sum of P100,000.00."
the rescission of the deed of sale.
The Regional Trial Court rendered a Decision dated May 13, 1996
Plaintiffs and plaintiffs-intervenors averred that they are the dismissing the complaint. The trial court held that the right of
lessees since 1971 of a two-story residential apartment owned by redemption on which the complaint was based was merely an
spouses Faustino and Cresencia Tiangco. The lease was not oral one and as such, is unenforceable under the law.
covered by any contract. The lessees were renting the premises The Court of Appeals rendered its decision reversing the decision
then for P150.00 a month and were allegedly verbally granted of the trial court.
by the lessors the pre-emptive right to purchase the property if
ever they decide to sell the same. ISSUE: whether or not a right of first refusal is indeed covered by
the provisions of the New Civil Code on the statute of frauds.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their heirs who RULING: At the onset, we note that both the Court of Appeals
were represented by Eufrocina de Leon. The lessees were and the Regional Trial Court relied on Article 1403 of the New
allegedly promised the same pre-emptive right by the heirs of Civil Code, more specifically the provisions on the statute of
Tiangcos since the latter had knowledge that this right was frauds, in coming out with their respective decisions. The trial
extended to the former by the late spouses Tiangcos. The lessees court, in denying the petition for reconveyance, held that right
continued to stay in the premises and allegedly spent their own of first refusal relied upon by petitioners was not reduced to
money amounting from P50,000.00 to P100,000.00 for its upkeep. writing and as such, is unenforceable by virtue of the said article.
These expenses were never deducted from the rentals which The Court of Appeals, on the other hand, also held that the
already increased to P1,000.00. statute of frauds governs the "right of first refusal" claimed by
respondents. However, the appellate court ruled that has to be in public document for it to be registerable, for
respondents had duly proven the same by reason of petitioners‘ registration.
waiver of the protection of the statute by reason of their failure
to object to the presentation of oral evidence of the said right. But when you say, enforceable ba siya? Yes.
Both the appellate court and the trial court failed to discuss,
Valid ba siya? Yes.
however, the threshold issue of whether or not a right of first
refusal is indeed covered by the provisions of the New Civil Code
on the statute of frauds. The resolution of the issue on the Besides, what did the Supreme Court say the requirement
applicability of the statute of frauds is important as it will of a public document under Article 1358 of the Civil
determine the type of evidence which may be considered by Code? It is merely for convenience although it can be
the trial court as proof of the alleged right of first refusal. considered as an act which has for its object the
creation, the ratification or extinguishment of real rights
The term "statute of frauds" is descriptive of statutes which require but again, the requirement of a public document under
certain classes of contracts to be in writing. This statute does not Article 1358 is merely for convenience as what I
deprive the parties of the right to contract with respect to the
mentioned in that case for registration purposes.
matters therein involved, but merely regulates the formalities of
the contract necessary to render it enforceable.
Is partition a conveyance of property? Can it be
The purpose of the statute is to prevent fraud and perjury in the considered as a sale? Because under Article 1403(2), the
enforcement of obligations depending for their evidence on the sale of real property or interest requires a written
unassisted memory of witnesses by requiring certain enumerated document, it should be in a note or memorandum so can
contracts and transactions to be evidenced by a writing signed you consider a partition a conveyance of property?
by the party to be charged. Moreover, the statute of frauds
refers to specific kinds of transactions and cannot apply to any Actually, it is not the partition that transfers ownership. It is
other transaction that is not enumerated therein. The application succession. When the testator or the decedent dies, by
of such statute presupposes the existence of a perfected
operation of law, his rights, properties and obligation are
contract.
transferred to his heirs. So, the heirs are already co-owners
The question now is whether a "right of first refusal" is among of that property, by virtue of succession.
those enumerated in the list of contracts covered by the Statute
of Frauds. More specifically, is a right of first refusal akin to "an But to allocate among themselves the property owned in
agreement for the leasing of a longer period than one year, or common (to segregate), they enter into a partition. They
for the sale of real property or of an interest therein" as already own the property. They just allocate onto
contemplated by Article 1403, par. 2(e) of the New Civil Code. themselves the specific portions of the property. It is not a
conveyance. It is not covered by the Statute of Frauds.
We have previously held that not all agreements "affecting land"
must be put into writing to attain enforceability. Thus, we have
SPOUSES MIAT vs MIAT
held that the setting up of boundaries, the oral partition of real
property, and an agreement creating a right of way are not
FACTS: The evidence shows that the spouses Moises and
covered by the provisions of the statute of frauds. The reason
Concordia Miat bought two (2) parcels of land during their
simply is that these agreements are not among those
coverture. The first is located at Wawa La Huerta, Airport Village,
enumerated in Article 1403 of the New Civil Code.
Parañaque, Metro Manila and covered by TCT No. S-33535. The
second is located at Paco, Manila, and covered by TCT No.
A right of first refusal is not among those listed as unenforceable
163863. Concordia died on April 30, 1978. They had two (2)
under the statute of frauds. Furthermore, the application of
children: Romeo and Alexander.
Article 1403, par. 2(e) of the New Civil Code presupposes the
existence of a perfected, albeit unwritten, contract of sale. A
While at Dubai, United Arab Emirates, Moises agreed that the
right of first refusal, such as the one involved in the instant case, is
Parañaque and Paco properties would be given to Romeo and
not by any means a perfected contract of sale of real property.
Alexander. However, when Moises returned in 1984, he
At best, it is a contractual grant, not of the sale of the real
renegotiated the agreement with Romeo and Alexander. He
property involved, but of the right of first refusal over the property
wanted the Parañaque property for himself but would leave the
sought to be sold.
Paco property to his two (2) sons. They agreed,
It is thus evident that the statute of frauds does not contemplate
It appears that Moises and Concordia bought the Paco property
cases involving a right of first refusal. As such, a right of first refusal
on installment basis on May 17, 1977. However, it was only on
need not be written to be enforceable and may be proven by
December 14, 1984 that Moises was able to pay its balance. He
oral evidence.
secured the title over the property in his name as a widower.
According to Romeo, Moises violated the agreement that their
(Romeo‘s and Alexander‘s) names would be registered in the
CASE: SPOUSES MIAT vs MIAT title once the balance was paid. Upon demand, Moises gave
the owner‘s duplicate of the Paco property title to Romeo.
Why is it that an oral partition is not covered by the
Statute of Frauds? Why is a partition not required to be in Romeo and Alexander lived on the Paco property. They paid its
writing? realty taxes and fire insurance premiums. In early August 1985,
Alexander and his first wife left the house for personal reasons. In
The rule is, under the Rules of Court Section 274, if you April 1988, Alexander agreed to sell to Romeo his share in the
Paco property for P42,750.00. He received a partial payment
enter into an extra-judicial partition, it should be in a
ofP6,000.00 from Romeo. Nonetheless, he never executed a
proper instrument and registered in the Registry of deeds. deed of assignment in favor of Romeo, as he "had lots of work to
But the purpose there is not for validity, it is not for do and had no time and x x x there [wa]s nothing to worry [as]
enforceability but merely for convenience. the title [wa]s in [Romeo‘s] possession."
The Register of Deeds will not transfer the name under the In February 1988, Romeo learned from his godmother in his
title to the heirs if they just tell him ―Ma’am nagpartition wedding, Mrs. Rosalina Castro, mother of petitioner Virgilio
na baya mi. Iyaha ni, unya iyaha ni diri sa north.‖ No, it Castro, that she had given Moises P30,000.00 as downpayment
for the sale by Moises of the Paco property to her son Virgilio.
On December 16, 1988, he received a letter from petitioner "[N]o law requires partition among heirs to be in writing and be
Castro‘s lawyer asking for a conference. Romeo was informed registered in order to be valid. The requirement in Sec. 1, Rule 74
that the Paco property had been sold to Castro by Moises by of the Revised Rules of Court that a partition be put in a public
virtue of a deed of sale dated December 5, 1988for ninety-five document and registered, has for its purpose the protection of
thousand (P95,000.00) pesos. creditors and the heirs themselves against tardy claims. The
object of registration is to serve as constructive notice to others.
Ceferino Miat, brother of petitioner Moises, testified that even It follows then that the intrinsic validity of partition not executed
before the death of Concordiathere was already an agreement with the prescribed formalities is not undermined when no
that the Paco property would go to Romeo and Alexander. This creditors are involved. Without creditors to take into
was reiterated at the deathbed of Concordia. When Moises consideration, it is competent for the heirs of an estate to enter
returned to Manila for good, the agreement was reiterated in into an agreement for distribution thereof in a manner and upon
front of the extended Miat family members. Initially, Romeo and a plan different from those provided by the rules from which, in
Alexander orally divided the Paco property between the first place, nothing can be inferred that a writing or other
themselves. Later, however, Alexander sold his share to Romeo. formality is essential for the partition to be valid. The partition of
Alexander was given P6,000.00 as downpayment. This was inherited property need not be embodied in a public document
corroborated by Pedro Miranda and Virgilio Miat. Miranda so as to be effective as regards the heirs that participated
worked with Moises at the Bayview Hotel and the Hotel therein. The requirement of Article 1358 of the Civil Code that
Filipinas. His wife is the cousin of Romeo and Alexander. Virgilio is acts which have for their object the creation, transmission,
the brother of Moises. modification or extinguishment of real rights over immovable
property, must appear in a public instrument, is only for
Moises confirmed that he and his wife Concordia bought the convenience, non-compliance with which does not affect the
Paco property on installment from the Fraval Realty, Inc. There validity or enforceability of the acts of the parties as among
was still a balance of P12,000.00 on the lot at the time of his themselves. And neither does the Statute of Frauds under Article
wife‘s death. He paid P3,500.00 in 1981 and P8,500.00 in 1984. He 1403 of the New Civil Code apply because partition among heirs
registered the title in his name. Romeo then borrowed the title as is not legally deemed a conveyance of real property,
he was going to mortgage it to his friend Lorenzo. considering that it involves not a transfer of property from one to
the other but rather, a confirmation or ratification of title or right
Later, Moises ran into financial difficulties and he mortgaged of property that an heir is renouncing in favor of another heir
for P30,000.00 the Paco property to the parents of petitioner who accepts and receives the inheritance. x x x."
Virgilio Castro. He informed Romeo and Alexander that he would
be forced to sell the Paco property if they would not redeem the
mortgage. He accompanied his children to the Manila City Hall Article 1406. When a contract is enforceable under the
to discuss its sale with a judge and a lawyer. Also present in the Statute of Frauds, and a public document is necessary
meeting were petitioner Virgilio Castro and his parents. After the
for its registration in the Registry of Deeds, the parties
conference, he proceeded to sell the property to the petitioners-
spouses Castro. may avail themselves of the right under Article 1357.
Alexander testified that after the sale, his father got one-third
(1/3) of the proceeds while he received two-thirds (2/3). Romeo Example:
did not get a single centavo but was given the right to till their
Nueva Ecija property. From his share of the proceeds, Alexander Sale of a real property. Is it covered by the Statute of
intended to return to Romeo the P6,000.00 given him earlier by Frauds? Yes, regardless of the value, it is covered.
the latter. He considered the money to be a personal debt due
Romeo, not Romeo‘s downpayment of his share in the Paco So, it is unenforceable if it is verbal. That‘s the rule
property.
However there has been partial payment. Is it still
The Regional Trial Court rendered its decision ordering covered by the Statute of Frauds? No more. It is already
Defendant Alexander V. Miat to execute a deed of sale of his
enforceable because, in the case of Orduna as we
share in the property upon payment by plaintiff Romeo of the
balance of the purchase price in the sum of P36,750.00 and discussed, partially executed or fully consummated
Plaintiff Romeo V. Miat to recognize as valid the sale of contracts are taken out of the coverage of the Statute of
defendant Moises‘ share in the house and lot located at No. Frauds. That oral contract is valid and enforceable.
1495-C Fabie Estate, Paco, Manila.
The problem is the seller does not want to execute the
The appellate Court modified the Decision and declared the written document. You cannot have it orally forever
deed of sale entered into between defendants-appellants because you cannot compel the Register of deeds to
Moises Miat and spouses Virgilio and Michelle Castroas hereby
transfer in your name in the property if there is no
NULLIFIED and Defendant-appellants Moises Miat and Alexander
Miat are ordered to execute a deed of conveyance over the
document. So, what you have to do is file an action for
Paco property with TCT No. 16383 in favor of plaintiff-appellant specific performance against the seller to compel him to
Romeo Miat, upon payment by Romeo Miat of the balance of deliver.
the purchase price in the sum of P36,750.00.
Hence, this petition He cannot say that it is unenforceable because there is
already partial payment. So, you file an action against
ISSUE: Whether there was a valid oral partition covering the said him for specific performance plus to compel him to sign
property the Deed of Sale and have it reduced in a public
document.
RULING: We hold that the oral partition between Romeo and
Alexander is not covered by the Statute of Frauds. It is
enforceable for two reasons. Firstly, Alexander accepted the six
That action, as provided in Article 1357, an action to
thousand (P6,000.00) pesos given by Romeo as downpayment compel the other party to observe the form, can be filed
for the purchase of his share in the Paco property. Secondly, or instituted with an action to enforce the transaction or
Romeo and his witnesses, Ceferino Miat and Pedro Miranda, contract. Pwede na ka magfile ana as long as the
who testified regarding the sale of Alexander‘s share to Romeo, contract in enforceable under the Statute of Frauds.
were intensely questioned by petitioners‘ counsel.
Because, kung verbal contract of sale, walay partial
In the recent case of Pada-Kilario vs. Court of Appeals, we held: payment at all, you cannot compel the other party to
reduce it in a public document because in the first place,
it is unenforceable. Only when the contract is already
enforceable can you compel the other party to reduce it
in a public document so that it may be registered in the
Register of Deeds.
Article 1407. In a contract where both parties are

incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case
may be, of one of the contracting parties shall give
the contract the same effect as if only one of them
were incapacitated.
If ratification is made by the parents or guardians, as

the case may be, of both contracting parties, the
contract shall be validated from the inception.
Both parties are incapacitated. One is a minor, one is

insane. The contract is unenforceable.
If the minor attained the age of majority and he ratified
the contract, what is now the status of the contract? It is
voidable.
If the insane person was cured and he also ratified the

contract, what is the status of the contract? It is perfectly
valid. It no longer has any defect because the ratification
has a retroactive effect. It retroacts to the execution or
inception of the contract.
Article 1408. Unenforceable contracts cannot be

assailed by third persons.
The same principle as the voidable contract. An

unenforceable contract cannot be assailed by a third
person.
Example:
A and B entered into an oral contract of sale over a

parcel of land. And then, here‘s another person, X, who
convinced A to sell to him the same land. So, in effect, he
convinced A to violate his agreement with B. Now, b, the
aggrieved, filed an action against X, the third person, for
tortuous interference because he was the reason why A
violated his contract with B.
Can X claim that the contract that the contract between

A and B is unenforceable so he cannot be considered a
tortuous interferer because in the first place, your
contract is unenforceable?
He cannot avail of that defense because he is not a

party to that contract.
The principle is very simple: only the parties to the

contract can raise the defense of its enforceability.
And being unenforceable, it is always a defense. Why?

You will only raise the issue of unenforceability if a case is
filed against you for specific performance or damages.
You can allege that you are not liable because in the first
place, the contract is unenforceable. That is a defense.
The fact that the contract is unenforceable is a matter of
defense.
XII. VOID AND INEXISTENT CONTRACTS the real agreement is also void, then still, the contract is
void.
(ARTICLES 1409 – 1422)
(3) Those whose cause or object did not exist at
the time of the transaction;
Article 1409. The following contracts are inexistent and
void from the beginning: Take note that here, the law says ―did not exist at the
time of the transaction.‖
(1) Those whose cause, object or purpose is
contrary to law, morals, good customs, public When you go to Sales, there is a sale involving a future
order or public policy; thing; a sale of a future thing. Is it valid (because at the
time of the sale, the thing is not yet existent)?
(2) Those which are absolutely simulated or
Like, you have 10 hectare planted with bananas. As of
fictitious;
now, nagtubo palang. So, you entered into a contract to
sell all the harvested bananas in that land. Is the contract
(3) Those whose cause or object did not exist at valid (because wala pa man siya nag-exist)?
the time of the transaction;
It is valid as long as the thing will exist. That is what we call
(4) Those whose object is outside the a contract of emptio rei speratae (potential existence or
commerce of men; sale of future things) as distinguished from a contract
which is emptio spei (sale of hope or epectancy).
(5) Those which contemplate an impossible
service;
You buy a lottery ticket. Do you buy the ticket because of
(6) Those where the intention of the parties its value as a ticket itself or because you like the ticket?
relative to the principal object of the contract No, you buy the ticket because of the expectancy; of the
cannot be ascertained; hope. That is also a valid sale as long as the hope is not a
veiled hope.
(7) Those expressly prohibited or declared void
by law. Because if you bought a ticket which is represented to
you as a wala pa nagdraw pero last month pa diay siya
nagdraw. In that case, the expectancy is vague or the
These contracts cannot be ratified. Neither can the right
hope is vague. That sale is void. So, that is the requisite for
to set up the defense of illegality be waived.
the sale of future things.
The sale of hope or expectancy is not actually the sale of

If you notice, under Article 1409, the defect in the a future thing because is of the present, there‘s already
contract consists in the absence of any of the essential the hope. That‘s different from the sale of future thing
requisites of a contract or because the subject matter of wherein the thing really is not in existence as of the
the contract is declared illegal, contrary to law, morals, present but it is subject on the condition that the thing will
public order or public policy. exist. Kung ang thing, dili mu-exist sa future then the
contract becomes ineffective.
(1) Those whose cause, object or purpose is
contrary to law, morals, good customs, public (4) Those whose object is outside the commerce
order or public policy; of men;
Like in a contract to sell drugs. Even if the subject matter When do you consider the object outside the commerce
is tangible and can be transferred from one person to the of men?
other, it is prohibited by law so it is void.
It is not res nullius.
(2) Those which are absolutely simulated or
fictitious; It is not res communes.
It is not prohibited.
When the [arties do not intend to be bound at all by the
contract.
(5) Those which contemplate an impossible
Maybe the parties intended the contract to be just a service;
joke. There is really no intention to be bound at all by the
agreement. Like, A and B entered into a contract where B agreed to
formulate a potion that will make A young forever or live
Absolutely simulated – when the parties did not have the forever. That is impossible.
intention at all to enter into the contract. It‘s not a real
contract. It‘s a simulated contract, absolutely.
(6) Those where the intention of the parties
When it is a relatively simulated contract, it depends. The relative to the principal object of the contract
parties are bound to their agreement. If the real cannot be ascertained;
agreement is valid, then that is can be enforced. But if
Like, a contract wherein it is not clear what is being sold The agreement required the Fuentes spouses to pay Tarciano a
down payment of P60,000.00 for the transfer of the lot‘s title to
him. And, within six months, Tarciano was to clear the lot of
Example: structures and occupants and secure the consent of his
estranged wife, Rosario Gabriel Roca (Rosario), to the sale.
―A contract to sell something.‖ What is that something? It
cannot be ascertained even if you use all the means of According to the lawyer, he went to see Rosario in one of his trips
interpretation. to Manila and had her sign an affidavit of consent. On January
11, 1989 Tarciano executed a deed of absolute sale in favor of
the Fuentes spouses.
Take note, the law says: ―relative to the principal object
of the contract cannot be ascertained.‖ If it is relative Eight years later in 1997, the children of Tarciano and Rosario,
only to an incidental circumstance to the contract and namely, respondents Conrado G. Roca, Annabelle R. Joson, and
the contract is a gratuitous contract, then interpretation Rose Marie R. Cristobal, together with Tarciano‘s sister, Pilar R.
Malcampo, represented by her son, John Paul M. Trinidad
shall be resolved in favor of the least transmission of rights.
(collectively, the Rocas), filed an action for annulment of sale
If it is an onerous contract and there is doubt as to the and reconveyance of the land against the Fuentes spouses
incidental circumstances, the doubt shall be resolved in before the RTC. The Rocas claimed that the sale to the spouses
favor of the greatest reciprocity of rights and interests. was void since Tarciano‘s wife, Rosario, did not give her consent
to it. Her signature on the affidavit of consent had been forged.
(7) Those expressly prohibited or declared void
The RTC rendered judgment, dismissing the case. It ruled that the
by law.
action had already prescribed since the ground cited by the
Rocas for annulling the sale, forgery or fraud, already prescribed
CASE: FUENTES vs ROCA under Article 1391 of the Civil Code four years after its discovery.
In this case, the Rocas may be deemed to have notice of the
It is a void contract. It is declared by law to be void. fraud from the date the deed of sale was registered with the
Registry of Deeds and the new title was issued. Here, the Rocas
What is the consequence if it is void? A void contract has filed their action in 1997, almost nine years after the title was
issued to the Fuentes spouses on January 18, 1989.
no legal effect. In contemplation of law, it does not exist.
It does not have legal consequences. You cannot assert On appeal, the Court of Appeals (CA) reversed the RTC
any right or obligation under that contract. decision. The CA found sufficient evidence of forgery and did
not give credence to Atty. Plagata‘s testimony that he saw
If the contract is void and you enter into that contract, Rosario sign the document in Quezon City. Its jurat said
can the heirs of the spouses, on their own, take back the differently. Also, upon comparing the questioned signature with
possession of the property because it is based on a void the specimen signatures, the CA noted significant variance
contract? between them. That Tarciano and Rosario had been living
separately for 30 years since 1958 also reinforced the conclusion
That is one principle: an action to declare a void that her signature had been forged.
contract as such does not prescribe. You can always
Since Tarciano and Rosario were married in 1950, the CA
assail that as a void contract anytime. There is no time concluded that their property relations were governed by the
limit. Civil Code under which an action for annulment of sale on the
ground of lack of spousal consent may be brought by the wife
Can the heirs just go to the house and demand for them during the marriage within 10 years from the transaction.
to vacate the house? No. Consequently, the action that the Rocas, her heirs, brought in
1997 fell within 10 years of the January 11, 1989 sale.
GENERAL RULE: A void contract has no legal effect even if
no action is taken to set it aside. It is void. Considering, however, that the sale between the Fuentes
spouses and Tarciano was merely voidable, the CA held that its
annulment entitled the spouses to reimbursement of what they
But, when any of its terms have been performed then an
paid him plus legal interest computed from the filing of the
action to declare its inexistence is necessary to allow complaint until actual payment.
restitution of what has been given under it. If there has
already been performance like it‘s a sale and the seller ISSUE: Whether or not the Rocas‘ action for the declaration of
already delivered or the buyer already payed, in that nullity of that sale to the spouses already prescribed
case, you need the court to declare the contract as null
and void because mutual restitution is required. Just like in RULING: The Court agrees with the CA‘s observation that
the other defective contracts. Rosario‘s signature strokes on the affidavit appears heavy,
deliberate, and forced. Her specimen signatures, on the other
hand, are consistently of a lighter stroke and more fluid. The way
That is the reason why you have to go to court. You
the letters "R" and "s" were written is also remarkably different. The
cannot take the law into your own hands. variance is obvious even to the untrained eye.
FUENTES vs ROCA Significantly, Rosario‘s specimen signatures were made at about

the time that she signed the supposed affidavit of consent. They
FACTS: Sabina Tarroza owned a titled 358-square meter lot in were, therefore, reliable standards for comparison. The Fuentes
Canelar, Zamboanga City. On October 11, 1982 she sold it to spouses presented no evidence that Rosario suffered from any
her son, Tarciano T. Roca (Tarciano) under a deed of absolute illness or disease that accounted for the variance in her
sale. signature when she signed the affidavit of consent. Notably,
Rosario had been living separately from Tarciano for 30 years
Six years later in 1988, Tarciano offered to sell the lot to since 1958. And she resided so far away in Manila. It would have
petitioners Manuel and Leticia Fuentes (the Fuentes spouses). been quite tempting for Tarciano to just forge her signature and
They later signed an agreement to sell that Atty. Plagata avoid the risk that she would not give her consent to the sale or
prepared dated April 29, 1988, which agreement expressly demand a stiff price for it.
stated that it was to take effect in six months.
Contrary to the ruling of the Court of Appeals, the law that
applies to this case is the Family Code, not the Civil Code. the Fuentes spouses in that they appeared to have agreed to
Although Tarciano and Rosario got married in 1950, Tarciano sold buy the property upon an honest belief that Rosario‘s written
the conjugal property to the Fuentes spouses on January 11, consent to the sale was genuine. They had four years then from
1989, a few months after the Family Code took effect on August the time they learned that her signature had been forged within
3, 1988. which to file an action to annul the sale and get back their
money plus damages. They never exercised the right.
When Tarciano married Rosario, the Civil Code put in place the
system of conjugal partnership of gains on their property If, on the other hand, Rosario had agreed to sign the document
relations. While its Article 165 made Tarciano the sole of consent upon a false representation that the property would
administrator of the conjugal partnership, Article 166 prohibited go to their children, not to strangers, and it turned out that this
him from selling commonly owned real property without his wife‘s was not the case, then she would have four years from the time
consent. Still, if he sold the same without his wife‘s consent, the she discovered the fraud within which to file an action to
sale is not void but merely voidable. Article 173 gave Rosario the declare the sale void. But that is not the case here. Rosario was
right to have the sale annulled during the marriage within ten not a victim of fraud or misrepresentation. Her consent was
years from the date of the sale. Failing in that, she or her heirs simply not obtained at all. She lost nothing since the sale without
may demand, after dissolution of the marriage, only the value of her written consent was void. Ultimately, the Rocas ground for
the property that Tarciano fraudulently sold. annulment is not forgery but the lack of written consent of their
mother to the sale. The forgery is merely evidence of lack of
But, as already stated, the Family Code took effect on August 3, consent.
1988. Its Chapter 4 on Conjugal Partnership of Gains expressly
superseded Title VI, Book I of the Civil Code on Property Relations
Between Husband and Wife. Further, the Family Code provisions As discussed in Article 1409, the contract cannot be
were also made to apply to already existing conjugal
ratified. So, a void contract remains to be void. It cannot
partnerships without prejudice to vested rights.
be cured. It cannot be ratified. It cannot be
Consequently, when Tarciano sold the conjugal lot to the convalidated.
Fuentes spouses on January 11, 1989, the law that governed the
disposal of that lot was already the Family Code. And you can always raise the defense of the fact that
the contract is void. It cannot be waived. You cannot say
In contrast to Article 173 of the Civil Code, Article 124 of the that ―You are deemed waived because you accepted
Family Code does not provide a period within which the wife the benefits under this contract. So, you cannot now
who gave no consent may assail her husband‘s sale of the real assail that the contract is void.‖ No. The defense of
property. It simply provides that without the other spouse‘s
illegality cannot be waived.
written consent or a court order allowing the sale, the same
would be void.
Under the provisions of the Civil Code governing contracts, a

Article 1410. The action or defense for the declaration
void or inexistent contract has no force and effect from the very
beginning. And this rule applies to contracts that are declared of the inexistence of a contract does not prescribe.
void by positive provision of law, as in the case of a sale of
conjugal property without the other spouse‘s written consent. A
void contract is equivalent to nothing and is absolutely wanting As discussed in Article 1410 and also mentioned in the
in civil effects. It cannot be validated either by ratification or case of Fuentes vs Roca, the action to declare the
prescription. contract as void does not prescribe.
But, although a void contract has no legal effects even if no
action is taken to set it aside, when any of its terms have been Article 1411. When the nullity proceeds from the
performed, an action to declare its inexistence is necessary to illegality of the cause or object of the contract, and the
allow restitution of what has been given under it. This action,
act constitutes a criminal offense, both parties being in
according to Article 1410 of the Civil Code does not prescribe.
pari delicto, they shall have no action against each
Thus: other, and both shall be prosecuted. Moreover, the
Art. 1410. The action or defense for the declaration of provisions of the Penal Code relative to the disposal of
the inexistence of a contract does not prescribe. effects or instruments of a crime shall be applicable to
the things or the price of the contract.
Here, the Rocas filed an action against the Fuentes spouses in
1997 for annulment of sale and reconveyance of the real
property that Tarciano sold without their mother‘s (his wife‘s) This rule shall be applicable when only one of the
written consent. The passage of time did not erode the right to parties is guilty; but the innocent one may claim what
bring such an action. he has given, and shall not be bound to comply with
his promise. (1305)
Besides, even assuming that it is the Civil Code that applies to
the transaction as the CA held, Article 173 provides that the wife
may bring an action for annulment of sale on the ground of lack
Here, the contract is void because the cause or object is
of spousal consent during the marriage within 10 years from the illegal. And in addition, it constitutes a criminal offense.
transaction. Consequently, the action that the Rocas, her heirs,
brought in 1997 fell within 10 years of the January 11, 1989 sale. It Like a contract for the sale of prohibited drugs. The law
did not yet prescribe. says if both parties are in pari delicto (both of them are at
fault); they shall have no action against each other.
The Fuentes spouses of course argue that the RTC nullified the Pasagnaan lang sila sa court because if one files a case
sale to them based on fraud and that, therefore, the applicable against the other, the court will not intervene. The law
prescriptive period should be that which applies to fraudulent
shall leave them where they are and as they are.
transactions, namely, four years from its discovery. Since notice
of the sale may be deemed given to the Rocas when it was
registered with the Registry of Deeds in 1989, their right of action The effects shall also be confiscated. That is the rule if the
already prescribed in 1993. act constitutes a crime.
But, if there had been a victim of fraud in this case, it would be
If only one of the parties is guilty, the innocent one may respondent executed a Deed of Assignment, confirming the oral
claim what he has given. Like, naghatag na siya ug sale; assigning, selling, transferring, and conveying his market stall
money sa drugs pero wala siya kabalo na shabu diay to. to petitioners for a consideration of P20,000.00. In the same Deed
of Assignment, petitioners leased the subject stall to respondent
In that case, he can claim what he has given by reason
for a monthly rental of P250.00, beginning December 1, 1985,
of the contract. He is not bound to comply with his renewable every year at the option of petitioners. Respondent
promise. He can take back the money. undertook to pay in advance the rentals for six months
amounting to P1,500.00 on or before December 1, 1985.
Article 1412. If the act in which the unlawful or
Respondent religiously paid the monthly rentals of P250.00, which
forbidden cause consists does not constitute a criminal
was increased to P300.00 on December 1, 1988; and to P400.00
offense, the following rules shall be observed: beginning December 1, 1991. However, on June 1, 1993,
respondent simply stopped paying the rentals. Respondent
(1) When the fault is on the part of both promised to settle his unpaid account, but he failed to make
contracting parties, neither may recover what good his promise. Petitioner then demanded that respondent
he has given by virtue of the contract, or vacate the property, but the demand just fell on deaf ears.
Accordingly, petitioners filed a complaint for recovery of
demand the performance of the other's
possession and damages.
undertaking;
Respondent admitted selling the subject stall for P20,000.00 to
(2) When only one of the contracting parties is petitioners, but averred that the sale was with right to
at fault, he cannot recover what he has given repurchase; and on condition that he would remain in
possession of the subject stall as long as he wants. He signed the
by reason of the contract, or ask for the
Deed of Assignment on petitioners‘ assurance that the
fulfillment of what has been promised him. The conditions they earlier agreed upon were contained in the
other, who is not at fault, may demand the deed. Being illiterate, he just relied on petitioners‘ assurances.
return of what he has given without any Respondent denied that he refused to pay the agreed monthly
obligation to comply his promise. (1306) rentals; alleging that petitioners were the ones who refused to
receive the rental payments and instead demanded payment
of P150,000.00. The Deed of Assignment, he added, failed to
express the true intent and agreement of the parties; and his
Here, the contract is void but it does not constitute a signature thereon was procured by fraud, deceit, and
misrepresentation; hence, void ab initio.
criminal offense. Actually, if you will examine it, the rule is
the same as if it is a criminal offense. Respondent appealed to the CA faulting the RTC for not
dismissing the complaint. The CA rendered the assailed Decision
If both parties are at fault (in pari delicto), they cannot reversing the RTC.
recover from each other.
RULING: We find the finding of the CA contrary to the evidence
If only one of the parties is at fault, he cannot recover on record, if not outright preposterous.
what he has given but the innocent party may demand
the return of what he has given. By no stretch of imagination can we construe the provisions of
the Deed of Assignment as a contract of loan with mortgage.
Crystal clear in the Deed of Assignment are unambiguous
CASE: MAGOYAG vs MARUHOM
provisions that respondent assigned, sold, transferred, and
conveyed the subject market stall to petitioners. Nowhere in the
The subject matter here is a market stall which is owned Deed does it say that respondent obtained a loan of P20,000.00,
by the government. So, it is outside the commerce of and mortgaged the subject stall as security.
man. It cannot be the subject of a sale or a lease or an
assignment. That respondent sold the subject stall for P20,000.00 to petitioners
was admitted by respondent in his Answer, although he averred
How about the rentals paid? Can those be recovered? that the sale was with a right to repurchase. Even the
What is the legal basis for ordering the return? testimony of respondent points to no other transaction than a
sale in favor of petitioners. The CA, therefore, committed a
Because the second paragraph of Article 1412 applies. serious blunder in making a new contract for the parties, and
declaring the Deed of Assignment as a contract of loan with
One of the parties is at fault but the other is not. Here, the
mortgage.
court ordered that the payments made be returned with
interest. Because here, the assignor or transferor, did not Indubitably, the transaction between petitioners and respondent
be considered innocent. He knew that he did not own was a sale. As such, under ordinary circumstances, petitioners
the market stall and yet he entered in to contract of sale could recover possession of the property from respondent.
without even the consent of the government. Unfortunately in this case, the Court cannot grant petitioners the
relief that they are praying for – recovery of possession of the
There is no evidence on record showing that the buyers subject stall.
knew of the fact that the seller had no ownership or did
The records show that Market Stall No. CTD 1583 is owned by the
not own the market stall. It was not proved that they had City Government of Marawi.1avvphi1 Indeed, the RTC and the
actual knowledge of the status of the ownership of the CA correctly held that it was the City Government of Marawi,
stall. not respondent, that owned Market Stall No. CTD 1583.
Respondent, as a mere grantee of the subject stall, was
MAGOYAG vs MARUHOM prohibited from selling, donating, or otherwise alienating the
same without the consent of the City Government; violation of
FACTS: On December 20, 1982, respondent Hadji Abubacar the condition shall automatically render the sale, donation, or
Maruhom (respondent) was awarded a market stall at the alienation null and void. Thus, we sustain the CA in declaring the
Reclamation Area by the Islamic City of Marawi. Deed of Assignment null and void, but we cannot abide by the
CA‘s final disposition.
On December 1, 1985, respondent orally sold his stall to
petitioner for P20,000.00. Later, on December 10, 1985, A void contract is equivalent to nothing; it produces no civil
effect. It does not create, modify, or extinguish a juridical
relation. Parties to a void agreement cannot expect the aid of
the law; the courts leave them as they are, because they are
deemed in pari delicto or in equal fault. To this rule, however,
there are exceptions that permit the return of that which may
have been given under a void contract. One of the exceptions
is found in Article 1412 of the Civil Code, which states:
Art. 1412. If the act in which the unlawful or forbidden

cause consists does not constitute a criminal offense, Here, the purpose has not yet been achieved or the
the following rules shall be observed: contract has not yet been consummated. Here, before
any damage has been done, any of the parties can
(1) When the fault is on the part of both repudiate. Just remember Article 1414.
contracting parties, neither may
recover what he has given by virtue The one who repudiates can recover his money or
of the contract, or demand the property if the public interest will be subserved.
performance of the other's
undertaking;
Article 1415. Where one of the parties to an illegal
(2) When only one of the contracting contract is incapable of giving consent, the courts
parties is at fault, he cannot recover
may, if the interest of justice so demands allow
what he has given by reason of the
contract, or ask for the fulfillment of recovery of money or property delivered by the
what has been promised him. The incapacitated person.
other, who is not at fault, may
demand the return of what he has
given without any obligation to Here, one of the parties in incapacitated. He may be
comply with his promise. insane or a minor or under civil interdiction. It depends, if
the court sees under the circumstances, that the interest
Respondent was well aware that as mere grantee of the subject of justice will be served, the innocent party (the
stall, he cannot sell it without the consent of the City
incapacitated person) may recover. The other party
Government of Marawi. Yet, he sold the same to petitioners. The
records, however, are bereft of any allegation and proof that cannot recover.
petitioners had actual knowledge of the status of respondent‘s
ownership of the subject stall. Petitioners can, therefore, recover This is based on the premise that an incapacitated
the amount they had given under the contract. person has no full possession of his judgment. He does not
have full discretion yet.
In Cavite Development Bank v. Spouses Lim, and Castillo, et al. v.
Abalayan, we held that in case of a void sale, the seller has no
right whatsoever to keep the money paid by virtue thereof, and Article 1416. When the agreement is not illegal per se
should refund it, with interest at the legal rate, computed from
but is merely prohibited, and the prohibition by the
the date of filing of the complaint until fully paid. Petitioners can,
therefore, recover the amount of P20,000.00 from respondent law is designed for the protection of the plaintiff, he
with interest at 6% per annum from the time of the filing of the may, if public policy is thereby enhanced, recover
complaint until the finality of this Decision, and 12% per annum what he has paid or delivered.
thereafter until full payment.
Here, take note, the agreement is not illegal per se. It is

Article 1413. Interest paid in excess of the interest just prohibited by law. So, in Criminal Law, you have mala
allowed by the usury laws may be recovered by the in se and mala prohibita. It‘s not really criminal but it‘s just
debtor, with interest thereon from the date of the prohibited by law. It becomes defective because it is
payment. prohibited by law.
CASE: GUIANG vs KINTANAR

Does this still apply now?
What is the classification of the land here? Under what
As we have discussed before, the Usury Law has been law was it awarded to the owner? (sales patent)
suspended by Central Bank Circular No. 905. So, as of
now, legally speaking, the Usury Law is not applicable. Can the payment be recovered here?
Even if you charge higher interest rate, that is not usurious. GUIANG vs KINTANAR
But, of course, in the cases we discussed, the court may
FACTS: The parties in three civil cases, consolidated in the sala of
still reduce the interest if it is inequitable, unconscionable, respondent Judge, jointly moved for a decision based on a
excessive and shocking to the conscience. 'Compromise Agreement.'
The legal interest is 12% per annum. There are cases when The Compromise Agreement Stated that The Guiangs and the
the Supreme Court allowed 2%, as long as simple. But if it Hiquianas, upon signing of the compromise shall execute a deed
is compounded monthly, that Supreme Court said that of absolute sale in favor of the Kintanars, covering two parcels of
that is shocking, excessive and iniquitous. land covering an area of 48 hectares. The Kintanars shall pay the
Guiangs and the Hiquianas P100,000.00 within 90 days from the
execution of the deed of absolute sale above mentioned.
Article 1414. When money is paid or property On the same day, the respondent Judge promulgated a brief
delivered for an illegal purpose, the contract may be decision approving the compromise agreement which was
repudiated by one of the parties before the purpose made an integral part thereof.
has been accomplished, or before any damage has

been caused to a third person. In such case, the
Revelen
courtsSolismay,
and Mizzy
if Mareé Martinezinterest will thus be
the public TAU MU Page 252 of 262
subserved, allow the party repudiating the contract
to recover the money or property.
Private respondents (defendants Kintanars below) filed a such is also the maximum area of land originating from the
petition for execution of the judgment by compromise at the public domain that can be transferred to him. True, lands once
same time praying that petitioners be declared in contempt of acquired from the government under the Act do become
court. Alleging payment to petitioners (the Guiangs and private property, as private respondent argues, but for reasons of
Hiquianas) of the total sum of P240,000.00 pursuant to the public policy and interest implicit in Section 122 itself, such
compromise agreement, respondents complained about the private ownership is subject to the limitations stated therein.
failure of the petitioners to execute in their favor, the deeds of Proof of the strictness of the policy is that the prohibition or
conveyance. injunction is automatically embodied in the Torrens Title issued to
the purchaser.
Petitioners opposed respondents' petition for contempt and
execution and filed a detailed and lengthy opposition It is Our considered opinion, and We so hold, consistently with
embodying a counter-motion. 'To Declare the Compromise the view of the Legal Division of the Bureau of Lands cited by
Agreement Void as to Sale'. In essence, petitioners contend that petitioners in their petition that after the ratification of the
the compromise decreed the sale to the Kintanars of six lots with Philippine Constitution of 1973 on January 17, 1973, the maximum
a combined area of 146 hectares originally covered by sales area of land acquired from the disposable public domain that
patents acquired through purchase by petitioners from the can be transferred or assigned to another party by the original
government, consequently violating the maximum limit of 24 patentee, purchaser or homesteader became 24 hectares
hectares that an individual may acquire by purchase under (instead of the 144 hectares under the 1935 Constitution),
Section 11 of Article XIV of the 1973 Constitution, taken in relation thereby reducing correspondingly the 144-hectare limitation set
to the Public Land Act. in Section 122 to only 24 hectares.
At the time of the execution of the compromise agreement, Considering the foregoing quoted respective pleadings of the
petitioners were not aware that private respondents were parties, what comes out as the basic question We are called
already holders of 29 hectares of public land acquired before upon to resolve is whether or not the compromise agreement in
the effectivity of the new Constitution in 1973. At any rate, the dispute was void ab initio. And We do not hesitate to say that
total area that the compromise agreement ceded in favor of the answer to that question is definitely in the affirmative or YES.
respondents were grossly excessive of the legal limits above Earlier, in resolving the first issue between the parties, as
mentioned. If construed as a sale, the compromise was a nullity, formulated by Us, We came to the inevitable conclusion that
but taken as a lease, since private respondents had already Section 122 of the Public Land Act has been amended by the
taken possession of the lands and benefited immensely from 1973 Constitution by reducing the area of land acquired under
their produce, the compromise was perfectly valid and legal the Act that could be transferred by any purchaser, patentee or
because the 1923 Constitution allows an individual to lease 500 homesteader to only 24 hectares instead of the 144 hectares
hectares of alienable public lands. Viewing the compromise as a allowed under the 1935 Constitution. Now, the compromise
lease would make the amounts paid by respondents to agreement, executed on August 20, 1975 and here in dispute,
petitioners, rentals or reasonable damages for the use and provides for the transfer of a total of 146 hectares. It inevitably
occupancy of the lands. follows then that said compromise agreement contravenes not
only a statute but the fundamental law of the land. Adding to its
The respondent Judge issued an order: (a) denying the being contrary to law, which undoubtedly is also covered by the
petitioners' counter-motion to declare the compromise public policy expressed in the Constitution, is the fact that
agreement void as to sale and (b) ordered the issuance of a writ private respondents, the Kintanars, already owned at the time of
of execution. the agreement a lot of 29 hectares which they had acquired
also from the government pursuant to the Public Land Act. Such
Petitioners filed a Motion for Reconsideration. During the hearing being the situation, it is incontestable that under
of this motion on December 5, 1978, the parties agreed to submit Paragraph cranad(1) of Article 1409 of the Civil Code said
a supplemental memorandum of authorities to buttress their agreement is "inexistent and void from the beginning" since its
respective positions. "object or purpose is contrary to law — or public policy."
Private respondents posit in their belated comment that On 22 It is of no consequence, pursuant to the same article, that
September 1975, or just about 32 days after the judgment on petitioners, the Guiang spouses, executed on August 21, 1975,
compromise was entered, petitioner Guiang wrote a 'four page apparently in ratification of the impugned agreement, the
letter' to the Land Registration Commissioner, already deeds of sale covering the two lots already referred to and that
questioning the legality of the sales under the compromise petitioners actually received in part or in whole the money
agreement on exactly the rationale he advances now. consideration stipulated therein, for according to the same
Article 1409, contracts contemplated therein, as the one We are
The Commissioner of LRC replied to petitioner Guiang on 29 dealing with, "cannot be ratified nor the defense of its illegality
September 1975 (seven days later) confirming and agreeing in be waived." Neither is it material, much less decisive, that
so many words with the latter's belief that Section 122 of CA 141 petitioners had not earlier judicially moved to have the same
was being violated by the implementation of the compromise annulled or set aside. Under Article 1410 of the Civil Code, "(t)he
agreement. From the foregoing, it is clear that petitioners had action or defense for declaration of the inexistence of a
more than ample time within which to seek relief from the lower contract does not prescribe."
court's judgment on compromise. They deliberately neglected to
do this. Instead, leading the private respondents on to Notable, if not admirable, indeed, was the continuous,
complying with the compromise, petitioners received the consistent and unrelenting effort of petitioners to rectify a
payments of the private respondents. constitutional misstep they had taken in rather hastily entering
into the questioned compromise. That it may be said that they
RULING: After mature deliberation and consideration of pertinent might have thought at the time that it was a fair bargain does
principles of statutory and constitutional construction together not in law minimize the undeniable invalidity and contravention
with what appears to be the obvious intent and objective of the of public policy involved in their act. To be sure, We can believe
legal and constitutional provisions relevant to the above issue, that a judgment herein favorable to petitioners may result in
We encounter no difficulty at all in holding that, as contended material benefits to them, but such probable contingency is
by petitioners, Section 122 of the Public Land Act has been merely incidental and should not blur Our eyes in any degree to
amended by no less than Section 11, Article XIV of the 1973 the matter of constitutional policy We are sworn to pursue and
Constitution of the Philippines by reducing correspondingly the implement.
areas of the disposable public lands mentioned therein.
At this point, inasmuch as private respondents have taken the
What to Us is clear and obvious is that when the Constitution fixes judicial initiative to try to enforce the agreement in dispute, or, in
a limit of the area of public lands that can be "acquired" by the words of petitioners "jumped the gun on them" by filing a
purchase by an individual, it follows as a matter of logic that motion for execution, of necessity, We have to go into the
application in these instant cases of the provisions, principles and agreement is contrary to the public policy embodied in our
jurisprudence regarding the doctrine We might briefly refer to as Constitution and the Public Land Act as amended by the former
that of "in pari delicto." since January 17, 1973, but it is not illegal per se. Such may not
be the case in other countries.
To start with, petitioners invoke not only Article 1416 of the Civil
Code but also the ruling of this Court in the leading case of Consequently, nothing objectionable, juridically speaking, lies in
Philippine Banking Corporation vs. Lui She, 21 SCRA 52 in support the way to having the prayer of petitioners granted. Since they
of their contention that the rule of in pari delicto is inapplicable are not, in terms of the in pari delicto doctrine and under the
to these cases, and, therefore, they may recover the above- facts of these cases, the ones trying to enforce an agreement
mentioned two lots, Lots B-3 and B-4, OCT 12281. Article 1416 contrary to the public policy of our Charter and our laws, such
provides: circumstance that they are the ones resisting the invocation of
said doctrine is what makes their posture more legally tenable.
"ART. 1416. When the agreement is not illegal per se but
is merely prohibited, and the prohibition by the law is As already stated earlier, under Article 1410 of the Civil Code,
designed for the protection of the plaintiff, he may, if "the action or defense for the declaration of inexistence of a
public policy is thereby enhanced, recover what he contract does not prescribe" just as under Article 1409, "(n)either
has paid or delivered." can the right to set up such defense of illegality be waived."
From which it is clearly implicit that one against whom the
This article, it is imperative to note, allows recovery of what has doctrine is invoked may deny its application whether he be
been paid or delivered pursuant to an inexistent contract only plaintiff or defendant, or the movant or oppositor. Here, private
when the agreement ― chanroblesvirtualawlibrary(1) is not respondents are the movants for enforcement. We hold that as
illegal per se but merely prohibited: cranad(2) the prohibition is oppositors to such motion, petitioners are in the right in putting
for the protection of the plaintiffs and cranad(3) if public policy is up the defense that the agreement and orders sought to be
enhanced thereby." Substantially, We may say, without the need enforced are contrary to public policy and that the said
of quoting therefrom, the foregoing postulation is what was agreement is not illegal per se, hence, Article 1416 affords relief
applied by Us in the Philippine Banking case. to them.
Referring to the situation now before Us, there can be no doubt

that upholding the petitioners would enhance the public policy Another example under Article 1416: We have the CARP
expressed in the Constitution of limiting transfers of property
Law and we also have the Homestead Law. Under these
acquired from the government to only 24 hectares as well as
laws, there is a prohibitory period within which to sell the
that implicit in the provision of the Public Land Act prohibiting
any citizen from acquiring by purchase or homestead disposable awarded land.
public lands in excess of twenty-fourcranad(24) hectares. It may
also be said that these limitations or prohibitions are intended for Like, for example, in the Homestead Law it is 5 years and
the protection of the actual landholder or transferor or vendor- in the CARP Law, it is 10 years. If you sell the land within
to-be because it safeguards him, for one thing, against being that period, the sale is void. But, in most cases, once the
more or less induced under certain circumstances to part with his contract is declared void, the awardee may still recover
holding thru importunings or other insiduous devices or schemes the land because it will returned to him. Because
and, for another thing, he is enabled to work with peace of mind
primarily, the spirit behind the Homestead Law and the
on his land and utilize the same for the purposes for which he
had acquired it.
CARP Law is to give a land to the landless; give a home
to the homeless.
In regard to the requirement that the agreement must not be
illegal per se, it might be contended that Our holding that the In that case, the reason for the prohibition is actually for
compromise under consideration is contrary to public policy the protection of the land owners. In that case, if they file
removes the recovery of the two delivered lots and the further the action for declaration of nullity and recovery of the
non-enforcement of the impugned orders of the trial court from land, that is usually granted because the prohibition is, in
the application of Article 1416. We hold it is not so. that case, for the protection of the plaintiffs.
Any act in violation of the limitations and prohibitions herein
involved is malum prohibitum, not malum in se. An act or Article 1417. When the price of any article or
contract that is illegal per se is one that by universally recognized
commodity is determined by statute, or by authority of
standards is inherently or by its very nature bad, improper,
immoral or contrary to good conscience. law, any person paying any amount in excess of the
maximum price allowed may recover such excess.
On the other hand, what is contrary to public policy may not be
necessarily universally so, for public policy, like public interest,
whether expressed in a Constitution or in any statute or official
declaration of the duly constituted authorities or evinced from If there is a doubt saying that this is the price of the item
the situation or circumstances of the time concerned, is and you sold it for more and there is a buyer who bought
something dictated by the conditions obtaining within each that for that higher price, he can recover the excess.
country or nation.
Indeed, in respect to the very matter under discussion, namely,

the limitation and control of the disposition of lands of the public
domain, every government in the world can have its own distinct
Article 1418. When the law fixes, or authorizes the
policy suitable and peculiar to its internal interest including the fixing of the maximum number of hours of labor, and
history, mores, customs and traditions of the people thereof. a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus
For instance, the provisions of our Constitution and our laws
covering such matter and the others relative to the conservation fixed, he may demand additional compensation for
of our natural resources exclusively for us, Filipinos, are easily service rendered beyond the time limit.
distinguishable from those of the Constitutions and laws of the
United States, Russia, England, Singapore, Malaysia, etc., etc.
Thus, the juridical concept of what is illegal per se cannot be
necessarily equated with what is contrary to public policy in all Like, under theb Labor Code, the working hours per day is
instances. In the cases at bar, the disputed compromise
8 hours. If you work in excess of 8 hours, you are entitled
to overtime pay. That cannot be waived. Even if you In that case, X‘s right is directly prejudiced or affected by
agreed, you can still demand that. You waiver is contrary the void contract between A and B. So, he can raise that
to law or public policy. as a defense. Or he can assail that as null and void.
But, kung naa lang kay silingan, nagbaligya siya ug yuta

na gi-award sa DAR and you file an action to declare the
Article 1419. When the law sets, or authorizes the
sale void, that can be dismissed. Unsa man ang imohang
setting of a minimum wage for laborers, and a pakialam? Chismomso na kaayo ka! Wala kay labot. You
contract is agreed upon by which a laborer accepts are a third person whose interest are not directly
a lower wage, he shall be entitled to recover the affected.
deficiency.
Article 1422. A contract which is the direct result of a
previous illegal contract, is also void and inexistent.
The same case. Kay kinahanglan ug trabaho so sige
nalang, musugot nalang ko basin 100 per day. Gidawat A void contract cannot give rise to a valid contract. It‘s
niya ang 100. Sige nalang para naa koy trabaho, like saying that a spring cannot rise higher than its source.
actually, you can still recover the deficiency.
Any contract directly arising out of that void contract is
Under the wage orders now, you can even recover twice likewise void. That is illustrated in the case of NOOL vs CA
the amount of the deficiency.
CASE: NOOL vs CA
That is insofar as if there is a law which sets the minimum
wage and you accepted a lower wage. Your She did not have ownership over the property. Can you
acceptance cannot be deemed to be a waiver. sell something which you did not own? No. The sale, in
that case, would be void.
So, if you are a buyer who sold the same land to another
Article 1420. In case of a divisible contract, if the person and so on and so forth, are those sales valid? No,
illegal terms can be separated from the legal ones, because the original source is void.
the latter may be enforced.
Example:
If there are several provisions in a contract and some are
illegal while others are valid and the valid ones do not A sold a land to B but A has no right to sell the land in the
depend upon the illegal ones, they can be separated first place because she already lost ownership. B sold the
then only those invalid provisions shall be declared null same land to C and C sold it to D who sold it E until
and void. The rest will be enforced. niaabot kay Z.
Article 1421. The defense of illegality of contract is not All those contracts are void because the foundation of
those contracts is a void contract. A void contract
available to third persons whose interests are not
cannot give rise to a valid contract. That is the principle
directly affected. enunciated in Article 1422.
NOOL vs CA
Actually, we discussed this before when we were still in
voidable contract. FACTS: Two (2) parcels of land are in dispute and litigated upon
here. The first has an area of 1 hectare. It was formerly owned by
The meaning here is, GENERAL RULE: if you are not Victorino Nool. With an area of 3.0880 hectares, the other parcel
affected by the contract, you cannot assail the contract. was previously owned by Francisco Nool.
You cannot say that It is null and void.
The plaintiff spouses, Conchita Nool and Gaudencio Almojera,
But, if you are directly affected then you can raise the now the appellants, seek recovery of the aforementioned
parcels of land from the defendants, Anacleto Nool, a younger
illegality. brother of Conchita, and Emilia Nebre, now the appellees.
Example: Plaintiff spouses alleged that they are the owners of subject
parcels of land, and they bought the same from Conchita's
A and B entered into a sale over a parcel of land. That other brothers, Victorino Nool and Francisco Nool. Since they
sale is made within 5 years. That land is a CARP-awarded were in dire need of money, they obtained a loan from the
land so that is void. A is the seller. B is the buyer. Ilagan Branch of the Development Bank of the Philippines, in
Subsequently, A sold the same land to X, the second Ilagan, Isabela, secured by a real estate mortgage on said
buyer, after the prohibitory period. parcels of land, which were still registered in the names of
Victorino Nool and Francisco Nool, at the time, and for the
failure of plaintiffs to pay the said loan, including interest and
In that case, the right of X to own the land is directly
surcharges, totaling P56,000.00, the mortgage was foreclosed.
affected by the existence of the contract between A
and B. X can allege that ―I have a better right over B Within the period of redemption, plaintiffs contacted defendant
because the contract between A and B is null and void.‖ Anacleto Nool for the latter to redeem the foreclosed properties
from DBP, which the latter did; and as a result, the titles of the
two (2) parcels of land in question were transferred to Anacleto
Nool. As part of their arrangement or understanding, Anacleto
Nool agreed to buy from plaintiff Conchita Nool the two (2)
parcels of land under controversy, for a total price of Such a situation (where the sellers were no longer owners) does
P100,000.00, P30,000.00 of which price was paid to Conchita, not appear to be one of the void contracts enumerated in
and upon payment of the balance of P14,000.00, plaintiffs were Article 1409 of the Civil Code. 18 Moreover, the Civil Code itself
to regain possession of the two (2) hectares of land, which recognizes a sale where the goods are to be "acquired . . . by
amounts defendants failed to pay, and the same day the said the seller after the perfection of the contract of sale," clearly
arrangement was made; another covenant was entered into implying that a sale is possible even if the seller was not the
by the parties, whereby defendants agreed to return to plaintiffs owner at the time of sale, provided he acquires title to the
the lands in question, at anytime the latter have the necessary property later on.
amount; that plaintiffs asked the defendants to return the same
but despite the intervention of the Barangay Captain of their In the present case however, it is likewise clear that the sellers
place, defendants refused to return the said parcels of land to can no longer deliver the object of the sale to the buyers, as the
plaintiffs. buyers themselves have already acquired title and delivery
thereof from the rightful owner, the DBP. Thus, such contract may
Defendants-appellees theorized that they acquired the lands in be deemed to be inoperative and may thus fall, by analogy,
question from the Development Bank of the Philippines, through under item no. 5 of Article 1409 of the Civil Code: "Those which
negotiated sale, and were misled by plaintiffs when defendant contemplate an impossible service." Article 1459 of the Civil
Anacleto Nool signed the private writing, agreeing to return Code provides that "the vendor must have a right to transfer the
subject lands when plaintiffs have the money to redeem the ownership thereof [object of the sale] at the time it is delivered."
same; defendant Anacleto having been made to believe, then, Here, delivery of ownership is no longer possible. It has become
that his sister, Conchita, still had the right to redeem the said impossible.
properties.
Furthermore, Article 1505 of the Civil Code provides that "where
The lower court adjudged the said private writing (Exhibit "D") as goods are sold by a person who is not the owner thereof, and
an option to sell not binding upon and considered the same who does not sell them under authority or with consent of the
validly withdrawn by defendants for want of consideration. For owner, the buyer acquires no better title to the goods than the
the non-payment of said loan, the mortgage was foreclosed seller had, unless the owner of the goods is by his conduct
and in the process, ownership of the mortgaged lands was precluded from denying the seller's authority to sell." Here, there
consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP is no allegation at all that petitioners were authorized by DBP to
became the absolute owner of the two parcels of land, sell the property to the private respondents. Jurisprudence, on
defendants negotiated with DBP and succeeded in buying the the other hand, teaches us that "a person can sell only what he
same. owns or is authorized to sell; the buyer can as a consequence
acquire no more than what the seller can legally transfer." No
Manuel S. Mallorca, authorized officer of DBP, certified that the one can give what he does not have — nono dat quod non
one-year redemption period was from March 16, 1982 up to habet. On the other hand, Exhibit D presupposes that petitioners
March 15, 1983 and that the mortgagors' right of redemption could repurchase the property that they "sold" to private
was not exercised within this period. Hence, DBP became the respondents. As petitioners "sold" nothing, it follows that they can
absolute owner of said parcels of land. About two years also "repurchase" nothing. Nothing sold, nothing to repurchase.
thereafter, on April 1, 1985, DBP entered into a Deed of
Conditional Sale involving the same parcels of land with Private In this light, the contract of repurchase is also inoperative — and
Respondent Anacleto Nool as vendee. by the same analogy, void.
The petitioner-spouses plead for the enforcement of their

agreement with private respondents as contained in Exhibits "C" Now, we go to specific stipulations under the law which
and "D," and seek damages for the latter's alleged breach
thereof. In Exhibit C, which was a private handwritten document are also void:
labeled by the parties as Resibo ti Katulagan or Receipt of
Agreement, the petitioners appear to have "sold" to private 1.) Article 2088
respondents the parcels of land in controversy covered by TCT
No. T-74950 and TCT No. T-100945. On the other hand, Exhibit D, Article 2088. The creditor cannot appropriate
which was also a private handwritten document in Ilocano and
the things given by way of pledge or mortgage,
labeled as Kasuratan, private respondents agreed that Conchita
Nool "can acquire back or repurchase later on said land when or dispose of them. Any stipulation to the
she has the money." contrary is null and void. (1859a)
RULING: In seeking to enforce her alleged right to repurchase the

parcels of land, Conchita (joined by her co-petitioner-husband) This means, that the property mortgaged or pledged,
invokes Article 1370 of the Civil Code which mandates that "(i)f
it cannot be agreed that upon nonpayment the
the terms of a contract are clear and leave no doubt upon the
property mortgaged or pledged shall automatically
intention of the contracting parties, the literal meaning of its
stipulations shall control." Hence, petitioners contend that the be owned by the creditor. That is what we call
Court of Appeals erred in affirming the trial court's finding and pactum comisorium. That is void because the proper
conclusion that said Exhibits C and D were "not merely voidable procedure is for the creditor to foreclose the property
but utterly void and inexistent." and give the debtor the equity of redemption.
We cannot sustain petitioners' view. Article 1370 of the Civil Code 2.) Article 2130
is applicable only to valid and enforceable contracts. The
Regional Trial Court and the Court of Appeals ruled that the
principal contract of sale contained in Exhibit C and the auxiliary
Article 2130. A stipulation forbidding the owner
contract of repurchase in Exhibit D are both void. from alienating the immovable mortgaged shall
be void. (n)
In the present case, it is clear that the sellers no longer had any
title to the parcels of land at the time of sale. Since Exhibit D, the
alleged contract of repurchase, was dependent on the validity Article 2130 is what we call pactum de non alienado.
of Exhibit C, it is itself void. A void contract cannot give rise to a
This means that if you are the owner and you
valid one. Verily, Article 1422 of the Civil Code provides that "(a)
contract which is the direct result of a previous illegal contract, is mortgaged the land, you do not lose ownership over
also void and inexistent." the land. You remain to be the owner so you can still
sell the land. Any provision prohibiting you from selling Rescissible contracts need not be ratified but it
the land is void. can be. Even if it is not ratified, it is valid unless it is
rescinded.
3.) Article 1799
Voidable contracts can be ratified and the
Article 1799. A stipulation which excludes one or ratification has a retroactive effect.
more partners from any share in the profits or
losses is void. (1691) Unenforceable contracts may also be ratified.
Void contract cannot be ratified.

In a partnership agreement, you cannot agree that
one partner is excluded from the profit or one partner 4.) As to whether or not the contract can be assailed
is excluded from the losses. That would be void. That by third persons
goes against the very essence of a partnership. That‘s
what we call pactum leonina. Rescissible contracts can be assailed by a third
person if he is damaged.
Voidable contracts can be assailed by a party

who is bound principally or subsidiarily.
Unenforceable contracts may be assailed only

by a contracting party.
Void contracts can be assailed by a party or

third person who is directly affected.
5.) As to prescriptive period
In rescissible and voidable contracts, an action

for annulment will prescribe on 4 years (depende
kung asa magsugod).
DISTINCIONS BETWEEN THE 4 DEFECTIVE CONTRACTS:
In unenforceable contracts, there is no
1.) As to their existence or validity prescriptive period.
Rescissible contract is valid and legally In void contracts, an action to declare a

enforceable until it is judicially rescinded. contract as void does not prescribe.
Voidable contract is valid until it is annulled. 6.) As to the kind of remedy
Unenforceable contract is valid but cannot be As to the fact that the contract is rescissible on
enforced. the ground that it is in fraud of the creditors, it is a
subsidiary remedy. You have to avail of other
Void contract is not valid. remedies before you can have the contract
rescinded on the ground that it is in fraud of
creditors.
2.) As to the basis of the defect
In all other contracts (voidable, unenforceable
In rescissible contracts, there is economic and void), you can raise the defense that it is
damage or lesion to one of the parties and it is in voidable, unenforceable or void as a principal
fraud of creditors. remedy. You don‘t have to avail of any other
prior requisite.
In voidable contracts, the defect is vitiated
consent and the incapacity of only one
contracting parties.
In unenforceable contracts, the defect is without

or in excess of authority or does not comply with
the Statue of Frauds or both parties are
incapacitated.
In void contracts, the defect is one of the

essential requisites of contracts is lacking and the
contract is prohibited or illegal.
3.) As to susceptibility of ratification or waiver
But if the debtor, despite that, voluntarily paid then he
NATURAL OBLIGATIONS cannot recover what he has paid. This is another
example of a natural obligation.
We already discussed before what natural obligation are
but these are the articles that will give you examples of
Article 1426. When a minor between eighteen and
what really are natural obligations.
twenty-one years of age who has entered into a
contract without the consent of the parent or guardian,
Article 1423. Obligations are civil or natural. Civil after the annulment of the contract voluntarily returns
obligations give a right of action to compel their the whole thing or price received, notwithstanding the
performance. Natural obligations, not being based on fact that he has not been benefited thereby, there is no
positive law but on equity and natural law, do not right to demand the thing or price thus returned.
grant a right of action to enforce their performance,
but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or Article 1427. When a minor between eighteen and
rendered by reason thereof. Some natural obligations twenty-one years of age, who has entered into a
are set forth in the following articles. contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation, there shall be no
In the beginning of our lesson, we discussed the different right to recover the same from the obligee who has
kinds of obligation. As to the sanction, we have:
spent or consumed it in good faith. (1160A)
1.) Civil Obligation – we defined this under Article
1156. These obligations can be compelled by
court action. Articles 1426 and 1427 no longer apply. They are no
longer applicable because these articles contemplate a
2.) Natural Obligation – as mentioned here, these minor between 18 and 21. But as of our present state of
obligations are not based on positive law but on law, a person 18 years old is of legal age already.
equity and natural law. We cannot compel
performance of natural obligations. Essentially, it
just authorizes the retention of what has Been
voluntarily delivered.
Article 1428. When, after an action to enforce a civil
3.) Moral Obligation 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
Article 1424. When a right to sue upon a civil obligation
of the service he has rendered.
has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what
A case was filed against the defendant by the plaintiff
he has delivered or the value of the service he has
and the plaintiff lost in the case. But despite that, the
rendered. defendant still paid.
Example:
This is the usual example of natural obligations. ―A debt
that has already prescribed.‖ So, it cannot be enforced A filed an action against B collection. After trial, A did not
by a court action. But if the debtor, despite having known prove his claim or the court dismissed the case filed by A.
of the prescription, voluntarily performed or pair, he can So, free na si B. Siguro si B, nakonsensya after 10 years of
no longer recover what he has delivered or paid or the litigation, nagbayad siya. That again, is an example of a
value of the service he has rendered. natural obligation. He cannot recover what he has paid.
He cannot demand the return of what he has delivered
or the payment of the value of the service he has
Article 1425. When without the knowledge or against
rendered.
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 Article 1429. When a testate or intestate heir
debtor later voluntarily reimburses the third person,
voluntarily pays a debt of the decedent exceeding
the obligor cannot recover what he has paid. the value of the property which he received by will or
by the law of intestacy from the estate of the
deceased, the payment is valid and cannot be
Payment by a third person without the knowledge or
rescinded by the payer.
against the will of the debtor.
In that case, as we discussed, the third person is only Under the law on Succession, properties, rights and
entitled to beneficial reimbursement. If the debt has obligation can be inherited either by will or by legal
already prescribed, he cannot recover anything from the succession.
debtor because the debtor did not benefit.
When you say ―legal succession,‖ there is no will. In
testamentary succession, there is a will.
Insofar as obligations are concerned, ang ma-inherit lang
sa heir will only be up to the value of the inheritance.
Example:
The precedent left an estate worth 1M pero nagbilin pud

siya ug utang na 1.5 M. So, ang heir, would he be liable
to pay the 1.5M?
No, only up to the value of what he has inherited –

meaning, naay siyay nadawat na assets na 1M, naay
nadawat na liabilities na 1.5M so ibawas lang tong 1M
minus 1.5M. There is still a balance of 500K. The heir
cannot be compelled to pay the 500K because his
liability is only up to the value of the estate.
But despite that, nagbayad gihapon si heir out of his own

pocket, voluntarily. Then that payment is valid and under
the law on natural obligations, he cannot rescind that
payment.
Article 1430. When a will is declared void because it

has not been executed in accordance with the
formalities required by law, but one of the intestate
heirs, after the settlement of the debts of the
deceased, pays a legacy in compliance with a clause
in the defective will, the payment is effective and
irrevocable.
In Succession, you have what we call a legacy or devise.
A legacy is a gift of personal property. For example, in a

will, you are given jewelry, a cellphone or a car by the
decedent. That is a legacy – specific personal property.
A devise is a gift of specific real property. You are given a

house, land or etc. That‘s a devise.
A legacy or devise can be given only if there is a will.
For example, if you are not a compulsory heir (children,

spouse, parents – the compulsory heirs are those who
cannot be excluded) and you are just a friend. If the
testator has no will and you are just a friend, you cannot
inherit from him. But there is no prohibition if he will
institute you as a legatee in his will. You will be given
money or jewelry or a car. So, that is a legacy.
The validity of the legacy would depend upon the

validity of the will. If the will is not valid as to form, the
legacy is not to be given. In that case, if the will is void,
there will be intestacy or legal succession. Wala na tong
will.
Example:
Testator, in his will, gave 1M to his friend, X. But it turns out

that the will is void because it is witnessed only by 2
persons. The will has to be witnessed by at least 3 persons.
So, the will is void. Technically, the legacy of X is no longer
effective.
If the estate of the testator or the testator‘s heirs still gave

the 1M to X knowing that the will is void that can no
longer be recovered. The law on natural obligations
would now apply and prevent the recovery of the return
of the property which was voluntarily delivered or paid.
Basically, when you say ―in pais,‖ we are referring
ESTOPPEL to a conduct, an act or it may be an omission
which constitutes a misrepresentation. Or silence
when one ought to speak. Because of that act or
Article 1431. Through estoppel an admission or omission, other persons relied and acted and as
representation is rendered conclusive upon the person a consequence, if you would subsequently be
making it, and cannot be denied or disproved as allowed to renounce your earlier representations,
against the person relying thereon. that person would be prejudiced. The law does
not allow you to subsequently repudiate your
own act or omission.
I believe that in your other subjects as early as first sem,
you have heard of the word ―estoppel‖ or ―estopped.‖ Again, the easiest way to remember: pais means
an act or omission.
When you say ―estopped,‖ that means that you are
already barred from claiming otherwise. 2.) Estoppel by deed – This is what we call technical
estoppel.
If you acted like this person is your wife or you mentioned
or you made a statement that this person is your wife but Generally, there are two kinds of technical
in truth and in fact, she is not your wife and by reason of estoppel:
that representation, other persons have acted. Like, for
example, they paid their debt to you through your wife a.) Estoppel by deed – it is a type of technical
and then it was accepted. Later on, you cannot say “She estoppel by virtue of which a party to a
was not my wife. Dapat magbayd ka usab sa akoa.” If deed (document or a contract) and his
that would be allowed, that person relying on your privies are precluded from asserting as
representation would be prejudiced. against the other party and his privies any
right or title on derogation of the deed or
Basically, the law on estoppel would prevent you from from denying any material fact asserted
claiming otherwise. therein.
There are specific examples of estoppel. Basically, If there is a deed, a document or a

estoppel may be by an action or by silence or by a contract and the parties made
declaration, whether verbal or in writing. representation in that contract, they are
bound by that contract or deed. They
Take note, the law says ―rendered conclusive.‖ This cannot later on repudiate that deed
means that really applies absolutely. It cannot be especially if other persons have relied on
repudiated anymore. You cannot present evidence to their contract or deed.
the contrary anymore. Mao na gyud na siya insofar as
the law is concerned. It cannot be rebutted. And deed dili kanang deed na buhat or
action but deed na document.
Article 1432. The principles of estoppel are hereby b.) Estoppel by record – this is a type of
technical estoppel by virtue of which a
adopted insofar as they are not in conflict with the
party and his … re precluded from denying
provisions of this Code, the Code of Commerce, the any matter set forth in a record, whether
Rules of Court and special laws. judicial or legislative.
There are several separate principles on estoppel. This is When you say deed, persons participated
of common law origin. These principles are also in that deed. Sila ang nagbuhat.
applicable but only insofar as they do not conflict with
the express provisions of the Civil Code, the Code of Record meaning bot necessarily na sila
Commerce and the Rules of Court and other special ang nagbuhat sa record but it was made
laws. by somebody else. But you had all the duty
to correct that record but you did not. You
allowed it to prevail; you allowed it to
stand. So, anything contained in that
Article 1433. Estoppel may in pais or by deed.
record would be conclusive against whom
the record is applicable, whether the
There are 2 kinds of estoppel mentioned in Article 1433. record is a judicial record or a legislative
record.
1.) Estoppel in pais – this also means estoppel by
conduct. Example:
This arises when one, by his acts, representations You testified in court. When you testify, your
or admissions or his silence when he ought to testimony is actually being transcribed. So,
speak out, intentionally or through culpable lahi imong gisulti tapos lahi iyang na-
negligence, induces another to believe certain transcribe. You had opportunity to correct
facts to exist and such other rightfully relies and that but you did not. So, that is already
acts on such belief, as a consequence of which applicable to you.
he will be prejudiced if the former is permitted to
deny the existence of such facts.
Or anything that you said on record. So, really the owner. So, I will not deliver this land to you
kung unsa nakabutang sa record, that is because I did not sell this to you. It was X who sold it to
conclusive. That is against the person you through me.‖
against whom the record is applicable.
That cannot be allowed. He is estopped because if he is
Article 1434. When a person who is not the owner of a the owner then he should have told the buyer that he is
thing sells or alienates and delivers it, and later the the owner. Not that he was an agent or representative.
seller or grantor acquires title thereto, such title passes
Article 1436. A lessee or a bailee is estopped from
by operation of law to the buyer or grantee.
asserting title to the thing leased or received, as
against the lessor or bailor.
Example:
A lessee, meaning nagarenta ka. So, you rent and you
A is not the owner of the land. A is just the administrator. paid rent to him for 5 years. Now, bawion na ang balay
The owner is X. A, by presenting himself to be the owner, kay nag-expire na ang lease. Di na ka gusto muhawa
sold it to B. B bought the land and paid value for it. Then, kay ngano man? Kay aku man ning balay.
wala pa na-deliver ang land, X donated the land to A.
Now B wants the land to be delivered to him already. So ngano nagrenta man ka kung imoha ning balay? The
Can A say that their sale (A and B) is void because when fact that you are renting the land or the house is your
he sold the land to B, he was not the owner? admission that you are not the owner.
No, he is not allowed to repudiate his representation. Or a bailee, meaning nag-borrow. You borrowed a
ballpen from your classmate and then later on when he
Or for example, the land is already delivered to B asks for it back, you will not return it anymore. You will
because of that sale. Ordinarily, ownership is not claim it as your own. The fact that you borrow, you
transferred to B because when the sale was made by A acknowledge that you are not the owner.
to B, A was not the owner. Even if A delivered the land to
B, he could not transfer any ownership. He could not The presumption is conclusive. The lessee or the bailee
transfer what he does not have. But when X subsequently cannot present any evidence to prove otherwise.
donated the land to A, by operation of law the title now
passes to B, the buyer. Unless his contention is that it is his because he bought is
from the lessor. Like, you are a lessee and then later on
So, A cannot later on say “Aah, ako na diay tag-iya sa you bought the land so now, it is yours. That is a different
land so bawion nako to kay B. Kay in the first place, pag story.
baligya nako sa iyaha, dili to valid. Bawion nako.”
But when you say from the very beginning, you are the
No, he cannot do that anymore. He is estopped from owner of the land or the owner of the ballpen in the first
asserting his own title to the land. place. So, in that case, you cannot say later on na dili na
nako iuli ang ballpen sa imoha or dili na nako iuli ang
Here, the title passes by operation of law to the buyer of balay kay ako mag gyud ni sa tinuod lang form the very
the land if there was previous delivery. Remember this beginning.
principle because this is also applicable under the law on
Sales. Your act of borrowing or leasing is an admission that you
are not the owner. You are already estopped from
claiming otherwise.
Article 1435. If a person in representation of another
sells or alienates a thing, the former cannot
subsequently set up his own title as against the buyer
or grantee.
Example:
A said that he is the agent of X. So, the owner of the land

is X. A is just the agent. So, A sold the land to B. Later on,
he wants to recover the alndon the ground that he is the
real owner and he did not authorize the sale of the land.
That is absurd because in the first place, he represented

himself to be an agent authorized to sell. In fact, he is not
the agent because he is the owner. So, if for example,
the buyer would like to get the land, he cannot set up his
own title.
He cannot say, ―The sale to you is void because it was

not really made by the owner. I sold that to you in my
capacity as agent of X. So, the sale would be between X
and the buyer. Ako, agent lang. But the reality is I am
Article 1437. When in a contract between third Article 1438. One who has allowed another to
persons concerning immovable property, one of assume apparent ownership of personal property for
them is misled by a person with respect to the the purpose of making any transfer of it, cannot, if he
ownership or real right over the real estate, the latter
received the sum for which a pledge has been
is precluded from asserting his legal title or interest
constituted, set up his own title to defeat the pledge
therein, provided all these requisites are present:
of the property, made by the other to a pledgee who
(1) There must be fraudulent representation received the same in good faith and for value.
or wrongful concealment of facts known to
the party estopped; In a pledge, it is essential that the pledger should be the
owner of the thing pledged. If that is not owned by the
(2) The party precluded must intend that the pledger, the pledge is void.
other should act upon the facts as
misrepresented; Example;
A borrowed 1M from B. Now, B is not satisfied with the

(3) The party misled must have been
standing of A alone. B wants a pledge or a collateral. A
unaware of the true facts; and
now has no property na pwede i-collateral but he awas
able to borrow a diamond necklace from X. So, he asked
(4) The party defrauded must have acted in for X‘s permission to pledge the thing and X agreed. A
accordance with the misrepresentation. pledged the diamond necklace to B. B said, ―Gi-unsa
nimo pagla-diamond necklace. Pagsure.‖ A says,
―Pangutana pa akong friend na sa si X.‖
Actually, Article 1437 applies to all kinds of estoppel.
X, iyaha gyud ni na diamond necklace?‖
(1) There must be fraudulent representation or
wrongful concealment of facts known to the Ana si X na ―Yes, iyaha gyud na.‖
party estopped;
On that basis, B granted the loan and there was a
Because, of course there must be fraudulent pledge agreement. Subsequently, X changed his mind
representation or wrongful concealment fo facts. So, you and went to B to get the necklace back. X admitted to
represented what is not true. You did not really give what beign the true owner of the diamond necklace and
is the truth. asserted that the pledge which a made to b is void
because under the law, the pledger should be the
owner. A is not the owner. I am the owner.
(2) The party precluded must intend that the
other should act upon the facts as But, A allowed B to believe that A is the owner of the
misrepresented; thing pledged. So, in that case, X is barred or estopped
from setting up his title as against B. That is an example of
And, second, you have the intention. That because of Article 1438. He cannot set up his own title to defeat of
your representation, you want the other party to believe the property
and accordibly.
Of course, the pledgee, B, should be in good faith. Wala
(3) The party misled must have been unaware of siya kabalao. Kung kabalo to siya na nag-atik lang tong
the true facts; and duha then they’re all.
Third, of course, the party was not aware. If he is aware,

estoppel will not lie. The concept of estoppel: had he Article 1439. Estoppel is effective only as between the
known otherwise, he would not have acted this way but
parties thereto or their successors in interest.
because of your misrepresentation, you led him to
believe that this state or thing exists and then to his
prejudice, he acted on that so you should not be allowed
to benefit from your misrepresentation. So, he must be
unaware of the true facts.
(4) The party defrauded must have acted in

accordance with the misrepresentation.
And, of course, in all cases, the party defrauded should

have acted. If he did not act, there is no estoppel. There
should be an action which is the consequence of the
representation.

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Obligations and Contracts The Fraternal Order of St.

He occupied the land in 1970 and then finally when will

Revelen Solis and Mizzy Mareé Martinez TAU MU Page 1 of 262

The law says either personally (they can, on their own,

Now what if the minor or other incapacitated persons do

We have to reconcile that with Section 42, 45 and 46 of

Even if the Code of Civil Procedure has already been

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(2) Absentees who have administrators, either

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Most of the time, squatters would say that they

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But in this case, the debt of the debtor from A has

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That is why if you possess the property but you‘re paying

It must be public. What do we mean by public? When

Revelen Solis and Mizzy Mareé Martinez TAU MU Page 9 of 262

But once the possessor, halimbawa, gitolerate lang siya,

When do we start counting the period? From the time A

In discontinuity, the period is not cut off; it will continue to

In suspension, the period is cut off but it will not start

Or a person who stays under guardianship, so the period

Article 1122. If the natural interruption is for only one

(3) If the possessor should be absolved from the

Under our laws, for example Batas Bilang 129, we have

This is when you invoke prescription for ten years because

Example: Article 1128. The conditions of good faith required for

Take note, under 1126, the first paragraph refers to ―titles

If you have that donation of a land, real property, in your

With regard to the right of the owner to recover

When we say true and valid, it is not in the sense that

Revelen Solis and Mizzy Mareé Martinez TAU MU Page 13 of 262

You possess the property for 12 years, it is in bad faith and

We already discussed this. Ordinary prescription, you

Article 1135. In case the adverse claimant

So, the prescription shall be based on the possession.

Again, we are talking here of a title which is not really the

Article 1136. Possession in wartime, when the civil

Revelen Solis and Mizzy Mareé Martinez TAU MU Page 14 of 262

(3) The first day shall be excluded and the last

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(2) To bring an action to abate a public or

Article 1141. Real actions over immovables prescribe

This provision is without prejudice to what is

A person who has been always in possession of a

We are referring here, for example, to foreclosure of a

Revelen Solis and Mizzy Mareé Martinez TAU MU Page 16 of 262

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment. (n) (1) Upon an oral contract.

Written contract – 10 years.Oral contracts – 6 years.

(3) Upon a judgment

If you want to enforce a judgment, when the court

A is ordered to pay; if A agrees to pay then no problem

Article 1147. The following actions must be filed within

(2) Upon a quasi-contract. (n)

But, in cases for recovery of ownership or possession

So in that case, you have a period of one year to file the

Revelen Solis and Mizzy Mareé Martinez TAU MU Page 18 of 262