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OBLIGATIONS

What is an obligation?
An obligation is a juridical necessity to give, to do or not to do. (1156)
Manresa defines it as the legal relation between one party and another, the latter being bound to the fulfillment of a
prestation which the former may demand of him
Ang Yu Asuncion v. CA
Plaintiffs were tenants of the private respondents in Binondo. Plaintiff Asuncion et al. are suing Cu Unjieng for reneging on an
offer to sell of the formers dwelling. Cu Unjieng sold such to Buen Realty and Development Corporation, which then demanded
herein respondents to vacate premises. RTC and CA held that Ang Yu Asuncion had right of first refusal.
Issue: WON the decision is subject to writ of execution
Held: No. Dishonoring right of first refusal is only subject to a separate proceeding for damages rather than a writ of execution.
Right of first refusal is not a perfected contract therefore not subject to an action for specific performance.
N.B. Look for essential elements below for an obligation to arise. In this case, there was no obligation because there was
no contract or vinculum juris, thus an action for performance is not tenable.
Supreme Court spelled out the elements of an obligation:
a) Vinculum Juris the legal tie or efficient cause, which binds the parties to the obligation, and is established by law,
contracts, quasi-contracts, delicts and quasi-delicts. (juridical tie)
b) Object prestation or conduct required in the performance of the obligation, and may consist of giving, doing, or not
doing a thing
c) Subject-persons as according to demandability:
1. Obligee creditor, active, i.e. one who is entitled to demand the fulfillment of the obligation.
2. Obligor debtor, passive, i.e. one upon whom demand is made, who is bound to the fulfillment of an
obligation
Kinds of Obligations
1.

2.
3.

Viewpoint of sanction
a. Civil obligations- give a right of action to compel their performance
b. Natural obligations- not being based on positive law but on equity and natural law, do not grant a right of
action to enforce their performance; but after voluntary fulfillment by the obligor, they authorize the retention
of what has been delivered or rendered by reason thereof (1423)
c. Moral obligation- those that cannot be enforced by action but which is binding on the party who makes it in
conscience and natural law; now merged with natural obligations.
Viewpoint of performance
a. Positive- to give or to do
b. Negative- not to do
Viewpoint of subject matter
a. Real obligation- to give
b. Personal obligation- to do or not to do

SOURCES
Obligations arise from: law, contracts, quasi-contracts, delicts, quasi-delicts (1157)
A. LAW
The law establishes the obligation and provides for the conditions or circumstances constituting the hypothesis, the
fulfillment of which determines the birth of the obligation.
GENERAL RULE obligations derived from law are not presumed; only those expressly determined in this Code or in special
laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been
foreseen, by the provisions of this Book (1158)
- this is so because obligations constitute a limitation upon individual property freedom and by the due process
clause, no person shall be deprived of property without due process; the obligation and corresponding
consequences for non-performance should be clearly stated in law and not merely presumed
B. CONTRACTS
Definition: 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 (1305)
- characteristics of a contract
(1) binding force
(2) autonomy
(3) mutuality
(4) relativity
(5) consensuality

GENERAL RULE: the contracting parties may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order and public policy (1306)
o contrary to law: renouncing action for future fraud
o contrary to morals: free domestic service
o contrary to good customs: trial marriage
o contrary to public order: providing that in case of failure to pay rent agreed upon, the landlord may dispossess
by force the tenant from the leased premise
o contrary to public policy: agreement intended to prevent or stifle prosecution for a public crime
GENERAL RULE: Contracts as force of law between parties - obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith (1159);
- Compellability - liable for damages an/or compliance
o a contract is an agreement that is effective to give rise to a civil obligation; hence, not all agreements are
contracts
Types of contracts:
Innominate contracts
those which are not specifically governed by any provision in the Civil Code or Special Law but which
likewise involve the fulfillment or accomplishment of some prestations.
Regulated by:
i. stipulations of the parties
ii. provisions of Title I and II of this Book
iii. rules governing the most analogous nominate contracts
iv. customs of the place (1307)
innominate contracts may take any of the ff forms:
o I give that you may give
o I do that you may give
o I give that you may do
o I do that you may do
Nominate contracts:
Specifically provided for by law, as follows:
(1) contract of sale: determinate thing for price. one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price
certain in money or its equivalent (1458)
(2) contract of barter or exchange: one thing for promise of another. one of the parties binds himself
to give one thing in consideration of the others promise to give another thing (1638)
(3) contract for a piece of work: work for price or compensation. the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also furnish the material (1713)
(4) common carriers: carriage and transportation for price. persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air for compensation, offering their service to the public (1732)
(5) contract of partnership: multiple parties contribute. two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves; two or more persons may also form a partnership for the exercise of a profession
(1767)
(6) contract of agency: acting on behalf of the other. a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority of the latter
(1868)
(7) contract of loan:
i. Commodatum
not consumable but used; gratuituous; no transfer of ownership
ii. Mutuum or simple loan
-money or consumable; gratuituous or without interest; transfer of ownership
one of the parties delivers to another, either something not consumable so that the latter may use the
same for a certain time and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same kind and quality shall
be paid, in which case the contract is simply called a loan or mutuum; commodatum is essentially
gratuitous; simple loan may be gratuitous or with a stipulation to pay interest; in commodatum the
bailor retains the ownerships of the thing loaned, while in simple loan, ownership passes to the
borrower (1933)
(8) deposit: delivery for safekeeping only. constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the same. If the

safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but
some other contract (1962)
(9) aleatory contract: one for another at an uncertain condition or time. one of the parties or both
reciprocally bind themselves to give or to do something in consideration of what the other shall give
or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time
(2010)
(10) guaranty: subsidiary liability
surety: solidary guaranty
a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor
in case the latter should fail to do so; if a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be observed; in such case the contract is called
a suretyship (2047)
(11) contracts of pledge and mortgage
requisites:
i. As security - they be constituted to secure the fulfillment of a principal obligation;
ii. Absolute ownership - that the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
iii. Free disposal - that the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose;
iv. 3rd person may put up security - THIRD persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property; thing pledged must be placed in the
possession of the creditor, or of a third person by common agreement (2085)
Difference: Objects
a. For Mortgage:
i.
immovables
ii.
movables that are registered in Chattel Mortgage Register
chattel mortgage: personal property is recorded in the Chattel Mortgage Register as a security for the
performance of an obligation. If the movable, instead of being recorded, is delivered to the creditor or a
third peron, the contract is a pledge and not a chattel mortgage (2140)
iii.
alienable real rights
only the following property may be the object of a contract of mortgage: (1) immovables; (2) alienable real rights in
accordance with the laws, imposed upon immovables; nevertheless, movables may be the object of a chattel mortgage
(2124)
b. For Pledge: Movables
- not recorded in Chattel Mortgage Register
- delivered to creditor or third party.
(12) contract of antichresis: fruits of immovable to apply to debt. The creditor acquires the right to
receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the
interest, if owing, and thereafter to the principal of his credit. (2132)
Perla Compania de Seguros, Inc. v. CA
In a bus accident in Cavite, herein plaintiff is the insurance company. The court ruled that the terms of the contract
constitute the measure of the insurers liability and compliance therewith is a condition precedent to the insureds right of
recovery from the insurer. In the case at bar, the insurance policy with regards to third party injuries is only Php 12,000 which is
in accordance with minimum prescribed by law P.D. 1460. Furthermore, the insured was stipulated to acquire written permission
from the insurer as regards to settlement with injured third parties. Since such was not complied with, the insured Cayas is
precluded from seeking reimbursement.
N.B. Contracts as law between the parties. What has been agreed upon governs as long as it is not contrary to law,
morals, good customs, public order, and public policy.
C. QUASI-CONTRACTS
Definition: It is the juridical relation resulting from lawful, voluntary, and unilateral acts by virtue of which the
parties become bound to each other to the end that no one shall be unjustly enriched or benefited at the expense of
another (2142)
Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book
(1160)
Principal kinds of quasi-contract:
A. Negotiorum gestio:

Whoever voluntarily takes charge of the agency or management of the business or property of
another, without any power form the latter, is obliged to continue the same until the termination of
the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a
position to do so. This juridical relation does not arise in either of these instances:
1. when the property or business is not neglected of abandoned
2. if in fact the manager has been tacitly authorized by the owner (2144)
B. Solutio indebiti:
If something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises (2154)
D. DELICTS
Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of
Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title on Human Relations, and of Title
XVIII of this Book, regulating damages (1161)
Delicts are acts or omissions punishable by law. Every person criminally liable for a felony is also civilly liable
(RPC, 100)
RULES:
a.

Fees and indemnities in judicial proceedings:


costs shall include fees and indemnities in the course of the judicial proceedings, whether they be fixed or
unalterable amounts previously determined by law or regulations in force, or amounts not subject to
schedule (RPC, 37)
b. Forfeiture of proceeds, instruments, tools of felony:
every penalty imposed for the commission of a felony shall carry with it the forfeiture of the proceeds of
the crime and the instruments or tools with which it was committed (RPC, 45)Demandability: by final
judgement
No penalty shall be executed except by virtue of a final judgment; A penalty shall not be executed in any
other form than that prescribed by law, nor with any other circumstances or incidents than those expressly
authorized thereby (RPC, 78)
c. GENERAL RULE:
Satisfy civil liability even when criminal liability is extinguished by:
i. Death
Criminal liability is totally extinguished by the death of the convict, as to the personal
penalties; and as to pecuniary penalties, liability therefore is extinguished only when the
death of the offender occurs before final judgment (RPC, 89)
ii. Service of sentence
iii. Amnesty, Pardon, Commutation of Sentence
The offender shall continue to be obliged to satisfy the civil liability resulting from the crime
committed by him, notwithstanding the fact that he has served his sentence consisting of
deprivation of liberty or other rights, or has not been required to serve the same by reason of
amnesty, pardon, commutation of sentence or any other reasons (RPC, 113)
Subject to succession to heirs of both sides:
Obligation devolves upon the heirs of the person liable, action to demand likewise descends to the heirs of
the person injured (RPC, 108)
e. Civil liability includes:
restitution, reparation of the damage caused, indemnification of consequential damages (RPC, 104);
i. restitution: must be made, whenever possible with allowance for any deterioration, or
diminution of value as determined by the court; the thing itself shall be restored, even though
it be found in the possession of a third person who acquired it by lawful means, saving to the
latter his action against the proper person who may be liable to him; this provision is not
applicable in a case in which the thing has been acquired by the third person in the manner
and under the requirements which, by law, bar an action for its recovery (RPC, 105)
ii. reparation: the court shall determine the amount of damage, taking into consideration the
price of the thing, whenever possible, and its special sentimental value to the injured party,
and reparation shall be made accordingly (RPC, 106)
iii. indemnification: indemnification of consequential damages shall include not only those
caused the injured party, but also those suffered by his family or by a third person by reason
of he crime (RPC, 107)
f. Solidarity among felons in a felony:
- as to share: if there are two or more persons civilly liable for a felony, the courts shall
determine the amount for which each must respond (RPC, 109);
- as to participation: The principals, accomplices and accessories, each within their
respective class, shall be liable severally (in solidum) among themselves for their quotas,

and subsidiarily for those of the other persons liable; the subsidiary liability shall be
enforced, first against the property of the principals; next, against that of the accomplices;
and lastly against that of the accessories; whenever the liability in solidum of the
subsidiary liability has been enforced, the person by whom payment has been made shall
have a right of action against the others for the amount of their respective shares (RPC,
110)
E. QUASI-DELICTS
Definition: act or omission with fault or negligence causing damage to another; no crime nor contract
whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this Chapter (2176)
For example:
manufacturers and processors of foodstuffs, drinks, toilet articles and similar goods shall be liable for
death or injuries caused by any noxious or harmful substances used, although no contractual relation exists
between them and the consumers (2187)
- two species of the fault or negligence in 2176: culpa aquiliana, culpa contractual
a. culpa aquiliana: no pre-existing contractual relation between parties; called a quasi-delict and
is a source of obligations; negligence is substantive, direct and independent of any pre-existing
obligation; the defense of having exercised the diligence of a good father of a family is available
b. culpa contractual: not a source of obligations, merely makes the debtor liable for damages, in
view of his having fulfilled his pre-existing obligation with negligence; there is a pre-existing
contractual relation between the parties, whether express or implied; negligence is merely
negligence in the performance of a pre-existing obligation; the defense of having exercised the
diligence of a good father of a family is not available
Governed by:
a. obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this
Book, and by special laws (1162)
b. Title XVIII on damages
c. Articles 19-36 on human relations:
GENERAL RULE: Duty to others.
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
Principles:
Courts must protect disadvantage.
Art. 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for
his protection.
e.g. Thoughtless extravagance Art. 25. Thoughtless extravagance in expenses for pleasure or display during a
period of acute public want or emergency may be stopped by order of the courts at the instance of any
government or private charitable institution.
Unjust enrichment
Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to him.
Who are liable for Damages:
a. Indemnify damages Art. 20.
Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same.
b. Compensate damages Art. 21. Any person who wilfully causes loss or injury to another in manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
c. Beneficiary to cause of damage Art. 23. Even when an act or event causing damage to another's property was not
due to the fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited.
d. Busy-body neighbors and other persons Art. 26.
Every person shall respect the dignity, personality,
privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a
criminal offense, shall produce a cause of action for damages, prevention and other relief:
(1)
Prying into the privacy of another's residence:
(2)
Meddling with or disturbing the private life or family relations of another;
(3)
Intriguing to cause another to be alienated from his friends;

(4)
Vexing or humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical defect, or
other personal condition. aisa dc
e. Unjust Refusal or neglect of Public official of his duty Art. 27.
Any person suffering material or moral loss
because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for
damages and other relief against he latter, without prejudice to any disciplinary administrative action that may be taken.
f. Unjust, oppressive, high-handed measure Art. 28. Unfair competition in agricultural, commercial or industrial
enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded
method shall give rise to a right of action by the person who thereby suffers damage.
g. Police refusal or failure to give aid or protection Art. 34.
When a member of a city or municipal police
force refuses or fails to render aid or protection to any person in case of danger to life or property, such peace officer shall be
primarily liable for damages, and the city or municipality shall be subsidiarily responsible therefor. The civil action herein
recognized shall be independent of any criminal proceedings, and a preponderance of evidence shall suffice to support such
action.
h. Violator of rights and liberties Art. 32. Any public officer or employee, or any private individual, who directly or
indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another
person shall be liable to the latter for damages:
(1)
Freedom or religion;
(2)
Freedom of speech;
(3)
Freedom to write for the press or to maintain a periodical publication;
(4)
Freedom from arbitrary or illegal detention;
(5)
Freedom of suffrage;
(6)
The right against deprivation of property without due process of law;
(7)
The right to a just compensation when private property is taken for public use;
(8)
The right to the equal protection of the laws;
(9)
The right to be secure in one's person, house, papers, and effects against unreasonable searches and seizures;
(10)
The liberty of abode and of changing the same;
(11)
The privacy of communication and correspondence; cd
(12)
The right to become a member of associations or societies for purposes not contrary to law;
(13)
The right to take part in a peaceable assembly to petition the Government for redress of grievances;
(14)
The right to be a free from involuntary servitude in any form;
(15)
The right of the accused against excessive bail;
(16)
The right of the accused to be heard by himself and counsel, to be informed of the nature and cause of the accusation
against him, to have a speedy and public trial, to meet the witnesses face to face, and to have compulsory process to secure the
attendance of witness in his behalf;
(17)
Freedom from being compelled to be a witness against one's self, or from being forced to confess guilt, or from being
induced by a promise of immunity or reward to make such confession, except when the person confessing becomes a State
witness;
(18)
Freedom from excessive fines, or cruel and unusual punishment, unless the same is imposed or inflicted in accordance
with a statute which has not been judicially declared unconstitutional; and
(19)
Freedom of access to the courts.
In any of the cases referred to in this article, whether or not the defendant's act or omission constitutes a criminal offense, the
aggrieved party has a right to commence an entirely separate and distinct civil action for damages, and for other relief. Such civil
action shall proceed independently of any criminal prosecution (if the latter be instituted), and may be proved by a
preponderance of evidence.
The indemnity shall include moral damages. Exemplary damages may also be adjudicated.
The responsibility herein set forth is not demandable from a judge unless his act or omission constitutes a violation of the Penal
Code or other penal statute.
Separability of Criminal and Civil action;
1. Beyond reasonable doubt vs. preponderance of evidence
Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved
beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a
preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for
damages in case the complaint should be found to be malicious.
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any
declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground.
Art. 30. When a separate civil action is brought to demand civil liability arising from a criminal offense, and no criminal
proceedings are instituted during the pendency of the civil case, a preponderance of evidence shall likewise be sufficient to prove
the act complained of.
2. Independence of civil from criminal action Art. 31.
When the civil action is based on an obligation not
arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal
proceedings and regardless of the result of the latter.
3. Even if criminal proceedings is dismissed Art. 35.
When a person, claiming to be injured by a criminal
offense, charges another with the same, for which no independent civil action is granted in this Code or any special law, but the
justice of the peace finds no reasonable grounds to believe that a crime has been committed, or the prosecuting attorney refuses

or fails to institute criminal proceedings, the complaint may bring a civil action for damages against the alleged offender. Such
civil action may be supported by a preponderance of evidence. Upon the defendant's motion, the court may require the plaintiff
to file a bond to indemnify the defendant in case the complaint should be found to be malicious.
If during the pendency of the civil action, an information should be presented by the prosecuting attorney, the civil action shall
be suspended until the termination of the criminal proceedings.
4. Prejudicial questions may proceed. Art. 36. Prejudicial questions, which must be decided before any criminal
prosecution may be instituted or may proceed, shall be governed by rules of court which the Supreme Court shall promulgate and
which shall not be in conflict with the provisions of this code.
e.g.: Cases of Defamation, Fraud, and Physical Injuries Art. 33.
In cases of defamation, fraud, and physical injuries a
civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil
action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence.
EFFECTS OF OBLIGATIONS:
A.
In obligations to give:
Diligence requirement, if no stipulation or law:
Good father of a family (1163)
Every person obliged to give something is also obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the parties requires another standard of care (1163)
(12) the word something indicates a determinate thing, that which is segregated from all others of a
particular kind
(13) the diligence of a good father of the family is the legal standard of diligence. It is ordinary
diligence. This standard means hemust take care of the thing as if he is the real owner.
Another diligence requirement: extraordinary for common carriers
- from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by them, according
to all the circumstances of each case. Such extraordinary diligence in vigilance over the goods is further
expressed in Articles 1734, 1735 and 1745 Nos. 5, 6 and 7 while the extraordinary diligence for the safety
fo the passengers is further set forth in Articles 1755 and 1756 (1733)
b. Compel compliance:
i. If determinate, compel delivery (1165)
When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article
1170, may compel the debtor to make the delivery; (1165)
- a thing is determinate when it is particularly designated or physically segregated from all others of
the same class; the requisite that a thing be determinate is satisfied if at the time the contract is entered
into, the thing is capable of being made determinate without the necessity of a new or further
agreement between the parties (1460)
- All: principal, accession, accessories (1166)
- At their state at time of perfection of contract (1537)
- the obligation to give a determinate thing includes that of delivering all its accessions and accessories, even
though they may not have been mentioned (1166)
- The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they
were upon the perfection of the contract (1537)
Accession: the ownership of property gives the right by accession to everything which is produced thereby, or which is
incorporated or attached thereto, either naturally or artificially (440)
Two owners of an inseparable thing: owner of principal acquires paying the other whenever two movable things
belonging to different owners are, without bad faith, united in such a way that they form a single object, the owner of
the principal thing acquires the accessory, indemnifying the former owner thereof for its value (466)
It is a basic principle in law on property that the accessory follows the principal
accessories: Those things which are used for the embellishment, use, or preservation of another thing of
more importance.
Ex: keys to a house, strings and bow of a violin, spare tires and repair tool of an automobile
accessions: Everything which is produced by a thing, incorporated or attached thereto, either naturally or
scientifically.
Ex: improvements on a land, house on a land, formation of an island, plant, alluvion
ii. If indeterminate, compliance at expense of debtor (1165)
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the
debtor; (1165)
c. Include Fruits (1164) natural, industrial, and civil fruits (441)
-Personal right at time of demandability, real right at delivery

The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered to him. (1164);
All the fruits shall pertain to the vendee from the day on which the contract was perfected (1537)
To the owner belongs:(1)the natural fruits, (2)the industrial fruits, (3)the civil fruits (441)
NOTE:

Before delivery of the fruits Creditors right is personal or jus in personam, a right which is enforceable
only against a definite passive subject, the debtor.
After delivery Creditor now has a real right over the fruits from the time of delivery and becomes
enforceable against the whole world. In short, it gives a person a direct and immediate juridical power
over a thing,which can be exercised not only against a definite passive subject but against the whole
world.
KINDS OF FRUITS:
(1) Natural fruits spontaneous products of the soil without the intervention of human labor, and the young
and other product of animals with or without the intervention of human labor, such as forest products.
(2) Industrial fruits products of the soil through cultivation or human labor, such as palay and vegetables
planted by farmers.
(3) Civil fruits fruits as a result of civilization or fruits arising out of a juridical relation, such as rent of
lands, apartments and buildings.

Pornellosa v. Land Tenure Administration


Plaintiffs bought a house from Vicenta San Jose in a private document. The lot on which the house was situated was
expropriated by Government as part of the Sta. Clara estate. The said lot was divided into two. One part was awarded to
Guzman. Petitioners want to compel sale of the entire lot to them by the LTA. Held: Deed of Sale is conclusive on the house
erected thereon but not on the land. Such acts and contracts on concerning real rights must be in public document. Besides, deed
of sale has no mention of sale of land.
N.B. Accessories, accessions, fruits follow the principal but not vice versa. Ergo, in this case, the sale of house
does not include the lot, since the latter would be the principal.
d. Right to damages
i. Fortuitous events, only if:
delay (1165)
promise to 2 rently interested persons (1165)
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event until he has effected the delivery (1165)
law, stipulated, risky nature (1174)
ii. Fraud, delay, contravention of the tenor of obligation (1170)
Those who in the performance of their obligations are guilty of fraud, negligence, delay and those who in any manner
contravene the tenor thereof, are liable for damages (1170)
a. the fraud referred to above is incidental fraud (dolo incidenti), that is fraud in the
performance of the obligation as distinguished from dolo causante (causal fraud) which is
fraud in getting ones consent to a contract
b. incidental fraud merely gives rise to an action for damages while causal fraud renders a
contract voidable
c. negligence (culpa) is unintentional, while fraud (dolo) is intentional. In fraud, there is intent
to evade the normal fulfillment of the obligation and to cause damage, while in negligence
there is no such intention. Negligence is carelessness or lack of diligence. It consists in the
omission of that diligence which is required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of the place. When negligence shows
bad faith, it is considered equivalent to fraud.
(*Take note of further discussions of this article under obligations not to do)
iii. Act or omissions with fault or negligence (2176)
- Omission of required diligence: good father of family, or what the law or
stipulation provides (1173)
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. (2176)
the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201 paragraph 2 shall apply. If the law or contract does not state the
diligence which is to be observed in the performance, that which is expected of a good father of a family shall be
required (1173)

- There may be negligence attended with bad faith amounting to fraud, such as wanton attitude, which should be
governed by the rules on fraud.
B. In obligations to do:
a. If failure to do or contravention of tenor:
i. Execution at debtors cost (1167)
ii. Poorly done be undone (1167)
If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the obligation. Furthermore, it may be decreed that
what has been poorly done be undone (1167)
The creditor may demand that the obligation be performed by the debtor himself or by a third person at the expense
of the debtor. However, in cases where the personal qualifications of the debtor are taken into account, the only
remedy of the creditor is an action for damages. In the Balane notes, there is no action for compliance for an
obligation to do because such would be involuntary servitude which is prohibited by the constitution.
b. Liability for Damages arises for
i. Fraud (1170)
ii. Negligence
iii. Delay
iv. Contravention to the tenor thereof
(Same as discussion below: liability for damages for obligations not to do)
C. In obligations not to do:
a. Doing what he must have not done:
i. Undone at his expense (1168)
When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be
undone at his expense (1168)
ii. Damages
According to Jurado, damages also if:
(1) possible to undo but results are contrary to obligations objectives (remedy is action for damages)
(2) actually or legally impossible to do
b. Liability for Damages arises for (1170)
Those who in performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages. (1170)
i. Fraud - responsibility arising from fraud demandable in all obligations (incidental fraud); waiver of
action for future fraud void for being contrary to law and public policy; (1171)
ii. Negligence - responsibility arising from negligence also demandable, but liability may be regulated
by the courts according to the circumstances (1172)
Distinction between fault and negligence: Element of bad faith. (1173)
Fault or negligence of the obligor consists in the omission of that diligence required by the nature of
the obligation and corresponds with circumstances of persons, of time and of place; when negligence
shows bad faith, provisions of article 1171 (fraud) and 2201, par. 2 shall apply. (1173)
iii. Delay discussion below
iv. Contravention to the tenor thereof
-in cases where the personal qualifications of the debtor are taken into account, the only remedy of the creditor is an action for
damages (since no one else can do it)
DELAY (Mora)
- Default of non-fulfillment of an obligation with respect to time.
1st GENERAL RULE: occurs from the time of creditors judicial or extrajudicial demand
Exception: Demand is not necessary to incur in delay when:
(1) obligation or law expressly declares
(2) time is a controlling motive
(3) demand would be useless
2nd GENERAL RULE: in Reciprocal obligations: delay happens from the moment one party fulfills. (1169) If neither
party performs his undertaking, neither incurs delay

Those obliged to deliver or do something incur in delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, demand by creditor shall not be necessary in order that delay may exist:
(1) when the obligation or law expressly so declares
(2) when from the nature of the obligation it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered is a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay
by other begins. (1169)
KINDS:
(1) mora solvendi by debtor

Requisites:
a. The obligation must be liquidated, due and demandable.
b. The debtor is guilty of non-performance.
c. There was demand made judicially or extra-judicially.

Effects when these elements are present:


a. The creditor may ask for damages.
b. The debtor is liable even if the loss is due to fortuitous events.
c. The debtor shall bear the risk of loss.

Instance when there is no default or mora solvendi


a. In negative obligations, because one can never be late in not doing or not giving
something.
b. In natural obligations, because the performance is optional or voluntary on the part of
the debtor.

(2) mora accipiendi by creditor

Requisites:
a.
b.

Offer of performance by the debtor.


Refusal of the creditor to accept without just cause.

Effects:
a.
b.
c.

Creditor shall bear the risk of loss.


All expenses for the preservation of the thing after the delay shall be borne by the creditor.
Creditor is liable for damages.

(3) compensation morae by the parties


Effect: Liability for damages (1170)
Exemption: caso fortuito (1174)
- prior to delay, i.e. delay has not set in (1165)
- without a promise to give to two differently interested parties (1165)
- no law or stipulation mandates liability for such (1174)
- not risky nature (1174)
Delay in payment of money is indemnified through interest unless a gratuitous mutuum or simple loan. If no stipulated
interest, default interest is (6%) six percent. (2209)
If obligation consists in payment of a sum of money, and debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six percent per annum. (2209)
NOTE: When there is delay, the injured party may ask for damages. But this benefit arising from Mora, default or delay may
cease upon:

Renunciation of the creditor

Prescription of action

Extension of time for the fulfillment of the obligation

Chavez v. Gonzales
Repairer of the typewriter, after several demands of the owner, returned such with missing parts and without having it
repaired. The owner had another company fix the typewriter, SC ruled that the original repairer can be held liable not only for the
missing parts but also for cost of the execution of the obligation of repairing the typewriter by another company. Repairer is
liable under article 1167 and 1170.

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SSS v. Moonwalk Development and Housing Corporation


SSS filed a complaint against Moonwalk alleging error in computation of 12% interest due to delay in payment thus
affecting the total amount the latter had to pay.
Held: on the claim for penalties, it is extinguished since a penal clause is an accessory penalty, which necessarily
follows the loan that has already been paid. Furthermore, nowhere in the case did it appear that SSS demanded payment from
Moonwalk of its monthly amortizations. There was mere attempt at foreclosure at first, and at the time of issuing of statement of
account, Moonwalk paid its obligation in full. Hence there was no delay. In turn, penalty never became demandable.
Aside: the court distinguished this case from Christian Missionary Society v. Social Service Commission by stating that
penalty therein was provided by law not by mere agreement of the parties.
Requisites of Default:
a) Obligation be due and demandable and already liquidated
b) Debtor delays performance or is guilty of non-performance
c) Creditor requires performance judicially and extra-judicially
N.B.
In this case, the third requisite was absent thus there was no delay. They did not demand for interests.
Extinguishment of principal carries with it the accessory penalty. Application of payment must be made first to the
interest. In payment of principal, there is presumption of extinguishment of the interest already. Likewise, receipt of later
installment of debts without reservation for prior ones shall also raise presumption that prior installments have already
been paid. (1176)

Bargaza v. CA
A contract was entered into for delivery of materials on Dec. 22, 1990 in time for the aggrieved partys wife who
expressly wished that she be buried before Christmas day, and where, despite knowing this timetable and having paid for the
materials, the supplier failed to make the delivery despite pleas and earnest follow-ups by the widower, Supreme Court ruled that
time was of the essence of such contract and the supplier should be liable for the delay and breach.
N.B. Example of incurring delay without judicial or extrajudicial demand. (#2)Time is of the essence. Contract
was entered into in view of burial before Christmas.
Agcaoili v. GSIS
The parties entered into a contract of sale of a government housing unit on the condition that Agcaoili should occupy the
same within three days from the receipt of notice. Failure to immediately occupy contractually allowed GSIS to terminate the
contract. Agcaoli upon receipt of notice, immediately went to the place and found a house in a state of incompleteness that
civilized occupation was not possible. He made the first monthly installment but refused to make further payments until and
unless GSIS completed the housing unit. GSIS cancelled the award and required Agcaoili to vacatethe premises. Held: GSIS had
no right to rescind sale. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. (1169, par. 6)
GROUNDS FOR LIABILITY TO PAY DAMAGES
FRAUD OR DOLO
Fraud may be defined as the voluntary execution of a wrongful act, or a willful omission, knowing and intending the
effects which will arise from such act or omission. This is distinguished from negligence in the sense that in fraud there is
intentional evasion of the normal fulfillment of the obligations. This fraud is called incidental fraud or dolo incidente,
committed in the performance of the obligation or after the contract is already perfected.
The other fraud referred to in the Civil law is provided in Article 1338, and this is committed before or at the moment of
creating the obligation, or dolo causante.
Kinds:

Dolo causante fraud in obtaining consent


Dolo incidente fraud in performing the contract

Renunciation of Fraud:
1. Future fraud cannot be renounced because the advance renunciation of the creditor would practically leave the
obligation without effect.

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2. Past fraud can be renounced. The fraud referred to is fraud in Article 1170, which is the malice or bad faith in the
performance of the obligation.
NEGLIGENCE/ CULPA/ FAULT
This fault or negligence is called culpa contractual and not culpa aquiliana or culpa extra-contractual. Culpa
contractual is the fault or negligence of the debtor as an incident in the fulfillment of an obligation, while culpa aquiliana is the
fault or negligence which constitutes an independent source of an obligation between parties not previously bound.
Test of Negligence:
Did the actor in doing the alleged negligent act use the reasonable care and caution which anordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence.
Culpa Aquiliana vs. Culpa Contractual

In CC there is a pre-existing contractual relation between the parties; while in CA there is none.

In CC the negligence of the actor is merely an incident in the performance of the obligation; while in CA it is
substantive and independent.
In CC the source of liability of the actor is the breach of contract; while in CA it is the negligent act or the omission
itself.
In CC the proof of contract and the breach is sufficient proof to warrant recovery of damages; while in CA the
negligence of the actor must be proved.

DELAY or MORA (discussed above)


CONTRAVENTION OF THE TERM OF THE AGREEMENT
In general, every debtor who fails in the performance of his obligation is bound to indemnify for the losses and damages
caused thereby. By the phrase in any manner contravenes the tenor means any illicit act, which impairs the strict and faithful
fulfillment of the obligation, or every kind of defective performance. It is therefore immaterial whether or not the actor is in bad
faith or negligent, what is required is that it is his fault or the act done contravenes their agreement.
CASO FORTUITO
Definition: events which could not be foreseen, or which though foreseen are inevitable. (1174)
Art. 1174 Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the
obligations requires assumption of risk, no person shall be responsible for for those events which, could not be foreseen, or
which though foresee, are inevitable.
An act of God is defined as an accident, due directly and exclusively to natural causes without human intervention, which
by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (Nakpil v. CA)
In contrast, force majeure is a superior or irresistible force, which is essentially an act of man, such as wars, strikes, riots,
acts of robbers, pirates, and brigands.
Effects of fortuitous events in the performance of an obligation:
When a debtor is unable to fulfill his obligation because of fortuitous events or force majeure, his obligation to comply
is extinguished subject to the following exceptions:
Exception to exemption from responsibility:
(1) cases expressly specified by law
Ex:

Art. 1165 - If the debtor delays or has promised to deliver the same thing to two or more persons who do not have
the same interest, he shall be responsible for any fortuitous event until he has effected the delivery.

Art. 1268 When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not
be exempted from the payment of the price, whatever may be the cause for the loss, unless there is refusal without
justification on the part of the creditor to accept the thing.

Art. 1942 par 1 The bailee is liable for the loss of the thing even if it should be through a fortuitous event, if he
devotes the thing to any purpose different from that for which it has been loaned.
(2) declared by stipulation
(3) nature of the obligation requires the assumption of risk (1174)
Requisites for exemption:

12

(1)
(2)
(3)
(4)

cause of event or debtors failure independent of human will


impossible to foresee or avoid
impossible for debtor to fulfill in normal manner
debtor free form participation in the aggravation of the injury to the creditor (Nakpil v. CA)

J. Nakpil and Sons v. CA:


The building of the Philippine Bar Association collapsed during an earthquake. It was not held to be a fortuitous event because
experts were able to show inferiority in the structure as regards to the plans and quality of structure. Besides, there were other
buildings surrounding the area that withstood such an earthquake.
N.B. One who negligently creates a dangerous situation cannot escape liability for the natural and probable
consequences thereof although an act of God intervened to precipitate the loss. There must be no fraud, negligence, delay
or violation or contravention in any manner of the tenor of the obligation.

ACCION SUBROGATORIA and ACCION PAULIANA


RIGHTS OF CREDITOR AGAINST DEBTOR
(1)
(2)
(3)
(4)

To demand fulfillment of the obligation or specific performance.


To attach the properties of the debtor, except those exempt by law from execution.
Accion subrogatoria
Accion Pauliana

Accion subrogatoria: Novation via change of creditor (1291, no. 3)


Definition: involves the right of the creditor to exercise all of the rights and bring all of the actions which the
debtor may have against third persons.
Requisite conditions:
a) Debtor to whom the right or action properly pertains must be indebted to the creditor.
b) Creditor is prejudiced by inaction or failure of the debtor to proceed against the third person.
c) Creditor must first pursue and exhaust all properties of the debtor not exempted from execution.
B.

Accion Pauliana: Rescission

Definition: involves the right of the creditor to attack or impugn by means of a rescissory action any act of the
debtor which is in fraud and to the prejudice of his rights as creditor.
1. Subsidiary:
-in character since it can only be availed of in the absence of other legal remedies for reparation for
the injury. (1294)
-after having pursued the property in possession of the debtor to satisfy their claims (1177)
2. Creditor may exercise all the rights (except those inherent in the person)
3. Bring all the actions of the debtors for the same purpose (to satisfy claims)
4. Impugn the act, which the debtor may have done to defraud them (1177)
Debtor liable to creditors with all his property and rights, except those exempt by law from attachment or execution
such as right to ask for legal support, right to public office, parents right of usufruct over the property of their
minor children,family home until Php 300,000)
Creditors are protected in cases of contracts intended to defraud them (1313)
Rule 39 judicial procedure for accion pauliana, accion subrogatoria
Sec. 12: The levy on execution shall create a lien in favor of the judgment obligee over the right, title and interest of the
judgment obligor in such property at the time of the levy, subject to liens and encumbrances then existing
Sec. 37: judgment remains unsatisfied and a person is indebted to the obligor > court may require person to appear before the
court and be examined > service of order binds all credits and all money and property > court may also require notice of
proceedings to any party
Sec. 39: after writ of execution, person indebted to obligor may pay sheriff, sheriffs receipt shall be sufficient discharge for the
amount so paid or directed to be credited by the judgment obligee on the execution
Sec. 40: The court may order any property of the judgment obligor, or money due him, not exempt from execution, in the hands
of either himself or another person, to be applied to the satisfaction of the judgment, subject to any prior rights over such
property. If upon investigation of his current income and expenses, it appears that the earnings of the judgment obligor for his
personal services are more than necessary for the support of his family, the court may order that he pay the judgment in fixed
monthly installments
TRANSMISSIBILITY:

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GENERAL RULE: all rights acquired via an obligation are transmissible


Except: stipulations, law and nature of right provide otherwise
Exceptions to transmissibility:
(1) when prohibited by law,
(2) when prohibited by stipulation of the parties,
(3) when prohibited by reason of the nature of the right, such as when the right is personal.
-subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the
contrary (1178)
-Contracts take effect only as between the parties, their assigns and heirs, except where the rights and obligations arising
from the contract are not transmissible:
Estate of K. Hemady v. Luzon Surety Co.
Supreme Court recognized Luzon Surety Co.s right to go after the estate of Hemady on account of different indemnity
agreements, or counter bonds. First, although the heirs responsibility is limited to the amount they inherited, they succeed both
rights and obligations of the deceased. By nature, the counterbond expects reimbursement to Luzon Surety regardless of whether
it was to be made by Hemady or his heirs. Intransmissibility according to stipulation cannot also hold as there is no express
provision in the agreements. Lastly, there is no law extinguishing suretyship or guaranty upon death of one of the parties. But
there is a law limiting the heirs liability to what they have inherited.
KINDS OF OBLIGATIONS:
Primary Classification according to the Civil Code:
(1) Pure and conditional
(2) With a period or with a term
(3) Alternative and facultative
(4) Joint and solidary
(5) Divisible and indivisible
(6) With a penal clause
Secondary Classification according to the Civil Code:
(1) Unilateral and bilateral
(2) Real and personal
(3) Determinate and indeterminate
(4) Positive and negative
(5) Legal and conventional
(6) Civil and natural
Pure and Conditional Obligations
a. Pure not dependent upon a future or uncertain event, or past unknown to parties, is demandable at once.
b. Conditional dependent upon a future or uncertain event, or past unknown to parties. Demandability depends on
whether it is suspensive or resolutory.
i.
Suspensive give rise to demandability of obligation
ii.
Resolutory terminates obligation
Certain Condition: Term - A day certain is understood to be that which must necessarily come, although it may not be
known when. Demandability also depends on whether it is suspensive or resolutory.
Difference between conditional and those with a term: uncertainty or certainty of a day
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be
regulated by the rules of the preceding section. (1193)
A. PURE OBLIGATIONS: demandable at once
Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without
prejudice to the effects of the happening of the event (1179)
Pay v. Viuda de Palanca
The debtor issued a promissory note to the creditor to pay a sum of money payable upon receipt of a particular sum of money
from the estate of a certain deceased person upon demand, and where the case for collectionon the basis of said not was filed 15
years after execution of promissory note, the Supreme Court ruled that, since the prescriptive period for filing the action was 10
years and considering that the promissory notes payment constituted a pure obligation and therefore demandable at once, the

14

action to collect could no longer prosper. It was deemed pure since satisfaction of credit could be realized either through debtor
sued receiving cash payment from the estate of the deceased or upon demand. Fifteen years from issuance of promissory note
is much too long.
B. CONDITIONAL OBLIGATIONS:
Effects:
1. acquisition of rights or termination of rights (1181)
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition (1181)
There are principally two kinds of conditions:
(1) a suspensive condition suspends the acquisition of rights until the conditions is fulfilled; that is, until the
happening of the event which constitutes the condition
(2) a resolutory condition causes the extinguishment or loss of rghts already acquired upon the fulfillment of
the condition, that is, the happening of the event which constitutes the condition
2. When means permits is deemed a period subject to court determination. When the debtor binds himself
to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the
provisions of article 1197 (1180)
If debtor will pay when his means permit him to do so, or words of similar import, such as,

When I can afford

When I am able to

When I have money


The obligation is not conditional but with a period. The payment here does not depend upon the will of the debtor, it is
only the time when payment is to be made. Since we are referring to the time of effectivity, we consider it a term or a
period. Since the time for payment depends upon the will of the debtor, immediate performance cannot be enforced, the
right of the creditor is to go to court and let the court fix the date of payment.
3. Kinds of conditions under Art. 1182:

Potestative one which depend upon the will of one of the parties (facultative condition)

Casual one which depends exclusively upon chance

Mixed one which depends upon the will of one of the contracting parties and partly upon chance or the
will of a third person
4. Impossible (physically and logically) and illegal conditions:

If the condition is to do an impossible or illegal thing, both the condition and the obligation are void.

If the condition is negative, that is, not to do an illegal thing, both the condition and the obligation are
valid.

If the condition is negative, that is, not to do the impossible, just disregard the condition, but the obligation
remains.
5. Resolutory condition: event happens at determinate time, or indubitably will not happen. the condition that
some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has been
indubitable that the event will not take place (1184)
6. Suspensive condition: event will not happen at determinate time, evident that such cannot occur. the condition
that some event will not happen at a determinate time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition
shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the
obligation (1185)
7. Deemed fulfilled when obligor prevents such. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment (1186) (constructive or presumed fulfillment)
8. Resolutory condition: each returns what each has received from another. when the conditions have for their
purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to
each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return
(1190)
These rules apply if the resolutory condition takes place, creating the original creditors obligation to return the thing
received.
7. Retroactivity of effect of conditional obligations
a. To give:
i. Retroact to day of obligation.

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ii. Mutual compensation in reciprocal obligations.


-seemingly contemplates a simultaneous performance of prestations because otherwise,
the fruits and interests would not be able to offset the other
iii. If unilateral, debtor shall appropriate fruits and interests received unless intention
constituting such was different.
- Since debtor still has possession of thing to be given he has control, and power
to appropriate such but subject to accounting per demand by the creditor as
provided for by 1537 wherein all fruits pertain to the vendee from the time of
perfection of the contract. This is in accordance to 1164 wherein there is
already personal right at perfection of contract but real right vests only upon
delivery.
The effect of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of
the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during
the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor
shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred
that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine,
in each case, the retroactive effect of the condition that has been complied with (1187)
o To do or not to do
- Court determines extent of retroactivity.
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been
complied with (1187)
Jurado
(1)Why? Because a condition is a mere accidental provision in the obligation, which is constituted by the consent of the
parties. Therefore, the effects of the conditional obligation, whose efficacy is merely suspended by the condition, once
the condition is fulfilled, must retroact to the time of consent, for it was at this moment that the contract was perfected
and the obligation arising therefrom established. Hence, if the thing is improved by nature or by time, the improvement
shall inure to the benefit of the creditor.
(2)The purpose of this rule is to avoid the necessity of mutual accounting for the fruits and interests received.
(3)Giving to the debtor the fruits or interests received in case of unilateral obligations is just because the creditor does
not acquire a right to the thing until the condition is fulfilled and the debtor does not receive any valuable consideration
from him. Of course, if the debtors intention is otherwise, it must govern, as where it is provided, or inferable that he is
to account for the fruits or interests received during the pendency of the condition.
(4)In obligations to do or not to do, the power of the courts to determine, in the case of one or the other, the retroactive
effect of the suspensive condition which has been fulfilled includes fixing the date of such retroactive effect. The
principle is applicable to resolutory conditions as regards the extinguishment of the obligation.
o the creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he
shall acquire no real right over it until the same has been delivered to him (1164)
o the vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they
were upon the perfection of the contract
all the fruits shall pertain to the vendee from the time day on which the contract was perfected (1537)
PLDT v Jeturian
Before the war, PLDT established a pension plan for its employees. After the war, PLDT abolished such due to war losses. 60
employees filed this action for monetary benefits under the pension plan. The employees were deemed entitled to the said
pension plan. Although they have not reached the suspensive condition of age and years of service, the employees have acquired
an expectancy that is valuable which the law protects. They may take action as maybe appropriate to preserve their conditional
right.

INTERIM OBLIGATIONS
A. TO GIVE
Suspensive conditions:
a. Exercise due diligence; otherwise, responsibility for loss, deterioration (1189)
Improvement inures to creditor, if at expense of debtor only usufructuary right (1189)
o when the conditions have been imposed with the intention of suspending the efficacy of an obligation to give,
the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
(1) if the thing is lost without the fault of the debtor, the obligation shall be extinguished

16

(2) if the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood
that the thing is lost when it perishes or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
(4) when the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor;
(5) if it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages in either case;
(6) if the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the
creditor;
(7) if it is improved at the expense of the debtor, he shall have no other right than that granted to the
usufructuary (1189)
Resolutory Conditions:
a. Obligation to return what has been received (1190)
- when the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they have received.(1190)
b. Exercise due diligence; otherwise, responsibility for loss, deterioration (1190 in relation to 1189)
Improvement inures to creditor, if at expense of debtor only usufuctuary right (1189)
in case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor,
are laid down in the preceding article shall be applied to the party who is bound to return.
B. TO DO or NOT TO DO
A. Court determination of retroactive effect of obligation (1190 in relation to 1189)
as for obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards
the effect of the extinguishment of the obligation (1190)
INTERIM REMEDIES
Only for Suspensive Conditions: no pendency in resolutory since it is immediately demandable
a. Creditor may bring appropriate action for preservation of right (1188)
creditor may, before fulfillment of condition bring the appropriate actions for the preservation of his
right. (1188)
b. recovery of payment by mistake (1188)
the debtor may recover what during the same time he has paid by mistake in case of a suspensive
condition (1188)
In an obligation subject to a suspensive condition, the creditor does not acquire a right until the happening of the event
which constitutes the condition. Nevertheless, he has an expectancy and in that sense, he has a right which he is entitled to
preserve by means of an appropriate action. For example, in a contract of sale subject to a suspensive condition, in case the
seller is about to sell the thing to another vendee, the first vendee may bring an action to enjoin the second sale.
Where the thing was paid voluntarily and without mistake before the fulfillment of the condition, there must have been a
novation or some other cause for payment. Hence, the right to recover is limited to payment by mistake before the
fulfillment of the suspensive condition, for in such case there was payment of what was not due.
IMPLIED CONDITION:
A. Compliance by the other: with the duties incumbent upon him as party to the debt
- in reciprocal obligations, a party cannot demand unless he complies or is ready to comply with obligations.
(inferred from 1169)
- subject to same rules on interim obligations and interim remedies

(1)
(2)
(3)
(4)
(5)
(6)

when the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency
of the condition:
if the thing is lost without the fault of the debtor, the obligation shall be extinguished
if the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it
perishes or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;
when the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
if it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its
fulfillment, with indemnity for damages in either case;
if the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
if it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary (1189)
When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are
laid down in the preceding article shall be applied to the party who is bound to return.

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As for obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as
regards the effect of the extinguishment of the obligation (1190)
B. Non-compliance
1. By one party:
RESOLUTION:
a. in Reciprocal Obligations, and the other does not comply
i. Power to Rescind plus damages
ii. Compel fulfillment and then rescind if such becomes impossible
b. Court decrees rescission unless just cause for authorizing a period
c. Without prejudice to third persons
The power to rescind obligation is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him;
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law. (1191)
2. By both parties: (1192)
a. Rule against first infractor, as tempered by courts
b. If first infractor cannot be determined, obligation extinguished
in case both parties have committed a breach of the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own damages.(1192)
Songcuan v. IAC
Alviar sold property to Songcuan. The contract included a right of redemption plus costs of improvements within ten years.
There was also a stipulation wherein on such occasion Songcuan was entitled to become a lessee of the said land. The case
involves two obligations: reconveyance and lease. The obligation of reconveyance does not depend on the obligation to lease,
rather, obligation to lease arises only after reconveyance. Songcuans remedy is that for specific performance. Only the area
actually used by Songcuan was mandatorily leased to him; only 1/3 of the area in question.
N.B. here is an example of a conditional obligation.
Philippine Amusement Enterprises, inc. v. Natividad
Plaintiffs leased a jukebox to Natividad as owner of Irenes refreshment Parlor in Davao. Natividad wanted to return said
jukebox since the coins always got stuck in the slot. They stopped operating said machine and bought their own jukebox. The
Supreme Court ruled against the defendants ordering the return of the jukebox and payment of liquidated damages.
N.B. Rescission should be done judicially unless stipulated in the contract. Rescission will only be granted if breach of the
obligation is substantial and not mere occasional malfunction of the machine without even an allegation of loss of income.
Ocejo v. International Banking Corp.
Chua Teng Chong executed a promissory note to the Bank with 5,000 piculs of sugar as security. Ocejo then enters a deal with
Teng Chong for a sale of sugar. The bank then finds out that Teng Chong originally had only 1800 piculs and proceeded to claim
3,200 of the sugar recently delivered by Ocejo to Teng Chong, which the latter also refused to pay for. In short, Teng Chong was
an asshole to both parties involved.
The Supreme Court ruled:
a. the title of sugar did pass from Ocejo to Teng Chong upon delivery. It was not a cash sale requiring simultaneous
payment. If it were otherwise, there would be business repercussions sale to third party would be void, plus the fact
that the buyer must bear the consequences should the thing perish.
b. Ocejo has the power to rescind but only through the courts in proper proceedings.
c. Bank did not have right to the sugar in controversy as it was a different set from that which was pledged as security.
However, the bank has a right of action against the property of Teng Chong.
Hanlon v. Haussermann
The parties involved agreed to have a flotation proposition to help rehabilitate Benguet Mining Co. Hanlon and Sellner were to
provide for 75 thousand in exchange for shares in the company. However, the 6 month period has elapsed without the said
payment by Hanlon. Supreme Court held that Hanlon did not have a right to Hausermann et al.s shares as the six month period
was a resolutory condition after which default of either party discharged the obligation of the other. Although one contract
did not have a resolutory condition, it is deemed that time was of the essence given that the agreement was in the form of an
option, and that the subject matter, which is Mining property had speculative and fluctuating value. After the 6-month period had
lapsed, Haussermann had the right to look after the interest of the company as its officers and stockholders. It does not appear

18

that defendants acquired any special knowledge or feasibility of reconstruction of the mine by reason of their relation with
Hanlon.
N.B. Ocejo doctrine of judicial rescission does not hold as there is no sale of goods that has been fully performed through
delivery; i.e. no money was given by Hanlon in consideration of the stocks. The contract here was executory on both sides
up until the extinguishment of the 6 month resolutory period.
UP v de los Angeles
UP was given a land grant by law to provide for its additional income. It entered a contract with ALUMCO to log timber from
said property. The latter then became deficient in its payment, but entered into another agreement with UP providing the manner
of payment. Note that the parties stipulated rescission of logging agreements without the need for any judicial pronouncement.
ALUMCO then became deficient in payment of its accounts again. UP conducted a bidding and awarded logging rights to Sta.
Clara lumber hardware after informing ALUMCO that UP is rescinding their contract. SC held UP had a right to do so.
N.B. Judicial pronouncement was unnecessary as it was clearly expressed in their contract. No law prohibits parties from
entering agreements wherein violation of the terms of contract would cause cancellation even without court intervention.
Rescission on account of infractions by the other party by one of the parties must be made known to that other party who
in turn can seek for judicial remedy should he feel that rescission is unjustified.
Central Philippine University v. CA
Don Ramon Lopez donated land to CPU with the condition that a medical college would be established upon it. After 50 years,
the heirs want to judicially rescind donation for non-compliance with the said condition. The condition is deemed resolutory, i.e.
the school has obligation to set up medical college building the moment it accepted the donation with said condition. The deed of
donation did not specify a period. Article 1197 provides that courts may fix the duration wherein it can be inferred from its nature
and circumstances that a period was intended. However, the court said that 50 years is sufficient time for CPU to have fulfilled
its obligation of establishing a medical college. Art. 1191 provides that when one of the obligors cannot comply, obligee may
seek rescission and the court shall decree the same unless there is just cause to fix a period. CPU has slept on its obligation for an
unreasonable length of time, donation must be rescinded.
N.B. We have to clarify the difference between an onerous and gratuituous title since the majority opinion mentioned that
the donation was both gratuituous and onerous as pointed out by Davides dissent. Note that the vote here is 3 to 2. The
case illustrates discretion on the part of the courts in rescinding contracts.
OBLIGATIONS RENDERED VOID BY CERTAIN CONDITIONS
Annulling conditions:
a. Potestative only if suspensive condition dependent solely on will of debtor
when the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void.
If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code. (1182)
b. Impossible Conditions (1183)
c. those contrary to law, good customs, morals, public order or public policy (1183)
- separable if divisible (1183)
Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible, the part thereof which is not affected by the
impossible or unlawful condition shall be valid. (1183)
d. Not to do an impossible thing not agreed upon
The condition not to do an impossible thing shall be considered as not having been agreed upon (1183)
Lao Lim v. CA
The stipulation that the lessee has the right to renew contract of lease as long as he needs the premises and he can pay for the
same is invalid. It would leave the lessee, Dy the sole power to determine whether the lease should continue or not. A general
covenant to renew is deemed satisfied by one renewal unless provision is clearly and expressly made for further renewals. Lease
contract deemed extinguished at the end of a year, subject to renewal via new agreement but the lessor did not want to renew.
Ergo, no more lease.

Osmena v. Rama
Tomas Osmena was given by Rafols all the rights the latter inherited from Victoriano Osmena to claim payment from Rama on
account of a loan they contracted. Tomas Osmena presented contracts to Rama for payment, which she acknowledged. They
executed another contract wherein she promised to pay once her house in Pagina was sold. The Supreme Court ruled the
condition as invalid as it was dependent on the sole will of Rama, Her acknowledgement, therefore, is absolute and sufficient to
prevent the statute of limitation from barring action upon the original contract. Her defense of prescription cannot hold.

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Romero v. CA
Romero and foreign partners wanted to set up a warehouse in Metro Manila. They bought land from spouses Flores. There was a
acontract of sale with the condition that squatters would be removed from the property after 60 days. Failure to do so would
mean returning the down payment to the vendee. There was a court order evicting the squatters but such was handed down
beyond the 60 day mark. Flores then offered to return down payment as they could not get rid of the squatters. The Supreme
Court ruled that only the injured party could have an action for rescission. Only the vendee has the option to proceed with
agreement or waiving the said condition. Rescission under Art. 1191 is predicated on a breach of faith by the other party that
violates the reciprocity between them.
N.B. In short, this case shows that one cannot rescind a contract on account of ones own failure to fulfill an obligation.
Naga Tel. Co. v. CA
NATELCO entered a contract with CASERECO wherein the former was allowed the use of electric post. NATELCO installed
ten phone lines for CASERECOs use free of charge. After 10 years, CASERECO wants to reform the contract, as it was onesided - they were unjustly compensated, and the phone lines have become heavy and their installation have weakened the said
posts due to holes that have to be made. Supreme Court allowed for reformation as an increase in phone subscribers necessitate
an increase in compensation for the use of electrical posts. NATELCOs unjust enrichment must not be allowed at CASERECOs
expense. There is no prescription as it could only be counted from the time the contract became disadvantageous. Furthermore,
there is a potestative condition dependent on the will of NATELCO, which must be declared invalid. The provision that the
contract shall be valid as long as NATELCO needed the electric posts is untenable.
N.B. Reformation of contract is not a new contract but is an action to make instrument to express the parties real
agreement. Only the instrument of the contract is changed. This case is another example of an invalid potestative
condition.
Ducusin v. CA
A contract of lease for a one-door apartment was entered into. It provided that the term of the contract shall be on a month-tomonth basis commencing on Feb. 19, 1975, until terminated by mutual agreement or terminated by the lessor on the ground that
his children need the premises for their own use. The Supreme Court held such a condition to be valid as the second condition
depended on the will of third persons that of the children of the lessor.
N.B. Only that which is dependent on the sole will of the debtor is invalid. No one is supposed to have sole power.
OBLIGATIONS WITH A TERM:
a. Acquisition of rights for suspensive terms / termination of right for resolutory terms:
- AT A DAY CERTAIN
Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by
the rules of the preceding section. (1193)
A period is a certain length of time, which determines the effectivity or the extinguishment of an obligation. A
period or term consists in a space of time, which has an influence on obligations as a result of a juridical act and
either suspends their demandableness, or produces their extinguishment.
In par. 1, the period is suspensive (ex die).
In par.2, the period is resolutory (in diem).
Example of paragraph 3A promises to give P5,000 to B when X dies. The death of X must necessarily come
although it is not known when.
Example of paragraph 4-- A promises to give B the amount of P1,000 if the horse Napoleon owned by C
should die in 30 days. It is not certain whether the day of the horses death will come or not in 30 days.
Kinds of period:
(1) According to source
a. Legal fixed by law
b. Voluntary fixed by the parties
c. Judicial fixed by the court
(2) According to effect
a. Ex-die period must lapse before the obligations can be demanded.
b. In-diem period after which the obligation is extinguished
(3) According to definiteness
a. Definite refers to a fixed known date or time
b. Indefinite refers to an event which will necessarily happen but the date of its happening is not known.

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Requisites of Period:
(1) It must refer to the future.
(2) It must be certain.
(3) It must be possible.
Period distinguished from a condition:
(1) As to fulfillment a period is a certain event, which must happen sooner or later at a date known
beforehand or at a time, which cannot be determined; while a condition is an uncertain event.
(2) As to time a period refers only to the future, while a condition may also refer to a past event unknown to
the parties.
(3) As to influence on the obligation a period merely fixes the time for the efficaciousness of the obligation.
On the other hand, a condition causes an obligation to arise or to cease. (Art. 1193)
Effect of payment before the arrival of the period:
The debtor may recover what he has paid including the fruits and interest if he is unaware of the period. If he
paid voluntarily knowing that the obligation is not yet due, he cannot recover what he has paid.
b. Interim obligations
In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in
article 1189 shall be observed.

1.

i. Exercise due diligence; otherwise, responsibility for loss, deterioration (1189)


ii. Improvement inures to creditor, if at expense of debtor only usufructuary right (1189)
When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of
the condition:
if the thing is lost without the fault of the debtor, the obligation shall be extinguished
2. if the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be recovered;
3. when the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor;
4. if it deteriorates through the fault of the debtor, the creditor may choose between the rescission
of the obligation and its fulfillment, with indemnity for damages in either case;
5. if the thing is improved by its nature, or by time, the improvement shall inure to the benefit of
the creditor;
6.
if it is improved at the expense of the debtor, he shall have no other right than that granted to the
usufructuary (1189)
iii. Recovery payment or delivery before due and demandability
Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the
obligation has become due and demandable, may be recovered, with the fruits and interest. (1195)
c. Benefit of the period
i. Presumption: benefit for both
Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the
creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has
been established in favor of one or of the other. (1196)
If the period is for the benefit of both parties, the creditor may not, before the expiration of the period, demand
fulfillment; neither may the debtor fulfill. If the period has been established solely for the benefit of the
creditor, he may demand fulfillment when he pleases but the debtor may not oblige him to accept before the
arrival of the period. If teh period has been established solely for the benefit of the debtor, he may, use it to
oppose a premature demand, or renounce it and pay in advance of maturity.
Abesamis v. Woodcraft Works, Inc.
The contract provided that the appellant shall make shipment before the end of July, but will not commence earlier than April
with the option to make partial shipment depending on the availability of logs and vessels. The Supreme Court, in deciding who
was to bear the loss as a result of the typhoon in a contract for delivery of logs, ruled that the quoted provision provides for a
period. The designated time was calculated to avoid typhoons. On May 5, 1951 the appellant failed to send a vessel to pick up
the logs, which were consequently swept away by a typhoon. Since the said date was within the period prescribed, none could
incur delay nor demand performance. The loss should be shouldered by the appellee or the logger.

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d. Fixing of a period
i. In the following cases, the court may fix a period: (1197)
(1) No stipulation, but period is intended as inferred from the nature and circumstances of the
obligation
(2) If the duration depends upon the will of the debtor
(3) If the debtor promises to pay when his means permit
ii. Once fixed by the court, the period cannot be changed by such court but the parties may always change the period
by mutual agreement. (1197)
If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot be changed by them. (1197)
iii. Instances when the court may not fix the term or period

When no term has been specified by the parties because no term was ever intended, in which case it is considered
a pure obligation.

When the obligation is payable on demand.

When specified period is provided by law.


Gregorio Araneta, Inc. v. Philippine sugar Estates Development Co., Ltd.
Two year period set by the lower court was struck down for being arbitrary. The court must determine that the obligation does
not fix a period but from the nature and circumstances it can be inferred that a period was intended. From the facts of the case, it
can be inferred that the parties intended to defer performance of obligations until after the squatters were duly evicted. Both of
the parties knew that there were squatters in the property. No specific period can be made as eviction consists of legal processes,
which take an indefinite amount of time. Although it was indefinite, such was the intention of the parties and courts could not
just assign a period out of thin air.
N.B. Requisites and guidelines for setting a period: there is no period specified but such was intended. Courts should just
fix a period, which the parties could have intended.

Roman v. CA
Sarangaya and Roman entered a contract for the sale of 5 parcels of land. It provided that Roman would pay Sarangaya within
sixty days after the latter has secured titles for the said lots. Otherwise the vendees would be liable for Php 50,000 in liquidated
damages. Sarangaya was able to obtain titles but the vendees were not able to pay him within the prescribed period. Trial court
ruled that Roman should purchase the land at its settled purchase price, and pay for legal costs and attorneys fees. Reliance was
made on Article 1191. The Supreme Court ruled that the lower court erred in fixing a period. Purchase offer and counter-offers
were already abandoned by the parties and thus adjudication on the said bases was improper. The Trial Court did not fix a period
within which Roman could comply with the obligation but merely ordered the purchase to push through. Furthermore, there is no
just cause as required by art. 1191. It is unjust to grant an extension of 6 years, done by ordering the purchase, for Roman to
comply with his obligation. Roman could just have purchased the land after being served the summons.
e. Losing the right to use a period
i.

Grounds:
1.
insolvency, unless guaranty or security
2.
does not furnish promised guaranties or
securities
3.
-impaired established guaranties or
securities
-loss of such thru fortuituous event, unless replace with new ones satisfactorily
4.
violation of consideration of which the
creditor agreed to the period
5.
attempt to abscond

The debtor shall lose every right to make use of the period:

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(1) when after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the
debt
when he does not furnish to the creditor the guaranties or securities which he has promised
when by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event
they disappear, unless he immediately gives new ones equally satisfactory
when the debtor violates any undertaking in consideration of which the creditor agreed to the period
when the debtor attempts to abscond (1198)
In all the cases above, the obligation despite the fact that the period has not yet lapsed, shall become immediately payable
or demandable.
The word insolvent does not require a judicial decree of insolvency. It should be understood in its ordinary meaning which
may embrace different degrees of financial embarrassment. The insolvency must have occurred after the obligation was
constituted. In No. 3 it is sufficient that the guaranties are impaired by the acts of the debtor but in case of fortuitous event, it is
required that the guaranties disappear. The word disappear should not be understood in its literal sense but in its legal sense.
Gaite v. Fonacier
Payment of obligation was secured by two surety bonds: one from a mining company and its stockholders and the other from a
bonding company. The obligor was obliged to pay the indebtedness from the time it received the proceeds of the sale of iron ore,
the Supreme Court ruled that the obligor in this case lost its right to the period. Failure to renew an expired surety with the
bonding company constituted an impairment of the securities or guaranties. Thus, Fonacier lost his right to the period, i.e. time to
sell the iron ore, unless he immediately gives new ones equally satisfactory.
Effect of Loss of right to term: Demandability - references of delay and liability
A. Delay starts from time of judicial or extrajudicial demand
Unless:
1. obligation or law expressly declares
2. time is a controlling motive
3. demand would be useless
Reciprocal obligations: delay happens from the moment one party fulfills (1169)
kinds:
mora solvendi - delay of obligor or debtor
mora accipiendi delay by obligee or creditor
compensation morae delay of parties in reciprocal obligations
B. Compel compliance: responsibility for loss, deterioration, or improvement (1189)
When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following
rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:
a. if the thing is lost without the fault of the debtor, the obligation shall be extinguished
b. if the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is
lost when it perishes or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot
be recovered;
c. when the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
d. if it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and
its fulfillment, with indemnity for damages in either case;
e. if the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
f. if it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary (1189)

DIVISIBILITY OF RIGHT TO DEMAND OR OBLIGATION TO PERFORM


(SINGLE VERSUS MULTIPLE PARTIES)
JOINT OBLIGATIONS
a. Definition
JO is one where the whole liability is to be paid or fulfilled proportionately by the different debtors and/or is to be demanded also
proportionately by the different creditors. Also called pro-rata, proportionate, mancomunada, mancomunada simple.
b. In case there are two or more debtors or creditors, the law presumes a joint liability. (1207)
The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one
of the former has a right to demand, or that each one of the latter is bound to render entire compliance with the prestation. There

23

is a solidary obligation only when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity. (1207)
Solidarity exists only:
(1) When stipulated. When stipulated by the parties using such words like jointly and severally, in solidum, I
promise to pay in a note signed by two or more debtors, or similar words;
(2) Provided by law. When solidary liability is provided for by law. Thus, civil liability arising from crimes,
negotiorum gestio, commodatum or quasi-delict shall be solidary;
(3) According to its nature. When the nature of the obligation requires solidarity.
c. Presumed equal division according to parties, credits and debts being distinct from the other. (1208)
If from the law, or the nature of the wording of the obligations to which the preceding article refers the contrary does not appear,
the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts
being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1208)
Jurado : In a joint obligation, each debtor shall be liable only for his part of the debt presumed to be eaual with the
other debtors. The above provision is consistent with the rule that a joint obligation is presumed in case of plurality of
debtors or creditors for solidary obligation exists only when the law so provides, when expressly stipulated by the
parties or when called for by the nature of the obligation.
d. Some feature of joint liability

Insolvency of one debtor does not make the others liable.

Vitiated consent on the part of one debtor does not affect the others.

Demand made to one of the debtors is not a demand to all because the debt of one is
distinct from the others.
Philippine National Bank v. Sta. Maria
The principal, in a special power of attorney, merely empowered his agent to borrow money and deliver mortgages of real estate
to the creditor and where the said agent indeed borrowed money but executed a mortgage not on the account of his principal but
in his own name. The Supreme Court applying Art. 1207 ruled that the mortgage was not joint and several because the special
power of attorney did not grant the authority to bind her solidarily with him on any loan he might secure thereunder.
N.B. There was no express statement in the obligation, nor was there a law or nature of the obligation requiring
solidarity.
Jaucian v. Querol
In October, 1908, Lino Dayandante and Hermenegilda Rogero executed a private writing in which they acknowledged
themselves to be indebted to Roman Jaucian in the sum of P13,332.33. Hermenegilda Rogero signed this document in the
capacity of surety for Lino Dayandante; but as clearly appears from the instrument itself, both debtors bound themselves jointly
and severally to the creditor, and there is nothing in the terms of the obligation itself to show that the relation between the two
debtors was that of principal and surety. Hermenegilda Rogero died, and her estate is now administered by Querol. The Supreme
Court held that Jaucians claim against the estate is not contingent but absolute, the latter being solidarily liable. His claim did
not depend on whether or not Jaucian exhausts all the property of Dayandante in satisfying his claim, but rather as a solidary codebtor, the former can go after Rogeros estate. Dayandante was declared insolvent as he could not satisfy his debt to Jaucian as
decreed by the court, regardless of such, Jaucian can still go after Rogeros estate.
The Civil Code make it clear that Hermenegilda Rogero was liable absolutely and unconditionally for the full amount of
the obligation without any right to demand the exhaustion of the property of the principal debtor previous to its payment. Her
position so far as the creditor was concerned was exactly the same as if she had been the principal debtor.
The opinion contains an exposition of the difference between the juridical conceptions of liability incident to multiple
obligations, as embodied in the civil law and common law respectively; and the civil law distinction is noted between the
apportionable joint obligation and the solidary joint obligation. At common law each of the debtors in a multiple obligation is
liable in solidum for the whole, the obligation not being apportionable among the debtors.
N.B. In a given contract, wherein a party signs as a surety but the agreement states joint and several liabilities, there is a
solidary obligation.
JOINT INDIVISIBILITY
A joint indivisible obligation is one in which the object or prestation is indivisible, not susceptible of division; while
the tie between the parties is joint, that is, liable only to a proportionate share.

Prejudiced only by collective acts of ALL creditors (1209)

Enforced against ALL debtors (1209)


If the division is impossible, the rights of the creditors may be prejudiced only by their collective acts, and the debt can be
enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his
share. (1209)
The above article contemplates an obligation which is joint as to the parties but indivisible as to compliance. The
concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The
same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are
prejudicial. But an act beneficial to al like interruption of prescription may be performed by one of the creditor.

24


Indivisibility is not necessarily solidary (1210)
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.
(1210)
Characteristics:
(1) Demand must be made to all the joint debtors.
(2) The creditor must proceed against all the joint debtors, because the compliance of the obligation is
possible only if all of the joint debtors would act together.
(3) If one of the debtors is insolvent, the other shall not be liable for his share.
(4) If one of the debtors cannot comply, the obligation is converted into monetary consideration. One who is
ready and willing to comply will pay his proportionate share, and the other not willing shall pay his share
plus damages when his financial condition will improve.
(5) If there is more than one creditor, delivery must be made to all, unless one is authorized to receive for the
others.
SOLIDARY OBLIGATIONS
a. Definition
SO is one where each of the debtors is bound to render compliance of the entire obligation and/or each one of the creditors has a
right to demand entire compliance of the prestation. Also called in solidum, jointly and severally, individually and collectively,
and mancomunada solidaria.
b. Never presumed: expressly stipulated, provided by law, required by nature of obligation
There is a solidary obligation only when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity. (1207)
Solidarity exists only:

when stipulated by the parties using such words like jointly and severally, in solidum, I
promise to pay in a note signed by two or more debtors, or similar words;

when solidary liability is provided for by law. Thus, civil liability arising from crimes,
negotiorum gestio, solutio indebiti, commodatum or quasi-delict shall be solidary;

when the nature of the obligation requires solidarity.


c. Solidarity does not imply indivisibility (1210)
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.
(1210)
This is so because indivisibility refers to the object of the obligation which is capable of partial performance while
solidarity refers to the liability of one debtor to answer not only for his share of the obligation but also for the shares of
the other debtors. Without solidary liability of the debtors, the obligation is joint, and if its object is indivisible, it is a
joint and indivisible obligation.
d. Solidarity exists even if bound by different: MANNER, PERIOD, CONDITIONS (1211)
Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and
conditions. (1211)
e. Obligation may be joint on the side of the creditors and solidary on the side of the debtors or viceversa.
f. Kinds of solidarity:

Active solidarity among creditors

Passive solidarity among debtors

Mixed solidarity on the part of creditors and debtors

Ronquillo v. CA
Ronquillo was one of four debtors. The compromise agreement saying individually and jointly indicates solidary liability.
Inchausti&co v. Yulo
Six brothers and sisters admitted solidary liability. Gregorio Yulo was sued for payment of entire indebtedness. However,
solidary debtors Francisco, Manuel and Carmen entered into a compromised agreement with plaintiff. SC ruled: Gregorio can be
sued for the entire indebtedness plus interest. Partial remission granted to the three debtors also benefited him. Defense of nonmaturity of his other co-debtors solidary liability is a defense to allow for mere partial payment. Gregorio was ordered to pay the
part of the reduced indebtedness, only insofar as such is demandable. Greg Yulo was solidarily liable, he benefited from
remission, but not extension of the period for payment for his own part, thus there was partial demandability.
g.

Debtor/ passive solidarity distinguished from suretyship:

25

By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so. A solidary guaranty is suretyship.
Suretyship If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this
Book shall be observed. In such case the contract is called a suretyship. (2047)
Jurado distinguishes a solidary debtor from a surety. Both are solidarily liable but:

A surety does not have an actual loan of his own, solidary debtor is also liable for his own debt in
addition to that of others.

After paying the debt, a surety has right to collect from principal debtor, while a solidary debtor
has right to collect from solidary co-debtor.

Most importantly, an extension of time would benefit the surety and such would not benefit
solidary co-debtors who did not know or consent to an extension of time. (Villa v. Garcia Bosque)
h. Rights of solidary creditor/s

Do only what is useful to others, not anything prejudicial. (1212)


Each on of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the
latter. (1212)

No assignment without consent of others (1213)


A solidary creditor cannot assign his rights without the consent of the others. (1213)
Jurado: The consent of the other co-solidary creditors is necessary because they may not trust the new creditor who
would thereby be entitled to collect the entire debt.

Anyone has right to receive payment; but first to first one to demand. (1214)
The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of
them, payment should be made to him. (1214)
Jurado: Payment made by the debtor to any one of the solidary creditors extinguishes the obligation. If one of the
solidary creditors demands payment of the debt, he has the right to do so and payment must be made to him.
Quiombing v. CA
Only one of the solidary creditors filed a suit for collection against the solidary debtors. The debtors moved for the dismissal of
the suit on the ground that the other solidary creditors should have been included in the case. The Supreme Court rejected the
dismissal of the suit invoking Art. 1212 and stated that recovery of the contract price was surely a useful act and can be done
even by one solidary creditor. Furhtermore, the question as to who should sue was a personal issue among the solidary creditors.
N.B. As to who sues for recovery of the obligation should not matter to the debtors as they are wholly obligated to either
one of the solidary creditors.

Action against and payment by solidary debtor


o Proceed against anyone, some, or all of them simultaneously (1216)
o Demand against one: not obstacle for demand against another, unless paid (1216)
The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt
has not been fully collected. (1216)
o
Payment by anyone extinguishes, if two or more payors, creditor chooses (1217)
Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the
creditor may choose which offer to accept. (1217)

Loss or impossibility
i. without fault of debtors: Extinguishment
If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the
obligation shall be extinguished. (1221)
ii. with fault of any of the debtors: all responsible with right against negligent debtor
iii. fortuitous event, but with delay: all responsible w/ right of action vs. negligent debtor
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. (1221)
If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary
debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the
preceding paragraph shall apply. (1221)
In the last two paragraphs above, fault or the delay of one debtor is the fault or delay of all the solidary debtors as far as
the creditor is concerned. But as among the debtors, the one at fault or in delay shall alone bear the damages aside form
his share.
i.

Rights of Solidary Debtor


Set up all defenses (1222)
o those derived from nature of obligation

26

o those personal to him ot to his share


o those personal to tohers, only insofar as their share
A solidary debtor may, in actions filed 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 to
the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1222)
The defenses available to a solidary debtor when sued are:
(1) defenses derived from the nature of the obligation which is available to all debtors as a defense to compliance with
the entire obligation;
(2) defenses personal to the debtor like minority, insanity, civil interdiction, etc. Defenses personal to the debtor are
not available to the other debtors so as to free the latter from their liability for their own shares in the obligation;
(3) defenses that pertain to his co-debtor or co-debtors, like the existence of a period or condition for as already stated,
solidarity may exist even if the debtors are bound under different periods or conditions.
Imperial Insurance, inc. v. David
Husband and wife bound themselves solidarily in favor of obligee for a sum of money and when the husband died, the obligee
demanded payment from the wife who resisted payment, claiming that the obligees claim is barred by its failure to file a claim
in the intestate proceeding of the deceased husband. The Supreme Court ruled that the obligee can properly claim from the wife
as the nature of the obligation is solidary.
N.B. If obligation were solidary, the entire obligation is demandable from anyone of the solidary obligors.

Right of action against solidary co-debtors

o payor of obligation may claim from each co-debtor their share of the debt (1217)
o with interest, unless paid before debt is due or demandable
He who made the payment may claim from his co-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.
(1217)
o loss of share by insolvency of a solidary co-debtor is borne proportionately by each (1217)
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such
share shall be borne by all his co-debtors, in proportion to the debt of each. (1217)
o After prescription or if illegal: No reimbursement (1218)
Payment by a solidary debtor shall not entitle him to reimbursment from his co-debtors if such payment is made after the
obligation has prescribed or become illegal. (1218)
Jurado: After the obligation has prescribed or become illegal, it is no longer due; hence, there should be no
reimbursement from the co-debtors.
If made subsequent to total payment: Remission does not release from responsibility other
co-debtors
The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his
responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected.
The above article is intended to prevent fraud whereby to favor a particular debtor, the creditor remits his share, after
another has fully paid the obligation.
o Total remission obtained by one solidary debtor: NO REIMBURSEMENT
The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his
co-debtors. (1220)
The remission of the whole debt is a donation to all the debtors; hence, all are Cbenefited and no reimbursement is
authorized by law. Note however that if remission is only made to one of the solidary debtors, the latter can still be
held liable for the share of the other co-debtor.
DIVISIBILITY OF PRESTATION
o

Effects on obligations under Nature and Effects of Obligations:


Rules for divisibility only apply to multiple debtors/creditors as to the performance not those only one debtor
and only one creditor.(1223)
The divisibility or indivisibility of the things that are the object of obligation in which there is only one debtor and only one
creditor does not alter or modify the provisions of Chapter 2 of this Title. (1223)
The divisibility or indivisibility refers to the performance, not to the thing which is the object of the obligation. Although a
thing is by its nature physically divisible, the obligation is indivisible if full compliance is intended by the parties or is so
provided by law.
Indivisibility is not solidary, vice versa. (1210)
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of
itself imply indivisibility. (1210)
This is so because indivisibility refers to the object of the obligation which is capable of partial

27

performance while solidarity refers to the liability of one debtor to answer not only for his share of
the obligation but also for the shares of the other debtors. Without solidary liability of the
debtors, the obligation is joint, and if its object is indivisible, it is a joint and indivisible obligation.
Presumptions:
Indivisible: definite things, not partial performance
For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial
performance shall be deemed to be indivisible. (1225)
Divisible: partial performance; by days of work, metrical units, or analogous things
When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by
metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. (1225)
Physically divisible: subject to law or what is intended by the parties
However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by
law or intended by the parties.
Not to do: determined by character of prestation
In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular
case. (1225)
Indivisibility of an obligation may be:
(a) by law, as when taxes are to be paid in full because the law does not permit paying the same by
installments;
(b) by stipulation of the parties or intention by them to treat the things as indivisible even if they
are actually divisible;
(c) by the nature of the obligation;
Indivisibility is not solidarity, vice versa. (1210)
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of
itself imply indivisibility. (1210)
This is so because indivisibility refers to the object of the obligation which is capable of partial
performance while solidarity refers to the liability of one debtor to answer not only for his share of the obligation but
also for the shares of the other debtors. Without solidary liability of the debtors, the obligation is joint, and if its object
is indivisible, it is a joint and indivisible obligation.
Quantum Meriut Principle:

DIVISIBLE OBLIGATION: If only partially performed, the obligor can enforce his right in proportion to
the services performed.
INDIVISIBLE OBLIGATION: If obligor fails to perform the work completely, he cannot recover on this
principle because in indivisible obligations, partial performance is equivalent to non-performance.
This principle allows recovery of the reasonable value of the work done regardless of any agreement as to
the value. It entitles the party to as much as he reasonably s\deserves as distinguished from quantum
valebant or to as much as what is reasonably worth. The sellement of claim under this principle requires
application of judgment and discretion and cannot be adjusted by simple arithmetical process. (F.F.
Manocop v. CA, GR 122196, Jan. 15, 1997)

Joint Indivisibility:

prejudiced only by collective acts of ALL creditors (1209)

enforced against ALL debtors (1209)


If the division is impossible, the rights of the creditors may be prejudiced only by their collective acts, and the debt can be
enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his
share. (1209)
The above article contemplates an obligation which is joint as to the parties but indivisible as to compliance. The
concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The
same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are
prejudicial. But an act beneficial to al like interruption of prescription may be performed by one of the creditor.

Indivisibility is not necessarily solidary (1210)

28

The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.
(1210)
RULES:
(1) Gives rise to indemnity for damages: non-compliance with undertaking (1224)
(2) Debtors ready to fulfill shall not be liable (1224)
A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with
his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1224)
As already stated in a joint indivisible obligation, a suit for specific performance must be directed against all the debtors
and if any one of them is not willing to fulfill, the action shall be converted into one for damages where the debtors shall be
liable for their respective shares while the unwilling debtor shall pay his share plus damages for he alone shall be liable for
damages, the other debtors being willing to deliver.
(3) Prejudiced only by collective acts of ALL creditors / enforced against ALL debtors
(1209)
If the division is impossible, the rights of the creditors may be prejudiced only by their collective acts, and the debt can be
enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his
share. (1209)
The above article contemplates an obligation which is joint as to the parties but indivisible as to compliance. The
concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The
same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are
prejudicial. But an act beneficial to al like interruption of prescription may be performed by one of the creditor.
Solidary Invisibility
Proceed against any or some or all of them.
The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt
has not been fully collected. (1216)

Alternative Obligations
An alternative obligation is one wherein, out of two or more prestations, which may be given, only one is due. In short, there
are several things due but the delivery of one is sufficient to extinguish the obligation.
GENERAL RULES:
A. As to performance, performance must be:
a. Complete- creditor cannot be compelled to receive part of one and another (1199)
b. Possible, lawful, and which could have been the object of the obligation (1200)
Art. 1199.
A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
B. As to effect: Effect from time of Communication of Choice by the one given such
Art. 1201.
The choice shall produce no effect except from the time it has been communicated. (1133)

C. CHOICE: Debtor
Art. 1200.
The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the
object of the obligation. (1132)
Exception: expressly granted to Creditor
Creditors choice: rules pending communication of choice in to give, to do, or not to do
a. If fortuituous, debtor is not liable for loss, thus creditor chooses from any of the remaining.
(1205, no.1)
b. If fault of debtor, debtor replaces such with a price, creditor chooses from remainder plus the
price with the right to damages (1205, no. 2)
c. If all things are lost, creditor chooses from anyone of their prices plus damages as replaced by
debtor. (1205, no. 3)
N.B. Creditor must not be deprived of choice through fault of debtor. Loss is replaced by price.

29

Art. 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 the responsibility of the debtor shall be 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
creditor should choose from among the remainder, or that which remains if only one subsists; cd i
(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, through the fault of the former, has disappeared, with a right to damages;
(3)
If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of
them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become
impossible. (1136a)
D. As to loss:
1. Choice belongs to the debtor:
a. Loss is due to fortuitous event

If all are lost, obligation is extinguished.

If 2 or more of the objects remain, the debtor can deliver any of the two remaining

If only one remains, a pure and simple obligation exists.


b. Loss is due to the debtors fault

If all are lost, the obligation is converted into monetary consideration as indemnity
for the damages taking into consideration the value of the last thing lost plus
damages.

If 2 or more objects remain, the debtorcan choose which one to deliver between the
two, but without damages.

If only one remains, there is no more alternativce obligation but a pure and simple
obligation. What he should deliver is the remaining object without damages.
2. Choice belongs to the creditor
a. If the loss is due to a fortuitous event, the effects are the same as where the right of choice belongs
to the debtor.
b. Loss is due to debtors fault

If none remains, the obligation is converted into monetary consideration taking


into account the value of any of the objects chosen by the creditor, plus
damages. Damages are awarded because the creditor was deprived of his right
to choose.

If two or more remain, the obligation is still alternative. The right of the
creditor is to choose between the two remaining objects with damages. If he
chooses the lost object, the debtor is liable for the value plus damages.

If only one remains, the obligation is converted into a simple one. The creditor
may choose the remaining object with damages. If he chooses anyone of the two
which were lost, the debtor must pay the value plus damages.
Art. 1202.
The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only
one is practicable.
Art. 1203.
If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter
may rescind the contract with damages. (n)
Art. 1204.
The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last
became impossible.
Damages other than the value of the last thing or service may also be awarded.
In summary: Alternative obligations are converted to simple obligations when:

The debtors choice is communicated to the creditor.

The creditor communicated his choice to the debtor, if given the right to choose.

Only one of the prestations due is practicable.


Facultative: Substitution of Prestations (1206)
GENERAL RULE: Loss or deterioration of substitute in case of delay, fraud, or negligence.
- No liability unless it has been substituted as main prestation. (1206)
N.B. one is primary, other is merely contingent. If both were primary, it would not be facultative but rather
alternative
Art. 1206.
When only one prestation has been agreed upon, but the obligor may render another in substitution, the
obligation is called facultative.

30

The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable.
But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or
fraud. (n)
Alternative vs. Facultative

InA,therearedifferentprestations,butthedebtorshallcompletelyperformoneofthem,whileinF,thereisonly
oneprestationbutthedebtormayperformanotherinsubstitution.

InA,ifitisimpossibletogiveallexceptone,thelastonemuststillbegiven;whileinF,ifitisimpossibletogive
theprincipal,thesubstitutedoesnothavetobegiven;andifitisimpossibletogivethesubstitute,theprincipal
muststillbegiven.

InA,therighttochoosemaybegiveneithertothedebtororcreditor;whileinF,therighttochooseisgivenonly
tothedebtor.
EffectoftheLossoftheThing:

Beforesubstitution: Iftheprincipalislostduetofortuitousevent,obligationisextinguished;ifduetodebtors
fault,heisliablefordamages.Ifthethingintendedasasubstituteistheonewhichwaslost,withorwithoutdebtor
fault,theobligationtodeliverthesubstituteisextinguishedbecausewhatistobedeliveredistheprincipalobject
andnotthesubstitute.Thelossofthissubstituteisimmaterial.

Aftersubstitution: Iftheprincipalthingislost,thedebtorisnolongerliablewhateverbethecauseoftheloss,
becauseitisnolongerdue.Ifthesubstituteislostduetofortuitousevent,theobligationisextinguished;ifdueto
debtorsfault,heisliablefordamages.
PENAL CLAUSES
In an obligation with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest in
case of non-compliance, if there is no stipulation to the contrary. A penal clause is an accessory undertaking to assume
greater liability in case of breach.
Purposes:
To ensure performance of the obligation.
To substitute a penalty for the indemnity of damages and the payment of interest in case of noncompliance.
To punish the debtor for the non-fulfillment of his obligation.
** Basically to provide for liquidated damages, while strengthening the coercive force of the obligation by the threat of greater
responsibility in the event of breach.
Exceptions when damages and interest may be demandable by the creditors aside from penalty:
When it is stipulated.
When the debtor is guilty of fraud.
When the debtor refuses to pay the penalty.
A. Rules in non-existence of Penal Clause:
- Damages - Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages. (1170)
- Actual/Compensatory Damages: proved -Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is
referred to as actual or compensatory damages. (2199)
- Actual Value and Profits - Indemnification for damages shall comprehend not only the value of the loss suffered, but
also that of the profits which the obligee failed to obtain. (2200)
- Good Faith obligor: natural, probable, and foreseeable damages - In contracts and quasi-contracts, the damages
for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of
the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted. (2201)
- Bad Faith obligor: all damages reasonably attributed - In case of fraud, bad faith, malice or wanton attitude, the
obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the
obligation. (2201)
B. Rules in existence of Penal Clause:

31

a.

Substitute for damages and interest


- Damages -Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages. (1170)
- Substitute and basis for damages - In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1226)
- Proof not needed - Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be
demanded. (1228)

b. Not an alternative or facultative obligation


The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where
this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has
decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the
penalty may be enforced. (1227)
Unless otherwise stipulated:
Limitation on debtor: payment of penalty does not extinguish obligation
Limitation on creditor: cannot demand performance and penalty
However: If creditor chooses performance of obligation, and such becomes impossible without his
fault, penalty maybe enforced.
c.

Equitable reduction of penal clause


When:
- part or irregular compliance of obligation
- iniquitous or unconscionable
The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with
by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. (1229)

d. Nullity of penal clause


- penal clause as an accessory obligation
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. (1230)

CONTRACTS:
A contract is a juridical convention manifested in legal form, by virtue of which, one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.
Art. 1318.
There is no contract unless the following requisites concur:
(1)
Consent of the contracting parties; cdtai
(2)
Object certain which is the subject matter of the contract;
(3)
Cause of the obligation which is established. (1261)
Stages in the Life of a Contract:

Preparation or conception bargaining point


Perfection or birth the meeting of minds regarding the subject matter and the cause of the contract.
Consummation or death parties have performed their respective obligations and the contract is put to an end.

Basic principles:
(1) Freedom or liberty to stipulate autonomy of contracts: parties may establish such stipulations, clauses, terms,
and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.
(2) Obligatory force and compliance in good faith
(3) Perfection by mere consent except if real contracts (by delivery), or formal (special form required)

32

(4) Both parties are mutually bound


(5) Relativity: binding between the parties only, their assigns and heirs (1311)
Exceptions:

Obligations arising from contract which are not transmissible by their nature, stipulation, or
provision of law.
Stipulation Pour Autrui
o Stipulation in favor of a third person
o The parties clearly and deliberately conferred the favor to the third person.
o The stipulation must be a part of the contract.
o The acceptance of the third person must be communicated to the parties of the
contract.
When a third person induces another to violate his contract. (1314)

The right of a creditor to sue on a contract entered into by his debtor. (1313)

Kinds of Contracts:
(1)
a.
b.
(2)
a.
b.
c.
(3)
a.
b.
c.
(4)
a.
b.
(5)
a.
b.
c.
(6)
a.
b.
(7)
a.
b.

According to perfection
Consensual
Real
According to degree of importance
Principal can stand alone
Accessory dependent upon another contract as to existence and validity
Preparatory means through which other contracts may be made; Ex. Agency
According to subject matter
Involving things, such as sale or barter
Involving rights or credits, such as usufruct or assignment of credits
Involving services such as agency, carriage, etc.
According to name
Nominate special name, such as pledge, mortgage, etc.
Innominate
According to cause
Onerous exchange of considerations
Gratuitous no consideration received in exchange for what has been given
Remuneratory something is given for a benefit or service performed without any legal obligation to do so
According to nature of obligation produced or number of parties obligated
Unilateral Ex. Commodatum and Mutuum
Bilateral or sinalagmatico
According to risk
Commutatitve where equivalent values are given by both parties, such as sale, barter and lease
Aleatory where fulfillment of the contract is dependent upon chance, such as insurance

CREATION AND REQUISITES OF CONTRACTS


A. CONSENT: 1st Requisite (Art. 1318)
-Certain offer = Absolute acceptance; if qualified, counter-offer. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer. (1319)
-by Letter or Telegram: when and where binding- Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where
the offer was made. (1319)
Expedition Theory contract is perfected from the moment the acceptance is declared or made even if not made known
to the offeror.

33

Cognition Theory perfected from the moment the acceptance comes to the knowledge of the offeror; adopted in
Philippines
Revocation of Acceptance: The acceptance by the offeree may be revoked before reaching the knowledge of the offeror.
If it is revoked, the contract is not perfected if the notice of revocation reaches the offeror before the letter of acceptance
is received.
In unilateral promises, when offer is made to the public, specific acceptance is not required to bind the obligor.

- Express or implied acceptance: An acceptance may be express or implied. (1320)


- Mode of acceptance as stipulation - The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with. (1321)
-Agent as offerer: An offer made through an agent is accepted from the time acceptance is communicated to him. (1322)
-Validity of Offer: An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed. (1323)
- Withdrawal of offer: When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as
something paid or promised. (1324)
- e.g. Option money based on a separate option contract; reservation money: forfeited in case transaction does not take
place
ADVERTISEMENTS:
- As invitations; not definite offers - Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (1325)
-For bidders are mere invitations for proposals - Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (1326)
INCAPACITATED: (1327)
The following cannot give consent to a contract:
(1) Unemancipated minors; (i.e. below 18 years old)
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1327)
- Lucid interval; drunkenness and hypnosis - Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable. (1328)
- The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be
without prejudice to special disqualifications established in the laws. (1329)
VOIDABLE - A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable.
(1330)
a. Mistake: substance of object, principal conditions - In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those conditions which have principally moved one
or both parties to enter into the contract. (1331)
-As to identity or qualifications: Mistake as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal cause of the contract.
-Correction only if: A simple mistake of account shall give rise to its correction. (1331)
-Error must be excusable, not caused by negligence
-Error must be a mistake of fact, not of law
Exceptions on Mistake:
a. Illiterate party:
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. (1332)
b. Knowledge of doubt, contingency, risk: There is no mistake if the party alleging it knew
the doubt, contingency or risk affecting the object of the contract. (1333)
c. Mutual error: Mutual error as to the legal effect of an agreement when the real purpose of
the parties is frustrated, may vitiate consent. (1334)
b. Violence: There is violence when in order to wrest consent, serious or irresistible force is employed. (1335)

Physical contact or physical coercion


c. Intimidation: There is intimidation when one of the contracting parties is compelled by a reasonable and wellgrounded 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. (1335)

34


Mental or moral coercion
- To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.
(1335)
- Even if by third party: Violence or intimidation shall annul the obligation, although it may have been
employed by a third person who did not take part in the contract. (1336)
Exception: competent authority, just and legal claim. Threat to enforce one's claim through
competent authority, if the claim is just or legal, does not vitiate consent. (1335)
d. Undue Influence: There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice.
- The following circumstances shall be considered: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have been unduly influenced was suffering from
mental weakness, or was ignorant or in financial distress. (1337)
e. Fraud: There is fraud when, through insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not have agreed to. (1338) (Dolo Causante)
- Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential
relations, constitutes fraud. (1339)
Exceptional Cases: not fraud unless Dolo Causante or substantial/ principal condition
a. usual exaggerations in trade, when the other party had an opportunity to know the facts,
are not in themselves fraudulent. (1340)
o Caveat Emptor dealers talk, buyer beware
b. opinions: A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former's special knowledge. (1341)
c. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (1342)
d. Misrepresentation made in good faith is not fraudulent but may constitute error. (1343)

GENERAL RULE ON FRAUD: SERIOUS AND PARTIES NOT PARI DELICTO - In


order that fraud may make a contract voidable, it should be serious and should not have been
employed by both contracting parties. (1344)
There must be a deliberate intent to deceive or to induce.
The other party relied on this untrue statement.
Incidental fraud only obliges the person employing it to pay damages. (1344)

Simulated Contracts:
Simulation is the declaration of a fictitious intent manifested deliberately and by agreement by the parties in
order to produce, for the purpose of deceiving others, the appearance of a transaction which does not exist or which is
different from the true agreement.

Kinds: Simulation of a contract may be absolute or relative. The former takes place when the parties do
not intend to be bound at all; the latter, when the parties conceal their true agreement. (1345)
Effects: An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement. (1346)
B. OBJECT: 2nd requisite (Art. 1318)

What? Article 1347


All things which are not outside the commerce of men, including future things, may be the object of a contract.
All rights which are not intransmissible may also be the object of contracts. (1347)
Requisites:
1. within the commerce of men
Ex. Of outside commerce of men:

personal rights, status, capacity of persons

public offices

political rights

property of the public dominion

sacred or common things like the air


2. transmissible
3. licit

35

4.
5.

possible
determinate

Cannot be Objects:
a. Future inheritance where source of property is still alive (1347)
b. Those contrary to law morals, good customs, public order, and public policy
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a
contract. (1347)
c.

Impossible things or services cannot be the object of contracts. (1348)

Object Requirement: DETERMINATE or DETERMINABILITY -The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible
to determine the same, without the need of a new contract between the parties. (1349)
C. CAUSE: 3rd requisite (art. 1318)
The cause of the contract is the why of the contract, the essential reason which impels the contracting parties to enter
into the contract.
Requisites:

It must exist.

It must be real, that is, true.

It must be lawful.

Causes according to type of contract:


a. Onerous contracts: prestation or promise of a thing
b. Remuneratory contracts: service or benefit remunerated
c. Pure beneficence: liberality of contract
Art. 1350.
In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a
thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor. (1274)
CAUSE IS NOT MOTIVE
Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof.
Motive is the psychological, individual, and personal reason, which induces a party to enter into a contract.

Cause is the immediate, direct, and most proximate reason; while motive is the indirect and remote reason.

Cause is the objective, intrinsic reason; motive is the individual and purely personal reason of the contract.

The motive may be unknown to the other, the cause is always known.

The motive may be lawful or unlawful, the cause must always be lawful.
When Cause Renders Contract Void:
a. absence/ unlawful - Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good customs, public order or public policy. (1352)
b. false unless prove another cause - The statement of a false cause in contracts shall render them void, if it should not
be proved that they were founded upon another cause which is true and lawful. (1353)

Want of Cause There is a total lack or absence of consideration.


Illegal Cause The cause is contrary to law, morals, good custom, public order, or public policy.
False Cause The cause is stated but that cause is not true.

When Cause Renders Contract Voidable:


a. lesion / inadequacy - 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. (1355)
Presumption of Cause: LAWFUL - Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1354)

FORM OF CONTRACTS:

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A. SPIRITUALITY PRINCIPLE
GENERAL RULE: Valid and enforceable in whatever form, even if orally entered into, as long as requisites are present.
Except: When required by law
Art. 1356.
Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases,
the right of the parties stated in the following article cannot be exercised. (1278a)
-If no form but perfected contract, compel observance of form If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form,
once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1357)
B. FORM: WHEN REQUIRED BY LAW

For validity of the contract, even between the parties.

Donation of real property must be in a public instrument, otherwise, void.

Donation of personal property exceeding P5,000 must be in writing, otherwise void.

Contribution of a partner of immovable property in a partnership, must be in writing, otherwise void.

Authority of agent to sell land must be in writing, otherwise sale is void.

For validity against third persons Form is required in order to make effective the rights against third person.
However, as between the parties, it is no longer necessary because the law allows them to compel each other to put it
in the proper form.
1.
2. 1. Art. 1357 and 1358 do not require a particular form to validate or enforce a contract, only to ensure its efficacy, so
that after its existence have been admitted, the party bound may be compelled to execute necessary document.
(Dievas v. Acuna)
3. 2. Even where the contract has not been reduced to the required form, it is still valid and binding as far as contracting
parties are concerned. Consequently both presuppose the existence of a valid and enforceable contract. (Solis v.
Barroso)
4. 3. From the moment one of the contracting parties invokes the provisions of Article 1357 and 1358, the effect is to
place the very existence of the contract in issue, which must be resolved by ordinary rules of evidence. (Rodriguez v.
Pamintuan)
5. 4. Article 1357 does not require that an action to compel the execution of necessary document must precede the action
upon the contract. As a matter of fact, both maybe exercised simultaneously.
6. 5. However, although the provisions of Art. 1357, in connection with art. 1358, do not operate against the validity of
the contract nor the validity of the acts voluntarily performed by the parties for the fulfillment thereof, yet from the
moment when any of the contracting parties invokes said provisions, it is evident that under them the execution of the
required document must precede the determination of the other obligations derived from the contract.
For enforceability:
STATUTE OF FRAUDS: Article 1403, paragraph 2 (in relation to article 1405)
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter
made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b)A special promise to answer for the debt, default, or miscarriage of another;
(c)An agreement made in consideration of marriage, other than a mutual promise to marry;
(d)An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless
the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action
or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the
auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;
(f) A representation as to the credit of a third person.

37

RATIFICATION OF STATUTE OF FRAUDS: Prove by oral evidence (1405). Contracts infringing the Statute of Frauds,
referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or
by the acceptance of benefit under them.
C. FORMS THAT ARE REQUIRED:

i. PUBLIC DOCUMENT: The following must appear in a public document: (1358)


(1) Real rights over immovable property, sales of real property - Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein a governed by articles 1403, No. 2, and 1405;
(2) Hereditary rights and conjugal property of gains -The cession, repudiation or renunciation of hereditary rights or
of those of the conjugal partnership of gains;
(3) Power to administer property, other powers to act, prejudice 3 rd persons - The power to administer property,
or any other power which has for its object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) Cession of actions from public documents - The cession of actions or rights proceeding from an act appearing in a
public document.
ii. At least a PRIVATE DOCUMENT: a.
b.
c.
d.
e.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one.
But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1405. (1358)
Donations exceeding five thousand pesos (Art. 748)
Giving authority to an agent for the Sale of land. (Art. 1874)
Agreements on payment of interests on contracts of loan (art. 1956)
Antichresis (Art. 2134)

iii. Electronic Commerce Act


- actually amends Art. 1403 by including computers and their networks as means against frauds and proof of contracts
- expressly provides for the application of the same principles as normal contracts but adds more presumptions wherein such
should be known by both parties.
Presumptions from rules of court and doctrines as applied to e-mail, internet, and networks:
a. Receipt of letter presumed to come to knowledge regardless of actual reading
b. Regular functions have been carried out regularly
However, special presumptions for computers was made into law by the e-commerce act. In IBM v. Sec. Of Labor, the Supreme
Court ruled that Local Area Network or LAN is not sufficient notice for firing an employee since there was still no law providing
for such presumptions. Remember that presumptions facilitate transactions and rules of evidence by being pragmatic about it.
Otherwise, proving the propositions as found in the presumptions would be impossible and uncertain. E.g. no one can really
prove that person A read his e-mail, thus it is more practical to presume that he had done so given proof of his receiving such email.
Provision of the e-commerce act:
- present laws apply, electronic documents are valid like ordinary ones.
- In using ATM of network banks, transaction is final at actual debiting. Presumption of authority upon the holder of the ATM
card.
- Electronic devices are valid
- Message from originator presumed to be made by the owner thereof regardless of who actually typed it. There must be express
statement that he (owner) would be held liable for that ID. Receiver has right to assume his actual authorship.
- On agreements of acknowledgement of receipt, such as actual reply of the receiver, or notice by the server. If no reply or
acknowledgement, presumption that it was not sent.
- As to time, presumption is at the time such was received by the designated information system or server, or that of the receiver.
This also requires a system of acknowledgement of receipt.

38

- Web sites require proof or acknowledgement of visiting the site. This is usually done by pre-program procedure like
requirement of registration before being given access.
- On security of signature electronic imprints, identification systems, and codes
- Tip: always have hard copy back-up
D. ACTS REQUIRED FOR THE PERFECTION OF CERTAIN CONTRACTS:
i. REGISTRATION:
a. Chattel Mortgages (art. 2140)
b. Sales or Transfers of Large Cattle (Cattle Registration act)
ii. DELIVERY OF THE THING (for Real contracts)
a. PLEDGE - In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge,
that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (2093)
b. DEPOSIT- A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of
safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract,
there is no deposit but some other contract. (1962)

REFORMATION OF INSTRUMENTS:
Reformation is that remedy in equity by means of which a written instrument is made or construed so as to express or
conform to the real intention of the parties when some error or mistake has been committed.
REQUISITES FOR REFORMATION: (1359)
Meeting of minds.
True intention not expressed within the instrument.
Letter b is caused by mistake, fraud, inequitable conduct, or accident.
There is clear and convincing proof
When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the
instrument purporting to embody the 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. (1359)
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is
not reformation of the instrument but annulment of the contract. (1359)
SPECIAL CASES:
c.1. Mutual mistake - When a mutual mistake of the parties causes the failure of the instrument to disclose their real
agreement, said instrument may be reformed. (1361)
c.2. Mistaken party, not fraudulent - If one party was mistaken and the other acted fraudulently or inequitably in such
a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. (1362)
c.3. Mistaken party, other knew of mistake and non-conformity of instrument - When one party was mistaken and
the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the
instrument may be reformed. (1363).
c.4. ignorance, lack of skill, negligence, or bad faith of drafter, clerk, typist of instrument - When through the
ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. (1364)
c.5. agreement on pledge or mortgage but with instrument on sale - If two parties agree upon the mortgage or
pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase,
reformation of the instrument is proper. (1365)
Art. 1360.
The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not
in conflict with the provisions of this Code. (1360).
NO REFORMATION ALLOWED (Art. 1366.)
There shall be no reformation in the following cases:
(1)
Simple donations inter vivos wherein no condition is imposed;
(2)
Wills;

39

(3)
When the real agreement is void.
-Action to Enforce bars subsequent action to Reform: When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation. (1367)
- STANDING: Reformation may be ordered at the instance of:
either party or his successors in interest, if the mistake was mutual; otherwise,
upon petition of the injured party, or his heirs and assigns. (1368)

- HOW: Rules of Court. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated
by the Supreme Court. (1369)

INTERPRETATION OF CONTRACTS:
LITERAL MEANING OF CLEAR TERMS. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. (1370)
EVIDENT INTENTION PREVAILS OVER LETTER. If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former. (1370)
CONTEMPORANEOUS AND SUBSEQUENT ACTS CONSIDERED. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered. (1371)
GENERAL TERMS IN ACCORDANCE TO INTENTION.
However general the terms of a contract may be, they
shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties
intended to agree. (1372)
INTERPRET TO EFFECTUATE.
If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual. (1373)
READ AS A WHOLE. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. (1374)
WORDS IN NATURE AND OBJECT OF CONTRACT. Words which may have different significations shall be understood
in that which is most in keeping with the nature and object of the contract. (1375)
CUSTOMS FACILITATE INTERPRETATION. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. (1376)
OBSCURE WORDS FOR NON-OBSCURERS.
favor the party who caused the obscurity. (1377)

The interpretation of obscure words or stipulations in a contract shall not

DOUBTS:
a. DOUBTS WRT INCIDENTAL CIRCUMSTANCES: When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests. (1378)
b. DOUBTS WRT PRINCIPAL OBJECT: If the doubts are cast upon the principal object of the contract in such a way that it
cannot be known what may have been the intention or will of the parties, the contract shall be null and void. (1378)
Art. 1379.
The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the
construction of contracts. (n)

DEFECTIVE CONTRACTS:
RESCISSIBLE CONTRACTS
Rescission is a process to render inefficacious a contract validly entered into, and normally binding, by reason of external
conditions, causing an economic prejudice to a party or his creditor.

40

According to the SC, it is a relief to protect one of the parties or a third person from all injury and damages which the
contract may cause, to protect some preferential right.
Requisites:

Art. 1380.

Contract is essentially valid.


There is lesion or pecuniary prejudice.
Contracts validly agreed upon may be rescinded in the cases established by law. (1290)

GROUNDS:
Art. 1381.

The following contracts are rescissible:

(1) BY GUARDIANS PREJUDICIAL TO WARDS BY MORE THAN . 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) BY GUARDIANS OF ABSENTEES, MORE THAN . Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(3) IN FRAUD OF CREDITORS (AS SUBSIDIARY MEANS TO RECOVER). Those undertaken in fraud of
creditors when the latter cannot in any other manner collect the claims due them;
(4) THINGS UNDER LITIGATION. 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) OTHERS - All other contracts specially declared by law to be subject to rescission. (1381)
a.
b.

c.

d.

e.

f.

PAYMENT MADE BY INSOLVENT Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (1382)
PARTITION WITH LESION TO HEIRS BY AT LEAST Art. 1098.
A partition, judicial or extrajudicial, may also be rescinded on account of lesion, when any one of the co-heirs received things whose value
is less, by at least one-fourth, than the share to which he is entitled, considering the value of the things at the
time they were adjudicated. (1074a) aisa dc
DETERIORATION BECAUSE SUSPENSIVE CONDITION DEBTORS FAULT
Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the
thing during the pendency of the condition:
xxx
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of
the obligation and its fulfillment, with indemnity for damages in either case;
UNPAID SELLER MAY RESCIND Art. 1534.
An unpaid seller having the right of lien or having
stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he
expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in
default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the
buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach
of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid seller until he has
manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that
such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the
intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default
for an unreasonable time before the right of rescission was asserted. (n)
SALE OF OBJECT WHICH IS INFERIOR BY MORE THAN 10 %. Art. 1539.
The obligation to
deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract,
in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a
unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it,
all that may have been stated in the contract; but, should this be not possible, the vendee may choose between a
proportional reduction of the price and the rescission of the contract, provided that, in the latter case, the lack
in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the immovable is not of the
quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of
the thing sold exceeds one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of
inferior quality, he may rescind the sale.
SALE OF LAND FOR LACK OF MEASUREMENT Art.1542 but if, besides mentioning the boundaries,
which is indispensable in every conveyance of real estate, its area or number should be designated in the
contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds

41

g.

h.
i.
j.

the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in
the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the
vendee does not accede to the failure to deliver what has been stipulated.
SALE BECAUSE OF LOSS OF IMPORTANT PART THROUGH EVICTION Art. 1556.
Should the
vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that
he would not have bought it w/o said part, he may demand the rescission of the contract; but with the
obligation to return the thing w/o other encumbrances that those which it had when he acquired it.
SALE OF ANIMALS W/ REDHIBITORY DEFECTS - Art. 1580. In the sale of animals with redhibitory
defects, the vendee shall also enjoy the right mentioned in article 1567; but he must make use thereof within
the same period which has been fixed for the exercise of the redhibitory action. (1499)
WARRANTY VS. HIDDEN FAULTS & DEFECTS - Art. 1567.
In the cases of articles 1561, 1562,
1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in either case. (1486a)
LEASE - If the lessor or the lessee should not comply with the obligations set forth in articles 1654 and 1657,
the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the
latter, allowing the contract to remain in force. (1659)
Art. 1654.
The lessor is obliged:
(1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the
use intended;
(2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the
use to which it has been devoted, unless there is a stipulation to the contrary;
(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration
of the contract. (1554a)
Art. 1657.
The lessee is obliged:
(1) To pay the price of the lease according to the terms stipulated;
(2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the
absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the
custom of the place;
(3) To pay expenses for the deed of lease. (1555)

DISTINCTION FROM RESCISSION IN ART. 1191 OR RESOLUTION


(note leading case of UFC Ketchup)
-reasons hereof are internal to a contract, while in rescission such is primarily on account of prejudice to a third party.
Art. 1191.
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law. (1124)
OBLIGATION TO RETURN IN RESCISSION Rescission creates the obligation to return the things which were the object of
the contract, 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 obliged to restore. (1385)
EXTENT NECESSARY Rescission shall be only to the extent necessary to cover the damages caused. (1384)
WHEN NOT ALLOWED:
a. When there are other means - The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same (1383)
b. When he who demands rescission has no ability to restore. (1385)
c. In possession of 3rd person in good faith - Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for
damages may be demanded from the person causing the loss. (1385)
d. Nos. 1 & 2 of art. 138, if Court approved - Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place
with respect to contracts approved by the courts. (1386)

PRESUMPTIONS OF FRAUD:
BY GRATUITUOUS TITLE All contracts by virtue of which the debtor alienates property by 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.
ONEROUS TITLE Alienations by onerous title are also presumed fraudulent when made by persons against whom some
judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained
by the party seeking the rescission.

42

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law
of evidence. (1387)
REQUISITES FOR RESCISSION OF CONTRACTS IN FRAUD OF CREDITORS:
1. The existence of a credit.
2. Credit must be prior to the contract to be rescinded.
3. Existence of fraud or bad faith on the part of the debtor which can either be presumed or proved.
4. Creditors cannot recover their credits in any other manner.
REMEDIES:
1. Grant rescission only to extent necessary; no other means; ability to restore; no acquirer in good faith; nos. 1 and 2
are not court approved
2. Order return ability to restore; object of contract or its price, together with fruits, plus interests
3. Damages: Who are liable?
a. Art. 1189 rules on improvement, loss, or deterioration
b. Acquirer in bad faith. 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 impossib le for
him to return them. (1388)
If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1388)
c. One who alienates to acquirer in good faith (1385, par. 3)
PRESCRIPTION
General rule: The action to claim rescission must be commenced within four years.
For persons under guardianship and absentees: For persons under guardianship and for absentees, the period of four years
shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. (1299)
PERSONS WHO CAN BRING ACTION FOR RESCISSION:
1. the injured party
2. his heirs
3. creditor, if transaction is fraudulent.
Rescission:
Framework of Analysis: Questions to ask, things to look for:
1. grounds determine whether rescissible, void, voidable, unenforceable
2. party determine capacity to sue: injured or not
3. prescription period 4 years ; general or incapacitated/ absentee
4. ratification there is no provision but such is implicit
5. presumptions of fraud gratuituous or onerous
6. a. readiness for compliance
b. exhaustion of principal remedies
c. readiness to return
d. possession of third persons: good faith or bad faith
e. whether or not contract is approved by court
7. extent necessary

Damages art. 1189, acquirer in bad faith, one who alienates to acquirer in good faith
VOIDABLE CONTRACTS
Voidable Contracts are those which possess all the essential requisites of a valid contract but either on of the grounds under
1390 is present.
Nullity is that imperfection of a contract derived from the determinate vices of capacity or of consent of the parties, which
gives rise to an action that if exercised successfully produces the destruction of the act with retroactive effect.
GROUNDS:
Art. 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 susceptible of ratification. (n)
PRESCRIPTION: 4 years
Art. 1391.
The action for annulment shall be brought within four years.
This period shall begin:

43

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship
ceases. (1301a)
RATIFICATION:
Effects:
Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
Art. 1396. Retroactivity - Ratification cleanses the contract from all its defects from the moment it was constituted. (1313)
Form:
Art. 1393. Express or Tacit - Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification 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)
Who may ratify:
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for
annulment. (1312)
Requisites:

Contract must be voidable.


Person ratifying knew the reason why the contract is voidable.
The ratification must have been made expressly or impliedly.
The ratification is made by the injured party.

STANDING:
Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily.
However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the
contract (Mercado v. Espiritu). (1302a)
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACT:
Art. 1398. RESTORE - An obligation having been annulled, the contracting parties shall restore to each other the things
which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by
law.
In obligations to render service, the value thereof shall be the basis for damages. (1303a)
Art. 1399. Only in so far benefited (Braganza v. Villa Abrille) - When the defect of the contract consists in the incapacity of
one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the
thing or price received by him. (1304)

IN CASES OF LOSS IN OBLIGATION TO RETURN:


DAMAGES OR NIL, depending on who caused the loss
Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost
through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same
date. (1307a)
Art. 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)
Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to
return, the other cannot be compelled to comply with what is incumbent upon him. (1308)
REMEDIES:
1.
2.

Declare void
restore thing
i. if other party can restore
ii. if incapacity, only to the extent benefitted
3. Damages: who are liable
a. Art. 1189 rules on improvement, loss, deterioration
b. Who cannot return fruits, value of thing lost, plus interest therein
c. Nobody if loss by one who has right to institute proceeding, or by the incapacitated

44

Voidable
Framework of Analysis: Questions to ask, things to look for:
1. grounds determine whether rescissible, void, voidable, unenforceable
2. party standing; obliged principally or subsidiarily
3. prescription period
4. ratification express or tacit; effects, forms, who may ratify
5. a. readiness for compliance
c. readiness to return if incapacity, only to extent benefitted
d. effect of loss art. 1189, who cannot return, whose fault
UNENFORCEABLE CONTRACTS
Those that cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified
according to law.
GROUNDS:
Art. 1403.
The following contracts are unenforceable, unless they are ratified:
(1)
w/o or in excess of authority - Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
(2)
Statute of Frauds: those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be
in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the making thereof; (executory
contracts)
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) Propter nuptias - An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) Sale of at least Php 500, unless partial compliance / Auction entry in sales book sufficient - An agreement for
the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
** Note that a mutual promise to marry even if oral, is enforceable. However, parties cannot compel each other to marry because
of the promise. The only right of the injured party is to ask for damages because of the breach, not specific performance.
Art. 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book.
Art. 1317 No one may contract in the name of another without being authorized by the latter, or unless he has by law a
right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party. (1259a)
RATIFICATION:
Art. 1317. Ratification: w/o or in excess of authority - No one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party. (1259a)
Art. 1405. Ratification: Statute of Frauds - Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.
Art. 1407. Ratification: Mutual incapacity - 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.

45

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.
FORM:
Art. 1406. Compel form: private into public document - When a contract is enforceable under the Statute of Frauds, and a
public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under
Article 1357.
STANDING:
Art. 1408.

Unenforceable contracts cannot be assailed by third persons.

REMEDIES:
1. ratification
i.
w/o or in excess of authority a. express; b. impliedly: act constituting waiver of right of action
ii.
statute of frauds a. unobjected oral evidence; b. receipt of benefit
iii.
mutual incapacity by parents and guardians
2. compel form article 1357, to become public document for registration
Unenforceable contracts:
Framework of Analysis: Questions to ask, things to look for:
1.
2.
3.
4.

5.

grounds determine whether rescissible, void, voidable, unenforceable


party cannot be assailed by third persons
prescription period oral contract:6 years, default period: 5 years
ratification
i.
w/o or in excess of authority a. express; b. impliedly: act constituting waiver of right of action
ii.
statute of frauds a. unobjected oral evidence; b. receipt of benefit
iii.
mutual incapacity by parents and guardians
Form
i.
statute of fraud compliance can be compelled to be public document for registration
ii.
oral evidence, receipt of benefit may be acknowledged in written form in accordance with statute of
frauds
iii.
express ratification maybe written

VOID AND INEXISTENT CONTRACTS


These are contracts which have absolutely no force and effect and are inexistent from the beginning. The maxim is no
contract at all.
GROUNDS:
Art. 1409.
The following contracts are inexistent and void from the beginning:
(1)
Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (1347
par. 3, 1352)
(2)
Those which are absolutely simulated or fictitious; (1346)
(3)
Those whose cause or object did not exist at the time of the transaction; (1318)
(4)
Those whose object is outside the commerce of men; (1347, par. 1)
(5)
Those which contemplate an impossible service; (1348)
(6)
Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(1378)
(7)
Those expressly prohibited or declared void by law. (1347, par. 3)
BASIC KINDS:
1. Inexistent ones. Formalities required by law are not met. Contract has no effect at all.
2. Illegal or illicit ones.
CHARACTERISTICS:
1. Defense of illegality cannot be waived.
2. They are not subject to ratification.
3. The action to declare the contract inexistent does not prescribe.
4. Generally, no action to declare them void is needed.
5. The defense of illegality of contracts is not available to third persons whose interests are not directly affected.

46

RATIFICATION: NONE
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. (1409)
PRESCRIPTION: NONE
Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
EFFECTS:
a. Nullity
b. Forfeiture whether or not a crime
c. Recovery depending on fault, innocent or injured party
GENERAL RULE: PARI DELICTO
Art. 1411. CRIMINAL OFFENSE- When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be
applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall
not be bound to comply with his promise. (1305)
People v. Ouano forfeiture to the government for violation of machinations in public auction prohibition.
Art. 1412. NON-CRIMINAL OFFENSE - If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
(1)
When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract,
or demand the performance of the other's undertaking;
(2)
When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or
ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given
without any obligation to comply his promise. (1306)
GENERAL RULE: NO RECOVERY FOR PARI DELICTO UNLESS COVERED BY 1413 - 1419
EXCEPTIONS: where pari delicto does not apply
Art. 1413. USURIOUS INTEREST; recovery plus interest -Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the date of the payment.
Angel Jose Warehousing Co. v. Chelda
In an action for recovery of an unpaid loan, the Supreme Court declared that what is illegal is not the principal debt but the
usurious interest. Using art. 1420, only the usurious interest was declared void and the principal debt must still be paid with the 6
% interest allowed by law. There is no conflict between the Civil Code and the Usury Law. Both pertain to the whole usurious
interest, but article 1413 only provides for an additional interest from the date of payment of the whole usurious interest.
Recovery of principal loan is allowed as an exception to the pari delicto rule, and an application of the unjust enrichment rule.
Same principles were applied in Briones v. Cammayo.
Art. 1414. Repudiation prior to illicitness or prejudice - When money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been
caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the
contract to recover the money or property.
Art. 1415. If there is incapacity - Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if
the interest of justice so demands allow recovery of money or property delivered by the incapacitated person.
Art. 1416. Prohibition for protection When the agreement is not illegal per se but merely prohibited, and the prohibition by
the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or
delivered.
Angeles v. Court of Appeals
A sale of homestead within five year prohibitive period is void but in pari delicto does not apply because of public policy.
However, recovery does not extend to products or fruits of the land, and the improvements made by the other party. The unjust
enrichment principle must apply as to the recovery of the price paid.
Philippine Banking Corp. v. Lui She
A virtual sale through a very long-term lease of 50 years was deemed void for its contravention to the prohibition on foreign
ownership. However, since the prohibition was only for protection and security of Filipino ownership of land, applying article
1416, pari-delicto does not apply.

47

Art. 1417. Excess of maximum price When the price of any article or commodity is determined by statute, or by authority
of law, any person paying any amount in excess of the maximum price allowed may recover such excess.
Art. 1418. Additional pay for overwork - When the law fixes, or authorizes the fixing of the maximum number of hours of
labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand
additional compensation for service rendered beyond the time limit. cdt
Art. 1419. Additional pay for underpay - When the law sets, or authorizes the setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.
STANDING: all those directly affected
Art. 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.
SEPARABILITY:
Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.
As applied in: Angel Jose v. Chelda and Briones v. Cammayo
VOID GIVE RISE TO VOID:
Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.
Void/ Inexistent Contracts:
Framework of Analysis: Questions to ask, things to look for:
1. grounds determine whether rescissible, void, voidable, unenforceable
2. party standing; anyone whose interests are directly affected
3. prescription period not possible
4. ratification not possible
5. separability partly or wholly invalid
6. Recovery or demand
i.
Criminal pari delicto:forfeiture to the government ; injured/ innocent party may recover
ii.
Non-criminal pari delicto: nobody can recover ; injured/ innocent party may recover

EXTINGUISHMENT OF OBLIGATIONS
Art. 1231.
Obligations are extinguished:
(1)
By payment or performance:
(2)
By the loss of the thing due:
(3)
By the condonation or remission of the debt;
(4)
By the confusion or merger of the rights of creditor and debtor;
(5)
By compensation;
(6)
By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code. (1156a)
OTHER MODES:
1. Death of a party in case the obligation is personal.
2. Mutual Desistance.
3. Compromise.
4. Impossibility of fulfillment.
5. Happening of fortuitous event
Payment or Performance

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Art. 1232. Payment or Performance can extinguish. Payment means not only the delivery of money but also the performance,
in any other manner, of an obligation. (n)
Art. 1245. Example: Dation en pago. 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)
REQUISITES IN PAYMENT:
A. Payor/ debtor rules
Free disposal and capacity to alienate. Art. 1239. In obligations to give, payment made by one who does not have the free
disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1427 under
the Title on "Natural Obligations." (1160a)
Judicial order Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the
debt shall not be valid. (1165)
B. Payee / creditor rules
1. GENERAL RULE - pay to: person obligations benefactor, or successors interest.
Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it. (1162a)
SPECIAL CASES: (1241)
a. Incapacitated insofar as beneficial
b. 3rd persons insofar benefit has redounded to benefit of creditor
Prove benefit unless:
(1)If after the payment, the third person acquires the creditor's rights;
(2)If the creditor ratifies the payment to the third person;
(3)If by the creditor's conduct, the debtor has been led to believe that the third person had
authority to receive the payment. (1163a)
Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or
insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the
creditor need not be proved in the following cases:
(1)
If after the payment, the third person acquires the creditor's rights;
(2)
If the creditor ratifies the payment to the third person;
(3)
If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment.
(1163a)
2. GOOD FAITH PAYMENT. Art. 1242. Payment made in good faith to any person in possession of the credit shall
release the debtor. (1164)

MODES OF PAYMENT:
A. BY DELIVERY OF MONEY: RULES
a. Identity
Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the
same value as, or more valuable than that which is due.
b. integrity
GENERAL RULE: Complete payment Art. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be
required to make partial payments.
Exception: partial payment allowed if only partially liquidated. However, when the debt is in part liquidated and in
part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the
liquidation of the latter. (1248)
c.

Currency

Stipulated (1249)

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Philippine legal tender. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines. (1249)
Mercantile documents, payable to order: only when cashed or impaired by creditor . The delivery of promissory
notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor they have been impaired. (1249)
***Impairment contemplates an issuance by a third party, otherwise, creditor can just ask from creditor
again but without interest as there was no delay. (Jurado, Balane, and maam Sereno)
During encashment: action in abeyance. In the meantime, the action derived from the original obligation shall be held
in the abeyance. (1170)
d. Extraordinary inflation/ deflation
Stipulation (1250)
Currency value at time of agreement. 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. (1250)
e.

Expenses: Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment
shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.
(1168a)

B. BY PERFORMANCE: RULES
a.
Identity
- Compel only the agreed thing or prestation, regardless of value. The debtor of a thing cannot compel the creditor to receive
a different one, although the latter may be of the same value as, or more valuable than that which is due. (1244)
In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the
obligee's will. (1166a)
-Generic thing: same kind, quality and circumstances. When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken
into consideration. (1246)
b.
Integrity
GENERAL RULE: Complete delivery or rendering. A debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered or rendered, as the case may be. (1233)
Exceptions:
i.
Substantial performance: total value less damages. Art. 1234 If the obligation has been substantially performed
in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee. (n)
ii.
Acceptance as full compliance regardless of completeness. Art. 1235 When the obligee accepts the performance,
knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with. (n)
c.
Expenses
Art. 1247.
Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of
the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a)

RULES ON THIRD PARTY:


A. 3rd party: AS PAYOR
1. GENERAL RULE: Creditor not bound to accept. Art. 1236. The creditor is not bound to accept payment
or performance by a third person who has no interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.
Exceptions:
a. Stipulation. (1236)
b. Creditors option (1236) - hes not bound but nothing stops him from accepting
2. Rights of third party if payment made by such:
a. With knowledge and consent of debtor
- To demand from debtor entire payment. (1236)
b. Without knowledge or against the will of debtor
- To demand from debtor only extent of benefit (1236)

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Whoever pays for another may demand from the 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 beneficial to the debtor. (1236)
- Cannot compel subrogation to creditors rights, i.e. mortgage, guaranty, penalty.
Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot
compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or
penalty. (1237)
c. As Donation, valid as to creditors, but needs debtors consent.
Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a
donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor
who has accepted it. (1238)
B. 3rd party: AS PAYEE
1. GENERAL RULE: In so far as it has redounded to benefit as proven. Payment made to a third person shall also
be valid insofar as it has redounded to the benefit of the creditor. (1241)
Exception: Such benefit to the creditor need not be proved in the following cases:
(1)If after the payment, the third person acquires the creditor's rights;
(2)If the creditor ratifies the payment to the third person;
(3)If by the creditor's conduct, the debtor has been led to believe that the third person had
authority to receive the payment. (1241)
PLACE: RULES
a. Stipulation/ place designated
b. Wherever the determinate thing is at time of perfection of contract
c. Domicile of debtor
i.
good faith
ii.
bad faith or after incurring delay, debtor bears additional expenses
Art. 1251.
Payment shall be made in the place 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.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court. (1171a)
SPECIAL MODES OF PAYMENT:

Application or imputation of payment

Cession of payment or assignment

Dation in payment

Tender and consignation


Application of Payments
It is the designation of the debt to which should be applied a payment made by a debtor who owes several debts in favor of the
same creditor. The purpose is to know which debt out of two or more debts owing the creditor should be extinguished.
Requisites:

Two or more debts


Of the same kind
One debtor and one creditor
All debts are due
Tendered payment is not sufficient to extinguish all obligations

1. Various debts of same kind to one creditor:


Debtor choice of application (1252)
Due or demandable
Not due or demandable,
i. only if parties stipulate

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ii. suspensive term is for payors benefit


2. Receipt of application of payment is conclusive unless invalid. (1252)
Art. 1252.
He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are
not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of
the same, unless there is a cause for invalidating the contract. (1172a)
3. Interests must be paid first (1253)
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have
been covered. (1173)
Presumption: payment of principal presumes payment of interest. (1176)
Art. 1176, par. 1. Receipt of principal by creditor without reservation with respect to the interest, shall give rise to presumption
that said interest has been paid.
4. Default rules, i.e. when preceding rules does not apply, nor inference from circumstances (1254)
1. Most onerous must first be satisfied
factors to consider:
i. age of obligation
ii. existence of interest
iii. role of third party secured ones are more onerous
iv. principal or subsidiary liability
v. being a solidary debtor is more onerous
vi. in solidary debts, own part is more onerous
vii. indemnity is more onerous than penalty
viii. Liquidated debt
2. If same nature and burden, apply proportionately
Art. 1254.
When the payment cannot be applied in accordance with the preceding rules, or if application can not be
inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been
satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)
Payment by Cession
It is the process by which a debtor transfers all the properties not subject to execution in favor of his creditors so that the
latter may sell them and apply the proceeds to their credits.
REQUISITES:
1. More than one debt.
2. More than one creditor
3. Complete or partial insolvency of the debtor
4. Abandonment of all debtors properties not exempt from execution.
Art. 1255.
The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there
is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws.
(1175a)
KINDS: Judicial or Contractual
Distinguish from Dation en Pago (1245)
1. Here, there is plurality of creditors
2. Here, there is financial difficulty
3. There, particular object is equivalent of performance; here, it is the universality of debtor properties
4. There, the object or property is full or partial payment; here, it is the fruits, or net proceeds that are such.
Tender of Payment and Consignation
Tender of payment is the act, on the part of the debtor, of offering to the creditor the thing due or amount due. The debtor
must show that he has in his possession the thing or money to be delivered at the time of the offer.

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Consignation is the act of depositing the thing or amount due with the proper court when the creditor does not desire or
cannot receive it, after complying with the formalities required by the law.
DIFFERENCE:
-Tender of payment as preparatory act of consignation
-Tender of payment is extrajudicial while Consignation is judicial
REQUISITES/PROCESS
1. There was a debt due
2.

General Requisites: Tender of Payment in accordance with rules of payment: i.e., it would have been a valid
payment, hadnt it been for the situation in no. 3. (1258)

3.

Legal causes of Consignation


A. Tender of Payment was unjustly refused by creditor; or
B. There is no need for tender of payment due to circumstances which make tender of payment impossible
or inadvisable
- Cases where consignation alone shall extinguish obligation: (1256)
a. When the creditor is absent or unknown, or does not appear at the place of payment;
b. When he is incapacitated to receive the payment at the time it is due;
c. When, without just cause, he refuses to give a receipt;
d. When two or more persons claim the same right to collect;
e. When the title of the obligation has been lost.

4.

Previous notice was given to person interested in performance of the obligation (1257)

5.

Consignation proper - Amount due was placed at the proper disposal of the court (1258)

6.

second notice was made to person interested (1258)

7.

debtor may ask judge for extinguishing obligation (1260)


-But debtor still has option to withdraw:
a. before judicial declaration of proper consignment
b. before creditor accepts consignment
c. if creditor consents

WITHDRAWAL OF CONSIGNATION:
1. at debtors instance obligation remains in force (1260)
2. with creditors consent (1261)
a. creditor loses preference over the thing
b. solidary co-debtors, sureties, guarantors are released.
EXPENSES: Charge to creditor (1259)
WHEN CONSIGNATION ALONE WITHOUT TENDER EXTINGUISHES OBLIGATION
Art. 1256.
If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1)When the creditor is absent or unknown, or does not appear at the place of payment;
(2)When he is incapacitated to receive the payment at the time it is due;
(3)When, without just cause, he refuses to give a receipt;
(4)When two or more persons claim the same right to collect;
(5)When the title of the obligation has been lost. (1176a)
Art. 1257.
In order that the consignation of the thing due may release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.
Art. 1258.
Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof. (1178)
Art. 1259.
The expenses of consignation, when properly made, shall be charged against the creditor. (1178)
EFFECTS IF CONSIGNATION PROPERLY MADE:
Art. 1260.
Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the
obligation.

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Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made,
the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180)
1. Running of interest is also suspended.
RELEASE OF CO-DEBTORS, GUARANTORS AND SURETIES
Art. 1261.
If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall
lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a)
Loss of the Thing Due
There is loss when:
The thing perishes
Goes out of commerce
Disappears in such a way that its existence is unknown or cannot be recovered.
Kinds of impossibility of performance:
Physical impossibility
Legal
Moral
Requisites for extinguishment due to loss: (1262)
a.
b.
c.
d.
e.
f.
g.

without fault of debtor


no delay incurred
no law or stipulation making obligor liable
no risk in nature of obligation
debt of thing certain and determinate does not proceed from a criminal offense (1268)
not a generic thing (1263)
if only partial, but determined as important to the obligation (1264)

Art. 1262.
An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or
destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the
obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the
assumption of risk. (1182a)
TYPES OF LOSSES
1.

Loss of generic thing: loss does not extinguish, since replaceable of same kind and quality . Art. 1263. In an
obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the
obligation.

2.

Partial loss: extinguishment depends on courts determination of its importance


Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is
so important as to extinguish the obligation. (n)

3.

Loss in to do extinguishes, if:


a. Impossibility - Art. 1266.
The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the obligor. (1184a)
b. Too difficult - Art. 1267.
When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in
part. (n)
Debts arising from Criminal Offense: loss does not extinguish (1268)
a. restitution
b. reparation
c. indemnification
Unless: he has already offered such to creditor, and latter unjustly refuses
Art. 1268.
When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall
not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been
offered by him to the person who should receive it, the latter refused without justification to accept it.

4.

PRESUMPTION: loss during possession of debtor is with fault


Exception: times of calamity
Art. 1265.
Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to
his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not
apply in case of earthquake, flood, storm, or other natural calamity.

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REMEDY OF CREDITOR: Use rights of action of debtor against third persons (e.g. insurance)
Art. 1269.
The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action
which the debtor may have against third persons by reason of the loss.
Condonation or Remission of the Debt
It is the gratuitous abandonment by the creditor of his right.
There must be an agreement.
The parties must be capacitated.
There must be a subject matter.
The cause or consideration is generosity.
Obligation is demandable at the time of remission.
Remission must not be inofficious.
REQUISITES of Condonation or Remission to extinguish debt
A. conformity with the Rules of Donation (inferred 1270)
1.

acceptance by obligor (1270)

2.

rules on inofficious donations (1270)


a. donations only insofar as not to deprive donor of sufficient means of usufruct
b. not future property
c. not more than he may give or receive by will, but those within means are effective
d. not between husband and wife

3.

if express donation, compliance with forms of donation


a. movable property maybe oral or in writing
i. oral donation require simultaneous delivery of donated thing
ii. oral donation must not exceed Php 5,000; such value should be written
b. Immovable
i. public document specifying property donated and its value
ii. acceptance in the same or separate public document within lifetime of donor
iii. acceptance of donation must be known to donor

Art. 1270.
Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore,
comply with the forms of donation.
B. Must relate to principal debt: otherwise, partial
Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall
leave the former in force. (1190)

TYPES: RULES of implied and express condonation or remission


1.

implied

a. Delivery of private document of debt implies remission


b. If delivery contended as inofficious, prove delivery as payment of debt
Art. 1271.
The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies
the renunciation of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the
delivery of the document was made in virtue of payment of the debt. (1188)
c. Presumption: debtor has private document of debt = voluntary delivery by creditor
Art. 1272.
Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be
presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189)

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d. Pledge: presume remitted if pledged object in debtors possession


Art. 1274.
It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its
delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a)
2. express
- relate to validity of contracts:
a. proper requisites (1318)
b. conformity with requirements of donation being a gratuituous title
c. not against law, morals, good customs, public order, and public policy (1306)
Confusion or Merger of Rights
It is the meeting in one person of the qualities of creditor and debtor with respect to the same obligation.
Requisites:
a. when creditor and debtor are merged in the same person
Art. 1275.
The obligation is extinguished from the time the characters of creditor and debtor are merged in the same
person. (1192a)
b. they are principal parties to a debt; not mere guarantors.
Art. 1276.
Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion
which takes place in the person of any of the latter does not extinguish the obligation. (1193)
RULE IN JOINT OBLIGATIONS: confusion only to share of person who is creditor and debtor .
Art. 1277.
Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur. (1194)
Compensation
It is the extinguishment to the concurrent amount of the debts of two persons who, in their own rights are debtors and
creditors of each other.
REQUISITES:
1. Two persons are creditor and debtor of each other
Art. 1278.
Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
2.

In order that compensation may be proper, it is necessary: (1278)


(1)
That each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other;
(2)
That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
a. . BUT NOT QUANTITY: Compensation may be total or partial. When the two debts are of
the same amount, there is a total compensation. (1281)
(3)
(4)

That the two debts be due;


That they be liquidated and demandable;
a. BUT: parties may agree upon compensation of debts which are not yet due. (1282)

(5)
That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (1196)
RULE:
BY OPERATION OF LAW
Art. 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law,
and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation. (1202a)
- EVEN AT DIFFERENT PLACES; EXPENSES OR TRANSPORTATION INDEMNITY
Art. 1286.Compensation takes place by operation of law, even though the debts may be payable at different places, but
there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a)
3.

NOT INVOLVING THE FOLLOWING OBLIGATIONS:


a. Depositary in Depositum

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b. Bailee in Commodatum
c. Support, except those in arrears (par.2, art. 301)
d. Civil liability out of civil offense
Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without
prejudice to the provisions of paragraph 2 of article 301. (1200a)
Art. 1288.
Neither shall there be compensation if one of the debts consists in civil liability arising from a penal
offense. (n)
4. VALID OBLIGATIONS: NOT YET AVOIDED OR RESCINDED, also not void ab initio (1284)
Art. 1284.
When one or both debts are rescissible or voidable, they may be compensated against each other before they
are judicially rescinded or avoided. (n)
SPECIAL SITUATIONS: rules
a. Guarantors may invoke what creditor may owe the principal debtor
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards
what the creditor may owe the principal debtor. (1197)
b. Compensate damages:
Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set
it off by proving his right to said damages and the amount thereof. (n)
c. Several debts: applications of payment
Art. 1289.
If a person should have against him several debts which are susceptible of compensation, the rules on
the application of payments shall apply to the order of the compensation. (1201)
d. Creditor/ assignor; assignee; Rules
Valid compensation between debtor and creditor/assignor as defense against assignees claim:
1. notification to creditor/assignor that he reserved his right to compensate
2. if debtor does not consent to assignment by creditor, compensation valid prior, not subsequent to disapproval
3. if debtor does not know, compensation valid prior to knowledge of assignment.
Art. 1285.
The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot
set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by
the debtor at the time he gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of
debts previous to the cession, but not of subsequent ones. casia
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)
Novation
It is the extinction of an obligation through the creation of a new one which substitutes the old one.
REQUISITES:
a. previous valid obligation (1298)
Art. 1298. The novation is void if the original obligation was void, except when annulment may be
claimed only by the debtor or when ratification validates acts which are voidable. (1208a)
b. agreement to new obligation
c. extinguishment of old contract
i. preserve accessory obligations insofar non-consenting 3rd party benefactors are benefited.
Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit third persons who did not give their consent.
(1207)
d. validity of new contract
i. If new obligation is void, original is revived
Art. 1297.
If the new obligation is void, the original one shall subsist, unless the parties intended that
the former relation should be extinguished in any event. (n)
AS EXTINGUISHMENT: TYPES (1292)
a. Express unequivocal terms
b. Implied incompatibility

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Art. 1292.
In order that an obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. (1204)

AS MODIFICATION:
Obligations may be modified by: (1291)
(1)

Changing their object or principal conditions;


- unless stipulated, suspensive and resolutory conditions apply to new contract
Art. 1299.
If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated. (n) cd

(2)

Substituting the person of the debtor;


A. Consent of Creditor is essential, not that of the original debtor.
B. Rights of new debtor:
a. with knowledge, demand all from debtor; (1236)
b. w/o knowledge or against will, only insofar beneficial (1236)
c. w/o knowledge or against will, no action for mortgage, guaranty, penalty (1237)
Art. 1293. Novation, which consists in substituting a new debtor in the place of the original one may be made
even without the knowledge or against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237. (1205a)
C. Original debtor is not liable for insolvency or non-fulfillment by new debtor
a. Original debtor had no knowledge or consent (1294)
b. Proposed and accepted by original debtor and creditor (1295)
-except when insolvency is already existing at time of delegation:
i. public knowledge
ii. known to the debtor
Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's
insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original
debtor. (n)
Art. 1295.
The insolvency of the new debtor, who has been proposed by the original debtor and
accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said
insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt.
(1206a)

(3)Subrogating a third person in the rights of the creditor.

SUBROGATION: Change in creditor


Art. 1300.
Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is
not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take
effect. (1209a)
Types:
A. Legal not presumed, unless provided for in the civil code
It is presumed that there is legal subrogation: (1302)
(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of
the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter's share.
B. Conventional must be clearly established
a. consent of original parties and third person
Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and
of the third person. (n)

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Effects:
A. Transfer of rights of creditor: to the principal, guarantors, posessors of mortgages.
Except:
a. if sipulated (1303)
b. third party payor without consent of debtor has no right towards guarant, penalty, mortgages.
(1237)
Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either
against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a
conventional subrogation. (1212a)
B. But the original creditor is preferred over subrogated party by virtue of partial payment
Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be
preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (1213)
Magdalena Estates Inc. vs Spouses Rodriguez
Spouses Rodriguez purchased a property from Magdalena wherein a balance of P5000 was left unpaid and a promissory note
was made to secure payment subject to a 9% interest demandable w/in 60 days. In further compliance, a bond of P5000 was
executed by the spouses and the Luzon Surety Co. to secure payment. When the obligation was already due, Luzon paid
Magdalena the P5000. Then the latter also demanded from the spouses the accumulated interest but they refused to pay saying
that by virtue of the bond which was made to guarantee payment of the P5000, there was already a novation. Thus, the interest
can no longer be demanded.
Issue:
Was there a NOVATION considering that a bond was executed by the spouses and Luzon Surety making them not liable for the
interests?
Held:
No. Novation cannot be presumed in the instant case since there was no inconsistency (i.e. implied novation) with regard to the
promissory note executed. The bond was only made to further guarantee compliance with the obligation. The fact that
Magdalena accepted the P5000 does not extinguish the spouses' liability as to the interests. The mere fact that the creditor
accepts payments from a third person who agreed to assume the obligation, when there is no agreement that the first debtoer shall
be released from the responsibility does not constitute obligation.
Kabankalan Sugar Co., Inc (Kabankalan) vs Josefa Pacheco (Josefa)
Josefa had a debt incurred with a firm Ledesma Hermanos and to comply with her obligation to the firm, on Nov. 1, 1920, she
entered into a contract with Kabankalan that the latter shall assume her obligation with the firm as well as pay the taxes of her
Hilabangan Estate and in return, she will deliver 15% of all the sugar obtained from the estate every year. Lizarraga, acting as
manager of Kabankalan, agreed with Josefa that in addtion to the delivery, a right of way is granted to Kabankalan within the
estate for a period of 20 years. However, on Sep. 29, 1922, the parties agreed to change the term for only 7 years starting from
1922. A new manager took over Kabankalan which compelled Josefa to execute in a public document the stipulation that was
agreed upon on Nov. 1, 1920 and not on Sep 29, 1922 covering a 20 year period.
Issue:
Was there a novation ?
Held:
Yes. When an easement of right of way is one of the principal conditions of a contract, and the duration of said easement is
specified, the reduction of said period in a subsequent contract, wherein the same obligation is one of the principal conditions,
constitutes a novation and to that extent extinguishes the former contract.
Ynchausti&co v. Yulo
Six brothers and sisters admitted solidary liability. Gregorio Yulo was sued for payment of entire indebtedness. However,
solidary debtors Francisco, Manuel and Carmen had already entered into a compromised agreement with plaintiff. SC ruled:
Gregorio can be sued for the entire indebtedness plus interest. There was no novation in an extension of terms, thus Greg Yulos
liability is not extinguished. He is only affected insofar as the agreement reduced the debt. Partial remission granted to the three
debtors should also benefitted him. The new term of demandability in the subsequent agreement between his siblings and the
creditor only gives rise to defense of non-maturity of his other co-debtors solidary liability. Such is a defense to allow for mere
partial payment. Gregorio was ordered to pay the part of the reduced indebtedness, only insofar as such is demandable.
N.B. Solidary debtors can only act to benefit the other solidary debtors. However, extension of terms like period of payment does
not automatically apply to everyone except insofar as the demandability of eachs share. This can be understood by Art. 1211
providing that solidarity may exist although creditors and debtors may not be bound in the same mannerand by the same periods
and conditions.
Castan states that Novation occurs:
a. clear case of incompatibility

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b.

change in obligatory relation between the parties which alter the essence of the obligation

NATURAL OBLIGATIONS
Distinctions: Natural Obligations vs. Civil Obligations (1423)
a. Right of retention only vs. right to compel performance
b. After voluntary fulfillment vs. after constitution of obligation
c. Equity and Natural Law vs. Positive Law
Features:
a.
b.
c.
d.
e.

no positive law giving right of action


no right of action to enforce performance
voluntary fulfillment of obligation by obligor
authorize retention of what has been fulfilled;
no right to recover, or demand return of what has been fulfilled

Art. 1423.
Obligations are civil or natural. Civil obligations give a right of action to compel their
performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of
action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what
has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.
Following are natural obligations:
a. Prescribed action of obligee. (1424)
Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what he has delivered or the value of the service he has
rendered.
b. Prescribed action of 3rd person payor without knowledge and consent of debtor against the latter. (1425)
N.B. Relate to rights of 3rd party payors in Art. 1236 and 1237
Art. 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the
obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily
reimburses the third person, the obligor cannot recover what he has paid.
c. Annulled contract of 18-21 minor without consent of parents. (1426, 1427)
i. returns whole thing or price he has received
N.B. Relate to Art. 1241, only insofar benefited
ii. fulfills obligation, and good faith consummation and spending of what has been delivered
N.B. Relate to Art. 1327, unemancipated minors cannot give consent to contracts.
***However, take these articles in light of RA 6809, lowering age of minority to 18

d.

e.

Art. 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract
without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no right to
demand the thing or price thus returned.
Art. 1427. When a minor between eighteen and twenty-one years of age, who has entered into a 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 right to recover the same from the obligee who has spent or
consumed it in good faith. (1160A)
Failed action to enforce contract
Art. 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the
obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he
has rendered.
Successions:
i. Heirs paying decedents debt beyond what he has received
ii. Will voided by lack of formalities, intestate heir pays a legacy
Art. 1429.
When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of
the property which he received by will or by the law of intestacy from the estate of the deceased, the payment
is valid and cannot be rescinded by the payer.
Art. 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.

ESTOPPEL
Estoppel: admission or representation conclusive upon person making such; cannot be denied or disproved

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Art. 1431.
Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon.
Art. 1432.
The principles of estoppel are hereby adopted insofar as they are not in conflict with the provisions of this
Code, the Code of Commerce, the Rules of Court and special laws.
GENERAL RULE: Effective only between parties thereto or successors in interest
Art. 1439.
Estoppel is effective only as between the parties thereto or their successors in interest.
Types by means:
Art. 1433.
Estoppel may in pais or by deed.
A. By Conduct (in pais) intentional and culpable negligence
elements:
a. acts inducing another to believe certain facts to exist
b. with intent or culpable negligence
c. the other party rightfully relies and acts on such belief
d. other party would be prejudiced if the guilty party is allowed to deny facts first represented by
him
types:
a. by silence
b. by acceptance of benefits
c. by acts representations or admissions
B. By Deed - cannot question admission in document or deeds
By Record cannot question executive and legislative records
By Judgement no denial of adjudicated facts by competent court
C. By laches (Tijam v. Sibonghanoy)
a. situation giving right of faction
b. delay in asserting complainants rights
c. lack of knowledge or notice that complainant would assert his rights
d. injury or prejudice would arise if relief is granted
The following are Estopped
a. in sales: ownership transfers to buyer
i. Seller or grantor who is not owner at time of sale but he later acquires ownership of such
Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller
or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.
ii. Seller represents owner in a sale; cannot contest title of ownership of buyer
Art. 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.
b. Lessee or bailee cannot claim ownership of thing leased or received against lessor or bailor
Art. 1436.
A lessee or a bailee is estopped from asserting title to the thing leased or received, as against
the lessor or bailor.
c. Misleader in 3rd party contracts on immovable property
requisites:
On guilty party:
a. His fraudulent representation/ wrongful concealment
b. Intent other party to act upon facts misrepresented
Other party:
a. does not know facts
b. acted in accordance with misrepresentations
*notice: no requirement for prejudice or injury if relief is granted
Art. 1437. When in a contract between third persons concerning immovable property, one of them is misled by a person
with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or
interest therein, provided all these requisites are present:
(1)There must be fraudulent representation or wrongful concealment of facts known to the party estopped;
(2)The party precluded must intend that the other should act upon the facts as misrepresented;
(3)The party misled must have been unaware of the true facts; and
(4)The party defrauded must have acted in accordance with the misrepresentation.
d. In a pledge: owner allowing another to feign ownership, cannot claim ownership as defense against pledge.
Art. 1438.
One who has allowed another to assume apparent ownership of personal property for the purpose of
making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to
defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value.

TRUSTS
Parties:
Trustor - establish
2. Trustee trusted, given confidence

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Beneficiary receiver of benefit of trust


Art. 1440.
A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property
for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to
as the beneficiary.
Types: Express and Implied
Art. 1441.
Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties.
Implied trusts come into being by operation of law.
Art. 1442.
The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of
Commerce, the Rules of Court and special laws are hereby adopted.
EXPRESS TRUSTS
Requirements:
a. Form:
i. For immovable properties: expressly written, not parol or oral evidence;
Art. 1443. No express trusts concerning an immovable or any interest therein may be proved by parol
evidence.
Otherwise: implied trust
Art. 1457.
An implied trust may be proved by oral evidence.
ii. No particular form: Intent for trust is clear
Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that
a trust is clearly intended.
c. Beneficiary must accept:
Art. 1446.
Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition
upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary.
d. Unless stipulated, acceptance by trustee is not needed
Art. 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear
in the instrument constituting the trust.
IMPLIED TRUST
GENERAL RULE: By parole evidence
Art. 1457.
An implied trust may be proved by oral evidence.
The Following are examples of implied trusts: (not the only ones around)
Art. 1447.
The enumeration of the following cases of implied trust does not exclude others established by the general law
of trust, but the limitation laid down in article 1442 shall be applicable.
A. Property paid for by another party to have a beneficial interest
Trustor: Payor, Trustee: Holder of legal estate, Beneficiary: payor
Art. 1448.
There is an implied trust when property is sold, and the legal estate is granted to one party
but the price is paid by another for the purpose of having the beneficial interest of the property. The former is
the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child.
B. Donation where donee has to have no or mere partial beneficial interest.
Trustor: donor, Trustee: donee, Beneficiary: donor
Art. 1449.
There is also an implied trust when a donation is made to a person but it appears that
although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or
only a part thereof.
C. Security of debt to pay price of sale: property acquired by loan in name of creditor
Trustor: debtor/lendee, Trustee: Lender, Beneficiary: debtor/ lendee
Art. 1450.
If the price of a sale of property is loaned or paid by one person for the benefit of another and
the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of
law in favor of the person to whom the money is loaned or for whom its is paid. The latter may redeem the
property and compel a conveyance thereof to him.
D. Succession to an heir but put in name of another.
Trustor: heir, Trustee: whose name is in legal title, Beneficiary: heir
Art. 1451. When land passes by succession to any person and he causes the legal title to be put in the name of
another, a trust is established by implication of law for the benefit of the true owner.
E. Multiple purchasers, but in name of only one
Trustor: non-nominate purchaser, Trustee: nominate purchaser insofar as the others share,

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Beneficiary: non-nominate purchaser


Art. 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in
the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in
proportion to the interest of each.
F. Grant in reliance of declaration to be a mere holder or conduit for grantor or third person
Trustor: grantor, Trustee: declarer of intention to hold it for 3rd person,
Beneficiary: grantor or 3rd party
Art. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is
contemplated.
G. Absolute conveyance to creditor for security of an obligation; reconveyance upon fulfillment
Trustor: debtor, trustee: creditor, beneficiary:
Art. 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of
the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is
offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.
H. Objects acquired or conveyed by use of trust funds,
Trustor: Owner of trust fund, Trustee: trustee of trust funds or 3rd person receiver of conveyance,
Beneficiary: Owner of trust fund
Art. 1455.
When any trustee, guardian or other person holding a fiduciary relationship uses trust funds
for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is
established by operation of law in favor of the person to whom the funds belong.
I. Acquisition by mistake or fraud
Trustor: conveyor, Trustee: acquirer by mistake or fraud, Beneficiary: conveyor
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.
Fabian v. Fabian
Four children inherited a land from their father who died in 1928. Through fraudulent means, a daughter and a niece was able to
secure titles to the land in 1937. By 1945, they subdivided the lot into two. In 1960, the other heirs of the father applied for
reconveyance on the ground of implied trust. Held: Constructive or implied trusts maybe barred by statute of limitations unlike
expressed ones. Their action has both prescribed and laches has already set in. Prescription of ten years for constructive or
implied prescription runs from date of constructive notice to the world, i.e. from issuance of new certificate of title.
N.B. In the former, there is an open, continuous, and uninterrupted possession. In the latter there is none of such, but an
admission of non ownership or ownership by another.
Caragay-Layno v. CA
Claimant whose property has been wrongfully registered in the name of another, but which has not passed to a third party, can
properly seek reconveyance. Action to quiet title or render it undisputable is imprescriptible since such property has been in
claimants open possession.
Framework: questions to ask to determine Implied obligations:
1. who are: trustor, trustee, beneficiary
2. Was there genuine transfer of ownership?
a. Purpose of transaction, conveyance
b. Is there a nominate owner?
-legal title, limited use or benefit
c. Is there a substantial owner?
i. ownership by what virtue?
-payment, purchase, succession, donation
ii. who actually benefits?
iii. actual use of property
Insight: The difference between an expressed and implied trust is not just limited to form with the former written and the
other is not. Their difference extends to the relationship between the trustor and the trustee. In implied trusts, agreement
between them is not essential. All that is necessary is for the circumstances surrounding each situation be present, and
then such would be deemed a trust. The same must be the reason they also call such as constructive trusts.

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