Obligations and Contracts Notes
AY 2012-2013
PRE-MIDTERMS
PRELIMINARY
 Obligation- moral or legal; distinguish based on basis
of consequence for non-compliance
o Moral obligation- in case of non-compliance, there
will be no sanctions imposed at least from civil law
authorities; only answerable to your conscience; you
cannot be sued on the basis of this
o Legal obligation- there are legal sanctions for non-
compliance such as being sued in court; aggrieved
party can always go to court to compel you to
perform obligation; you are answerable to the court
o Natural obligation- the middle ground; obligation
which at the outset is not a source of a legal right,
but in case the obligor voluntarily complies with the
obligation, it authorizes the retention of what has
been voluntarily delivered
Example: debt is due and demandable now. If creditor
collects the debt within 10 years from now, that is a
legal obligation because within that period, you can
be sued for compliance. But if creditor fails to collect
within that period and allow that to lapse
(prescription period lapses), like he collect 15 years
from now, debtor cannot be held liable anymore
under the law because the debt has prescribed.
Next scenario: Debtor knows that he is no longer
liable, and he still voluntarily complies with the
obligation/pays the debt. Later he decides to file a
case to recover the debt he paid since he alleges he
was not already required to pay, he cannot recover
anymore. He cannot recover what he voluntarily
paid.
 Natural obligation is given partial legal recognition. The
court may order that you cannot recover what you
voluntarily delivered.
 Unlike natural obligation, the obligor can be sued in
court even from the start if it is established the
obligation was not complied with. It is a source of right
from the very start. Moral obligation is not a source of
legal right.
 There is little law involved in natural obligations: only a
part of the Civil Code
 Not applicable when debtor does not know there is
something demandable from him. It must be voluntary.
If not, may be a quasi-contract.
 Purely civil obligation- defined in 1156, juridical
necessity to give, to do or not to do
 Juridical necessity- in case of noncompliance, there is a
legal sanction
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 Sanctions that may be imposed on non-complying party
in the obligation- among many is “damages”; if you
violate a contract you are required to pay the payment
known as damages; other sanctions: specific
performance (you can be under pain of contempt),
contract can be declared without force and effect plus
damages always
 when there is a right, there is an obligation, there is
corresponding duty to comply with the obligation, then
there will be damages as sanction for noncompliance
 Kinds of obligations under 1156: 3 kinds, to give, to
do, not to do
 Elements of obligations: the obligee/creditor,
obligor/debtor, juridical tie (contract, law such as
obligation arising from law on taxation),
object/prestation
SOURCES OF OBLIGATIONS: law, contracts, quasi-delict,
quasi-contracts, acts & omissions punished by law
1. Law- imposed by law itself. It must be
categorical/clear enough as to create no doubt on the
obligation
Example: no law requiring owners of big malls to
provide free parking; law imposing taxes; also the case
of Mangonon on support
2. Contracts- source of an obligation because when one
agrees to a contract, he is binding himself to do/give
something; meeting of the minds between two persons
where one binds himself with respect to the other to
render some service
3. Quasi-contract – it is similar to a contract; but here, the
law only presumes there is a contract (but there really is
no contract)
Types:
a)negotiorum gestio- unauthorized management but
certain benefits go to one of the parties. The one
benefitted has obligation to reimburse.
Example: spending funeral expenses for someone who is
not a relative; but he has right to be reimbursed by the
persons responsible
b) Solutio indebiti- obligation to return what has
been mistakenly delivered.
Example: you forgot to return change
4. Delict- acts or omissions punished by law; made
punishable by the RPC; source of the liability is crime;
one criminally liable is also civilly liable
 but there are crimes where there is no civil liability,
e.g. rebellion, sedition
 sanction/criminal liability: imprisonment
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Obligations and Contracts Notes
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 civil liability: damages (moral damages, actual
damages, exemplary damages)
 an act is criminal when there is a law which says it is
criminal
Distinction: civil liability from quasi-delict is broader
because civil liability arising from crime can only be
punished when expressly said by the RPC. Quasi-delict
covers all voluntary acts and results of negligent acts.
Even if an act is not punished by the RPC (where there is
no civil liability because there is no crime)
2 kinds of acquittals & civil liability:
a) Acquittal based on reasonable doubt: there is still civil
liability, though no criminal liability. The source of
liability here is the crime (still). A crime was committed
but the accused was not the one responsible, hence, no
criminal liability for him. Here, you can even be charged
twice for civil liability: from crime and quasi-delict.
b) Acquittal because the fact on which the crime is based
does not exist: no civil liability arising from crime
because there was no crime committed at all. However,
it does not follow that there is no civil liability at all. Still,
even if there is no crime and there was damage that
resulted, one can still be charged for civil liability arising
from quasi-delict (as long as you can prove there was
negligence)
Rule on reservation of civil actions: there is a need to
reserve if it is a civil liability arising from crime, but if it is
civil liability which is independent civil action, there is no
need to reserve
5. Quasi-delict – obligation arising from voluntary acts
and damage results because of negligence; not purely
delict
 this is also known as Tort
Example: the case in Crim where people brought a torch
to an overturned bus and it burned
 Civil liability arising from crime or quasi-delict
(against same person) can be prosecuted
simultaneously. This can be done with independent
civil actions only, but not with dependent civil actions.
In fact if civil action is filed ahead of a criminal action
& it is not an independent one, it has to be suspended.
 In independent civil actions, regardless of what the
result of the criminal action is, it can be filed before,
during or after that case. This does not violate also
rule against forum-shopping
 Distinguish civil liability arising from contract & from
quasi-delict: in contract, there is a contract. In quasi-
delict, there is no preexisting contractual relation.
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Example: an obligation from contract & at the same
time arising from quasi-delict, & other sources of
obligation --- riding a taxi. There are many sources of
civil liability here:
-from contract: contract of carriage exists between the
passenger & the operator; there would be a violation if
you are not brought to your destination hence the
source of the obligation for such violation is one
arising from contract against the operator. The
contract with the operator is that the passenger
should be taken to his destination safely as far as
human foresight would allow
-from quasi-delict: driver drove negligently (there was
damage to you/passenger), so if there is a crash from
the negligence, there is an obligation arising from
quasi-delict against the driver
-from quasi-delict: against operator; there is
negligence on his part to exercise due
diligence/diligence of a good father of a
family/ordinary diligence in the selection &
supervision of his employees; you as operator are
responsible for any negligent act committed by the
employee (driver)
-from crime: against the driver; reckless imprudence
resulting to homicide/serious physical injuries/less
serious/slight; may also be against the operator when
the driver is insolvent; operator has subsidiary
liability; there is no denial of due process to operator
because operator is still given time to prove: 1) driver
is employee; 2)damage was inflicted in the course of
employee’s performance of functions. Driver should
provide very good counsel to driver
 Generally, there is no contract in obligations arising
from quasi-delict. Any damage resulting if there is a
contract can only be based on obligation arising from
contract & not quasi-delict (PSBA vs CA). However,
even when there is a contract, one can still file for
quasi-delict if the act that breaks the contract is a
negligent act or a tortous act, like an employee asking
a passenger to vacate seat in a plane because he is
colored
 Distinction between cases for obligations arising from
contract, or from quasi-delict: if liability is based on
contract, the liability is limited to the conditions of the
contract/the stipulations such as liquidated damages
(damages in case of breach have already been agreed
on). If it is quasi-delict, one can practically throw
anything at the defendant such as several kinds of
damages, and complainant may prove the damages
and allege the amount
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 Proving damages from contract is easy: only prove
there was a) a contract, b) there was a breach. Hence,
it is difficult for defendant to defend his case
 Problem with quasi-delict, there are more defenses
available to defendant:
a) Defendant can claim it was an accident- it’s very
difficult here for complainant to prove that indeed
there was negligence on part of driver
b) Operator can claim he exercised diligence of a
good father of a family/ordinary diligence in the
selection of his employees-- but in contract of
carriage, extraordinary diligence is required
Example: Amadora vs CA, the parents were not given
anything/damages. The school & teacher were not
responsible; able to prove there was no negligence.
There were many defenses here
 Under jurisprudence: The list of sources is exhaustive.
If source is not among these, it is only probably a
moral obligation and hence, cannot be a cause of
action. It is not a legal obligation. Many criticisms have
been given to this restrictive rule.
 But if you are defense for a company (like Coca cola
giving away promotions and not being true to the
promotion), there may be a legal obligation but not
under the civil code, it may be a violation of a DTI
order only or the Consumer’s Act (case has not yet
been decided). But in this example, cannot be a
contract because there was no previous
acceptance/meeting of minds (only unilateral)
 When you file a case, you should have a cause of
action/proper legal basis. Do not abuse your
prerogative/right to file a case (Ayg pasagad ug file ug
kaso na wai klaro!), you can be counterfiled
(Uypitching case)
 Do not equate contract with obligation, because
contract is only one of the sources of an obligation. In
obligations arising from contracts, parties can
stipulate just about anything. These are valid, and the
only condition is that the stipulations must not
contravene law, public policy, morals, good
customs
CLASSIFICATION OF OBLIGATIONS
 Primary Classification
o Pure – not subject to any condition; demandable at
once
o Conditional – there are conditions attached to the
obligation; demandability depends on condition;
future and uncertain event
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 Suspensive – suspends the demandability of the
obligation; happens when condition happens
 Resolutory – demandable at once but extinguished
upon occurrence of obligation
o Obligation with a period or term – future but certain
event; example: until the death of your father
o Alternative – there are several prestations available;
example: you can deliver house or give amount of 1
million; many but can choose only one
o Facultative – one prestation available but capable of
being substituted; here there is only one prestation
but you can substitute
o Joint – there are several debtors and several
creditors; each to his own
-Each creditor is entitled to demand only the
payment of his proportionate part of the credit,
while each of the debtors is liable only for the
payment of his proportionate part of the debt
o Solidary – there are several debtors and several
creditors (still); all for one, one for all; debt of one,
debt of all
Example: you become a co-maker and even if you do
not get proceeds but your co-maker cannot pay, it’s
as if you were the one who got the debt and you
would be made liable for entire debt
-Each creditors is entitled to demand the payment of
the entire credit, while each of the debtors is liable
for the payment of the entire debt
o Divisible – susceptible of partial performance
o Indivisible – not susceptible of partial performance;
full compliance
o With Penal Clause – when there is a breach of the
obligation, there is already a built-in penalty clause
 Secondary Classification
o Legal
o Conventional
o Real – obligation to give; no obligation not to give
o Personal – obligation to do or not to do
o Determinate – specifically designated
-if fortuitous event happens, obligation is extinguished
o Generic – not designated, only the kind and quality are
given
-if fortuitous event happens, obligation not
extinguished
o Positive/Negative
o Unilateral – only one person is obliged
o Bilateral – reciprocal obligations
o Individual
o Collective
o Accessory – does not have a life of its own; example:
mortgage obligation cannot stand without a loan
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Obligations and Contracts Notes
AY 2012-2013
obligation (which is the principal obligation, does not
depend on the mortagage)
o Principal – can stand by itself, like the loan obligation
NATURE AND EFFECT OF OBLIGATIONS
 Obligation to deliver money- can be determinate (if
designated with specific serial numbers) or generic (if
only the amount is specified
 Effect of loss due to fortuitous event: if determinate
thing, absolved/obligation extinguished. If generic, not
extinguished
Duties of the obligor if his obligation is to deliver a
determinate thing:
 To deliver the thing itself
 To preserve or take care of the thing due
 To deliver the fruits of the thing
o Natural fruits, civil fruits such as rentals of a building
 To deliver its accessions and accessories
o Example of accession: the fruits of trees on a land to be
delivered (which is the principal)
o A house is an industrial accession so it must be
delivered also along with the land (principal) – to
exclude a house, it must be specified in the contract. If
contract is silent, a thing is deemed included
o Accessions can be natural & industrial
 To answer for damages in case of non-fulfillment or
breach
(Basic) Remedies in case of breach:
 Compel obligor to comply with obligation
 Debtor can be liable for damages
Duty if obligation is to deliver indeterminate/Generic
 Deliver the thing itself
o Guide: Art 1246, creditor cannot demand a thing of
superior quality neither can debtor deliver a thing of
inferior quality
o Loss of thing here will not absolve obligor
 In an obligation to do, in case of non-compliance,
obligor cannot be forced to comply because this will
violate constitutional right against involuntary
servitude. However, there is still liability
 If something is done poorly or not in accordance with
the contract, it can be undone at his expense.
 Always remember damages; damages can be given in
either case
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REMEDIES IN CASE OF BREACH/VIOLATION OF RIGHTS
1. Specific performance - Personal right
 creditor only has personal right over a thing pending
its delivery
 when case is filed, it is against the debtor
 Remedy: ask for specific performance, can only
compel debtor to deliver the thing. This is because
thing has not yet been delivered & ownership has not
yet transferred
Distinguished from Recovery of ownership - Real right
 the right of the creditor over a thing becomes a real
right when it is delivered & ownership is transferred;
this is done through delivery of a public document
 Example: Land- delivered when debtor gives to
creditor the deed of sale
 it is the right over the specific thing (do not use right
against “whole world” because that is different)
 Remedy: not limited to specific performance; you can
file for recovery of ownership if there is a violation of
your right
 Land: if not yet delivered, you can only ask for specific
performance; you cannot file for ejectment when there
is no delivery yet.
 when there was no delivery yet & the seller sold it to
someone else (double sale), only feasible remedy is
specific performance; not recovery of ownership
because you do not have ownership in the first place
 so make a distinction between specific performance &
recovery of thing
2. Rescission
 Right to Rescind – putting an end to the contract but
there is duty to return
 Creditor must state in the contract that in case of non-
payment, previous payments are forfeited. If this is not
stipulated, creditor would be obliged to return when
there is rescission
 there must be a judicial decision/court intervention,
there is a need for the court to determine whether
rescission is proper
 an individual cannot put the law in his hand
 for the benefit of creditor, so he can offer thing again
to another without breaching the contract
 Not necessary to go to court all the time for rescission,
there is Extra-judicial rescission –the contract is deemed
rescinded unless the other party objects, then they have
to go to court
3. Damages- an action solely for damages in case of
breach
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Obligations and Contracts Notes
AY 2012-2013
There are 3 Basic remedies: specific performance,
rescission, damages, OR specific performance + damages,
rescission + damages, damages
 Would it be correct to say that if there is Literal/slightest
Breach of Contract, cause of action automatically arises or
it can result to rescission already? – No, it depends on
the nature of the violation.
o Slight breach- court here can still give the debtor a
period to comply with obligation; e.g. when 90% of
payments have been paid & debtor was only in delay
for 5 days, no rescission
o Substantial breach- this is the type that warrants
rescission as a remedy plus damages; must be grave
enough; not enough to say that there was a violation
(Sung Foo vs Hawaiian Philippines)
EFFECTS OF RESCISSION
 Primary effect: contract is treated as if it did not
exist
o Why is it necessary for parties to go to court to ask
for declaration of rescission? Parties cannot
decide for themselves the validity of the contract
 Secondary effect ONLY: Mutual Restitution
o EXCEPT: In the case of paying down payments,
restitution may be mutual if there was no
stipulation in the contract on forfeiture. If there
was a stipulation on forfeiture, the guilty
party/debtor cannot recover what he paid. This is
because it would be unfair to creditor when
debtor had used the land already without paying
full amount
o Even if there is no forfeiture, aside from
rescission, you can always incorporate damages as
additional remedy
o Actual cases, it is often rescission + damages
 only for substantial breach- “substantial” would
depend on the circumstances/decision of judge
 Sung Foo vs Hawaiian Philippines
o there was non-compliance with the consideration
of the contract (the reason for entering into the
contract)
o The buyer wanted to pay in another manner, and
he imposed new conditions; but this cannot be
done because when you impose new conditions,
this amounts to a counter-offer; this is not
compliance
o Court said there was breach on part of the buyer
o Seller was entitled to rescission because there is a
violation and it was substantial
o Issue on restitution here: forfeiture clause in the
contract is conditioned on the violation on the real
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estate mortgage. However in the case, what was
violated was the contract of sale because as a
matter of fact, mortgage was not approved. Hence,
forfeiture clause cannot be applied, so general
rule was applied which is mutual restitution
o If seller failed to include a non-forfeiture clause in
the contract, remedy could be in damages. In
contracts, the remedy could also be rescission +
damages and not solely rescission or damages
*Attorney’s fees does not belong to the lawyer; it belongs
to client
DIFFERENCE BETWEEN CANCELLATION AND
RESCISSION
 Rescission – as if the contract did not exist, no legal
effects
 no basis for claims, e.g. no basis on claiming
rentals in arrears because contract of lease was
already rescinded; cannot claim for rentals for
months before breach of contract because
contract here is not recognized
 Cancellation – giving partial effects to the contract;
legal effects before the violation are recognized, only
effects after that are not recognized
 If contract of lease is only cancelled, contract only
ceases to exist after demand is made; there is
basis for claiming rentals in arrears because you
just asked the contract to be partially void for the
months following the breach
MODES OF BREACH OF CONTRACT
1. FRAUD
 Can be a mode of committing Estafa; done through
swindling
Kinds of Fraud:
 Fraud in the Performance of obligation – this is the
fraud referred to in 1170; presupposes there is
already obligation arising from contract; nothing
wrong in securing consent; contract is perfectly fine
Remedy: Damages (and even criminal liabilities)
 Fraud in the Execution/ Creation/ Birth of
Contract – the fraud here is to secure consent/ so
other party may enter into contract with you; no
contract yet; makes contract voidable; can be causal or
incidental fraud; affects existence of contract
Remedy: Annulment of contract
Woodhouse vs Halili
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AY 2012-2013
 Fraud here was incidental fraud; did not prevent the
meeting of minds
2. NEGLIGENCE
 Omission of that diligence which is required by the
nature of obligation and corresponds with the
circumstances of the persons, time and place.
 Failed to exercise the prudence demanded by the
circumstances
 Difference: Source of liability here from negligence is
contract; in quasi-delict, source of negligence is not
contract but the quasi-delict
 2 kinds of negligence:
o Negligence in Quasi-Delict/culpa aquiliana:
there is no contract that binds the parties &
negligence happens
 Defense of good father available
 All damages attributable to the incident may
be asked; relief is broader; includes
everything such as actual, moral, exemplary
damages
o Negligence in the performance of an
obligation/ contractual negligence/culpa
contractual: there is a contract here but the
negligence is the same negligence in culpa
aquiliana
 Defense of good father is not available here
 Damages grounded only on the natural and
probable; can include actual damages e.g. loss
of earning capacity
Sarmiento vs Spouses Cabrido
 Case of negligence on the part of a jeweler in
dismounting diamond from a ring
 Negligence here is culpa contractual, because there
was a contract; negligence arising from contract;
damage suit from culpa contractual
 Duty of plaintiff to prove negligence; show industry
standard in how to dismount diamond
Crisostomo vs CA
 Case of culpa contractual
 Plaintiff contended that the agency was a common
carrier; significance of this lies in the degree of
diligence required
 Common Carrier – business engaged with the public in
transporting goods to a specific destination;
extraordinary diligence is necessary (periodic
maintenance, seminars, etc.)
 Travel Agency – not a common carrier; only diligence
of a good father (basta mudagan lang ang sakyanan!)
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 She wanted to allege that agency had to exercise
extraordinary diligence, but it was not a common
carrier
How to determine type of diligence required
 Determine how the others observe diligence; the
nature of the obligation
Defense in Negligence Cases:
 The proximate cause of the accident/negligence is the
act of the plaintiff himself
 Show cause of damage was negligence of plaintiff
himself
3 types of Stipulations with regard to negligence
(Contractual only) which are illegal
 not liable for any negligence under any circumstance
 limiting the amount that may be recovered
 contract of adhesion if the conditions are too onerous
which leave the contracting party with no choice
*when asked if contract of adhesion is valid or not –
make a qualification (if the contract is onerous or with
choice)
3. DELAY
2Kinds of Delay
 Ordinary Delay – failure to perform an obligation on
time
 Legal Delay – failure to perform an obligation on time
which failure, constitutes a breach of obligation; need
to prove that there was demand
General Rule: There must be a demand. No demand, no
delay.
Exceptions:
 Time is of the essence – time is the controlling
motive
o the debtor knows what the obligation is for and
time is a factor
o example: a wedding gown not delivered on time
 When the law so provides/ When the obligation so
provides
o example of law expressly stating: law on taxation
setting date of payment
o example of obligation expressly stating: there is a
specific: “without need of prior demand”
o not enough that you put date/deadline; there
must be “without need of prior demand”. If no
such phrase, debtor can only be in ordinary delay
 When demand would be useless
o Fortuitous event
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 if Specific Thing - demand is useless because
the specific thing is lost already; debtor is
excused
o When debtor already gave the thing to another
person who is innocent
RECIPROCAL OBLIGATION – in 1169
 Neither party incurs delay when the other is not ready
to comply with what is incumbent upon him
 Both can be in delay here (compensation morae):
 How to show readiness (in complying with his
corresponding obligation) – file for specific
performance
o Need not literally bring money to the court to
show that you are ready to comply with your
obligation; just state on the record that you are
ready
Who can be guilty of delay?
 Debtor (discussed above)
 Creditor
o Fails to accept the performance of the obligation
 Remedy: (1) tender of payment then (2)
consign the money in court
 Purpose: To be absolved from the obligation
 Consequence if you will not follow is that you
will keep paying interest
Valid reasons for the Creditor not to accept:
 Manager’s Check is not legal tender
o creditor is justified not to accept something that is
not a legal tender
 No payment in full
o Payment must be made in full.
BP22 – when the check bounced
 the debtor can inform the creditor – no delay yet
 delay only after the creditor demands
 debtor has 5 days
Ejectment – can only be had if there is a failure to pay
after the demand within the period given (Cetus Case)
 If there is payment within the period, there is no cause
of action
 If payment is still given after the period given - invalid
Compensatio Morae: both creditor and debtor are at fault
or delay
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4. CONTRAVENTION OF THE TENOR (terms of contract)
– violation in any manner; any kind of defective
performance
 any illicit act, which impairs the strict and faithful
fulfillment of the obligation or every kind of defective
performance
 Malicious or negligent violation of the terms and
conditions stipulated in the obligation
 Must not be due to fortuitous event or force majeure,
otherwise there would be no liability
 Immaterial whether or not the debtor is in bad faith or
negligent, what is required is that it is his fault or the
act done contravenes their agreement
 Fixing a period to comply with obligation is not always
necessary; period can be determined by the nature of
the obligation since there is no express standard here;
go by the industry standard; reasonable time (so it is
not practical to go to court just to fix period for a
typewriter) (Chavez)
 CATCH-ALL PHRASE: if you are not sure if breach was
delay, negligence, fraud, contravention can be used as
ground
Examples:
Telefast vs Castro
 Telegram company did not send telegram on time;
family was not able to attend the burial
 Example of contravention
Arrieta vs NARIC
 There was a requirement that before bank approved
letter of credit, there must be a marginal deposit,
which was not complied and import quota was not
also released
 SC ruled that it was the fault of NARIC since it did not
comply with marginal deposit
 [difficult case to understand but if you can’t
understand, then I’m sorry! – Atty G]
REMEDIES OF CREDITOR IN CASE OF BREACH
1. Principal Remedies – can be availed of by aggrieved
creditor
a. Action for Specific Performance (obligation to give
specific thing)- ask the court to compel the debtor to
comply with this obligation/make the delivery
 Qualification: Only available in Obligation to Give
(cannot be availed in Obligation to Do); might
amount to involuntary servitude
 Remedies if specific performance not available:
action for substituted performance (may be in the
form of reimbursement) and damages/ damages
only
o Substituted performance– a third person can
do the obligation for the creditor, e.g. another
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architect can do the design but at the expense of
the first architect
 Action for undoing of poor work
o Undo what was poorly done
o To compel debtor to undo what was poorly
done; but if he refuses, he cannot be coerced
(involuntary servitude); then you can resort to
other possibilities (discussed below)
o How to undo a poor work?
 Ask the court for an order of undoing poor
work at expense of debtor, then execute the
order like destroying a poor house in
totality and build another one (money is not
a question!)
 Another possibility of undoing, engage the
services of another person to do the task
of the previous debtor (contractor), so new
contractor will build another house;
commission another person at the expense
of the debtor
b. Action for Damages
c. Action for Rescission – to put an end to the contract;
as if contract did not exist; available in a Reciprocal
Obligation (parties are both creditor and debtor to
each other)
 There must be a violation of the contract before
rescission can be availed of – the creditor may
choose:
 Rescission with damages
 Fulfillment of the obligation with damages
Guidelines in rescission
1. Nature of breach must be substantial; not merely
slight
 Contract will remain if there is just slight breach
 When there is no substantial breach, remedy is
that the court may fix a period for debtor to still
comply with obligation
2. there must be readiness to restitute
 when there is a manifestation that you are
ready, you can ask for rescission, provided other
qualifications are met
3. can only be availed of by the aggrieved party
4. must be preceded by a court order
 There can be a PARTIAL SPECIFIC PERFORMANCE
AND PARTIAL RESCISSION (Central Bank vs CA)
2. Subsidiary Remedies – can’t be immediately availed of
Scenario: there is a writ of execution issued by the court,
executed by the sheriff, debtor has no assets to satisfy
judgment, subsidiary remedies can now be availed by
filing in court
Page 8
(have to avail first of principal remedies and they failed)
a. Accion Subrogatoria - step into the shoes of your
debtor; you “exercise all the rights and bring all the actions”
of the debtor
 Creditor is vested with right to collect from the
debtor of his debtor; e.g. accounts receivable
 Condition: insolvency of the debtor
 SO the Rights of Creditors are:
o Levy by attachment and execution all the
property of the debtor, except those exempt by
law from execution, OR
o Exercise all the rights and actions of the debtor,
except such as are inherently personal to him
(need to file a motion in court)
 Exceptions/Limitations
o Inherent Rights
o Personal Rights
b. Accion Pauliana – the creditor has no other legal
remedy; issued by the court to satisfy claim
 While case was pending, debtor was (fraudulently)
transferring/disposing his properties so creditor’s
claim cannot be satisfied; fraudulent transfers
 So as a creditor, do accion pauliana- given the right to
set aside and declare as void all those contracts
because they were entered into with fraud. However,
you must establish you have exhausted the
properties of the debtor/ you have availed of
principal remedies and you cannot get anything from
the debtor
 Prescription: when the right of the action accrues –
time of discovery of the fraud
(read Khe Hong Cheng)
3. Accion Derecta
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MIDTERMS
PURE OBLIGATIONS – 1179, an obligation not subject to
any condition and is demandable at once
CONDITIONAL OBLIGATIONS – subject to conditions
before they are demandable; one whose consequences are
subject in one way or another to the fulfillment of a
condition
*Conditions modify the demandability of obligations;
may be suspend or may put end to an already effective
obligation
2 Kinds of Conditional Obligations
 OBLIGATION WITH A SUSPENSIVE CONDITION –
fulfillment of the condition will give rise to an
obligation; suspends the demandability of an
obligation; if condition has not yet been fulfilled you
cannot demand
--so at outset, not yet immediately due and
demandable
o “I will give you house and lot if you par bass
exam.” You cannot file for specific performance
since you did not pass bar yet
o Practical example: purchase of property on
installment basis
-if you are owner, you do not want to part with
property when condition is not yet fulfilled
-seller will ask buyer that in meantime buyer has
not yet fully paid, security is that ownership of the
property shall be transferred only upon payment
of purchase price
-seller has obligation to transfer ownership but
subject to condition only when full payment of
purchase price has been done by seller
 RESOLUTORY CONDITION – with regard to
demandability, Resolutory is same with pure
obligation, immediately demandable; but Resolutory
obligation ends and obligation when the condition
happens
 “I will give you monthly support until you reach
age of 18”. This is immediately demandable from
time you agree to be bound but the moment you
reach 18, obligation is extinguished; condition
must not be fulfilled for continuing demandability
of obligation
*When can you say there is delay? There has been a
demand; necessary requisite as a general rule
Term vs Condition
Page 9
-demandability is the same, but term is specific
-“I will give you monthly support until you die” –
obligation with a Resolutory term
-term is future and certain; passing the Bar is a condition
-future and certain even upon the arrival of which the
obligation (or right) subject to it either arises or in
terminated
*Distinguish Condition and Terms (p 176)
 Demandability, obligation with Resolutory term is
same with an obligation with a Resolutory condition
where it is demandable at once
 Fulfillment
o Condition is an uncertain event
o Term is a certain even which must happen sooner
or later at a date known beforehand
 As to Time
o Condition may refer to a past event unknown to
the parties
-example: I will give you house and land if you can
establish that the number of victims in typhoon
Pablo reached 50 (condition); not a future event
because typhoon already passed
-so why is it allowed to be a condition? It really is
not the event itself, it is the knowledge of the
event (which is in a way future)
o Period refers only to the future
-birthday is term; but depends on how it is used in
obligation
-“If you reach age of 25”, condition
Parks vs Province of Tarlac
-effects of conditions; donation immediately took effect so
you had to first revoke it before you can sell it
Rights of the Creditor in an Obligation with
SUSPENSIVE CONDITION (and condition has not yet
happened)
*1188
*Example: I will give this piece of land to you but you must
pass first Obli Con
*cannot ask to execute deed of sale since condition did not
happen yet
*are you going to wait first to pass Oblicon before you
exercise any right? –answer is 1188:
 To bring appropriate actions for the preservation of
his rights (while condition is not yet fulfilled)
*What is this right to preserve? How should
this be done?
o go to court to prevent the alienation or
concealment of the property of the debtor
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o have his right annotated in the registry of
property – the document – not the land
title
 Can you prevent the creditor from
selling property (pending the
condition)? No you cannot stop. But as
long as you annotated your right, the
seller is subject to your right because
your right is superior. There was
already annotation of right. If condition
happens, your right is superior. But you
cannot stop me (seller) from selling.
The creditor is subject also to action for
specific performance and rescission
with damages if condition happens.
 Your right as a buyer is superior to the
subsequent buyer if you annotated your
right.
 What is the legal consequence if it is superior?
The subsequent contract can be rescinded as
against that third person because of your
superior right
 You cannot stop seller from selling to another
because that is in effect giving enforceability
to an obligation which cannot be enforced yet.
RESOLUTORY CONDITION
--there are already legal effects here
*Deed of Donation of a parcel of land with condition to
build a chapel, playground or school, etc. What if you
cannot comply, what is the status of donation? – It can be
revoked.
*Would it be correct for donor after determining there is
no compliance, is he justified in selling again on the ground
that donation never took effect because condition was not
fulfilled?
*What is effect on subsequent sale assuming that condition
was not fulfilled?
GR: there must be a revocation first before selling the
property to other party (or a second transaction)
 What if it was sold prior to the revocation,
assuming the condition is not fulfilled?
o Subsequent sale can be ratified
*read Parks vs Province of Tarlac and Central Phil Univ
vs CA
POTESTATIVE CONDITION
-condition suspensive in nature and which depends upon
the sole will of one of the contracting parties
-something that is dependent upon the will of EITHER
parties
*what is the effect is obligation dependent on sole will
of the debtor? – It is void.
Page 10
-just because it is dependent on sole will of ONE, doesn’t
mean it is automatically void
REASON WHY VOID: its validity and compliance is left to
the will of the debtor – the condition is abhorrent, this
will void the obligation
-because of principle that a contract must be binding
between both contracting parties
-if we allow this on part of debtor, we are sanctioning
existence of Usury obligation (no seriousness, murag dula
dula na obligation. Pa-utanga ko part pero bayad kog
ganahan ko mubayad. When can you file case here? No
case)
-you practically have no source of right here, no cause of
action, no basis (if potestative on debtor allowed); you
have no legal right to be protected because 1162 says void
obligations impose no rights and impose no
responsibilities
-effect of annulling the obligation
EXCEPTION: Donation
-potestative because depends on sole will of donor
-if with condition, taken to be a contract (Central Phil Univ
case); donation with condition is contract because there is
a burden
-purely gratuitous donation (because of love and affection)
*What if A loan to B a certain amount of money, he
executed an acknowledgement of the loan with a
condition that HE WILL PAY IF HE FEELS LIKE PAYING.
Can B file a collection suit? Is this potestative? Yes
potestative. But cannot file collection suit because
obligation is void. If you follow logic of it, you cannot
collect because your cause of action is founded on that
document and it is void.
-Is this now void and therefore you cannot file for a
collection against A? Unjust enrichment/equity is a
reason, but there is more specific reason. To impress, more
specific reason is that you have to make distinction:
1. Only void if potestative condition is factor in
birth/perfection of obligation. No delivery yet, we’re just
agreeing.
2. if obligation is already pre-existing (obligation is
already there), being potestative does not have any effect
-“Bayran tika kung mahalin akong balay na ako ibaligya”-
selling is not wholly dependent on will of debtor;
realization of proceeds not dependent on will of debtor
kay what if walay mupalit
“I WILL pay you if I CAN sell my house” – valid because
does not solely depend on debtor’s will but also other
factors; obligation here is valid from text of agreement, but
specific period of compliance not there
* What will you do as a creditor? Go to court to FIX THE
PERIOD when it should be demanded.
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*are you going to court and ask judge just to fox period?
YES
*action for specific performance is suspended because you
asked for period
*after period, you can now file action for specific
performance
-Is this general rule? That before compliance you have to
fix period? Addressed in case of CPU
General Rule: fix the period first before you file specific
performance.
 Only after the arrival of the period and no
compliance, you can file another case for specific
performance of the obligation.
BUT in CPU Case: if the fixing of period becomes
unreasonable (50 years without compliance) then there is
no need to fix the period.
*Mutuality of contracts principle: contract must bind
both parties, not only one. If potestative, obligation is
dependent on one. But be careful in saying that if
dependent on one, void automatically. If potestative on
part of creditor, valid.
Potestative Obligation on the part of the Creditor – VALID
 If you sell your property but you do not want to
part with your property, you can have right to
repurchase property. You are creditor here, but
this is not void. This is valid even if right belongs
to you
Potestative Obligation on the part of the Debtor – VOID
*In multiple choice: do not conclude that if potestative, it is
already void. Make a distinction; void only on part of
debtor.
*In a sale transaction where proceeds realized are made
the mode of payment, this is not solely dependent on will
of debtor. Debtor may have desire to sell, but this also
depends on who is willing to buy. Actually a mixed
condition
OBLIGATION WITH A TERM
-“I will pay you when I CAN successfully sell my house” --
there is already desire to sell but you do not know when
-Remedy – go to court and fix the period, except when
there is no point in fixing period such as CPU case
-decide case on basis of factual circumstances
General Rule: In matters of Contracts, the courts will
not intervene on the wisdom of entering the contract.
-if you realized that nalugi ka, the court will not aid the
stupid
Page 11
Exceptions: if there is violation of a law; or when a period
has been intended by the parties
RETROACTIVITY
What is extent of effect on obligation of condition is
fulfilled? Retroactive effect
-seller is supposed to deliver also the fruits upon
happening of condition; debtor is obliged to account the
value
-contention: not retroact to benefit of buyer but also to
seller, so pay interest from time parties agreed—NO
-there is rule on mutual compensation, benefits and
fruits are deemed to be mutually compensated
-if you ask buyer for accounting of produce, then you must
also pay for interest. For practicality, lisod na ayo
magkwentahay pa pila na ka-tuig ni-agi. So mutually
compensate is rule
-kinds of fruits: natural fruits (spontaneous products of
soil or animals); industrial fruits (produced through
application of human labor); civil fruits (rentals,
dividends)
LOSS/IMPROVEMENT of thing PENDING HAPPENING
OF CONDITION
-Loss: it perishes or goes out of commerce or disappears in
such a way that its existence is unknown or it cannot be
recovered
Rules in case of loss, deterioration, or improvement
pending happening of the condition (Art. 1189)
 Lost without the fault of the debtor – obligation is
extinguished
 Lost through the fault of the debtor – obliged to
pay the damages
 Deteriorates without the fault of the debtor –
impairments to be borne by the creditor
 If it deteriorates through the fault of the debtor –
creditor may choose between:
o Rescission with damages
o Fulfillment with damages
 If thing is improved by its nature – inure to the
benefit of the creditor
 If thing is improved at the expense of the debtor –
no other right than that granted to the
usufructuary
Usufructuary – right to enjoy the property of another with
the obligation of preserving its form and substance –
unless the title constituting it or the law otherwise
provides
*During pendency of condition, debtor improved the land,
made some constructions and augmented value of land.
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When condition happens, can he be reimbursed? No, only
has right to that of usufruct
When condition has not yet occurred and there is
change in property
*Land is adjacent to a river – two possibilities; either the
area increases or decreases
-This is important if there is a significant addition of area.
Are you owner here? You are owner of additional area
provided it is caused by natural process and it is bordered
by river. You are called the riparian owner
*Land is adjacent to the sea
 increase in area– unlike in land adjacent to a river,
you will not be the owner here but you can apply
for a foreshore lease since you have a
preferential right over the property; called a lease
because seashore could not be owned by private
person; it is land of public dominion
RECIPROCAL OBLIGATION - RESCISSION
-Power to Rescind the Obligation – best example is the
Contract of Sale
 the seller is obliged to deliver and buyer is obliged
to pay in the same transaction
*in one transaction A loaned to B then in another
transaction B loaned to A
 this is not reciprocal since this does not arise from
same transaction though this is a mode of
extinguishing obligation known as compensation
-if buyer cannot pay, parties can rescind
-Assuming seller has not delivered title yet, or either buyer
or seller has complied yet, is there a necessity for seller
to rescind contract, or he can just offer the property to
another buyer?
 there is a need to rescind the contract first
o WHY? What’s the whole point of
rescinding before you enter another
transaction? – to treat the contract as if
it did not exist – to put the parties to
their original position before the
transaction– YOU CANNOT TAKE THE
LAW INTO YOUR OWN HANDS; IT IS
NOT FOR YOU TO DETERMINE
WHETHER RESCISSION IS PROPERLY
EXERCISED OR NOT, You need first
declaratory judgment that it was
rescinded because the judgment is a
license for you to enter into another
transaction
Song Fo Case – Doctrine here: Nature of non-compliance
must be a SUBSTANTIAL BREACH of contract for the
aggrieved party to invoke rescission
Page 12
 If there is non-compliance but not substantial
enough to warrant rescission, the court will FIX A
PERIOD FOR THE COMPLIANCE
*Is it necessary that for rescission to be effective, it
always has to be in pursuance of a judicial order? –
General Rule: need declaratory judgment; cannot take
law into your own hands
Exception: in case there is a violation, one party is entitled
to extrajudicially rescind if it is provided for in their
contract, except if the defendant questions the
extrajudicial rescission then the Court will have to
determine
 There is nothing in the law that prevents the parties
from agreeing that they can extrajudicially rescind
the contract
 RESCISSION OF A CONTRACT IS NOT NECESSARY
IF THE CONTRACT PROVIDES THAT IT MAY BE
REVOKED AND CANCELLED FOR VIOLATION OF
ANY OF ITS TERMS AND CONDITIONS
-What is effect of extrajudicial rescission? Justified by SC
that there is nothing in law that prevents; but refutation is
that this is giving other party the power to take law into
his own hands; SC held this as valid
-What are probable grounds that questioning party may
raise before the court?
 Party may question and say yes that is admitted that
rescission may be exercised but not here because
degree of noncompliance is not substantial
enough. And it is not automatic that rescission will
be done; it is not ministerial. The right of revolting
party is to ask Court to fix period for compliance. If
court allows this, court is not sustaining rescission.
 Debtor was prevented by fortuitous event
 There was no demand, or demand was defective
 Maceda Law: if you have already paid at least two
years installments, you are entitled to 30 days per
year that you haven’t paid before rescission can be
made
-RISK INVOLVED IN EXTRAJUDICIAL RESCISSION: if
you are second buyer and contract has been
extrajudicially rescinded (seller may be justified in
selling again property). Then here you are as a
prospective buyer then the first questioned the
rescission. What if Court sustains the objection of the
first buyer, the risk is on part of second buyer.
Other risk which pertains to seller is that he might be
liable for damages because rescission may be
improperly exercised.
-It is true that extrajudicial rescission is valid, but this
can be a problem. But it is always better, like contract
of lease, if you want to be justified in retaking
possession, there must always be an express
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stipulation there that retaking is allowed sans any
court intervention. If there is notm you are not
allowed to rescind. Only remedy is to go to court.
If the Contract is rescinded – Obligation of parties is
MUTUAL RESTITUTION
-Mutual restitution - required in rescission – to return
what you received in the contract; this is the effect of
rescission
-both parties may be restored to original position
Vs.
Termination/Cancellation – contract is given a partial
effect, example asking for back rentals. Source of your
right here is the lease contract. So this cannot be rescission
because it will treat contract as if it did not exist (read
Pryce vs PAGCOR)
CONSTRUCTIVE (ACTUAL) FULFILLMENT OF A
SUSPENSIVE CONDITION
-when the obligor is responsible for non-compliance of
obligation; it is as if condition is deemed to have been
complied already
 Example: I sell to you a parcel of land at
discounted price but there is condition that you
will improve the road which is adjacent to that
parcel of land I sold. I also own the land where
road is constructed. In this transaction of selling,
in so far as deliver yof land is concerned, I am the
obligor, from aspect of obligation to deliver land.
And this obligation is subject to condition that you
will improve the land by putting a road. But before
you had chance, what I did was I sold the land so
you cannot anymore comply with putting road
because I voluntarily prevented you from
complying
 Effect: condition is deemd complied. Thefore, if I
cannot comply with deliver for property, I will be
liable for:
 rescission, damages, specific performance
 I cannot disclaim liability because I was the one
responsible
OBLIGATIONS WITH A PERIOD
-“I’ll pay you when sun rises in the east”- period or
condition? Period (even if very cloudy and there was no
sun for that day. LOL) – period is that which must
necessarily come
-For whose benefit is the period? For both the debtor and
creditor
 Creditor’s benefit: interest
Page 13
 Debtor’s benefit: no action can be filed against you
in the meantime when the date does not arrive yet
 What if “on or before Jan 31”, is this still for
benefit of both? Here, debtor can choose any day
even before Jan 31 because it is on or before
-here, there is no benefit to creditor
-benefit we refer to is the interest
-so if on or before, this is for benefit of debtor only
because debtor can always choose to cut short
accrual of interest
Right of creditor while period does not arrive yet
-preservation of rights (see above)
When can creditor demand for the fulfillment of the
obligation even when the period has not yet
arrived/expired? (1198) – Debtor shall lose every
right to make use of the period: Creditor is justified in
filing case in court
 after the obligation has been contracted, he
became insolvent
o there is a proceeding for declaration of
insolvency; resorted to by shrewd
debtors; prove you really are insolvent
and a court declaration is made absolving
you from debt
o BUT HERE, insolvency does not need
prior court declaration
 when he does not furnish to the creditor the
guaranties and securities
 in his own acts, he has impaired said guaranties or
securities after their establishment and when
through a fortuitous even they disappear
o unless he can give new ones equally
satisfactory
 debtor violates any undertaking, in consideration
of which the creditor agreed to the period
 debtor attempts to abscond
*How about if creditor wants to enforce compliance but
period did not arrive yet. Is there a way to stop creditor from
enforcing early? Furnish guaranties, securities; but there is
still possibility that creditor asks for additional securities
-ikaw for example nai nangutang nimo, you can always
demand for security to ensure compliance with debt. If he
cannot comply, obligation will be enforced
Mortgage
–Real Estate Mortgage
-if your mortgage your property, you can still sell property.
If in the mortgage, there is stipulation that property cannot
be sold, that is illegal
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-but take not, if you sell, you are in effect impairing the
security. If your impair security, bank will be justified
in enforcing obligation even before arrival of period;
an instance where debtor loses right to make use of period
-Is there a case where only cause of action is to fix period?
Yes.
-Would it make sense if you file fixing of period then specific
performance? Would this violate multiplicity of suits
principle? Recall case of CPU that court may not fix a period
anymore because from the circumstances of case that
prerogative to ask period is a mere technicality; serve no
other purpose than to delay. More than sufficient time
has been given. This is dependent on circumstances
January 16 discussion below (tun-I nalang nig maayo kay d
jud muplay ako recording sorry)
ALTERNATIVE OBLIGATIONS
-various prestations are due but the performance of one of
them is sufficiently determined by the choice which is a
general rule, belongs to the debtor
 right to choose – debtor
o also in case of default
 Creditor may exercise the right if expressly
granted to him
*If there is already a choice – it will become SIMPLE
OBLIGATION
 Creditor must be notified – but this does not need
consent, just for the sake of notifying – TO
INFORM ONLY
*What if the thing chosen lost due to fortuitous event?
– 2 different answers
1. The obligation is extinguished – since it became
pure obligation, the rule is that if the lost is due to
fortuitous event – obligation is extinguished
2. There are still other prestations – since there
are still other prestations existing, if still possible
to be delivered, the debtor shall choose which to
deliver.
FACULTATIVE OBLIGATION
-only one prestation has been agreed upon but the obligor
may render another in substitution
- Principle of “ACCESSORY ALWAYS FOLLOW THE
PRINCIPAL” -- mortgage is an accessory to the loan
contract
 choice by the debtor
 *Why is it not a right of the creditor? – Law favors
the debtor in an obligation
*If there is already a choice – it will become SIMPLE
OBLIGATION
There is no choice yet – BEFORE SUBSTITUTION
(p209)
Page 14
 if lost through a fortuitous event, the obligation is
extinguished
 if item 1 is lost through the fault of debtor, he is
liable for damages
 if item 2 is lost with/without the fault of debtor,
he is still liable to deliver item 1; he is not liable
for damage for the loss of item 2 as it is not due
There is already a choice – AFTER SUBSTITUTION
 if item 1 is lost with or without the fault of debtor,
he is not liable for its loss since his obligation is to
deliver item 2
 if item 2 is lost through a fortuitous event, the
obligation of debtor is extinguished
 if item two is lost through the fault of debtor,
debtor is liable for damages
JOINT AND SOLIDARY OBLIGATIONS
Solidary Obligation each one of the debtor is bound to
render and or each one of the creditors has a right to
demand entire compliance with the prestation
 What is the requirement for it to be Solidary?
It must be stipulated in the contract that it is
Solidary, by the law, and by its nature
 Contract – words:
o Jointly and/or Severally
o Severally
o Solidaria
o In solidum
o Solidarily
o Together and/or separately
o Individually and/or collectively
o Juntos o suparadamente
o “I promise to pay”
Joint Obligation –the whole obligation is to be paid or
fulfilled proportionately by the different debtors and / or
is to be demanded proportionately by the different
creditors
 each to his own
 as many credits as there are creditors and as
many debts as there are debtors
 the default in the stipulation of the contract – joint
obligation
 “We promise”
*Solidary Creditor and Joint Debtor – (p227)
*Surety vs Guarantor
*Solidary debtors– one for all, all for one
-if joint or solidary, there are two or more parties involved.
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-Problem: if it is joint on side of debtors, and solidary on
part of creditors
 Go by the rules. If you are solidary creditor, you
want to collect from debtors who are only joint,
you cannot insist that whole obligation be
collected
-Aside from amount that may be collected, take note of
effects of acts that may be performed by a solidary creditor
or debtor
 What is effect if one solidary creditor will
renounce entire obligation even without consent
of other solidary creditors? Would it extinguish
obligation? Yes. Any act that they commit whether
for benefit or disadvantage to other co-creditors
affects them all, even if without consent, there is
effect in so far as debtor is concerned, his
obligation is extinguished.
 But the problem has to be resolved among the
solidary creditors (new controversy); ask that
they be given share of the credit; the renouncing
solidary creditor must reimburse the others for
their corresponding share
-two conflicting provisions: “no solidary creditor may do
something that will prejudice other creditors” vs “etc etc
which is performed by solidary creditor will extinguish
obligation
-harmonize: in so far as debtor is concerned, obligation is
extinguished; that creditor must be held answerable to his
co-solidary creditors
*if one solidary debtor becomes insolvent – his share of
the obligation will be shouldered by other debtors - to pay
in proportionate share; increase liability of other solidary
debtors (never forget: solidary is one for all, all for one)
-In joint, different situation. If you are insolvent, others
willn not shoulder
Important rules:
1. Solidarity is not presumed. In absence of specific
stipulation in agreement, you cannot presume that
debtor is solidarilly liable. You can only be solidary
debtor when provided by law, stipulation, or nature of
obligation provides otherwise
-What are instances by law which impose solidary
liability? Tort/Culpa Aquiliana between for example
operator and driver; co-perpetrators of felonies
(conspiracy)
-Terms: “joint” is joint but “joint and several” is
solidary
2. Solidary creditor cannot assign his rights without
consent of the others
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-no problem here if source of right is contract because
you can stipulate
-but if it does not arise from contract, such as culpa
aquiliana case, will I be prohibited from assigning my
rights to you? Okay for contract. But not here without
consent because in solidary, there is closer intimacy
among creditors
3. Each one of solidary debtors may do what is useful to
others but not prejudicial to other
-qualified: good rule in so far as creditors or debtors
are concerned; do not affect other side
4. Novation, compensation, remission of debt made by
solidary creditor shall extinguish obligation without
prejudice to article 1219
-novation, etc. are modes of extinguishing obligation
-Novation: extinguish obligation but give rise to a new
obligation. Example, you loan and you really cannot
pay, but you have property. Then creditor accepts, you
make a new agreement now based on property.
Obligation 1 is extinguished but it gives rise to
obligation 2. It may be change in subject matter, or
change in personality of creditors
-Compensation: many transactions, in one I am debtor
and you are creditor, then in another you are debtor I
am creditor, pa-utangay ta; so we have concept of
mutual set-off/compensation. Example is outstanding
loans in banks. Absurd if you withdraw from bank
then you deposit again to pay them. It extinguishes
obligation of debtor, but other debtors have to be
compensated
-Confusion:
o example is promissory notes which are
negtotiobale. I pay to the order of A. A can
endorse and say pay to the order of B as
payment of his own obligation. Then B can
endorse again, pay to the order of C. C then
endorses again, then it happens that it becomes
“pay to the order of A”. The last negotiation is
pay to the order of make of instrument through
subsequent negotiation. He cannot pay himself.
Personality of debtor and creditor is merged in
one
o another example: right of way; you are given
right to pass through portion of land which does
not belong to you. If you who asked right of way
can establish that you have no other way to
access a public highway, you can compel owners
of surroundings to grant you right of way.
However, you are not owner, only a privilege to
pass through. You are in effect the creditor. The
other one compelled to grant right of way is
debtor.
Then the debtor decides to sell the lot because
he can get bigger profit, so you buy the lot. This
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is not right of way anymore since you are
already owner. You are not creditor here
anymore. The personalities are gone and
merged into one in you
5. If one of the solidary debtors cannot, because of his
insolvency to the debtor paying the obligation, such
share shall be borne by other solidary co-debtors
6. If thing is lost/prestation has become impossible
without fault of solidary debtors, obligation is
extinguished. If there is fault on part of any one of
them, all shall be responsible
-whatever the negative maldito kauban does, it will
affect you
-example: you are obliged to deliver specific thing with
the others; one solidary debtor does not contribute
and the obligation cannot be performed. You are
adversely affected. You can be liable for the value of
thing and damages. All of you will shoulder damages
but the non-guilty have a cause against the guilty
7. Solidary debtor may avail himself of all defenses which
are derived from the nature of the obligation, or those
which are personal to him, or pertain to his own share
-if solidary debtor is sued and as long as debt is not
fully paid, you can be liable; not a defense to say you
paid more than your share.
-DEFENSES to avoid liability:
a. total defense- total extinguishment of liability will
result
-contract is founded on illegal consideration; or
obligation is unenforceable (total defect)
b. partial defense- personal to one of solidary debtors;
only to reduce liability
-one of solidary debtors is minor. Contract entered
into by minor is voidable. There must be court
declaration that contract is void (valid til annulled)
-one of solidary debtors is insane
-effect of reducing liability
Read Ynchausti vs Yulo – does defense here have
effect of modifying obligation? There was partial
defense. Why? Because it did not totally ABSOLVE
the debtors. It merely reduced the obligation.
Partial defense because the extension given may be
invoked by debtor whom demand was made
*Quiombing case: There is question on procedure but in
resolving this issue, the SC has to discuss the nature of
solidary liability
-Indispensable party—a party who should be included in
the case so that there would be complete and final
determination of the case.
-General rule: (why this rule should matter) all persons
who would be affected should be included as parties to the
case. If you are not included, that would violate right to
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due process. If there is judgment and you will be bound
without you knowing, due process violated. Also, so that
persons will be bound and there will be complete
determination
-As regards to solidary co-creditor, he is affected no doubt.
But because there is a law that solidary creditor can do
anything that is beneficial to others, it is not necessary to
implead him in the case because one for all, all for one.
Whatever judgment would benefit you who is not
impleaded. And if there is adverse judgment, you are also
affected. You can file the case alone
JOINT INDIVISIBLE OBLIGATIONS
-Indivisible obligation: by very nature of the thing, such as
car
-If contract is silent, from very nature of thing, may be
divisible or indivisible
-if one of the obligors not ready to comply, you are
creditor, are you going to sue all of them?
-additional damages may be imposed on guilty debtor
-remedy if one of joint debtors does not comply: remedy of
creditor is indemnification of damages; this becomes a
forced novation. Instead na thing ideliver, compute nalang
nalang ang value of the thing then divide among them the
value, then the guilty debtor bears the damages
OBLIGATION WITH A PENAL CLAUSE
-if you contravene a contract by fraud, negligence,
contravention of tenor, etc., you are liable for damages
PURPOSE: two-fold
1. ensure compliance
2. provide additional sanction to violator
-apply the deterrent principle, for prevention; so that an
individual would think twice before he violates
-an accessory undertaking
-becomes due and demandable when there is breach of
obligation
LEGAL EFFECTS
1. Penalties substitute indemnity for damages and
payment of interest in case of noncompliance
-if you prove damages like actual damages, not easy
matter to prove; prove actual damages by receipts
-also allowed to prove loss of earning capacity (expected
income, etc.)
-if there is a penal clause, you will do away with all those
things because it substitutes UNLESS there is a contrary
stipulation
-so if contract says without prejudice to damages, you
are liable for both penalty and damages
-the penalty has to be liquidated: accounted already;
specified
2. Debtor is not exempt from performance of
obligation by paying the penalty; not allowed because
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that will defeat the purpose of the penalty (two-fold 2. Loss of thing due
purpose) -fortuitous event
-neither can creditor demand fulfillment of obligation 3. Condonation or remission of debt
and satisfaction of penalty at same time -forgive and forget the debt
Best illustration: contract of lease says that failure to pay 4. Confusion or merger
any monthly rental due shall subject the lessee to a 5. Compensation
penalty of 2 M. On 3rd year of lease contract, no monthly 6. Novation
rental was made. Because of violation, contract is -there is new obligation
cancelled. Also because of violation, lessor entitled to -consuelo de bobo
collect the penalty of 2 M. But aside from 2 M, lessor also -these modes can be ground in a motion to dismiss
wants to collect rentals corresponding to 2 year period -law enumerates the modes, but not exhaustive because
(na wala nabayran). This is not allowed because this is in there are other causes of extinguishment such as
effect a demand to fulfill obligation. Creditor cannot annulment, rescission, fulfillment of Resolutory condition,
demand fulfillment of obligation and satisfaction of prescription
penalty UNLESS this right has been expressly granted to Prescription
him 1. Acquisitive prescription
(explain during exam) -you acquire rights by the lapse of time
3. Debtor can be exempt from performance if right is -unregistered land, nobody questioned and you are
expressly granted to him there for 30 years already
Illustration: in rescission, there is duty to mutually 2. Extinctive prescription
restitute. So put there a forfeiture clause; in case of -he who sleeps on his right will not be aided by the
violation the other cannot get back. This is example of court
right expressly granted -example you are a creditor in a promissory note
4. Proof of actual damages not necessary because which is already due and demandable and executed
penalty substitutes more than 10 years ago, don’t have cause of action
5. Court has reserved power to reduce penalty if it is anymore
iniquitous or unconscionable -another mode is death; heirs inherit rights and liabilities;
General Rule: Court will not interfere with private obligations are transmitted except in personal obligations
individual’s right to freedom to contract (unless you are in -another is insolvency; court will discharge you from all
civil interdiction) including the fixing of penalty, but court obligations
has reserved power to reduce
-What is unconscionable? Addressed to discretion of judge PAYMENT
-case on imposition of interest on credit card debts: usury -delivery of money and performance of an obligation
law is suspended. 12% only comes when there is not -normally, payment extinguishes obligation but there are
agreement. Parties can stipulate more than 12% interest; instances when there are still juridical relations that exist:
but this would not mean you stipulate big amounts like o Subrogation- step into shoes of creditor; insured
30% interest. To avoid abuse, Court has reserved power gets out of picture and insurer steps into shoes of
especially when there has been already partial the insured and collects from guilty party
performance (a defense) o Dation in payment
6. Nullity of the penalty clause does not carry with it Rules in Payment
that of principal obligation, but nullity of principal 1. Identity of payment
obligation carries with it that of penalty -the very thing/service contemplated must be the one
-penal clause only accessory undertaking delivered or performed
-provision: even if thing of superior quality is offered,
*Creditor cannot demand performance and fulfillment of creditor is not bound to accept because of this rule on
penalty at same time, except if this right has been identity of payment
expressly granted to him. Although the creditor is given 2. Integrity of payment
this right, it is also not correct as a legal postulate to assert -payment must be complete
that he has this unbridled discretion to stipulate or fix the -creditor cannot be compelled to receive partial
rate at any rate he wants because the court has this payments, nor debtor be required to pay partially
reserved power to reduce if unconscionable. -but for practicality, one can pay partially if there is
stipulation
EXTINGUISHMENT OF OBLIGATIONS
1. Payment

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Obligations and Contracts Notes
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-there is a problem if you do not know what you are
supposed to do if an offer of partial performance is
made to you. So what do you do?
o There must be reservation; put in receipt that
this payment is without prejudice to the
remaining balance
o Reservation important because there is also
provision that creditor who knows of partial
payment without objecting will amount to
estoppel; apply also to payment of installments
o So you should accept or else zero ka, basta make
reservation
-Who will prove that he paid? Debtor’s burden; he who
asserts payments must prove
-How? Show receipt. If creditor refuses to issue receipt,
make consignation in court. This is a ground, where prior
tender of payment is not required
Exceptions to integrity of payment:
1. Substantial compliance
-court can absolve you if you can prove
2. Obligee accepts performance knowing irregularity and
without objection – estoppel
3. When there is express stipulation
4. When debt is in part liquidated and unliquidated
-cannot pay unliquidated since you do not know how
much
Who shall pay
1. The debtor
To whom shall you pay
1. Creditor
2. Successor in interest
-when creditor dies, successors are the heirs such as
wife, children, collateral relatives
-if single who died and no known relatives, state will
inherit
3. Person authorized by creditor
General rule: Debtor shall pay creditor
-if payment is made by debtor or his successor or agent,
obligation is extinguished
-Can 3rd person pay the obligation? YES
Distinguish into:
1. 3rd person interested in the fulfillment of the
obligation
-guarantors, sureties
-how to determine that there are no assets: there is a
return of writ of execution and it is established that
there are no outstanding properties
-such 3rd persons can pay but cannot compel creditor
to accept because debt is not yet due and
demandable. If already due and demandable, 3rd
person can compel
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-if principal debtor paid without knowledge and
surety paid again, can surety recover amount? (yes,
there is right to reimbursement)
-SURE: 3rd person with interest pays, he is entitled to
subrogation
o Example is right to the mortgage
o Real estate mortgage is accessory obligation to
loan contract
o If 3rd person pays and he is interests in fulfillment,
his right will not only be under loan obligation but
also under real estate mortagage
o Your right if you are mortgagee: you can foreclose
(right to which 3rd person may be subrogated)
2. 3 person not interested
rd
-creditor here is not bound to accept, but not
prohibited from accepting
-if such 3rd person pays, he has right to seek
reimbursement from principal debtor but only to
extent that he has been benefitted
-3rd person who pays without consent of debtor
cannot compel creditor to subrogate him in the
creditor’s rights under the mortgage (unlike in case if
he was given consent)
-Can 3rd person who does not want to be reimbursed
pay? Yes he can. Creditor cannot be compelled to
accept but he may. Legal complication here especially
if the person who doesn’t want to be reimbursed has
heirs because this is deemed to be a donation; cannot
donate everything if he has compulsory heir.
-So if your father donates everything, you do not have
right yet because he is not yet dead. Your right is only
inchoate until he dies
-Donation to be effective needs consent or
acceptance of done, so inform debtor and he must
expressly accept
*Payment shall be made to creditor, successors (heirs) or
authorized persons (with special power of attorney,
attorney-in-fact)
-take note of principle that presence of descendants
excludes ascendants. If there are no children, then go to
parents, if there are none, then collateral relatives until 2 nd
cousin (Atty G. not sure)
-no relatives, state inherits
-if creditor becomes insane and you have not yet paid, pay
to the guardian
-institute petition for guardianship and court will appoint
guardian
-in case of parents representing the minor children, they
are legal guardians; there is no need for a court
appointment; what is needed is to file a verified petition
for approval of a bond; summary proceeding
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-payment to 3rd person valid in so far as it redounded to
creditor’s benefit; but benefit to creditor may not be
proved in some instances
Payment in good faith to any person in possession of the
credit shall release the debtor
-somebody comes up and shows you deed of assignment;
prudent thing to do is ask creditor
-But if you pay, will the payment be credited? Yes if you
acted in good faith, problema nana sa creditor na wala siya
nagpahibaw na rescinded na ang deed of assignment if
ever dili nato agent na taw. So if you are creditor, make a
formal notice to the public like in newspapers and the
better thing to do is send a letter individually to
debtor/s
-bad faith if you knew that it was already rescinded
-but with deed of assignment, you have right to rely on
representation especially if creditor did not make any
announcement
-if you pay despite that announcement, then you are not
covered under this article
When your creditor is debtor if another person (1243)
-Your creditor is a debtor of another person and that
person filed a case against your creditor and he was able to
secure an order. You are known to be the debtor, and you
are told that do not pay because your creditor has debt to
me (the person), but you disregarded it even if there is a
court order (writ of garnishment)
-disregard of a court order, but issue here is What is effect
of your payment, which you paid in disregard of court order?
Not valid if in that suit the creditor won. Valid if he did not
win
-Example: usually in case of banks
 I will file a case against person who is a depositor
in this bank. This is to secure whatever monetary
judgment I will obtain, I will file a motion for
issuance of writ of garnishment so that court will
issue an order to bank not to release anything to
this person because there is a pending litigation
 Purpose: this is legal strategy. When you file
monetary claim, do not wait for judgment.
Pagsugod sa kaso, secure na dayon ug writ of
attachment kay kung magpa abot ka mahuman
ang kaso, wala nakai makolekta. Lain sad ayu
ilaminate ang decision (LOL)
 Legal strategy then is upon filing of case, ask for
issuance of writ of attachment from court. Writ of
garnishment is a specie of attachment. This is
allowed but you have to have valid reason. E.g. the
creditor is about to abscond or slowly disposing of
properties (like situation in accion pauliana)
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 Is it true wai mapreso sa utang? There is criminal
offense for this, e.g. BP 22 or estafa
Debtor cannot compel creditor to receive a different one
even though it is more valuable (1244)
Exceptions:
1. Dation in payment
-payment of a thing other than money; property is
alienated
-payment in kind other than money
2. debt to equity
-you have debt and you are stock holder
*Law says that Dation in payment is subject to law on
sales
-What if ang imong gihatag na parcel of land as payment
was in fact previously mortgaged or was already sold to
another person, although there was no transfer of
ownership? In so far as debtor is concerned, did transfer
extinguish obligation?
-What is the effect if there is a violation of warranty
against eviction vis a vis extinguishment? What is
sanction? Does it invalidate the sale?
-YES it extinguishes the obligation but without prejudice to
seller being liable for damages. In the real scenario, erase
the effects of dation in payment so you will return to
square one or rescind the dation in payment since this
is a contract of sale
SO DILI NI NATO IMEMORIZE ANG LIBRO. WA MANI SA
LIBRO? NAA DHA? WALA. MAO NA PAMINAW MOG
MAAYO
Article 1246: When the obligation consists in the delivery of
an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quality….
-We now allow transactions in foreign currency, but
problem is what is the rate? There is ruling that it should
be rate at time of payment
Place of payment
-examine first the contract whether there is stipulation of
payment
-BE CAREFUL: ayaw pasagad ingon na mao ni rules. In
Oblicon, we are governed by what is agreed by the
parties. Law comes into play only when parties do not
agree on a specific matter. This should be the attitude
Why are there special forms of payment? Because they are
governed by special rules.
APPLICATION OF PAYMENTS
1. there are several debts
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-money you have is not enough
2. owed by one debtor to a single creditor
Rules
1. Who decides to which debt applies? Debtor has
preferential right to choose where his payment is
applied
-not absolute
-subject to rules on payment
-If you have to debts, one is 50 and another is 100, you
cannot apply to 100 if you only have 50 because creditor
cannot be compelled to accept partial payments; must
comply with rule on integrity of payment
-another rule, must pay interest first before the principal
2. Debtor may declare at time of payment to which
payment should be applied
READ FACUNDO vs REGALADO
3. If payment cannot be applied according to the rules, then
apply to most onerous
-e.g. as principal debtor is more onerous than being
guarantor or surety, oldest debts more onerous than
newer debts
-debt with encumberance more burdensome than those
without collateral
Regalado case
-mere silence is not tantamount to consent of application
-even if debtor is given the right, application has to be
made to debts which are already due, but there are
exceptions to due and demandable rule--- debtor is
insolvent, etc.
PAYMENT BY CESSION
-Dation in payment is specific like what land is being
transferred, payment by cession may involve many
properties
-you sell the property and whatever proceeds you realize
will be the payment to the debt
-there is no transfer of ownership here
-dation in payment, even if property is less than debt then
there is agreement that it is equivalent, obligation
extinguished. But in payment by cession, you are liable for
balance
-payment by cession, there are various creditors unlike
dation in payment
TENDER OF PAYMENT and CONSIGNATION
-remedy if creditor does not accept for any justifiable
reason
-Why is tender of payment important? To inform creditor
to give him chance to think about accepting the payment
since he bears expenses
-consignation is the act that will extinguish the debt, not
the mere tender of payment
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-if creditor refuses to accept without just cause.. so what
are just causes?
 Partial payments, because of principle of integrity
 Not yet due and demandable
 Payment made not in legal tender
--but this will only apply if offered as payment of a
debt. You can refuse if check is paid as payment of
debt but not when debtor is exercising a right or
privilege
-example: foreclosure (embargo for lack of better
word) of real property which you offered as
mortgage
-the sheriff will have a public auction and you the
owner of land are given 1 year to redeem (buy back)
your property. The one who buys has only inchoate
right; must wait for 1 year where he can say that he
has consolidated right; becomes absolute owner.
Within one year redemption period, debtor went to
sheriif and tendered check as redemption money.
Will the sheriff be justified in rejecting check
because it is not legal tender?
NO. this is not payment of debt but owner-
mortgagor is just exercising a privilege, which is to
redeem
-You still have to fund check, you are merely
preserving right to redeem
-If check becomes stale, does it discharge you from
obligation? [Check can be used as payment if
accepted by creditor. If objection of creditor is
regards to sufficiency of amount of check, he is
estopped from complaining whether it is legal
tender] Go back to requisites. Ask from relief from
court that you will be released from obligation:
cancellation of debt
-tender of payment and consignation will not
apply for exercise of rights and privilege--- also
apply to right of repurchase
-When does running of interest stop?...
Can you withdraw thing consigned?
YES, but how about if Court says you cannot since it is
already under custodia legis? [Better be sure] Court in
grave abuse of discretion
-Remember requisites/acts required of tender of payment
and consignation
-but generally, for effective extinguishment, there must be
consigation. Wa pa nahutabo na tender of payment lang
-but there are instances where there is no tender of
payment needed
-How shall tender of payment be made? It would appear
that oral tender of payment is valid, but for purposes of
proving, make it in writing
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-What is effect in relation to dation in payment, if there is
foreclosure and thing is sold during foreclosure but
proceeds realized in auction sale insufficient, will there be
dation in payment? Is debtor-mortgagor discharged since
this is same as dation in payment?
-corollary question: can the creditor and debtor just agree
that the thing mortgages be the one made as payment? Di
nako kabayad, imo nalang nang collateral, Ok? NO, DILI
OK
-automatic appropriation of things mortgaged is
prohibited; this will be detrimental to debtor. If less,
bayran ang deficiency. But what if more than? iuli jud.
THIS IS PROHIBITED ARRANGEMENT
-so rescind first mortgage contract and then do the
contract of sale then it will be a dation in payment this
made
FIND A WAY AND MAKE IT LEGAL
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PRE-FINALS
CONTRACTS
 1305: A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service
 Requisites: 1318—Consent, Object certain which is the subject
matter of the contract, Cause of the obligation which is
established
 Elements: Essential, Natural and Accidental
 Essential- those without which there can be no contract;
necessary and indispensable; subdivided into common, special
and extraordinary.
-If any essential element is absent, can file an action to declare
inexistence of contract; no contract
-only 3 essential elements that matter: consent, object,
consideration
-defective consent--- this is voidable; have it declared annulled
-absence of consent--- cause of action is declaration of
inexistence of contract
 Natural- derived from the nature of the contract, not expressly
stated in the contract
-example: warranty against hidden defects. Not stated in the
contract but just because it is not stated doesn’t mean you
don’t have right. They are deemed to exist in the contract
-Parole Evidence Rules: every agreement, terms of condition,
stipulation you agree is reduced into writing; if not expressly
stated, they are deemed not agreed upon. Exception to this are
natural elements like warranty against eviction, hidden defects,
and the law which is deemed incorporated into the contract
 Accidental- exist only when the parties provide for them; needs
to be stipulated for it to be binding, unlike natural elements
-parole evidence rule applies here
Example: contract of lease over a parcel of land and allows the
lessee to build a building there
-from the text of the contract, there is nothing there that
provides ownership of building after termination of contract, so
there is now problem on who will be owner of building after
-apply principle that accessory follows principal? NO. Article
415 of the Civil Code on Property places a building as a real
property itself independent of the land.
-so we now have an element not agreed upon. So how should
this be solved? Resolution should be in accordance with law on
property; there would be two owners now. Owner of the land
is not necessarily owner of building. The basis is that under
Article 415, building is treated as property separate and distinct
from the land. The principle that accessory follows the principal
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is a general principle and in case of conflict between specific
and general principle, the specific prevails under rules of
statutory construction. But there is still problem because you
are creating a forced ownership
 Obligations are very broad because they can arise from various
sources. Contract is just one of the sources.
 Meeting of minds: agreement of parties on object, cause
 No meeting of minds on those two, no contract to speak of
 When can there be a contract? When the three essential elements
are present --- consent, object, cause
Characteristics of Contracts
 Obligatory force of contract
 1308: The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them
-rationale why contract is void when it is potestative: because you
are creating an illusory contract; wala mai sabot na usa rai magbuot
-not just one party can withdraw without the consent of the other
Example: case on Rustan Pulp; delivery of paper and the other said
they had right to stop deliveries; it was a violation of obligatory
force
Example: lease contract where it says that lessee can stay as long as
he is able to pay the rental; because lessor has no option in that
case; lessor will then just have to wait for the lessee since as long as
he is able to pay, contract cannot terminate
 Mutuality of Contracts
 1309: The determination of the performance may be left to a
third person, whose decision shall not be binding until it has been
made known to both contracting parties
-Mutuality is similar with obligatory force
-law does not have to state mutuality; what is provided is the
exception:
 1309- there is no violation if the determination of performance is
left to third person
-the contracting parties must be bound, but there are instances
where certain matters are left to determination of third persons
Example: parties agreed on a compromise agreement where one will
send land to other and other agreed he will buy; problem is they
have not determined what the purchase price is; so they have to
constitute a committee to determine the fair price
-this should be part of the contract that determination would be left
to a committee
-can contract be invalidated since determination is left to
committee? No because of 1309
Example: arbitration such as that in barangay where there is pangkat
tagapagkasundo under lupong tagapamayapa that will resolve
disputes or arbitrate
Page 22
Read GSIS vs CA 228 SCRA 183: this is example of violaion of
mutuality principle
-there is provision granting seller right to unilaterally make upward
adjustment of the purchase prince depending on final cost of
construction of house and lot
-subject to adjustment to be mutually agreed –this is the proper way
Example of violation: subject to adjustment of interest without prior
notice/subject to adjustment based on market forces. This is
contract of adhesion (which is valid) but this defense is on a case to
case basis
 Relativity
 1311: Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
Exceptions to relativity
1. not transmissible by nature: purely personal obligations;
obligations to do; example singer imong papa lain sad kayu ug
ikaw mupuli
2. stipulation or provision by law:
 contract of agency
-your father is attorney in fact and father died, you cannot
assume as an attorney in fact
 contract of partnership
-you pool your resources together for business purposes
-vs. corporation: if stockholder dies, his heir replaces him. In
partnership, his heirs cannot step into his shoes
3. Parties agree on something but object is to benefit a third person;
stipulation pour atrui
 1311: If a contract should contain some stipulation in favor of
a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation.
A mere incidental benefit or interest of a person is not sufficient.
The contracting parties must have clearly and deliberately
conferred a favor upon a third person
-GR: not a party, cannot ask for enforcement; exc. this third person
even if not a party has legal right to ask for enforcement
-before filing for enforcement, communicate acceptance to obligor
-Required: third person must communicate his acceptance. Form of
acceptance may be implied or express; not even required that it be
in writing.
-Unlike in donation where acceptance should always be express, it
can be implied in pour atrui. In donation, there are only two parties.
In pour atrui, there is a third party. In both, acceptance must be
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made known before its revocation or before the one conferring it
becomes incapacitated.
Cases:
Florentino vs Encarnacion
-stipulation that fruits will be used on religious activities
Coquia vs Fieldmen’s
-third party liability insurance (TPL)
-there was insurance contract between insurance company and
owner. Here, there are only two parties, the company and owner.
However, in the provisions of the TPL, insurance is to benefit a
third party injured. Then the third party was injured. Third party
filed case against company. Company cannot ask for dismissal of
case on ground that its contract is only between company and
owner. This is exception to rule on relativity of contracts
Constantino vs Espiritu
4. Third person induces another to violate his contract under 1314
 1314: Any third person who induces another to violate his
contract shall be held liable for damages to the other
contracting party.
Example: Ang katabang na nilayas, nibalhin silingan kay mas dakog
sweldo, giingnan sa lain maid na ali dri nndot sweldo dri
-In pour atrui, example the TPL, your source of action is the
contract between company and owner. Here, the source is a
quasi-delict, a source other than the contract. So this provision
should not have been an exception. The framers committed a
blatant error. Because when we say that it is exception to
relativity of contracts, then the source must be a contract. This
provision is out of place
[read Bun vs CA 314 SCRA 75, Lagon vs CA GR 119107]
Lagon Ruling: there would be no tortous interference if the alleged
interferer did not know of existence of contract. Example the other
maind will say na wa ko kibaw oy na naa kai agalon. So there may be
no tortous interference
Another example: case of movie stars where Viva induces artists in
Regal Films; or case of Pacquiao while he had contract with Bob
Arum he wanted to have contract with Golden Boy. Bob Arum
threatened him for violating contract and Golden Boy for inducing
5. Instance where third person can set aside a contract: accion
pauliana
-you may not be a party but you can question the contract meant to
defraud you if you are creditor
Note: Outside these exceptions, you as third person has no right to
seek for any relief arising from the contract. Not even the court can
interfere with contractual relations. This is part of constitutional
right to freedom to contract
PARTIES TO A CONTRACT
Page 23
 Can you contract with yourself? Yes
-Can you sign as representative of corporation as seller and the
other corporation as buyer? Yes, no conflict of interest because
you are not buying it for yourself
 Except when prohibited by law.
-Under law on sales, you cannot as guardian buy property of your
ward; prevent undue influence
-also if you are lawyer, you cannot represent the two parties as
discussed in legal ethics
FREEDOM TO CONTRACT
 1306: The contracting parties may establish such stipulations,
clauses, terms, and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, or
public policy
Examples/ Situations:
1. Cannot stipulate with spouse that you will have paramours since
this is contrary to public policy, law
2. Contrary to law; employer cannot give wage lower than the
minimum wage
3. Contrary to morals, but how do we determine morals? This is
difficult to prove. The problem is that society is evolving and there
are borderline cases like live-ins. Is that immoral? We can’t tell
4. Agreement where you pay family of victim in a criminal case, and
in exchange, they will not file against accused anymore. This is
contrary to public policy. This is illegal.
--but there are also things which appear to be legal but illegal
such as when the mortgaged thing can be automatically
appropriated o mortgagee; this is illegal; property should be
opened to public auction and not automatic appropriation
(pactum commissorium)
5. You cannot prohibit one from selling his land while giprenda niya
nimo, under 2130. He should not be prohibited from selling
6. Shipper limits his liability arising from agreement; only 100K no
matter what cause or value is; illegal
7. Cui vs Arellano case
8. In regard to status of persons; like husband and wife agree na
kana siya d na anak nako
9. In regard to jurisdiction; cannot stipulate the jurisdiction on
courts. But you can stipulate on venue, not the jurisdiction
10. Bustamante vs Rosel Nov 29, 1999
-case of pactum commissorium
-“in case of failure to pay, lender has option to buy….”
CLASSIFICATION OF CONTRACTS
 Can there be contract involving intangibles? Yes such as contract
over sales of stock, assignment of credits
 According to subject matter: Things and services can be subject
of contract; also intangibles
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 Nominate Contracts: Contracts can also have specific name under
the law such as sale, commodatum (gratuitous use of a non-
consumable thing), contract of agency
 Innominate Contracts -- basta assoShit ka, imong buhaton tawn
kay maghimo ug contract nya waka kibaw unsai ngalan. Hala pakli
diha Civil Code, unsa kaha ngan ani na contract. But don’t worry
because there are innominate contracts
1. do ut des- I give that you give
2. do ut facias- I give that you do
3. facio ut des- I do that you give
4. facio ut facias- I do that you do
[naa pai lain kanang do ut do ut, wa lang ma apil diri. There is a
situation kanang madakpan mo ga do ut do ut unsa mai una
tabunan, ang nawong o katong lain? Depende na kung naa kai
ikapanaghambug. Kung wala, aw dagan nalng oy! Lolololollll]
 Consensual contracts- generally contracts are perfected by mere
consent; there is now a cause of action
Example: contract of sale
--but there are contracts not perfected by mere consent, such as
when delivery is required like contract of deposit, pledge (you run
out of money and go to pawnshop), commodatum
 Formal contracts- requires formalities such as when made in
writing; or must appear in a public document
-but there can be a contract even if there is nothing in writing;
there are only certain contracts which need to be made in
contract and made in a public document
-validity and formality are different
Examples:
1. donation where value of donated property exceed 5k, it must
be in writing to be valid
2. contract of partnership and there are immovables contributed,
it must be in public document
3. agreement in regard to interest, it must be in writing
4. donation of a real estate; must accept in a public document;
otherwise void
---if not in these cases, contracts are perfected by mere consent
 Unilateral and bilateral contracts
 Onerous, gratuitous contracts
STAGES OF CONTRACTS
1. Preparation
-is there cause of action here? Like in case na nakagasto naka
unya wa diay gidayon ang contract, pasakay sakay rato
-violation of article 19: abuse of rights
2. Perfection
3. Consummation
-contract is deemed fulfilled already
Page 24
ESSENTIAL REQUISITES
 Object, consent and consideration
 Signature is manifestation of consent but not necessarily
conclusive
 Consideration is the reason why you entered into contract; from
viewpoint of seller is the money; viewpoint of buyer is the thing
CONSENT
 1319: Consent is manifested by the meeting of the offer and
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.
 In business advertisement, you are manifesting that you are ready
to make an offer; but there is no offer yet. You are just inviting to
make the definite offer
 When you sell something, it is not required that you state all
particularities; it is enough that object is identifiable
 1321: Person making the offer may fix the time, place and manner
of acceptance all of which must be complied with
-if manner of acceptance is that you must do it in writing and you
just used a telephone to accept offer contrary to the agreement,
then there is no valid acceptance
 1322: An offer made through an agent is accepted from time
acceptance is communicated to him
-this is an offer made through an agent
Question: Agent can make offer for and in behalf of owner, but if
you want to communicate the acceptance, to whom would you
communicate it? What if you made the acceptance through the
agent and there is this other buyer who made communication
directly to owner, kinsa man nakapalit ani na situation? Assuming
nagdungan ug communicate, kinsa man? Who has superior right?
-It would depend. When you deal with agent, examine the extent
of authority of agent. He may be authorized to make offer but not
authorized to make acceptance. Power of agent to sell must be in
a Special Power of Attorney. Here his duties are enumerated; if
acceptance is not one among enumerated, he has no authority to
make the acceptance. Before determining who has superior right,
determine first extent of authority of agent
Case: Malbarossa vs CA
-When can there be consent when acceptance is made on another
date?
-Example I made an offer to you and you did not immediately
accept. You accepted it but before I knew of acceptance, I already
withdrew the offer; no meeting of minds
-Just like in donation; acceptance must be made to donee during
his lifetime or before he becomes incapacitated
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-what if offer was made and you made a counter-offer? I was the
offerer but now you become the offerer, the original offerer must
accept the counter-offer
-Acceptance must be made known to offerer before his
withdrawal; this also applies when offerer dies before he knew of
acceptance, like in donation. If he became insane and he had no
knowledge of acceptance, there is no meeting of minds
Instances when offer becomes ineffective
 1323: An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed
-this means before acceptance is made known to offerer
-problem when withdrawal and acceptance done simultaneously;
framers did not anticipate this
Other rules in making an offer:
 1325: Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to
make an offer
 1326: 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
-you then have no vested right just because you are the lowest
bidder; such as when a bidding is made by the government. With
the advent of Government Procurement Act, just because you are
lowest bidder doesn’t mean you would be accepted; there are
other post-qualifications. Pananglitan ikaw lowest bidder pero usa
ra imong pison, ang driver sa bulldozer mao pud driver sa pison.
Di jud ka dawaton ana
 1319: Acceptance must be absolute
-meaning there must be no further questions since those make a
counter-offer
-offerer must accept also the counter-offer
 As to the form of offer and acceptance, offeror may prescribe the
manner of acceptance
 1320: Acceptance may be express or implied
-express through clear terms; implied through acts
 1319: 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
-we follow the cognition theory: when you accept by letter, make
sure acceptance must come to knowledge of offerer before his
death or before he becomes incapacitated
 1324: When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
Page 25
option is founded upon a consideration, as something paid or
promised.
Example: I give you 15 days to decide on property worth 1 million.
But on 10th day, someone comes and offers to buy at 2million, so
the other person and I signed a deed of sale. Now you complain
because I did not comply with my undertaking to give you 15 days
to manifest acceptance of offer. Who now has the preferred right
over the property? You who was given 15 days or the other
person? It depends (relate with option contract)
-Option Money is the consideration in a contract of option
CONTRACT OF OPTION
 is a contract wherein the one given the option is given the
privilege to choose to buy or not to buy within the given period of
time. It is a contract in itself
 there is no contract of sale here; what has been paid is only the
option which is a contract distinct and separate from the contract
of sale which will be entered into later
 but you have to pay consideration for the option contract;
otherwise, if you did not pay separate consideration for the
option of 15 days, I can withdraw the offer even tomorrow and
you can’t complain
 but just because you paid option money, it does not follow there
is already contract of sale
 if option contract not supported by consideration, it is not binding
 option money vs earnest money
-earnest money is part of the purchase price. This presupposes
that there is already contract of sale, unlike option money
 in sum, if there is consideration, I cannot withdraw the offer for
15 days since I will be liable. The obligation of offeree is to
manifest acceptance within the 15 day period. You can accept on
16th day basta wai naka una or wa pa gi withdraw
 1479 (law on sales)
-this presents a contradictory provision
-gives us the impression that even if the promise to buy or to sell
has already been accepted but if the promise is not supported by
a consideration, it is not binding on the promisor
-on the other hand, 1324 tells us that even if the option is not
supported by a consideration, but once accepted, it is already
binding
-clarified in Sanchez vs Rigos: they abandoned the Southwestern
ruling
[I do not know what your discussion will be later in sales. Some
would content that katong gi accept promise raman, not really
the sale, so lahi na sila. Even if promise is accepted, it doesn’t
follow that there is perfected contract of sale. Some say if
promise is accepted, there arises a bilateral contract of sale. So
tagaan tikag option basta gi accept na nimo bisag walai
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consideration, dili na pede ma withdraw. I think this is the better
rule. Contract of sale na pag-accept nimo]
RIGHT OF FIRST REFUSAL
 In Equatorial: Option contract vs right of first refusal
 Right of first refusal does not need independent consideration
because it is deemed to be built in the contract. We can find this
in a contract of lease. You are given the privilege to refuse first.
 This is a right that is enforceable; this means there is a second
contract which violated your right; the status of the second
contract is that it is rescissible. Why rescissible? There are 3 types
of rescissible contracts. One is a contract entered into in fraud of
creditors (similar with accion pauliana)
 If you are holder of a right of first refusal, you are likened to a
creditor; if there is violation, you can ask court that second
contract be rescinded
 In Equatorial: SC said that if right of first refusal is violated, the
second is rescissible. If you do not contest, that the second
contract will be perfectly valid
 In order of defect: 1st is rescissible, meaning dili grabi ang defect,
2nd is voidable which is valid until annulled, 3rd is unenforceable,
pinaka-defective ang void
 Right of first refusal does not need independent consideration
because the consideration is actually what the lessee paid by way
of rentals. On the other hand, option is a separate and distinct
contract
Confusing because of Eulogio vs Apeles
 SC said in this case that this is an example of option contract and
therefore it needs consideration to be valid
 Par 3 of the contract: “this would be effective… and shall remain
binding for 3 years. The lessor hereby gives lessee an option to
buy subject house..”
 Difference with Equatorial? Nothing, but Equatorial was held as
right of first refusal but here it is an option contract
 So how do you determine? Maybe the guiding principle is that in
an option contract, there must already be a decision to sell on
part of owner. Whereas in right of first refusal, no decision to sell
yet. Only states that “in the event”; only a hypothetical statement
Person who cannot give consent
 1327: unemancipated minors; insane or demented persons, and
deaf-mutes who do not know how to write
 Remedy: institute guardianship proceeding
 Article 225: Legal guardianship over property of minor child; only
thing requires is to file verified petition for approval of bond not
less than 10% of value of property; relief is not that you be
appointed as guardian since you are already guardian as parent by
operation of law; you are only require to put up a bond
Page 26
Instances that affect free giving of consent
 Insane- generally cannot give consent by may during a lucid
interval; but there is a presumption of sanity; go to court and
have him declared insane then have a guardian appointed by
court
 Hypnotic spell-; state of drunkness
VICES OF CONSENT [consent is not intelligent, free, spontaneous]
 1330: A contract where consent is given through mistake,
violence, intimidation, undue influence or fraud is voidable
 Consent is defective because of the circumstances
 Status: voidable; valid until annulled; contract may be validated
-default period: 4 years; remedy is annulment
1. Mistake
 may be made in good faith
 may be mistake of fact, substance, principal conditions,
identity, qualification in obligation to do
 example of mistake in principal conditions: purchase parcel of
land and it was formerly kainginized
-you cannot have a title over a timber or forest land
-check first the classification of the land
-principle: obtaining land title is not a mode of acquiring
ownership; it simply confirms ownership; so if you really do not
own, then there is nothing to confirm
-never buy timberland, mangrove
-if palit ka, goodbye to your millions
 there are mistakes which merely pertain to incidental and
accessory provisions; they do not invalidate the contract
 mistake of qualifications: applicable in obligations to do; such
as person says he is a doctor and he has land to sell; when after
you bought you found out he is not, it won’t prosper since it
has nothing to do with prestation; but lahi natong case sa
singer; depend on nature of contract
 you buy real estate and representation was that this is the area
but what was there is lesser area; 1542 gives the guide
 boundary prevails over the area: if you purchase land and
boundaries are stated but when there was survey and
boundaries were changed, is owner entitled to additional land?
No, seller only bound to deliver those mentioned in the
contract within the boundaries; boundaries already delineated
 Can you cancel a sale on the ground that you were mistaken in
purchasing property? No basis to invalidate if based on motive
which is immaterial
 Mistake must refer to the substance of the thing and those
conditions which have principally moved the parties to a
contract
 Substance of the thing which principally moved one or both to
enter the contract
Alcasid Case: Representation did not invalidate consent
because she could have checked first the realities (no mistake)
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Note/Rule in Property: Under the Torrens system, when you buy
a property that is registered / covered by transfer certificate
title, one purchasing it doesn’t have to go beyond that title
generally. This is for easier transactions involving real estate.
Every time one deals with the property, tatakan na sa likod. Ipa-
lease, tatak. Naai claim, tatak sa likod. If you deal with the land
and naai mga tatak dha na encumberance noted there, you are
buying at your own risk. So if there is nothing noted there, title
is said to be a clean title
Problem: If you buy relying only based on the face of the title,
you are buyer in good faith. But in reality, the land was actually
water, can you invalidate contract because you were mistaken?
Problem: There is a title which voters a parcel of land but it
turned out that parcel of land is classified as a forest land and
you purchased it. Would that vitiate consent? If you purchase it
by mistake, can you recover what you paid?
-If title covers a land classified as forest land, that title is void.
You are entering a contract of sale where subject matter is
illegal, beyond commerce of man. If beyond commerce of man,
contract is not only voidable but VOID. Can you recover money
on ground of mistake considering it is a void contract? SO
JUST RESOLVE BY YOURSELF (patay na!)
 Mistake of law
-Ignorance of the law excuses no one
-When you seek to annul contract, do not stop there. Ultimate
object is to recover what you gave
-in Kasilag vs Rodriguez, SC ruled that mistake upon a doubtful
provision of law may be a basis of good faith
-this involved sale of land covered by free patent then there
was a sale.
-SC made an exceptional ruling here that even if there is a
mistake but linked with interpretation of the law; nature of
interpretation is in regard to a difficult question of law; highly
exceptional because we have to stick with ignorance of law
excuses no one
 1332: When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or
fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former
 1333: There is no mistake if the [arty alleging it knew the
doubt, contingency or risk affecting the object of the
contract
-case of estoppel
2. Violence
 Often intimidation happens, not violence kay karaan nani
siya
 Prove the specific facts and make sure there was really
intimdation that affected free exercise of consent
Page 27
 That’s why law says condition of person shall be borne in
mind
Example: wala siguro intimidation kung dako kayo ka na taw
nya si Ramoneda imong kontra, wa siguro intimidation diha.
Maybe capable lang siya ug persuading (charbaki haha)
 1335 : A threat to enforce one’s claim through competent
authority, if the claim is just and legal, does not vitiate
consent
-this is intimidation that is not a ground
-case when person threatens to sue another person for
sexual harassment if he does not sign contract
-Consideration to take account: is the threat related to the
contract? What I understand is that there must be a
reasonable nexus between the threat and the contract. For
me here, there is a doubtful validity because there is no
connection. This is blackmailing pure and simple
-More practical example: You had loan with bank and you
defaulted. You have other properties. Then bank says we
are willing to restructure your loan but you have to put up a
security through a mortgage. Will you agree under threat
that you will be sued for collection, violation of law? Then
can you later say that you will annul contract because there
was intimidation? Here is there is no question that this does
not vitiate consent
 DBP vs CA
 Reverential fear: fear of a superior
-generally, this will not vitiate consent
-when employee separates, hatagaan nimog pabaon. Pero
you also ask employee to sign a waiver. Then the employee
files a case. Sadly, our labor laws are partial to the laborer.
Labor laws are oppressive to the employer. Here, employee
contends there was intimidation in signing the waiver. This
usually prospers because employers are careless. If you ask
an employee to sign that waiver, make sure it is notarized
before the Department of Labor, not the company lawyer
because there will be presumption that it was not
voluntarily signed by the employee
3. Undue Influence
 1337: 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
 Financial distress example: employee separated but was forced
by employer to sign that he will not engage in similar job for 5
years. But the person also has other expenses
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 DBP vs CA: Saying financial distress mi mao gi-force mig sign sa
mortgage contract; not valid argument because bank has
legitimate claim
 Undue influence is common in Contract of adhesion
-contracts of adhesion are not entirely prohibited; cannot say
there is violation of mutuality of contract principle
-do not make sweeping conclusion
-you must allege invalidity with circumstances that prove it
 Stipulations in transportation contract which are incorporated
in a contract of adhesion; just because you sign it doesn’t mean
you accede to it because they are illegal 1745
4. Fraud
 Fraud in the performance of an obligation vs. fraud in securing
the consent of a party
 Fraud in the performance: initially, the contract is valid; no vice
of consent but there is fraud because what was delivered Is not
the one agreed upon; fraud in 1176
 Fraud in securing the consent
-1335: 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
-Specific example: insurance contract; you wanted a health
insurance but since you are sick, you ask your friend to submit
his medical certificate; but then you die, the insurance
company then was defrauded; had insurance company knew of
your real medical condition, three would have been no
insurance contract (p.446 Jurado)
 Fraud is not just bad judgment or negligence; there is malice
here. It connotes a dishonest a dishonest purpose or there is
conscious doing of a wrong
 Fraud in securing consent has two kinds: dolo incidente and
dolo causante (do not equate dolo incidente with fraud in the
performance of obligation)
-Woodhouse vs Halili: manufacture of softdrinks and the other
contended that there is fraud because the other represented
that he is a grantee of a franchise; the other said that he did
not represent but merely said he will secure franchise
-SC said: this is not dolo causante kind of fraud (which is the
one required) because even without the representation, the
contract will proceed. But the other’s share in the partnership
profits should be reduced because he was not the one who
gave effort to secure the franchise
-Geraldez vs CA: fraud here was dolo causante
 Situations which do not vitiate/not fraudulent
a. 1340: usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in themselves
fraudulent
Page 28
-Trinidad vs IAC: case sa house na ga sigi ug baha; reklamo
siya na fraudulent ang sale because sigi ug baha
-SC noted some circumstances here
-problem here was that she was a real estate broker so she
should have known; knowledge here is aggravating
circumstance; she only has her own negligence to blame
b. 1341: a mere expression of opinion does not signify fraud,
unless made by an expert and the other party has relied on
the former’s special knowledge
- so relying on mere expression, if fraudulent, depends if you
relied on the expert (camera example)
5. Misrepresentation
 1342: Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
mistake and the same is mutual
 One made in good faith may constitute only error; fraudulent if
made in bad faith
 Even if honest mistake, it can be a ground to set aside contract
 Point here is that vices of consent may be actuated by good
faith but if it is a vice of consent, still, the contract may be set
aside
 Bad/good faith is really not a factor; not correct to say there is
no basis to void contract just because other party is in good
faith. Example, error or mistake. Kung masayop ka sa
apprehension of facts, not necessarily bad faith but vice
 Examples is that both parties thought a mortgage will transfer
ownership; or entered in a contract of sale but they thought if it
is a case of sale, they can retain possession over sold property.
Different if both parties agreed that it is a sale, they understood
it was a sale, they knew the legal effects but the contract that
reduced the agreement into writing did not reflect what they
agreed
-Remedy here is not annulment because there was meeting of
minds, no vice of consent kay nagkasinabot sila; proper remedy
is reformation because there is only a problem in the written
instrument
Simulation of Contracts
 May be absolute or relative
 Absolute simulation: parties have no intention to be bound at all
Example: I ask you to make deed of sale as requirement of my
subject; you make it appear that you are selling but I have no
intention to be bound by it and you have no intention to sell it,
but the deed purports to be genuine; VOID
 Relative simulation: parties agree but conceal their true
agreement (1345)
-resorted to for tax purposes
-example: if mag donate ka, bayad kag donor’s tax. If mag baligya
ka, capital gains tax. When computed, mas dako ang tax sa sale
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kesa sa donation. So with that, they agree that it will be a sale
instead of donation. They make it appear it was a sale, they
conceal
-not necessarily void
-1346: Relative simulation, when it does not prejudice a 3rd person
and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their
real agreement
-so the simulation of the sale instead of donation is not
necessarily illegal; this is called tax avoidance; you found a way to
have lesser tax. Tax evasion is the one that is illegal
-Suntay case
 Case of absolute simulation or fraudulent alienation
-absolute simulation is fraudulent but there are cases where you
alienate properties but not necessarily void as in the case of
accion pauliana. If you do not do anything in accion pauliana, the
other contract will still be valid; the party defrauded is given the
right to rescind that; susceptible to cure
-in absolute simulation, not susceptible to cure; void; cannot be
ratified; action here is not accion pauliana but declaration of
inexistence of contract
-in fraudulent alienation, contract is perfectly valid except the
circumstances when we entered the contract. Unlike absolute
simulation, there is deed of sale but there was no payment as
consideration
 Manila Banking vs Silverio
-It is one thing to allege, it is another thing to prove. So if you say
fraudulent alienation intended to defraud, what are the specific
allegations that you have to make or prove? Factual
circumstances that this is case of absolute simulation? Contract
was already determined and its notarization
 Suntay vs CA
 In proving absolute simulation, check the circumstances; very
difficult to prove, the burden is upon you
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OBJECT OF CONTRACTS (1:03:00)
What may be the object of contracts
1. All things not outside the commerce of man
2. All rights not intransmissible
3. All services not contrary to law, morals, good customs,
public policy
Requisite: must be determinate as to its kind
What may not be the object of contracts
1. Future inheritance, except when authorized by law
Exceptions: marriage settlement, partitions inter vivos 1080
2. Impossible things/services
 What does “Outside the commerce of man” mean: cannot
be appropriated or capable of being owned
 State can own properties which are capable of being
appropriated, so are we saying state properties can be
within commerce of man?
 Aside from not being capable of appropriation, such
objects are not capable of being objects of commercial
transactions
 Regalian doctrine: all properties which are not titled are
owned by the state including lands you currently possess
but not titled in your name. Ownership of minerals,
seashore, forest; they can be appropriated not by private
individuals but only by the state
 Future things: no contract involving future inheritance;
your right is only inchoate
 But other future things can be object of contract like
furniture or contracts involving sale of things that would
still be manufactured, like “made to order”
 Current laws allow contracts to be entered into by the state
and some private investors like roads, highway
 Why is it every time we go to Baguio we pay toll fees? That
is a public highway but why do we pay private people? We
have law called Build Operate Transfer (BOT law). Not all
projects can be funded by public funds, so we invite private
investors. We have to give them time to operate the facility
and allow them to recover expenses. After some time, it
will be turned over to the state, like the NAIA. It is public
facility, but it is object of contract because there is a special
law. It is not really just because it is outside commerce of
man, it cannot be an object. It can be when there is a law
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 But why can’t we sell City Hall but we can sell SRP? Because
there are properties held by state in its proprietary
capacity. City hall is not held in proprietary capacity
 Rights can also be object, but must be not intransmissible
 Art 1347: All services which are not contrary to law,
morals, good customs, public order or public policy may
likewise be the object of a contract-- contract of services
involving legal services. Not allowed are contracts involving
prostitution
 Escort service, is that allowed? Not yet allowed here in
Phils
 Objects outside the commerce of men:
Article 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. (339a)
--so a patrol car cannot be subject of lease, nor a firetruck.
D pede ipagamit adto silag Portofino. Or ang ambulance
pang joyride
 Rights which are not transmissible: cannot be object, like
right to vote. So ayaw pag kontrata diha sa imong right to
vote samot nag mapildi imo kandidato diha, patay ka,
transfer jud imo birthday to November 1
 Article 1349. 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.
 Example: I will enter into a contract that I will sell all the
harvest of coconut plantation. At that point, not yet
determinate pila jud harvest, but will not violate rule that
object must be determinate. But if I say I will sell to you my
coconut plantation and I have many coconut plantations,
there is no specific object here, contract is void
 Art 1347: No contract may be entered into upon future
inheritance except in cases expressly authorized by law---
there are exceptions to this rule, there are agreements
recognized by law as valid even when future inheritance is
the object like partition inter vivos
-while the parents are still alive, heirs can enter into
partition inter vivos; any agreement they enter into is valid,
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provided mamatay sah ang parents before effective ang
agreement
-this is even advisable; an act which does not have effect of
transferring the property because it is future inheritance,
the parent can still revoke; but the moment he dies,
partition will be respected under ART 1080.
-Article 1080. Should a person make partition of his estate
by an act inter vivos, or by will, such partition shall be
respected, insofar as it does not prejudice the legitime of
the compulsory heirs.
A parent who, in the interest of his or her family, desires to
keep any agricultural, industrial, or manufacturing
enterprise intact, may avail himself of the right granted him
in this article, by ordering that the legitime of the other
children to whom the property is not assigned, be paid in
cash.
-this qualifies the rule that there can be no object of
contract involving future inheritance (“TAKE NOTE OF THIS
HA!” ---like saying mugawas jud nis exam)
CAUSE OF CONTRACTS
 The “why” in a contract; reason why party assumed
obligation
 Types of contracts in 1350: Onerous, Remuneratory,
Contracts of pure beneficence
1. Onerous: contract where one gives an equivalent value
2. Remuneratory: services which do not constitute a
demandable debt or no obligation.
-example: we were together in Basilan then I saved your
life. When we got back to Cebu, to show your gratitude, I
transferred my property to you. The service I rendered is
not a demandable debt. Not also a donation, not pure
liberality because I did something to you
3. Contracts of pure beneficence: liberality; love and
affection
 Cause is different depending on whose viewpoint you
adopt. In sale, cause for buyer is the things to be acquired
and for seller, the money to be received
 Article 1351. The particular motives of the parties in
entering into a contract are different from the cause
thereof
-motive does not generally affect the contract
-example: you buy condo to house your paramour. That is
illegal but it does not invalidate the sale. As a rule, motive
is irrelevant
-motive is always unknown to the other, unlike the cause
which is always known
-there are however cases where the motive may
predetermine contract. It affects the contract
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-Uy vs CA GR No. 120465 Sept 9, 1999: land was for
housing purposes but here comes the two agents saying
some lands are not suitable for housing. Motive is for
housing. SC said practically there is no cause
 There are exceptions to the GR; situations where on top of
-Olegario vs CA: motive here was illegal; sold to deprive the
heirs; predetermining the cause; as rule, motive will not
affect but this is exceptional case where motive
predetermined the contract. It affected the contract
-Liguez vs CA: an old man donated to 16 y.o. minor for her
to cohabit with him; illegal donation because the cause is
illegal; it is illegal but you cannot recover property; you
cannot invoke your own illegality or guilty/illegal act to
benefit yourself; a case of motive predetermining the
cause; void contract
 Article 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary
 Lesion or inadequacy of cause: Q: Is Php 1 consideration
VOID? not necessarily void. There must be evidence that
there was undue influence. 1 peso consideration is
perfectly fine unless 1 peso was because of undue
influence, fraud or mistake.
Defective causes and their effects:
1. Absence of cause/unlawful cause: produce no effect
whatever (1352)
2. Statement of a false cause in contract: void (1353)
3. Lesion/inadequacy of cause (insufficient price of the thing
sold): not invalidate a contract unless there has been fraud,
mistake or undue influence.
FORMS OF CONTRACTS (Recording #2, 26:00)
 GENERAL RULE: Article 1356. Contracts shall be obligatory,
in whatever form they may have been entered into,
provided all the essential requisites for their validity are
present.
 Generally, contracts are valid and perfected by mere
consent.
 GR: Contracts do not really require that they be in writing.
They are valid and obligatory in whatever form they are
entered into. Even if contract is perfected orally, still, it is
binding.
 But there are classifications of contracts: voidable,
rescissible, unenforceable, void
 Obligatory in whatever form provided that all essential
requisites are present. In other words, what cannot be
compromised are the three essential elements of
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contracts: (1) consent, (2) cause, (3) object—if any of these
elements is not present, there is no contract whether oral
or written
the three essential requisites, the law requires that a
contract be in some form in order that it may be valid or
enforceable (form must be observed strictly)
a) those that require for validity: form is required for
validity; law requires something in writing
1. requires something in writing for validity
-this is the critical one
-if not observed, affects the validity of transaction
-may mean notarized or not notarized as long as in
writing
-even if not notarized, as long as in writing, that is
already compliance; but notarization is desirable
-not even specified on what material it should be
written
-pede pud sa kahoy, hilig ta ana, kanang naai arrow
bitaw, naa pa ang ngalan sa laki ug bayi naa dayon
heart heart, porbida anang styla (bitter raka sir)
-examples:
 donation (especially personal property
where value exceeds 5thousand pesos)
 donation of real estate which MUST be in a
public document for validity
-if not in public document, void
-if it is void, even if parties would validate it,
it would never be validated
 Article 1874. When a sale of a piece of land
or any interest therein is through an agent,
the authority of the latter shall be in
writing; otherwise, the sale shall be void.
-this is contract of agency; wherein one sells
as an agent. The agents authority must be
in writing otherwise the sale is void.
 Stipulation in regard to interest
 Contract of partnership
-no written document, binding as long as no
immovable is contributed
-if real estate is the business and there is
immovable contributed, there must be
public document otherwise void.
-Article 1773. A contract of partnership is
void, whenever immovable property is
contributed thereto, if an inventory of said
property is not made, signed by the parties,
and attached to the public instrument.
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2. require in writing to make it effective as against third
persons
-does not affect validity of transaction; still valid as
between the parties; source of legal rights
-on issue of validity, valid; on issue if binding as
rd
against 3 persons, not binding if do not appear in a
public document/writing
-examples:
 sale of a parcel of land
-we meet at a coffee shop. We agree on object,
price, is this perfected contract? YES
-taken out of statute of frauds as long as you
pay even small amount, already executed
contract; or you have it in writing
-but before an actual transfer be made in your
favor, you must execute a public document/ a
duly notarized deed of sale signed by the seller
and have it registered in register of deeds so
that once it is already registered, it is binding as
against 3rd persons
(RECORDING #3 & 4)
-agreement you had is valid, but cannot be
registered
-what if dili muexecute public document imo
kasabot, unsaon mana nimo? File a case where
relief you ask is to compel the person to execute
the deed of sale duly notarized
- Article 1357. If the law requires a document or
other special form, as in the acts and contracts
enumerated in the following article, the
contracting parties may compel each other to
observe that form, once the contract has been
perfected. This right may be exercised
simultaneously with the action upon the
contract.
-if person does not voluntarily comply, there are
other remedies: court may just direct clerk of
court to draft the deed of sale in favor of
plaintiff (validity and registrability are different
concepts)
-but before the right in 1357 be availed of, the
contract must be perfected, valid and
enforceable under statute of frauds:
 can you compel me to execute a deed
of donation if there was nothing in
writing? No, it was invalid/void
 contract must be enforceable: sale
must be in writing to be enforceable, so
Page 32
if it wasn’t in writing, cannot exercise
right in 1357 to compel seller to
execute deed of sale
-so yes you can compel, except if contract is
void
3. require in writing for purpose of proving existence of
contract
-presupposes that contract is at its inception is valid
but when parties sue each other, the party cannot
proceed/it is unenforceable; but not void contract. It
is valid but the party just cannot enforce it
-statute of frauds
 when you transact with register of deeds, you cannot bring
an instrument there that is not notarized
 public document means that it is notarized by notary public
authorized in his jurisdiction (otherwise, administrative
offense of the notary public)
REFORMATION OF INSTRUMENTS (9:00)
 implies correction; make the instrument reflect what the
parties agreed
 Article 1359. 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.
Requisites:
1. Meeting of the minds upon the contract
2. True intention of the parties is not expressed in the
instrument
3. Failure of the instrument to express the true agreement is
due to mistake, fraud, inequitable conduct, or accident
 Reformation of instrument is a remedy, but this remedy
presupposes that there is meeting of the minds, but the
problem is that the written instrument does not reflect
what they agreed
 Example: what parties agreed is mortgage only (Prenda),
but then the other party wrote that it was a sale with right
to repurchase. Mortgage does not transfer ownership,
unlike sale. Right to repurchase is only Consuelo de bobo.
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This is fraud. There was meeting of minds, but the
document later executed did not reflect real intention.
Here, reformation is a proper remedy; not annulment
because there was meeting of minds here and consent was
not vitiated.
 When you file case for reformation, you are asking court to
reform instrument. (directing the court na mugama og
laing agreement to conform to what you agreed) Court is
not making a contract for parties
 Important rule: Court as a rule should not interfere with
private contractual relations
 In reformation, courts do not make another contract for
the parties. They merely inquire into the intention of the
parties and having found it, reform the written instrument
 What is reformed is not the contract itself but the
instrument embodying the contract
 Article 1366. There shall be no reformation in the
following cases:
(1) Simple donations inter vivos wherein no condition is
imposed;
(2) Wills;
(3) When the real agreement is void.
 Donation inter vivos, why not allowed? It is gratuitous,
there is no valuable consideration
 But take note of Article 789: When there is an imperfect
description, or when no person or property exactly answers
the description, mistakes and omissions must be corrected,
if the error appears from the context of the will or from
extrinsic evidence, excluding the oral declarations of the
testator as to his intention; and when an uncertainty arises
upon the face of the will, as to the application of any of its
provisions, the testator's intention is to be ascertained
from the words of the will, taking into consideration the
circumstances under which it was made, excluding such
oral declarations.
 Action to reform is in the nature of specific performance
 Last will and testament: it must be probated by the court
-probate: determine here if it was voluntarily signed, if
there were witnesses; can be done after death or during
lifetime of one making will
-advisable if probated during the lifetime because issues
can be better answered by one making the will
-but the actual transfer will only be after death
-not allowed to be reformed; while 1366 does not allow
reformation, 789 actually allows correction; so it may still
be corrected under 789
Page 33
-if testator still alive, “will” can always be reformed
especially when he changes his mind, or bisag ganahan lang
jud xa na hasulon ka, pero kung matay na xa, d na pede
ireform
 No reformation if the real agreement is void; there is
nothing to reform if the agreement is void.
 Article 1367. When one of the parties has brought an
action to enforce the instrument, he cannot subsequently
ask for its reformation. (implied reformation)
 Cannot ask for reformation if you are attacking the validity
of the contract; you cannot reform an otherwise void
transaction
 Interpretation of contracts, (we won’t deal with this
anymore)
 Just read section 9 of rule 130 of rules of court on parol
evidence
Parol Evidence Rule
Section 9. Evidence of written agreements. — When the
terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and
there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents
of the written instrument/agreement.
However, a party may present evidence to modify, explain
or add to the terms of written agreement if he puts in issue
in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the
written agreement;
(b) The failure of the written agreement to express the true
intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or
their successors in interest after the execution of the
written agreement.
The term "agreement" includes wills.
---SO if we agreed and did not deduce it into writing, it is as
if they did not agree on that.
 Article 1370. 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.
 if the terms are clear enough, there is no need for
interpretation.
 How to determine intention? Intention only matters when
terms are susceptible of two or more interpretations
 Article 1374. The various stipulations of the contract shall
be interpreted together.
 Article 1378. When it is absolutely impossible to settle
doubts by the rules established in the preceding articles,
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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.
-gratuitous contracts have transmission of rights
-take note again that there is no need to apply this if terms
are clear enough
-only when there are doubts
-reiterated again in rule 123 sec 10 & 19 on rules of
evidence
 There is reason for order in civil code: rescissible,
unenforceable, voidable, void—from the least to most
defective contract
DEFECTIVE CONTRACTS
RESCISSIBLE CONTRACTS (RECORDING #5, 3:20)
 Least defective contract
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the object
thereof;
(2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be
subject to rescission.
---example of number 5: partition among heirs where one
was deprived of his share by more than ¼, the partition
agreement may be rescinded.
 the remedy here is to file an “action for rescission”
 contrast this with rescission in reciprocal contracts (1191)
 in the former civil code, it was referred in 1191 as
resolution, not rescission
 TAKE NOTE: distinguish rescission in 1191 vs rescission
here: they are based on different grounds
-rescission in 1191 is noncompliance; rescission in 1380 is
predicated upon economic damage
-in 1191, rescission can only be asked by party to a
contract; whereas rescission in 1380 may be asked for even
rd
by a 3 person; e.g. a creditor who was defrauded, may not
be a party to the contract but since he is prejudiced ha can
ask the contract entered into by his debtor be rescinded.
 TAKE NOTE! Rescissible contract is not a void contract; this
is a valid contract; rescission only a subsidiary remedy;
must first prove that all other remedies have been
exhausted. Valid before it has been rescinded.
1. Those which are entered into by guardians whenever the
wards whom they represent suffer lesion (damage) by
more than one-fourth of the value of the things which are
the object thereof
 Contracts can be entered into by a guardian on behalf of
a ward, demented person, person is sick in the ICU, a
spendthrift (gasto didto, gasto dira)
 With exception of parents who are legal guardians by
operation of law, in cases if not minor children you have
to go to court and file a special proceeding to be
appointed as guardian
 Special proceeding = guardianship proceeding wherein
guardian will be appointed who will manage; first
establish that ward is suffering from incapacity which
may be insanity, spendthrift, etc.; have him declared
incompetent
 With respect to contract involving property entered into
by guardian of ward, have to seek first authority of the
guardianship court like selling of properties; file a motion
 When given already the authorization, it is possible a
ward may suffer damage
 Question: What if authority is already given to you by
court and enter contract to sell property of ward, then
ward suffers economic damage more than ¼ as a result
by the contract entered by you in your capacity as
guardian, is that a rescissible contract? NOT rescissible
because there was authorization given by court, it is
perfectly valid. The proposed deed of sale is examined by
the court first.
 Question: if guardian just sold property without
authorization by court? NOT rescissible, this is
unenforceable
 So what is a rescissible contract referred to by 1381?
“Mere Act of Administration”, Ordinary expenses
pertaining to administration of property (Recurring
expenses); contract where you do not need authority
from court but ward suffered damage more than ¼;
recurring expenses such as hospitalization; if out of the
ordinary transactions, not anymore acts of mere
administration
 So even if with authority of court, ward suffered damage,
not rescissible
 Even inadequate consideration will not make this
rescissible especially when there was authority from
court

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 Acts of administration vs acts of state ownership:
(RECORDING #6, 6:30)
Criterion will be recurring expenses but still not
determinative; take guidance from those acts
enumerated in 1878 for which SPA is required:
Article 1878. Special powers of attorney are necessary in
the following cases:
(1) To make such payments as are not usually considered
as acts of administration;
(2) To effect novations which put an end to obligations
already in existence at the time the agency was
constituted;
(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of
an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or
those made to employees in the business managed by
the agent;
(7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
(8) To lease any real property to another person for more
than one year;
(9) To bind the principal to render some service without
compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable
property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before
the agency;
(15) Any other act of strict dominion.
--- there are 15 transactions here and if performed by
guardian, they are not merely acts of administration,
they are acts of state ownership. If guardian performs
any one of these acts, he must have authority from court
otherwise it will be an unenforceable contract. Outside
these, they are “mere acts of administration”. Kanang
usual ba like pilay kwarta irelease for utilities kung
manager kag company. So if in ani and the guardian
suffers lesion more than ¼, that is rescissible
2. Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number
 Same rules apply (the ones in guardian-ward)
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3. Those undertaken in fraud of creditors when the latter
cannot in any manner collect the claims due them
 Ex. Accion pauliana
 Contract entered into by a debtor in fraud of creditors is
prima facie valid but if the creditor can show that they
are entered into in fraud of his rights, that is the only
time they may be declared rescinded
 So how do you prove transfer is made in fraud of
creditors? Would it suffice to show that pending the case
against the debtor, transfer was made? Is it enough? NO
 before you can ask setting aside of contract on ground
that it was entered into in fraud of creditors, it must be
established that there was no other means by which
claim of creditor can be satisfied
 kay kung naa lain paagi, contract is perfectly valid
 to help us determine what fraudulent transfers are, law
gives us what we term as BADGES OF FRAUD, but do not
take these simply
a) fact that cause or consideration of the conveyance is
fictitious or inadequate
-case of Oria vs McMicking: SC here said that if your
theory is that there was contract in fraud of
creditors, you can prove through the badges of fraud
b) transfer made by debtor after suit has been begun
and while it is pending against him
 However, this by itself is not conclusive. Just because
there is case against you, does not mean you cannot
deal with your property. That will be height of
injustice if you are stopped from selling your
property.
 When there is writ of attachment issued against you
and annotated at back of title, does not mean you
cannot sell property. Injunction is different, this
means you are prohibited. But if attachment lang,
you are not prohibited from selling. There’s room for
a stupid buyer to buy your property despite a writ of
attachment. Naa man pud buyer na mutake
advantage na dugay mahuman ang kaso. Paliton
niya, recover niya iyang expense plus profit. Ig
human sa kaso pildi ka. Uli rapud niya. Ka recover
naman siya
 But of course, ordinary individuals will not normally
buy property with writ of attachment annotated
therein. Because you will be bound in whatever
result of the decision
c) a sale on credit by an insolvent debtor
 insolvent naka, nagpa utang pa jud ka!
 Clear badge of fraud but sometimes this is
explainable
Compiled by MFLH – Exclusive for EH401
Obligations and Contracts Notes
AY 2012-2013
 Mu ingon mansad ka na magpa utang raman jud
ko kay d man jud madala ang bahandi sa langit
d) evidence of large indebtedness or complete
insolvency
e) transfer of all or nearly all of his property by a
debtor, especially when he is insolvent or greatly
embarrassed financially
f) fact that the transfer is made between father and
son, when there are present others of the above
circumstances
g) failure of the vendee to take exclusive possession of
all the property
 remember Silverio case and case involving a
lawyer and an uncle
 it may mean that transfer is simulated or
fraudulent transfer
 usually if mupalit ka, take jud ka possession
 so purportedly naay transfer but no possession,
this may be good indicator that transfer was
fraudulent or simulated
Article 1385: 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.
 This is one of the similarities between rescission here and
rescission in 1191
 Take note of the prescriptive period (4 years) because that
is defense.
 Other defense is that when subject matter is already in the
hands of a 3rd person who is in good faith
 we start with the presumption that every person is
presumed to have acted in good faith
 how will establish person is in bad faith? This is very
difficult because this is state of mind. D pud ka kaingon na
maldito ayug nawng your honor oh, bad faith na
 take note, the law allows inadequacy of consideration.
 bad faith: one who buys property when there is already a
writ of attachment at back of property
 you must annotate your claim over property to preserve
your rights para ang sunod na mutransact will be made
aware that property is involved in litigation. Therefore if
person still buys, he cannot claim he is in good faith. But he
must have actual knowledge, which is still difficult to prove.
Easier said than done. In actual practice, very difficult to
prove. Best proof that the person is in bad faith is when he
purchases even when there is already an annotation that
that is involved in litigation
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 a writ of attachment was issued against you on a specific
property lot A (otherwise defective if not specific). But you
sold lot B. Is that rescissible assuming all other requisites to
make you in fraud of creditors are present? Can you
contend that it was not in fraud because what you sold was
lot B? NO. Law is very clear in 1387, decision or attachment
need not refer to the property alienated and need not have
been obtained by the party seeking rescission
 What is liability if you acquire things in bad faith and which
transaction was in fraud? Pay damages whenever it is
impossible to return (1388)
 By the way, there is another defense for suit of rescission.
If you can offer to restitute or repair damage allegedly
suffered by the creditor, rescission will not prosper.
 Ex. Like if you really love this property very much, you plan
to just offer to pay him/creditor defrauded the alleged
damage. Kato sad nag file rescission, d sad musugot kay
kita pud siya nay opportunity ang property, valuable ang
property. Kinsa man ang paboran sa court karun? Let us
assume 2nd buyer is in bad faith. Of course understand the
nature of rescission. Before contract is rescinded, it is valid.
Rescission is only subsidiary remedy. Formulate argument
on nature of rescission, and status of contract before
rescinded. So the one who will be favored is 2nd buyer. If
damage can be repaired since rescission only subsidiary, no
cause of action. No damage here anymore
But now ikaw napud lawyer sa usa, katong 2nd buyer. Aw ig
finals nalang ni [pangita namo ug answer daan!!!]
 REMEMBER! Right of first refusal clause violated, 2nd
contract is rescissible because it is taken into a contract in
fraud of creditors
VOIDABLE/ANNULABLE CONTRACTS (39:00)
 Valid until annulled
 Ground in 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.
 Voidable vs rescissible: Contract is voidable regardless of
damage done
Compiled by MFLH – Exclusive for EH401