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OBLIGATIONS & A More Complete Definition:

CONTRACTS A juridical relation whereby a person
(Disini) (called the creditor) may demand from
another (called the debtor) the
observance of a determinate conduct
TITLE I. OBLIGATIONS (or behaviour) and in case of non-
observance, may obtain satisfaction
CHAPTER I. GENERAL PROVISIONS from the assets of the latter.

I. Concept
B. Elements of an Obligation
A. Definition- Article 1156 (CC)
1. Active Subject
Art. 1156. An obligation is a
a. Also known as the obligee,
juridical necessity to give, to do or
or creditor. He possesses a
not to do.
right or credit.
b. He has the right to demand
Sanchez-Roman Definiton:
an object.
An obligation is the creation of a
juridical relation, created by virtue of c. Reyes-Puno: A person
certain facts, between two or more endowed with the optional
persons, whereby one of them, power to demand the
known as the creditor or obligee, observance of a certain
may demand of the other, known as behaviour (activity) by
the debtor or obligor, a definite another, and if necessary,
prestation. coerce such behaviour,
directly or indirectly
Criticism of Definition 2. Passive Subject
a. Also known as the
According to J.B.L. Reyes, this obligor, or debtor
definition is incomplete. It is one- b. He has the duty of
sided because it views obligations giving, doing or not doing.
only from the side of the debts. It is c. The debt is the duty to
imperfect because it only applies to give, to do or not do
all kinds of legal duty. d. Reyes-Puno: A person
who must behave (act or
There is no debt without a credit, not act) in a determined
and the credit is an asset in the way for the satisfaction of
patrimony of the creditor just as the the creditor’s private
debt is a liability of the obligor. interest.
“Also, the new code separates 3. Prestation or Object
responsibility from other elements The object of an obligation is
of the obligation and only establishes the prestation (the conduct, to
its existence way near the end, in give, to do or not to do) that
article 2236.” (Tolentino) the debtor should observe. The
obligation represents a
Finally, this definition only applies to restraint on the liberty of
civil obligations, not natural another, but a restraint limited
obligations. (See C. Distinction in its extent. The object of an
Between Natural and Civil obligation is always a
Obligations) prestation. It must be possible,
determinate and have a
pecuniary value.

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4. Efficient Cause/Vinculum/
Juridical Tie
a. The efficient cause or
vinculum is the reason
why the obligation exists.
b. The juridical/legal tie or
sanction allows the party
who is prejudiced by the
debtor’s refusal to observe
the requisite conduct, to
resort to the State
authorities for a remedy.
c. It is a relation established
by law, by bilateral acts
(contracts giving rise to
obligations, stipulations)
or
unilateral acts (crimes and
quasi-delicts) (See II.
Sources of Obligations)
C. Distinction Between Natural
and Civil Obligations
1) As to enforceability:
Civil Obligations: Those which give
a rise to a right of action. They can
be enforced by court action.
Natural Obligations: Those which
cannot be enforced by legal action,
but which are binding on the party
who makes them in conscience and
according to equity and natural
justice. They are enumerated in
Articles 1423-1430 of the Civil
Code. They depend exclusively on
the good conscience of the debtor.
2) As to basis:
Civil Obligations: Civil obligations
derive their binding force from
positive law.
Natural Obligations: Natural
obligations derive their binding effect
from equity and natural justice.
II. Sources of Obligations
Article 1157 (CC)
Obligations arise from:
(1) Law;
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(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by
law; and
(5) Quasi-delicts.
A. Law (Art. 1158)
Art. 1158. Obligations derived
from law are not presumed. Only
those expressly determined in this
Code or in special laws are
demandable, and shall be regulated
by the precepts of the law which
establishes them; and as to what has
not been foreseen, by the provisions
of this Book.
-Reyes-Puno: It does not
require concurrence of any act
of the creditor or debtor, nor is
the obligation necessarily in
accord with their intention. It is
an involuntary source of
obligations. (obligation to
support or pay taxes)
B. Contracts (Art. 1159, 1305)
Art. 1159. Obligations arising from
contracts have the force of law
between the contracting parties and
should be complied with in good
faith.
Art. 1305. A contract is a meeting
of the minds between two persons
whereby one binds himself, with
respect to the other, to give
something or to render some service.
-Reyes-Puno: Contracts are
characterized by a previous
accord of wills or intention.
This determines the nature and
extent of the resulting
obligation, within legal limits.
C. Quasi-Contracts
(Art. 1160, 2142)
Art. 1160. Obligations derived from
quasi-contracts shall be subject to
the
provisions of Chapter 1, Title XVII, of
this Book. (n)
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Art. 2142. Certain lawful,
voluntary and unilateral acts give
rise to the juridical relation of quasi-
contract to the end that no one shall
be unjustly enriched or benefited at
the expense of another.
-In quasi-contracts, no
previous agreement exists
between the parties. It is
created by the voluntary and
lawful act of one party, who
usually becomes the creditor.
-Obligations arising from
quasi-contracts are designed
to avoid unjust enrichment,
and have the character of
reimbursements.
Kinds
a. Negostiorum gestio
Art. 2144 . Whoever
voluntarily takes charge of
the agency or management
of the business or property
of another, without any
power from the latter, is
obliged to continue the
same until the termination
of the affair and its
incidents, or to require the
person concerned to
substitute him, if the owner
is in a position to do so.
This juridical relation does
not arise in either of these
instances:
(1) When the property or
business is not neglected or
abandoned;
(2) If in fact the manager
has been tacitly authorized
by the owner.
In the first case, the
provisions of Articles 1317,
1403, No. 1, and 1404
regarding unauthorized
contracts shall govern.
In the second case, the
rules on agency in Title X of
this Book shall be
applicable.
b. Solutio Indebiti
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Art. 2154. If something
is received when there is no
right to demand it, and it was
unduly delivered through
mistake, the obligation to
return it arises.
c. Other kinds of Quasi-
Contracts
Enumerated in Articles
2164-2175 of the CC
D. Acts or Omissions
Punishable by Law (Delicts)
Art. 1161. Civil obligations
arising from criminal offenses shall
be governed by the penal laws,
subject to the provisions of Article
2177, and of the pertinent provisions
of Chapter 2, Preliminary Title, on
Human Relations, and of Title XVIII
of this Book, regulating damages.
-These consist in voluntary but
punishable acts, including
criminal negligence, under
criminal law. The creditor is the
offended party.
E. Acts or Omissions
Punishable by Law (Delicts)
Art. 1162. Obligations derived
from quasi-delicts shall be governed
by the provisions of Chapter 2, Title
XVII of this Book, and by special
laws. (1093a)
-These are voluntary but
negligent acts that are not
punishable under criminal law.
The same negligent act may
give rise to an action based on
delict or on quasi-delict, but the
party is free to choose his
remedy. (Art. 2177, 32, 33,
34.)
BARREDO vs. GARCIA & ALMARIO
FACTS: Petitioner is the sole proprietor of the
Malate Taxi Cab driven by Pedro Fonatilla,
who figured in a head on collision with a
carratela driven by Pedro Dimapiling. This
resulted in the death of one of the carratela’s
passengers, 16 year old Faustino Garcia.
Garcia’s parents filed a case before the CFI of
Manila against Barredo, who employed
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Fontanila. Fontanilla had already been
caught several times in violation of the
Automobile Law. Petitioner maintains that,
since it was Fontanilla’s negligence that led
to the the death of Garcia, petitioner’s
liability was governed by the RPC, and was
therefore subsidiary to Fontanilla’s.
However, Garcia’s parents, as maintained by
the CA, held that Barredo was liable under
Art. 1903 of the old Civil Code, which states
that employees, owners or directors are
equally liable for damages caused by their
employees. No civil case was filed against
Fontanilla.
ISSUE: WON Barredo may be charged as
the person liable for the negligence of his
employee. YES.
RATIO: Culpa aquiliana or quasi-delicts
anchor the responsibility of employers,
under Article 1903 of the old Civil Code.
There is a distinction between civil liability
arising from criminal negligence (governed
by Article 100 and 103 of the RPC) and
responsibility under Art. 1902-1910 of the
old Civil Code. The employers are primarily
and directly responsible under Article 1903.
Quasi-delicts are a more expedient way of
seeking redress than seeking damages only
by virtue of the civil responsibility arising
from a criminal action.
MENDOZA vs ARRIETA (Judge of
CFI
Mla), TIMBOL & SALAZAR
FACTS: Petitioner assails the decision of the
CFI of Manila, dismissing his complaints
against jeepney driver Salazar, and truck
owner Timbol, seeking indemnification for
damages sustained by his Mercedes Benz.
Petitioner, prior to filing the case, actively
participated in the criminal prosecution
against Salazar, which was dismissed by the
CFI of Bulacan. Truck driver Montoya was
found guilty of damages to Salazar. No
damages were granted to Mendoza, since he
was not a complainant against Montoya, but
against Salazar. Petitioner’s cause of action
was based on quasi-delict, which was a
negligent act causing damages creating a
civil liability arising from a crime.
ISSUES:
1) WON petitioner had a cause of action
against Timbol. YES.
2) WON petitioner had a cause of action
against Salazar. NO.
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RATIO:
1) Article 31 of the Civil Code states that
when the civil action is based on an obligation
not arising from the act or omission
complained of as a felony, such a civil action
may proceed independently of the criminal
proceedings and regardless of the result of
the latter.
A civil action under quasi-delict may proceed
independently of criminal proceedings for
criminal negligence, and may prosper
regardless of the result.
2) The trial court ruled that the collision
between Salazar and Mendoza’s vehicles was
a result of the truck hitting Salazar’s jeep in
the rear. It is believed that Salazar cannot be
held liable for damages sustained by
Mendoza’s car. Petitioner Mendoza based his
cause of action against Salazar on culpa
criminal (under Article 100 of the RPC) and
not under culpa aquiliana (Article 2177 of the
CC).
PSBA vs. CA, BAUTISTA & BAUTISTA
FACTS: PSBA student Carlitos Bautista was
stabbed by assailants who were not students
of the said school) on August 30, 1985. His
parents filed a case for damages in the RTC of
Manila. Then-respondent (now petitioner)
PSBA and its officials asked that the case be
dismissed on the grounds that since they
were presumably sued under Article 2180 of
the Civil Code, no cause of action exists since
jurisprudence showed that academic
institutions such as PSBA, are beyond the
ambit of the rule. The RTC denied them twice,
as did respondent CA. The CA ruled that
Article 2180 should apply to all institutions of
learning. Also, the school must prove they
observed diligence in order to prevent
damages.
ISSUE:
1) WON petition of PSBA was rightfully
dismissed by the CA. YES
2) WON CA’s ruling was founded on
appropriate legal premises. NO.
RATIO:
1) Article 2180 establishes the rule of in loco
parentiis, which states that damage caused or
inflicted by pupils or students of an education
institution were liabilities of said institution
while in its custody. Remember, Carlito’s
assailants were not from PSBA.
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2) Upon enrolment of Carlitos to PSBA, a
contract existed between them, resulting in
bilateral obligations. This includes an
implicit obligation by the school to provide
their student with an atmosphere of learning
and safety.
The rule on quasi-delicts does not apply.
The trial court proceedings must continue in
order to determine that there was a breach
of contract between the school and Bautista.
AMADORA vs CA, COLEGIO DE SAN
JOSE RECOLETOS
FACTS: Student Alfredo Amadora was shot
by his classmate Pablito Daffon, resulting in
his death. Both were students of
respondent school Amadora came to school
to submit a requirement for his physics
class. Amadora’s parents, the petitioners in
this case, were able to win in its case with
the CFI of Cebu. The school’s rector,
principal, dean of boys, and physics teacher
were ordered to indemnify the parents,
granting them damages. The CA reversed
the decision, on the basis that Article 2180
of the CC was not applicable since the
school was not a school of arts and trade,
but an academic institution of learning.
Also, the school claimed the said students
were not in the custody of the school since
the semester had already ended. They also
claimed that they exercised necessary
diligence in preventing the injury.
Petitioners contend that Amadora was in
school to submit a physics experiment, and
thus was under their care.
ISSUE: WON CA was correct in dismissing
the petition of Amadora. YES.
RATIO: The rector, principal and dean of
boys were not liable because none of them
was the teacher-in-charge, who was the one
considered liable under Article 2180. The
school itself cannot be held liable; only the
“teacher-in-charge” or head of the school
would be liable. The dean of boys would
have been liable, but the evidence regarding
the gun does not link him to the shooting.
AIR FRANCE vs CARRACOSO
FACTS: Petitioner issued a ticket for a “first
class” seat to private respondent. From
Manila to Bangkok, plaintiff travelled in first
class, but in Bangkok, the manager of
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plaintiff airline forced private respondent to
abandon his seat because a “white man” had
a “better right” to the seat. In the course of a
fracas or commotion, respondent reluctantly
gave up his seat. Petitioner asserts that the
first class ticket given to respondent did not
represent their complete and full
intent/agreement, since the respondent knew
that he did not have continued reservation s
for first class on any specific flight. To them,
it was no guarantee that he would be
accommodated in the first class
compartment. Said ticket was supposedly
subject to confirmation in Hong Kong. This
was held by petitioner, despite the ‘written
evidence’ and the exhibits presented by
private respondent, confirming the payment
and receipt of said ticket. Respondent court
affirmed the CFI’s award of damages to
private respondent, on the basis of private
respondent, suffering inconvenience,
humiliation, and embarrassment, mental
anguish and other conditions which resulted
in moral damages. Petitioner claims that
since respondent claimed action on the basis
of breach of contract, authorizing such an
award would need to show averment of fraud
or bad faith. Petitioner claims respondent
Court of Appeals’ ruling did not show a finding
of bad faith.
ISSUE: WON CA failed to show bad faith in
breach of contract between respondent and
petitioner. NO.
RATIO: Petitioner entered into a contract
with respondent, wherein respondent was
entitled to a first class seat on their air
carriage. Granted, there is no mention of bad
faith in the ruling of the CA. But the inference
of bad faith is to be drawn from the facts and
circumstances presented. Said bad faith was
to be drawn based on evidence, which
petitioner did not object to.
Liability from tort may exist even if there is a
contract, for that act breaks the contract and
may also be a tort.
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Conditional Obligations

Art. 1181. In conditional obligations,

the acquisition of rights, as well as the
extinguishment or loss of those
III. Classification of Obligations already acquired, shall depend upon
the happening of the event which
A. Primary Classification Under the constitutes the condition.
Civil Code
-Its demandability or extinction
depends upon a future and
Peculiarities of Prestation uncertain event

-The time of the event may be

Pure and Conditional (Arts. 1179- uncertain, but it must happen
1192)
-The condition imposed by the
Pure Obligations will of the parties must not be a
necessary legal requisite of the
Art. 1179. Every obligation whose act
performance does not depend upon a
future or uncertain event, or upon a Types of Conditions
past event unknown to the parties, is
demandable at once. -Suspensive – gives rise to an
obligation
Every obligation which contains a
resolutory condition shall also be -Resolutory – extinguishes
demandable, without prejudice to the already existing rights
effects of the happening of the
event.
With a period or term (Arts. 1193-
– Not subject to a condition or 1198)
period; demandable at
creditor’s will
Art. 1193. Obligations
for whose
-When said obligation fulfillment a day certain has been
contains no term or condition fixed, shall be demandable only when
upon which depends the that day comes.
fulfilment of the obligation
contracted by the debtor Obligations with a resolutory period
take effect at once, but terminate
-It is immediately upon arrival of the day certain.
demandable
A day certain is understood to be that
-No exemptions as to its which must necessarily come,
compliance although it may not be known when.

-Cancellation by both parties, If the uncertainty consists in whether

by mutual agreement of the day will come or not, the
period originally given or non- obligation is conditional, and it shall be
fulfillment of a condition regulated by the rules of the preceding
resolves the period stipulated; Section. (1125a)
the obligation is now
considered pure
-When some space of time
-A demand note, for instance, suspends the demandability or
in absence of other produces the extinction of the
restrictions, is a pure obligation
obligation

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Prestations to be Rendered
Alternative and Facultative (Arts.
1199-1206)
Alternative Obligations – Where
only one of several prestations due
has to be fulfilled
Facultative Obligations –
Where one
prestation is due but may be
substituted with another by the
debtor at the latter’s discretion
According to Number of
Sureties/Parties
Joint and Solidary (Arts. 1207-
1222)
Joint (“mancommunada”) –
One in which each of the debtors is
liable only for a proportionate part of
the credit
Solidary (“joint and several”)
– When each party is liable for the
entire obligation, and each creditor is
entitled to demand the whole
obligation. Each creditor enforces the
whole obligation
Qualities of the Object
Divisible and Indivisible (Arts. 1223-
1225)
Divisible – when it may be partially
performed, or susceptible of partial
performance; debtor can legally
perform the obligation by parts and
the creditor cannot demand a single
performance of the entire obligation
Indivisible – when it cannot be
validly performed in parts, or is not
susceptible of partial performance.
Divisibility of the obligation is not the
same as divisibility of the thing.
With a penal clause (Arts. 1226-
1230)
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Penal Clause – an accessory
undertaking (dependent upon some
other obligation to exist) to assume
greater liability in case of breach
-Generally, it is a sum of money, but
can be any other thing stipulated by
parties, including an action or
abstention
B. Secondary Classification
1. Legal (Art. 1158 )
Conventional (Art, 1159)
Penal (Art. 1161)
2. Real - to give
Personal - to do or not to do
3. Determinate - certain,
distinguishable and specific in terms
of character and quantity. It is
individualized or distinguished from
others of its kind. Ex: a white pony to
be delivered to my house at 8 AM
Generic - indeterminate in terms of
specific quantity, characteristics or
quality; may be substituted for an
object that has similar qualities or
quantity. It is indicated only by its
kind. Ex: money, a horse
4. Positive (to give, to do)
a. Action for Substituted
Performance
b. Damages (Equivalent
Performance)
c. If improperly executed, may be
decreed that what was poorly
done be undone
Negative (not to give, not to do)
a. No specific or substituted
Performance
b. If obligor does what is
forbidden him, it shall be
undone at his expense
5. Unilateral - Where the obligation
involves one creditor and one debtor
Bilateral - Where each party is the
creditor of a prestation and promises
another in return; also known as
reciprocal obligations. Both
obligations arise from the same
source.
6. Single – Unipersonal or individual
Collective – Joint or solidary
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7. Principal – The obligation can ii. To preserve the thing

stand
alone Art. 1163. Every person obliged to
Accessory – Depends on some give something is also obliged to take
other care of it with the proper diligence of a
obligation in order to exist. good father of a family, unless the law
or the stipulation of the parties
8. As to object or prestation: requires another standard of care.
Simple - one prestation
Multiple – several prestations -The diligence required is that
Conjunctive – all prestations are of a good father of a family.
due and demandable This is the legal standard or
Alternative – when only one of model of diligence. The
several prestations due has to be diligence must be determined
performed based on considering all
Facultative – one prestation is concurrent circumstances.
due, but may be substituted by the
debtor at the latter’s discretion iii. To deliver the accessions
and accessories
9. Possible – by law or nature
Impossible – cannot be Art. 1166. The obligation to give a
performed,
determinate thing includes that of
delivering all its accessions and
accessories, even though they may
CHAPTER 2: not have been mentioned.
NATURE & EFFECTS OF OBLIGATIONS
-Accessories - things which
I. Kinds of Prestations are made or ‘destined’ for the
use, preservation of
embellishment of another thing
A. Obligation to give
of greater importance. They
have for their object the
1. A specific or determinate completion of the latter for
object or which they are indispensable or
thing convenient. (Examples include
machinery in a factory, or keys
A. Duties of the obligor with respect to a house)

i. To deliver thing itself -Accessions – include

everything produced by a thing
Art. 1244. The debtor of a thing or which is incorporated or
cannot compel the creditor to receive attached theret, either
a different one, although the latter naturally or artificially.
may be of the same value as, or
more valuable than that which is -Even when accessories and
due. accessions have been
separated temporarily, they
In obligations to do or not to do, an must still be delivered.
act or forbearance cannot be
substituted by another act or iv. To deliver the fruits
forbearance against the obligee's
will. Art.1164. The creditor has a right to
the fruits of the thing from the time
-Upon agreement or consent the obligation to deliver it arises.
of the creditor, the debtor However, he shall acquire no real right
may deliver a different thing over it until the same has been
or perform a different delivered to him.
prestation in lieu of that
stipulated.
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-The creditor is entitled to the
fruits from the time the
obligation to deliver it comes.
-Delivery constitutes a
necessary and indispensable
requisite for purposes of
acquiring the ownership of the
same by virtue of a contract.
2. A generic thing
Art. 1246. When the obligation
consists in the delivery of an
indeterminate or generic thing,
whose quality and circumstances
have not been stated, the creditor
cannot demand a thing of superior
quality. Neither can the debtor
deliver a thing of inferior quality. The
purpose of the obligation and other
circumstances shall be taken into
consideration.
-Delivery of an indeterminate
or
generic thing, whose quality
and circumstances have not
been stated, the creditor
cannot demand a thing of
superior quality, nor can the
debtor deliver a thing of
inferior quality.
-The purpose of the obligation
and attendant circumstances
must have been taken into
consideration in delivering
and deciding on the generic
thing.
-In times of disagreement,
the court decides whether the
quality of the thing complies
with the obligation itself.
B. Obligation to do
C. Obligation not to do
Art. 1244, par. 2. In obligations to do
or not to do, an act or forbearance
cannot be substituted by another act or
forbearance against the obligee's will.
II. Breach of Obligation
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A. Concept
-A non-justifiable non-performance of
a pre-existing obligation, or the failure
to perform it in the manner that is
required by the obligation, which
causes injury to the other party
SONG FO vs HAWAIIAN PHILIPPINE CO.
FACTS: Appellant and defendant Hawaiian
Philippine Co appealed a decision by the CFI
of Iloilo, which obliged them to pay P35,
317.93 to plaintiff Song Fo. According to the
defendant, plaintiff company defaulted in the
payment of molasses that was delivered to
them. The appellant defendant Hawaiian Phil.
Co was compelled to cancel and rescind their
contracts. Both plaintiff and defendant agreed
upon the time of payment and the date, and
the defendant said that Song Fo’s failure to
pay the said amount upon presentation of
bills for each delivery constituted sufficient
grounds to rescind the contract agreed upon.
ISSUE: WON Hawaiian Philippine Co had a
right to rescind the contract, based on the
breach of contract committed by Song Fo.
NO.
RATIO: The general rule is that rescission or
termination of a contract will not be permitted
for a slight or causal breach of contract. Only
breaches which are so substantial and
fundamental as to defeat the object of the
parties in making the agreement. A delay in
payment for a small quantity of molasses for
some 20 days is not a violation of an essential
condition of the contract as to warrant
rescission for non-performance. Not only
this, but the defendant Hawaiian Phil Co.
waived the condition when it arose by
accepting the payment of the overdue
account and continuing with the contract.
VELARDE vs. CA, RAYMUNDO &
RAYMUNDO
FACTS: Private petitioner Avelina Velarde and
private respondent David A. Raymundo
entered into a deed of sale with assumption
of mortgage for a parcel of land and a house
in Makati. Petitioner delivered P800,000 to
respondent and vendee was also tasked an
contractually obliged to pay the mortgage
obligations on the property amounting to P1.8
M. The plaintiff-petitioners then applied for
the assumption of the mortgage obligations
on the property. Their application was denied
by BPI, and they then stopped paying the
loan. Respondents informed plaintiffs that
their failure to pay the interest of the loan
constituted non-performance of their
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obligation. The plaintiff-petitioners then
told respondents that that they would
resume payment of the interest of the loan
provided that the property was delivered to
Avelina Velarde not later than January 15,
1987, and the release of the title and
mortgage from BPI to make the title free
from all liens and encumbrances, as well as
the execution of a deed of absolute sale in
favour of Avelina. The defendants then sent
plaintiffs a notarial notice cancelling or
rescinding the intended sale of the property.
Petitioners filed a complaint with the RTC of
Makati, where the case was initially
dismissed. A motion for reconsideration was
filed, which ruled in favour of the
petitioners. The CA then overturned the
decision, resulting in its dismissal and this
case before the court.
ISSUE: WON CA erred in dismissing the
complaint of the petitioners, on the basis of
the non-payment of the mortgage obligation
of the petitioners, upholding the rescission
of the contract. NO.
RATIO: The failure of the petitioners to fulfil
the P1.8 M obligation constituted a
substantial breach of contract that would
justify rescission on the part of the
defendant. They stoopped paying both the
mortgage obligations and the remaining
balance of the purchase price. The
conditions imposed by petitioner were not
mutually approved and cannot be enforced.
There was a justifiable rescission the said
contract by Raymundo, since they violated
the need for reciprocity in the contract of
sales.
ANGELES vs. CALASANZ
FACTS: Plaintiffs-appellees and defendants-
appellants entered into a contract to sell a
piece of land located in Rizal for the amount
of P3, 920 plus 7% interest per annum. The
plaintiffs-appellees paid in monthly
instalments and defendants-appellants told
plaintiffs-appellants to remit past due
accounts. On January 28, 1967, defendants-
appellants Calasanz cancelled the contract
on the basis of failure of Angeles to secure
payment. Plaintiff-appellant Angeles filed a
case with the CFI of Rizal on the basis that
they had discovered they already paid P4,
533.38, including all surcharges and
expenses. The lower court ruled in favour of
plaintiffs. The CA then brought the case for
decision before the SC.
ISSUE: WON the contract was validly
cancelled by the defendant-appellants
Calasanz. NO.
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RATIO: Defendant appellant received the
delayed payment of plaintiffs-appellees on
several occasions. They have then waived
and are now estopped from exercising their
alleged right to rescind the contract. Article
1234 of the Civil Code also says that if an
obligation has been substantially performed in
good faith, the obligor may recover as though
there had been a strict and complete
compliance and fulfilment.
DELTA MOTOR CORP vs. GENUINO & CA
FACTS: Petitioner entered into a contract of
sale with private respondents. Genuino
agreed to enter into the contract, and made
the first two payments, for initial fulfilment of
the two contracts. Delta did not deliver the
iron pipes. Genuino did not make subsequent
payments, and did not execute the
promissory notes, due to trouble in forming
the ice plant which was the reason they
entered into the contract with Delta. The
condition was that delivery for the stipulation
of payment were ‘ex-stock subject to prior
sales’. For Delta, the price offer indicated
was within 30 days from the date thereof. 3
years after approving the contract, Genuino
asked for the delivery of the iron pipes, but
Delta said they would not be able to sell the
pipes at the same prices from 3 years ago.
The Genuinos then filed a case against the
company with the CFI of Rizal, which ruled in
favour of Delta. The CA reversed the
decision, citing Delta’s failure to include a
deadline in the contract, and the unjust
enrichment of the company. Delta claims
that the Genuinos’ failure to make the
payments constituted a substantial breach of
contract, which allowed them, under article
1191 of the CC, to rescind the contract.
ISSUE: WON Genuino’s actions constituted a
substantial breach of contract. NO.
RATIO: The power to rescind is not absolute.
The act of a party in treating a contract as
cancelled or resolved must be made known to
the other, and is always provisional, being
subject to scrutiny and review. In the
contract, Genuinos approved the price within
the 30 day period. They were subject to ‘prior
sales’, hence the company cannot change the
price.
Delta should have indicated a deadline,
knowing the condition of the ice plant of the
Genuinos.
VELMEN REALTY DEV’T CO. vs CA &
SENECA
FACTS: Petitioner entered into a contract
denominated as an offsetting agreement with
 [ C 2011 ]
respondent Seneca Corp. The respondent
corporation desired to buy two condominium
units from petitioner, while petitioner
bought construction materials from the said
corporation. The respondent made a
payment and delivered construction
materials, and petitioner paid as well. In
1982, petitioner repossessed one of the
condominium units, claiming respondent
had failed to complete the balance.
Consequently, the loan application fro
constructing Phase II of the condominium
units was denied, resulting in the stoppage
of its construction. The said condominium
units were supposed to be part of the deal
that petitioner would give to respondent on
the basis of their offsetting agreement. Part
of the agreement was Seneca’s option to
move to Phase II.
ISSUE: WON a breach of the agreement
was committed by petitioner. YES.
RATIO: Petitioner would never be able to
fulfil their obligation in allowing private
respondent to exercise the option to transfer
to Phase II, since its construction has
ceased. The impossibility of the obligation
on the part of the petitioner constitutes a
substantial breach of the offsetting
agreement. A reciprocal obligation took
place in this case.
B. MODES OF BREACH
1. Fraud
a. Concept: the voluntary
execution of a wrongful act or a
wilful omission, knowing and
intending the effects which
naturally and necessarily arise
from such act or omission
i. Dolo vs. dolo incidente
-fraud committed in the course of
the performance of an obligation,
which the party who was injured
by the fraud would still have
wilfully entered into even with the
existence or awareness of such
fraud
EFFECT: renders the party guilty
of fraud for damages, pursuant to
Article 1344 of the Civil Code
ii. Dolo vs. dolo causante
-fraud that is rooted in the
realization or formation of the
obligation, an obligation which, if
Simoun Antonio Montelibano Salinas - 2002-24124
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the party who suffered injury had
been aware of, he would not have
entered into the obligation in the
first place. It is causal fraud that is
a ground for annulment of the
contract. It is fraud that affects the
consent of the parties.
WOODHOUSE vs HALILI
FACTS: Plaintiff Woodhouse led defendant
Halili to believe he was the exclusive
distributor for Mission Soft Drinks. This led to
defendant investing 30% into the net profits
of their partnership. Plaintiff claims his
principal obligation was to secure the
franchise for their partnership, which he was
able to do, but only for one month. Defendant
realized that plaintiff Woodhouse was not the
exclusive distributor. Plaintiff now seeks
damages.
ISSUE: WON defendant may recover
damages. YES.
RATIO: Since defendant did not actually have
the exclusive rights to the franchise, which
led plaintiff to invest in the partnership.
However, the plaintiff was able to secure the
franchise, and he is thus entitled to 30% of
the net profits, which defendant claims
plaintiff Woodhouse cannot recover.
Defendant actually committed fraud by
reducing the amount to be given to plaintiff.
GERALDEZ vs CA & KENSTAR TRAVEL
FACTS: Petitioner sued respondent travel
agency on the basis of fraud they committed
in the course of her experience under their
tour package to Europe. This included giving
them an inexperienced tour guide,
misrepresenting the people who would assist
them, and failing to bring their group to the
Italian leather factory. She sought to recover
damages, which the CA denied her, ruling in
favour of Kenstar.
ISSUE: WON petitioner is entitled to
damages. YES.
RATIO: Kenstar fraudulently made claims
that led Geraldez to avail of their tour
package. Whether the fraud was dolo
incidente or dol causante, petitioner is
entitled to damages.
SIR JJ: In this case, the court was unable to
determine what type of fraud was committed
by Kenstar. They just ruled that Geraldez was
entitled to damages.
b. Nonwaiver
 [ C 2011 ]
Art. 1171. Responsibility arising
from fraud is demandable in all
obligations. Any waiver of an
action for future fraud is void.
(1102a)
c. Effects
1. Damages may
recovered
2. The contract or obligation
may be annulled.
2. Negligence
a. Concept- Absence of due
care required by the obligation.
In each case, it is a question of
facts taking into consideration
what a reasonable man would
have done under the
circumstances
Art. 1173. The fault or
negligence of the obligor consists
in the omission of that diligence
which is required by the nature of
the obligation and corresponds
with the circumstances of the
persons, of the time and of the
place. When negligence shows
bad faith, the provisions of
Articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not
state the diligence which is to be
observed in the performance,
that which is expected of a good
father of a family shall be
required.
i. Culpa vs Dolo
-Negligence replaces
intent
When one commits dolo,
he is liable for all
damages. When one
commit culpa, he is only
entitled to answer for
damages that were
foreseeable in the course
of his actions that led to
the injury.
Simoun Antonio Montelibano Salinas - 2002-24124
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ii. Culpa Aquiliana vs.
Culpa
Contractual
Culpa aquiliana:
negligence to fulfil an
obligation that is
independent of any contract
Culpa contractual: failure,
be or negligence to perform an
obligation that arises from a
contract
GUTIERREZ vs. GUTIERREZ
FACTS: An automobile accident took place,
where an automobile driven by Bonifacio
Gutierrez collided with a truck driven by
Velasco, where Narciso Gutierrez was injured.
ISSUE: WON both Velasco and Gutierrez are
liable for damages to Narciso Gutierrez. YES.
RATIO: Gutierrez is guilty of culpa aquiliana
to
Narciso, because he is liable for the damage
done to Narciso, and it was independent of
any contract. Velasco, as the driver of the
truck where Narciso was a passenger, was
liable based on culpa contractual, since
Velasco and Narciso entered into a contract of
carriage as driver and passenger,
respectively. Velasco is guilty of negligence,
by failing to exercise the due care needed to
drive the truck.
VASQUEZ vs BORJA
FACTS: Defendants Vasquez and Busuego
obligated themselves to sell 4000 cavans of
palay to Borja. Borja delivered the money to
pay for the rice to them, but only 2,488
cavans of rice were delivered by Vasquez.
When Borja sought to recover in court,
Vasquez claimed that the agreement made
was with Natividad Vasquez Sabani Dev’t Co.
(NVSDC), which he was acting manager at
the time, hence he is not liable for damages.
ISSUE: WON Vasquez is guilty of negligence.
NO.
RATIO: The action is a contract, and based
on the facts, it is NVSDC which is liable, and
not Vasquez. The said company is not a party
in the suit. The corporation is an artificial
being imbued with its own personality,
separate and distinct from its stockholders
and managers. They are not personally liable
for contracts duly entered into. However,
Vasquez’s counterclaim is also invalid, since
 [ C 2011 ]
he failed in his moral duty to fulfil the
contract.
b. Standard of Care Required
Art. 1173, par 2. If the law or
contract does not state the
diligence which is to be observed
in the performance, that which is
expected of a good father of a
family shall be required.
-A good father of a
family means a person
of ordinary or average
diligence. We must use
as basis the abstract
average standard
corresponding to a
normal orderly person.
Anyone who uses
diligence below the
standard is guilty of
negligence.
DE GUIA vs MERALCO
FACTS: Plaintiff boarded a street car as a
passenger for the city of Manila. An accident
took place, and plaintiff suffered bruises and
possible internal injuries. Meralco tried to
prove that they had exercised due care in
selecting and instructing the motorman.
ISSUE: WON Meralco is guilty of
negligence.
YES.
RATIO: The relationship between De Guia
and Meralco was one of a contractual
nature, and the duty of the carrier is to be
determined with reference to the principles
of contract law. The company was bound to
convery and deliver plaintiff safely and
securely.
Meralco cannot avail of the defense that
culpa aquiliana took place, since a
contractual relation existed.
US v BARIAS
FACTS: Defendant is a motorman of a
street car which ran over and killed Fermina
Jose, a two year old girl. He started his car
from a standstill, without looking to see if
the track was clear.
ISSUE: WON evidence shows carelessness
of defendant, thus showing that he did not
execute the ordinary care or diligence
required by law. YES.
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RATIO: There is definitely care or diligence
required of the company both in preventing
injury to its passengers and the general
public. As a motorman, Barias should have
checked the front of the car, in order to see
that nobody was in front of it.
SIR JJ: Just because there was injury or in
this case, death, does not mean that Barias
did not exercise due diligence. What if the car
was designed in such a way that it would
have been difficult for him to see beyond a
certain field of vision from inside the vehicle?
SARMIENTO vs SPS CABRIDO
FACTS: Petitioner Sarmiento brought a pair
of diamond earrings to the jewelry shop
owned by respondent spouses. She came to
rest a pair of diamond rings into a pair of gold
rings. The job offer was accepted for P400.
The diamond was broken by Zenon Santos in
the process of the job. Petitioner asked
respondents to replace the diamond.
ISSUE: WON respondents performed due
care or diligence. NO.
RATIO: Respondents’ defense that Zenon
Santos was not their employee does not hold
water, because petitioner was charged P400
for a job order they readily accepted, and the
conduct of Santos constituted negligence.
The fault or negligence of the obligor
consisted in the omission of the due diligence
needed in the circumstances present in the
case.
CRISOSTOMO vs CA & CARAVAN TRAVEL
FACTS: Petitioner availed of services of
respondent Caravan Travel Agency. She
received the travel documents and was told
to be at NAIA on Saturday, when actually, her
flight was scheduled for a Friday. She was
then offered a new package, but she still sued
to recover damages from respondent,
because she claimed that the agency refused
to perform the extraordinary diligence which
led her to miss her flight.
ISSUE: WON respondent failed to observe
due diligence and care required by law. NO.
RATIO: First, the contract was one for
services and not for transport. The object of
the contract did not require the extraordinary
diligence purported by petitioner, since their
contractual relation consisted in arranging
and facilitating petitioner’s travel
arrangements. Hence, respondents were not
obliged to the same standard of extraordinary
diligence expected in a contract of transport
or carriage. Also, the test as to whether the
defendant used reasonable care and caution
is reasonably applicable in this case, since
 [ C 2011 ]
they fulfilled their responsibility to secure
the petitioner’s travel arrangements. The
petitioner should have also checked her
travel documents.
c. Effects
-damages, either in culpa
aquiliana or culpa contractual
For Culpa Contractual:
rescission/nullity of contract
and indemnification
For Culpa Aquiliana:
damages
3. Delay (Mora)
a. Concept
It is the non-fulfillment of an
obligation with respect to time
of fulfilment of said obligation
-It involves the beginning of a
special condition, which exists
only in positive obligations,
and not in negative
obligations
Art. 1169 (par 1). Those
obliged to deliver or to do
something incur in delay from
the time the obligee judicially
or extrajudicially demands
from them the fulfillment of
their obligation.
b. Kinds
1. Mora solvendi
(delay of the
obligor)
Requisites:
1) A prestation that is
due and enforceable
2) A civil obligation
3) Arises only when
the delay is due to
causes imputable to
the debtor
Reyes-Puno: Delay of
the obligor may only
come about as a result
of a positive act or
prestation.
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[ UP COLLEGE OF LAW ] 14
-The obligation must be:
due, demandable and
liquidated
-The performance may
be delayed by fraud
(malice) or negligence
(culpa).
-The creditor should
demand performance of
the debtor, with the
exception of those
circumstances present in
Article 1169.
Article 1169 (par. 2) However,
the demand by the creditor shall not
be necessary in order that delay may
exist:
(1) When the obligation or the
law expressly so declare; or
(2) When from the nature and
the circumstances of the
obligation it appears that the
designation of the time when
the thing is to be delivered or
the service is to be rendered
was a controlling motive for the
establishment of the contract;
or
(3) When demand would be
useless, as when the obligor
has rendered it beyond his
power to perform.
CETUS DEVT CORP VS .CA
Petitioner Cetus Dev’t demanded payment of
the rentals when the obligation matured.
Coupled with the fact that no collector was
sent, the private respondents cannot be guilty
of mora solvendi o delay in the payment of
rentals. Petitioner failed to show that id not
have to demand from private respondents,
under any of the conditions presented in
Article 1169 of the Civil Code. Petition
denied.
AEROSPACE CHEMICAL INDUSTRIES vs
CA & PHIL PHOSPHATE
Respondent required petitioner to ship out the
sulphuric acid as agreed, otherwise petitioner
would be charged for consequential damages.
Respondent made a categorical demand.
 [ C 2011 ]
Respondent, on August 6, informed
petitioner of charges of 2,000/day.
Petitioner is guilty of delay after private
respondent made the necessary
extrajudicial demand by requiring petitioner
to lift the cargo at its designated ports. Its
failure to comply led to its liabilities. Since
petitioners made an advance payment for
the unlifted acid, it is lawful to offset the
amount against the rental expenses
incurred by respondent. Petition denied.
CA decision affirmed.
SANTOS VENTURA HOCORMA vs
SANTOS
Respondent’s right to damage is based on
delay. The payment as stated in the
Compromise Agreement, must be made
within 2 years. The compromise was made
by the parties to avoid litigation. When
demand was made on October 28, 1992,
the obligation was already due and
demandable. It was an extrajudicial demand
done in compliance with the law. Petition
denied.
VASQUEZ v AYALA CORP
Ayala Corp was not guilty of delay, because
the letters sent prior to April 23, 1984 were
not categorical demands. The Vasquez
spouses also waived their right claim Ayala’s
delay, since the letter to their agent was a
concession that the lots would be finished 3
years after the termination of the case by
Lancer. Petition denied.
Exceptions:
ABELLA vs FRANCISCO.
The period was an essential element of the
obligation. The local court rightly
considered that period was essential in an
option to purchase the lots. Decision of
CFI Rizal affirmed.
DE LA CRUZ vs LEGASPI & SAMPEROY
At most, defendants have a right to demand
interest. Also, there was no indication that
payment on time was essential. Even if the
contract of sale explicitly provided for the
automatic rescission, the trial court could
allow plaintiff to enforce. Plaintiff may pay
before demand is made upon him.
2. Mora accipendi
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Requisites:
1) That the obligation should
require an act of
cooperation of the creditor
for its fulfilment
2) That the debtor has done all
that is incumbent upon him
and has made tender of
performance or payment
3) That the creditor refuses to
accept payment or fails to
carry out an act incumbent
upon him
Art. 1268. When the debt of a thing certain
and determinate proceeds from a criminal
offense, the debtor shall not be exempted
from the payment of its price, whatever may
be the cause for the loss, unless the thing
having been offered by him to the person who
should receive it, the latter refused without
justification to accept it. (1185)
VDA DE VILLARUEL vs MANILA MOTOR
CORP
By their improper refusal to accept the
current rents tendered by their lessess, the
lessors incurred in fault (mora) and they must
shoulder the subsequent accidental loss of the
premises leased. The exemption of the less to
pay is derived from the deprivation of
enjoyment and possession of said land.
SIR JJ: This is not exactly a good case to
illustrate this law, because one is depriving
the lessor of his right to collect the rent that
he has a right to collect.
3. Compensation Morae
Requisites:
1) It must be a bilateral
obligation
2) With reciprocal prestations
ARTICLE 1169 (3): In reciprocal
obligations, neither party incurs in
delay if the other is not ready or does
not comply in a proper with what is
incumbent upon him. From the
moment one of the parties fulfills his
obligation, delay by the other begins.
One party cannot demand
performance by the other without
offering to comply with his own
prestation. In reciprocal obligations,
 [ C 2011 ]
the general rule is that the fulfillment
of the parties should be
simultaneous. Where both are in
default, their respective liability for
damages shall be offset equitably.
CENTRAL BANK vs CA
A reciprocal obligation took place. The
obligation or promise of each party o each
other is in consideration for that of the
other. When one party has performed, the
non-performing party incurs in delay.
Pecuniary inability to pay does not rescind
or discharge the obligation of the contract.
Tolentino is entitled to specific performance
or rescission with damages. Due to the
prohibition of the land, rescission is the only
option. But the promissory note signed by
Tolentino obligates him to pay P17,000. His
failure to pay makes him a party in default.
Hence, he is not entitled to rescission. There
was a default in both of their reciprocal
obligations, hence they are both liable for
damages.
c. Effects of Delay
1) Cessation/Renunciation of
creditor
2) Prescription
4. Contravention of the Tenor
-Non-performance
-Any illicit act or omission which
impairs the strict and faithful
fulfilment of the obligation and every
kind of defective performance.
Art. 1170. Those who in the
performance of their
obligations are guilty of fraud,
negligence, or delay, and
those who in any manner
contravene the tenor thereof,
are liable for damages.
CHAVEZ v GONZALES
It is clear that defendant-appellant Gonzales
contravened the tenor of his obligation
because he not only failed to repair the
typewriter, but it was returned in shambles.
He is liable for the cost of executing the cost
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 16
in a proper manner and for the cost of the
missing part.
TELFAST COMMUNICATION vs CASTRO
When defendant’s daughter sent a telegram
to their relatives in the States informing them
of his wife’s death, they did not receive it and
they were shocked to discover his wife’s
death when his daughter went to the US and
told them. He then sued Telfast
Communication. Petitioner and defendant
entered into a contract to deliver the said
telegram. Petitioner did not fulfil his part,
despite performance by private respondent in
fulfilling his part in the contract.
Contravention of the tenor took place, and
Castro is entitled to recover damages by
virtue of Article 2217 of the Civil Code.
ARRIETA vs NARIC
It was NARIC’s actions or inaction which
singularly delayed the opening of the letter of
credit, which resulted in the delay and
plaintiff Arrieta’s losses of $286,000 in
unrealized profit. Therefore, they are bound
to indemnify her for losses and damages
caused by the delay.
MAGAT vs MEDIALDEA & GUERRERO
Magat is entitled to damages, since Guerrero
committed a breach of contract, which
resulted in Magat suffering the loss of his
expected profits. The loss comes into being at
the very moment of breach. Such a loss is
real, fixed and vested, and therefore,
recoverable under the law.
III. Remedies of Creditor in Case
of Breach
A. Action for performance
1. Action for specific performance
in obligation to give a specific thing-
Art. 1165 (par 1). When what is to be
delivered is a determinate thing, the creditor,
in addition to the right granted him by Article
1170, may compel the debtor to make the
delivery.
Revised Rules of Court, Rule 39:
Sec. 10. Execution of judgments for
specific act.
 [ C 2011 ]
(a) Conveyance, delivery of
deeds, or other specific acts;
vesting title. - If a judgment directs
a party who execute a conveyance of
land or personal property, or to
deliver deeds or other documents, or
to perform any other specific act in
connection therewith, and the party
fails to comply within the time
specified, the court may direct the
act to be done at the cost of the
disobedient party by some other
person appointed by the court and
the act when so done shall have like
effect as if done by the party. If real
or personla property is situated
within the Philippines, the court in
lieu of directing a conveyance thereof
may be an order divest the title of
any party and vest it in others, which
shall have the force and effect of a
conveyance executed in due form of
law.
(b) Sale of real or personal
property.— If the judgment be for
the sale of real or personal property,
to sell such property, describing it,
and apply the proceeds in conformity
with the judgment.
(c) Delivery or restitution of real
property.- The officer shall demand
of the person against whom the
judgment for the delivery or
restitution of real property is
rendered and all person claiming
rights under him to peaceably vacate
the property within three (3) working
days, and restore possession thereof
to the judgment obligee; otherwise,
the officer shall oust and such
persons therefrom with the
assistance, if necessary of
appropriate peace officers, and
employing such means as may be
reasonably necessary to retake
possession, and place the judgment
obligee in possession of such
property. Any costs, damages, rents
or profits awarded by the judgment
shall be satisfied in the same manner
as a judgment for money.
(d) Removal of improvements on
property subject of execution.-
When the property subject of the
execution contains improvements
constructed or planted by the
judgment obligor or his agent, the
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 17
officer shall not destroy, demolish or
remove said improvements except
upon special order of the court issued
upon motion of the judgment obligee
after due hearing and after the former
has failed to remove the same within a
reasonable time fixed by the court.
(e) Delivery of personal property.-
In judgments for the delivery of
personal property, the officer shall
take possession of the same and
forthwith deliver it to the party entitled
thereto and satisfy any judgment for
money as therein provided.
-When what is to be delivered is a
determinate thing, the creditor, in
addition to the right granted him in
article 1178, may compel the debtor to
make the delivery.
-To obtain compliance of the
prestation
-Creditor has the right to ask
that the same be performed
-Its implied basis is a
contractual relation between
plaintiff and defendant
2. Action for substituted performance
in obligation to give a generic thing-
Art.1165 par. 2 If the thing is
indeterminate or generic, he may ask that the
obligation be complied with at the expense of
the debtor.
-The creditor may ask that the
obligation be complied with by
others at the expense of the
debtor
-The substituted performance
satisfies the needs of the
creditor
-Delivery of anything belonging
to the same species is sufficient
3. Action for substituted performance
or undoing of poor work in obligation
to do - Art. 1167
 [ C 2011 ] [ UP COLLEGE OF LAW ] 18
Art. 1167. If a person obliged to do
something fails to do it, the same shall be Art. 1191. The power to
executed at his cost. rescind obligations is
implied in reciprocal ones,
This same rule shall be observed if he does in case one of the obligors
it in contravention of the tenor of the should not comply with
obligation. Furthermore, it may be decreed what is incumbent upon
that what has been poorly done be undone. him.

-The creditor is entitled to The injured party may

have the thing done in a choose between the
proper manner, by himself or fulfillment and the
a third person rescission of the obligation,
with the payment of
-The court cannot award damages in either case. He
damages when the act can be may also seek rescission,
done in spite of the refusal or even after he has chosen
failure of the debtor to do so. fulfillment, if the latter
should become impossible.
Exception:
-breach may be excused by The court shall decree the
fortuitous event rescission claimed, unless
there be just cause
-This does not exclude the authorizing the fixing of a
right to indemnify for period.
damages causes by the
debtor who has done what This is understood to be
has been forbidden him. Aside without prejudice to the
from doing what is in violation rights of third persons who
of the prohibition, he is liable have acquired the thing, in
for damages. accordance with Articles
1385 and 1388 and the
The sole remedy is Mortgage Law.
indemnification for damages
caused when the effects of -The action for rescission is
the act prohibited are definite given to the injured party
in character and will not cease
even if the thing prohibited is -Where the other party is
undone, if it is physically or the one who did not
legally impossible to do the perform, he is not entitled
thing, to insist upon performance
of the contract by the
B. Action for damages defendant or to recover
damages
Art. 1170 Those who in the
performance of their -The other party has the
obligations are guilty of fraud, right to demand
negligence, or delay, and performance or ask the
those who in any manner resolution or termination of
contravene the tenor thereof, the contract
are liable for damages.
Rescission – the power
-In damages, the that does not require
plaintiff is entitled to previous declaration by the
the value of the use of courts
his property from the
time it was taken to -If the obligation is not
the time of restoration. yet performed, extra-
judicial rescission would
suffice. But if one has
C. Action for rescission
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ]
already committed his
part in the reciprocal
obligation, he cannot
by extrajudicial
declaration rescind the
contract. Court action
must be taken.
-the extrajudicial
declaration of the
creditor, electing
rescission produces
legal effect
-However, the injured
party cannot resolve
the obligation himself
-The mere failure of
one party to perform
does not ipso jure
produce the resolution
of the contract
IV. Subsidiary Remedies of
Creditors
These are actions that take place as
a result of the right of creditors to
reach all present and future property
of the creditor.
1. Accion subrogatoria
(Action in subrogation) -
a) After exhausting all the property
of the debtor, the creditor may
exercise all the rights and bring all
the actions of the debtor for the
same purpose.
b) “The debtor of my debtor is also
my debtor” – Creditors have the
right to bring into the patrimony of
his debtor everything that should
properly enter and form part of it.
c) subject of the action
-all rights and actions of
debtor
Requisites:
1) interest of creditor who
brings the action
2) inaction of the debtor,
wilful or not
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3) existence of credit (not
anterior to debtor’s credit)
4) credit must be due and
demandable
5) exhaustion of assets
Exceptions: Art. 772: inherent
rights are only those with a
right to legitime and heirs and
successors of interest.
2. Accio Pauliana (Rescissory
Action)
Creditors may impugn acts which the
debtor may have done to defraud
them
Requisites:
1) prior existence of credit
(must be anterior to
fraudulent act)
2) credit must be due and
demandable
3) fraudulent intent of debtor if
transaction rescinded is
onerous
4) complicity/bad faith
5) exhaustion or insufficiency
of assets
6) prejudice to the creditor
Accio Pauliana Accio Subrogatoria
The credit must exist
before the fraudulent
act
-The rescinded -No fraudulent intent
contract is onerous is required
-The intent must be
fraudulent
It must take place No period of
within 4 years of the prescription is
discovery of the needed.
fraud
It must be the last
means, and all other
means must have
been exhausted.
KHE HONG CHENG vs CA
Respondent Philam only learned about
unlawful conveyances in January 1997. It was
 [ C 2011 ]
only then that respondents’ action for
rescission accrued because respondent had
exhausted all legal means. Accion pauliana
is a last resort. The date of the decision of
the trial court is immaterial.
SIGUAN vs LIM
Petitioner still had other legal remedies to
make claims. The requisite for filing accion
pauliana was not met, and no fraud was
committed. The respondent still had the
property in her name in 1989, therefore, the
credit was not fraudulent. Victoria Suarez is
not a party to the accion pauliana.
Therefore, the petitioner cannot invoke the
credit of Suarez to justify rescission of the
subject deed of donation.
D. Other Specific Remedies
Art. 1608. The vendor may bring his
action against every possessor whose right
is derived from the vendee, even if in the
second contract no mention should have
been made of the right to repurchase,
without prejudice to the provisions of the
Mortgage Law and the Land Registration
Law with respect to third persons.
Art. 1652. The sublessee is subsidiarily
liable to the lessor for any rent due from the
lessee. However, the sublessee shall not be
responsible beyond the amount of rent due
from him, in accordance with the terms of
the sublease, at the time of the extrajudicial
demand by the lessor.
Payments of rent in advance by the
sublessee shall be deemed not to have been
made, so far as the lessor's claim is
concerned, unless said payments were
effected in virtue of the custom of the place.
Art. 1729. Those who put their labor upon
or furnish materials for a piece of work
undertaken by the contractor have an action
against the owner up to the amount owing
from the latter to the contractor at the time
the claim is made. However, the following
shall not prejudice the laborers, employees
and furnishers of materials:
(1) Payments made by the owner to the
contractor before they are due;
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(2) Renunciation by the contractor of any
amount due him from the owner.
This article is subject to the provisions of
special laws. (1597a)
Art. 1893. In the cases mentioned in Nos. 1
and 2 of the preceding article, the principal
may furthermore bring an action against the
substitute with respect to the obligations
which the latter has contracted under the
substitution.
V. Extinguishment of Liability in
Case of Breach Due to Fortuitous
Event –
Art. 1174. Except in cases expressly
specified by the law, or when it is
otherwise declared by stipulation, or
when the nature of the obligation
requires the assumption of risk, no
person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were
inevitable.
A. Concept of Fortuitous Event
Fortuitous Event - an unforeseen
or unexpected occurrence
-it must be impossible to foresee
the event
-occurrence renders it impossible for
debtor to fulfill his obligation in a
normal manner
-obligor must be free from any
participation in aggravation of injury
resulting to the creditor
1. Act of God (natural)
Caso Fortuito – “an event which
takes place by accident and could
not have been foreseen
-circumstances independent of the will
of the obligor
-earthquakes, storms, floods,
epidemics, fires
2. Act of Man
-armed invasion, attack by bandits,
governmental provisions, robbery
 [ C 2011 ]
-unavoidable accidents
B. Requisites
1. Effect of Concurrent Fault
NAKPIL & SONS vs UNITED
CONSTRUCTION, CA &PHIL BAR
The wanton negligence of the defendant and
the third party defendants in effecting the
plans, designs, specifications and
construction was equivalent to bad faith in
the performance of their respective tasks.
Other buildings in the vicinity were not
affected by the earthquake. It was not just
an Act of God that was responsible for the
destruction of the building.
RP vs LUZON STEVEDORING
Defendant stresses precautions it took on
the day of the accident in question.
However, said precautions adopted by
appellant prove that the possibility of
danger was not only foreseeable, but
actually foreseen, and not by caso fortuito.
They were indeed negligent and liable for
damages.
DIOQUINO vs LAUREANO
The boy threw stones at the window, which
led to the breaking of the windshield. What
happened was clearly unforeseen. It was a
fortuitous event resulting in a loss which
must be borne by the owner of the car.
Article 1174 of the Civil Code guards against
the possibility of being reproached for such
a fortuitous event.
AUSTRIA vs CA
It is not necessary that persons responsible
for the occurrence or the robbery of Austria
should be found of punished. It would only
be sufficient that the unforeseeable event
did take place without concurrent fault on
the debtor’s part, and this can be done by
preponderant evidence. To require the
conviction of the culprits, in order to
establish a fact, would be to demand proof
beyond reasonable doubt. The robbery
constitutes a fortuitous event, despite the
lack of conviction of guilty parties.
NAPOCOR vs CA
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Despite the typhoon constituting an act of
God, Napocor cannot escape liability because
its negligence was the proximate cause of the
loss and damage. Petitioner was negligent
because it knew of the need to open the
gates gradually and earlier, not to open them
quickly at the height of the typhoon.
YUBIDO vs CA, TUMBOY, TUMBOY &
TUMBOY
A common carrier, in this case Tumboy et al
who operated the bus whose tire blew which
led to Yubido’s death, cannot be absolved
from liability in case of force majeure; it must
still prove that it was not negligent in causing
the death or injury resulting from the
accident. The mere fact that Tumboy claimed
that the tire was new did not imply that it was
free from manufacturing defects.
BACOLOD MURCIA MILLING vs CA &
GATUSLAO
The closure of any portion of the railroad
track was foreseeable and inevitable.
Petitioner took a calculated risk thinking all
landowners would renew their contract.
Unfortunately, the termination of the
contractual relationships of sugar plantation
of Angela Estate could not be foreseen as an
act of God, nor could it constitute force
majeure.
PHILCOMSAT vs GLOBE TELECOM
Article 1174 exempts an obligor from liability
in case of fortuitous events, for those which
are foreseeable but inevitable. Section 8 of
the agreement entered into by Philcomsat
and Globe Telecom provided for events that
were either unforeseeable, foreseeable but
beyond the control of the parties. No
contrary definition exists between Article
1174 and Section 8 of the contract exists.
The date they ceased using the Earth station
was not established. On December 31 1992,
the US left and rendered ineffective said
communication facility. Hence, Globe is liable
for payment of rentals until December 1,
1992.
C. Extinguishment of Liability –
Exceptions
Art. 1174. Except in cases expressly
specified by the law, or when it is
otherwise declared by stipulation, or
 [ C 2011 ]
when the nature of the obligation
requires the assumption of risk….
Art. 1165, par. 3 If the obligor
delays, or has promised to deliver
the same thing to two or more
persons who do not have the same
interest, he shall be responsible for
any fortuitous event until he has
effected the delivery.
Art. 552, par. 2 A possessor in
bad faith shall be liable for
deterioration or loss in every case,
even if caused by a fortuitous event.
Art. 1942. The bailee is liable for
the loss of the thing, even if it should
be through a fortuitous event:
(1) If he devotes the thing to
any purpose different from
that for which it has been
loaned;
(2) If he keeps it longer than
the period stipulated, or after
the accomplishment of the
use for which the
commodatum has been
constituted;
(3) If the thing loaned has
been delivered with appraisal
of its value, unless there is a
stipulation exemption the
bailee from responsibility in
case of a fortuitous event;
(4) If he lends or leases the
thing to a third person, who is
not a member of his
household;
(5) If, being able to save
either the thing borrowed or
his own thing, he chose to
save the latter.
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Art. 1979. The depositary is liable
for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without
the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it,
even though he himself may
have been authorized to use
the same.
Art. 2001. The act of a thief or
robber, who has entered the hotel is
not deemed force majeure, unless it is
done with the use of arms or through
an irresistible force.
Art. 2147. The officious manager
shall be liable for any fortuitous event:
(1) If he undertakes risky
operations which the owner
was not accustomed to embark
upon;
(2) If he has preferred his own
interest to that of the owner;
(3) If he fails to return the
property or business after
demand by the owner;
(4) If he assumed the
management in bad faith.
VI. Usurious Transactions
Art. 1175. Usurious transactions
shall be governed by special laws.
Art. 1413. Interest paid in excess of
the interest allowed by the usury laws
may be recovered by the debtor, with
 [ C 2011 ]
interest thereon from the date of the
payment.
Art. 1961. Usurious contracts shall
be governed by the Usury Law and
other special laws, so far as they are
not inconsistent with this Code.
Usury – defined as contracting for or
receiving something in excess of the
amount allotted by law for the loan
or forbearance of money, goods or
chattels. It is the taking of more
interest for the use of money, goods,
chattels or credits than the law
allows. Forbearance is the refraining
from enforcement of debt, right, or
obligation that is due.
Interest is the income produced by
money in relation to its amount and
the time it cannot be utilized by its
owner.
PD 858
The Monetary Board is authorized to
prescribe the maximum rate or rates
of interest for the loan or renewal
thereof of the forbearance…
PD 1685
Foreign loans obtained by the Central
Bank may be guaranteed. They may
exercise/prescribe higher maximum
rates for loans of low priority.
Circular Bank Circular 416:
There is a reduction in the risk
weight of multilateral development
banks to 0%
-it removes loans to exporters to
extent guaranteed by the guarantee
fund for small and medium
enterprises
Monetary Board Circular 905
It empowers the Central Bank to
prescribe maximum rates. It also
states that the rate of interest, on a
loan or forbearance of money shall
not be subject to any ceiling
prescribed under or pursuant to the
Usury Law. It did not repeal or
amend the Usury Law, but simply
suspended its effectivity.
Vs
Art. 2209. If the obligation consists
in the payment of a sum of money,
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[ UP COLLEGE OF LAW ] 23
and the debtor incurs in delay, the
indemnity for damages, there being no
stipulation to the contrary, shall be the
payment of the interest agreed upon,
and in the absence of stipulation, the
legal interest, which is six per cent per
annum.
Rule:
1) When the obligation is breached
and it consists in the payment of
money (loan or forbearance),
interest is either that which is
stipulated in writing or, in absence
of stipulation, 12% per annum
from time of judicial or
extrajudicial demand. Interest
itself, when stipulated, shall itself
earn legal interest from the time it
is demanded.
2) When the obligation not involving
money is breached, an interest on
the amount of damages may be
imposed at the discretion of the
court at the rate of 6% per
annum. No interest shall be
adjudged on unliquidated claims or
damages except when or until the
demand can be established with
reasonable certainty. When
demand is established reasonably,
interest shall begin to run from the
time the claim is made, judicially
or extrajudicially, if not interest
shall begin to run from the date
the court makes its judgment.
Actual base for computation of
legal interest shall be the amount
finally adjudged.
3) When judgment awarding sum of
money becomes final and
executory, the rate of legal
interest, whether it is either one of
the aforementioned conditions,
shall be 12% per annum from such
finality until its satisfaction, this
interim period being deemed to be
by then an equivalent to a
forbearance of credits.
Cases are rendered moot and academic
by virtue of the repeal of CB 416.
 [ C 2011 ]
VII. Fulfillment of Obligations
(See Chapter 4
Art. 1231: Obligations are
extinguished:
1) by payment or
performance.
… -When there is no stipulation in
Art 1232… not only the
delivery of money, but also
performance of any
obligation.
B. Presumption in payment of
interest and instalments.
Art. 1176. The receipt of the
principal by the creditor without
reservation with respect to the
interest, shall give rise to the
presumption that said interest has
been paid.
The receipt of a later installment of a
debt without reservation as to prior
installments, shall likewise raise the
presumption that such installments
have been paid.
-The failure of the creditor to
make reservation in these
cases extinguished the
obligation to pay the interest
or the prior instalments, but
under the present article,
there arises only a rebuttable
presumption of such
extinguishment.
Art. 1253. If the debt produces
interest, payment of the principal
shall not be deemed to have been
made until the interests have been
covered.
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VIII. Transmissibility of Rights
Art. 1178. Subject to the laws, all
rights acquired in virtue of an
obligation are transmissible, if there
has been no stipulation to the
contrary.
the assignment of an
obligation, all rights acquired
by virtue of an obligation are
transmissible.
-An instrument evidencing
credit may be transferred or
assigned and the transferee will
be considered in lawful
possession unless the contrary
is proven
CHAPTER III.
DIFFERENT KINDS OF OBLIGATIONS
I. Pure & Conditional Obligations
A. Pure – no term or condition
whatever depends upon which
depends the fulfilment of the
obligation contracted by the debtor.
- immediately demandable at
creditor’s will
-no exemptions as to its
compliance (ex. Promissory
note with no condition stated)
Art. 1179, par. 1 Every
obligation whose performance
does not depend upon a future
or uncertain event, or upon a
past event unknown to the
parties, is demandable at once.
B. Conditional Obligations
Art. 1181. In conditional
obligations, the acquisition of
rights, as well as the
 [ C 2011 ]
extinguishment or loss of
those already acquired, shall
depend upon the happening
of the event which constitutes
the condition.
1. Condition
A. Concept – a future and
uncertain event upon which
an obligation depends
-dependent on future or
uncertain event upon which
an obligation or provision is
dependent on (the use of “or”
is actually a mistake)
-the acquisition or resolution
of rights depend on a future
and uncertain event, by virtue
of those who execute the
juridical act
B. Vs. Term
Period/Term – an event
which is not uncertain, but
must necessarily happen (ex.
death of a person)
Condition Term/Period
A future and Not uncertain but
uncertain event must necessarily
happen
There is uncertainty It must necessarily
as to when the day come.
will come; uncertain
when it will happen
Ex. Death of A ahead Ex. Until A dies;
of B; “when I pass “when my means
the bar” permit”
Note: A past event unknown to the parties
cannot be a condition for the knowledge of
the parties cannot prevent the obligation
from being demandable.
GAITE vs FONACIER
The shipment or local sale of iron ore is not
a condition to the payment of the balance of
65,000 pesos. It is a period or term. A
conditional obligation’s obligatory force is
subordinated to the happening of a future
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 25
and uncertain event. There is no
“uncertainty” that the payment will have to
be made, since the “the balance will be paid
out from the opening of the first letter of
credit…” To subordinate the obligation to pay
the remaining 65,000 pesos to the sale or
shipment of the ore is tantamount to leaving
payment at the discretion of the debtor.
GONZALES vs HEIRS of THOMAS
The transfer of the TCT was precisely needed
by petitioner to ensure that he would own the
land free of legal encumbrance. Only when
securing the right to dispose of the land for
the petitioner to give down payment in
fulfilment of the contract.
2. Kinds of Conditions
a. As to effect on obligation -
Art. 1181. In conditional
obligations, the acquisition of
rights, as well as the
extinguishment or loss of those
already acquired, shall depend
upon the happening of the
event which constitutes the
condition.
(see Gonzales vs Heirs of
Tomas)
i. Suspensive (condition
precedent)
-If the suspensive condition
happens, the obligation arises.
In other words, if the condition
does not happen, the obligation
does not come into existence.
-retroactive effect when
obligation is fulfilled –
Art. 1187. The effects of a
conditional obligation to give,
once the condition has been
fulfilled, shall retroact to the
day of the constitution of the
obligation. Nevertheless, when
the obligation imposes
reciprocal prestations upon the
parties, the fruits and interests
during the pendency of the
condition shall be deemed to
have been mutually
compensated. If the obligation
is unilateral, the debtor shall
appropriate the fruits and
 [ C 2011 ] [ UP COLLEGE OF LAW ] 26
interests received, unless
from the nature and
circumstances of the
obligation it should be
inferred that the intention of
the person constituting the
same was different.

CORONEL vs CA & ALCARAZ ii. Resolutory (condition

subsequent)
The suspensive condition of the “Receipt of
- Where the obligation is
Down Payment” was the transfer of the title
from petitioners’ deceased father to them. immediately effective, but its
subsistence and
On February 6, 1985, the condition took
place, and the petitioners were obliged to extinguishment depend upon
the fulfilment of the condition
present a deed of absolute sale to
respondent, as well as full payment by
correspondent. The element of consent is
present, which is not present in a contract PARKS vs TARLAC CIRER & HILL
to sell. The sellers made no express
reservation of ownership or title to subject Appellant claims that the condition that one of
the parcels be used exclusively and absolutely
parcel of land.
for erection of a school was not complied
with, constitutes a precedent condition. Since
-rights of creditor and
debtor before fulfilment of it was not followed, appellant claims that the
contract is invalidated. However, this is not a
condition
precedent condition but an imposed one. Its
compliance cannot be effected until the right
BEFORE THE
FULFILLMENT OF THE is deemed acquired. Beginning work on the
school could not be complied with, except
CONDITION:
-preservation of right after giving effect to the donation. Also,
provided that subsequent condition’s non-
(prevent loss or deterioration
of things, prevent resolution renders the contract ineffective,
the action for revocation of donation has
concealment of debtor’s
property). Creditor is allowed prescribed. The period to bring revocation for
action is ten years.
to take appropriate steps
which preserve his right and
prevent events which might
render his right void or CENTRAL PHILIPPINE UNIVERSITY v CA
inexistent.
When petitioner accepted the donation, it
bound itself to comply with the condition
-If non-fulfillment is due to
the fault of creditor, debtor thereof. Since the time within which the
condition should be fulfilled depended upon
may not ask that the fruits
received by creditor be the exclusive will of CPU, it has been held
that its absolute acceptance and
returned to debtor.
acknowledgment of obligation were sufficient
Art. 1188. The creditor
to prevent the statute of limitations from
may, before the fulfillment of
barring the action of private respondents
the condition, bring the
regarding prescription. Also, more than a
appropriate actions for the
reasonable period of 50 years has passed,
preservation of his right.
wherein petitioner should have complied with
the condition to make the donation in its
The debtor may recover what
favour forever valid. Under Article 1191, of
during the same time he has
CC, the oblige may seek rescission and the
paid by mistake in case of a
court shall decree the same, and fix the
suspensive condition.
period. In this case, fixing the number of
years cannot be applied since more than a
reasonable period of time has lapsed.
Simoun Antonio Montelibano Salinas - 2002-24124
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DAVIDE (dissent):
1) There is confusion as to the
nature of the contract, based on
the writing of the ponente. First,
it was onerous, or it placed a
burden on the donee. Then it
became gratuitous, given by
virtue of liberality.
2) It is improper to say that it is a
resolutory condition since upon
fulfilment of the obligation or
condition, the right to the thing is
now extinguished pursuant to
Article 1181 of the Civil Code.
3) The period was actually
contemplated by Lopez; he did
not expect the land to remain idle
for ever.
4) Onerous donations are covered
under the rule on contracts,
pursuant to Art. 733 of the Civil
Code. The Court must determine
which donee must comply with
conditions or obligations.
QUEJADA vs CA & MONDEJARETAL
A resolutory condition exists only until the
time it is capable of fulfilment. At that time,
the donation is still valid and effective. Such
period became irrelevant when donee-
municipality manifested its inability to
comply with the condition. When the non-
fulfillment of the resolutory condition was
brought to the donor’s knowledge, then
ownership reverted to the donor.
Ownership was then reverted to petitioners;
consequently, ownership is transferred to
respondents pursuant to Article 1434 of the
CC: “Title passes by operation of law to the
buyer.” Sale, as a contract, is perfected at
the moment there is a meeting of the minds
upon the thing which is the object of the
sale and upon the price. The sale is still
valid.
b. As to cause or origin
Art. 1182. When the
fulfilment of the condition
depends upon the sole will of
the debtor, the conditional
obligation shall be void. If it
depends upon chance or upon
the will of a third person, the
obligation shall take effect in
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 27
conformity with the provisions
of this code.
i. Potestative Condition
-one which depends upon the
will of the debtor. The
conditional obligation is void.
To allow conditions whose
fulfilment depends exclusively
on debtor’s will is to sanction
illusory obligations. For purely
potestative conditions, the
whole obligation is void, not
just the condition.
Debtor’s promise to pay is
not a conditional obligation
(period)
Art. 1180. When the debtor
binds himself to pay when his
means permit him to do so, the
obligation shall be deemed to
be one with a period.
-Creditor should file an
action to fix the a period
for the payment
of the obligation
-Only if it is suspensive
LAO LIM vs CA & DY
The condition is not resolutory but
potestative. It leaves effectivity and
enjoyment of rights to the sole and exclusive
will of the lessee. It is suspensive because
renewal depends upon said condition. If this
defense were allowed, so long as defendants
could pay the lease, owners would never be
able to discontinue their occupancy.
Conversely, lessees would terminate the
contract simply through non-payment. A
lease that gives the lessee the right to
perpetual renewal is not favored by the
courts. Any option can be revoked as long as
it is potestative.
ii. Causal Condition
-One which depends exclusively
upon chance or other factors as
 [ C 2011 ]
well as the will of a third
person/stranger
NAGA TELEPHONE CO. vs CA
The term or period of this contract shall be
as long as the party of the first part has
need for electric light posts is potestative.
The stipulation that “it being understood
that this contract shall terminate…are when
for any reason whatsoever, the party of the
second part is forced to stop, abandon its
operation…” is causal. It depends on
chance, hazard or the will of a third person.
It is a mixed condition, and the provision is
therefore not invalidated.
iii. Mixed
- Depends upon the will of
one of the contracting parties
and other circumstances, such
as chance or will of a
stranger.
-“I will buy you a house if you
marry my daughter.”
OSMENA vs RAMA
The acknowledgement by defendant-
appellant of indebtedness led her to impose
the condition that she would pay the
obligation if she sold her house. The
acknowledgement was an absolute
acknowledgement of obligation, and was
sufficient to prevent the statute of
limitations from barring the action upon the
original contract. At this point, the old
Civil Code rendered the defense null
and void as it was dependent solely
upon her will.
HERMOSA v LONGARA
The condition given by Hermosa was a
mixed one, depending partly upon the will of
Hermosa and partly upon chance, such as
the presence of a buyer and under
conditions desired by intestate. The
obligation is a suspensive one, as well, and
upon happening of the condition, became
due and demandable.
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 28
TAYLOR vs UY TIENG PIAO
The cancellation of Taylor’s contract was
valid, because Article 1256 of the old CC
includes no impediment to the insertion in a
contract for personal service of a resolutory
condition permitting the cancellation of the
contract by one of the parties. Uy Tieng Piao
et al had no positive obligation to cause the
machinery needed to arrive in Manila. Since
the machinery did not arrive, this led to the
valid cancellation of the said contract.
SMITH BELL vs MATTI
When the fulfilment of the condition does not
depend upon the will of the obligor, but that
of a third person or any other cause, and the
obligor has done all he can to ensure
compliance with the obligation, ordering the
other party to comply with his part is also not
contrary to law.
RUSTAN PULP vs IAC
A purely potestative condition such as that
wherein resumption of delivery of
respondents to the petitioner being purely
dependent on the latter’s will must be
obliterated. Such a clause is inoperative.
ROMERO vs CA
The condition of the private respondents’
undertaking is a mixed condition dependent
on the will of the third persons, like the
squatters, government agencies and the
vendor. The ejectment is a condition, the
operative act of which sets the motion of
compliance by petitioner, of his obligation to
pay the balance. The failure of respondents
gives petitioner the right to refuse to proceed
with the argument or waive that condition.
c. As to possibility
Art. 1183. Impossible
conditions, those contrary to
good customs or public policy
and those prohibited by law
shall annul the obligation which
depends upon them. If the
obligation is divisible, that part
thereof which is not affected by
the impossible or unlawful
condition shall be valid.
The condition not to do an
impossible thing shall be
 [ C 2011 ] [ UP COLLEGE OF LAW ]
considered as not having been
agreed upon.
i. Possible
ii. Impossible
- either judicially
impossible or
physically impossible.
Physical – contrary to
law of nature
Juridical - contrary
to law, good customs
and public policy
-Impossible obligations
annul the obligation
dependent upon them.
-ex. Condition that a
person shall not
contract marriage,
unless she changes her
religion.
(Violation of Bill of
Rights in freedom of
religion)
-One who promises an
impossible condition
and knows that it
cannot be fulfilled has
manifested his lack of
intention to be bound.
Hence, the nullity of
the promise follows.
ROMAN CATHOLIC ARCHBISHOP OF
MANILA vs CA
The condition that 100 years from the date
of execution, said land must not be sold
disposed of, constitutes an essential
condition necessary for the fulfilment of the
deed of donation. The court finds that such
a condition is impossible. It is an undue
restriction.
SIR JJ: It is actually still possible. A
hundred years is finite, and it is still a
definite period of time.
d. As to mode
i. Positive –
Art. 1184. The condition
that some event happen at a
determinate time shall
extinguish the obligation as
Simoun Antonio Montelibano Salinas - 2002-24124
29
soon as the time expires or if it
has become indubitable that
the event will not take place.
-The condition must be
fulfilled within the period
stipulated, but the
obligation is
extinguished as soon as
the time expires or it
becomes indubitable
(certain) that the event
will take place/
ii. Negative –
Art. 1185. The condition that
some event will not happen at
a determinate time shall render
the obligation effective from
the moment the time indicated
has elapsed, or if it has become
evident that the event cannot
occur.
If no time has been fixed, the
condition shall be deemed
fulfilled at such time as may
have probably been
contemplated, bearing in mind
the nature of the obligation.
-If the condition is negative,
the condition becomes effective
from the moment
the time (period) indicated has
elapsed, or it becomes evident
that the event cannot occur.
3. Rules in case of loss, deterioration or
improvement pending in the happening
of the condition.
Art. 1189. When the
conditions have been imposed
with the intention of
suspending the efficacy of an
obligation to give, the following
rules shall be observed in case
of the improvement, loss or
deterioration of the thing
during the pendency of the
condition:
(1) If the thing is lost without
the fault of the debtor, the
obligation shall be
extinguished;
 [ C 2011 ]
(2) If the thing is lost through
the fault of the debtor, he
shall be obliged to pay
damages; it is understood
that the thing is lost when it
perishes, or goes out of
commerce, or disappears in
such a way that its existence
is unknown or it cannot be
recovered;
(3) When the thing
deteriorates without the fault
of the debtor, the impairment
is to be borne by the creditor;
(4) If it deteriorates through
the fault of the debtor, the
creditor may choose between
the rescission of the
obligation and its fulfillment,
with indemnity for damages in
either case;
(5) If the thing is improved by
its nature, or by time, the
improvement shall inure to
the benefit of the creditor;
(6) If it is improved at the
expense of the debtor, he
shall have no other right than
that granted to the
usufructuary. (1122)
Art. 1190. When the
conditions have for their
purpose the extinguishment
of an obligation to give, the
parties, upon the fulfillment of
said conditions, shall return to
each other what they have
received.
In case of the loss,
deterioration or improvement
of the thing, the provisions
which, with respect to the
debtor, are laid down in the
preceding article shall be
applied to the party who is
bound to return.
As for the obligations to do
and not to do, the provisions
of the second paragraph of
Article 1187 shall be observed
as regards the effect of the
extinguishment of the
obligation.
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[ UP COLLEGE OF LAW ] 30
Loss: - when the thing
perishes, goes out of
commerce, or disappears and
cannot be recovered
Deterioration – any reduction
or impairment in the substance
value of a thing which does not
amount to a loss. The thing still
exists but it is no longer intact.
Improvement – anything
added to, incorporated in, or
attached to the thing that is
due.
Inure – use, put into
practice, to become of
advantage.
HEIRS OF TIMOTEO MORENO vs MACTAN
INTL AIRPORT AUTHORITY
There is no need for petitioners to pay for
improvements; nor shall the value of the lot
over time be subject to restitution.
Improvements done on the lot may be paid
for by petitioner, in case petitioners wish to
purchase them and respondent decides to
sell. If petitioners do not wish to purchase,
said improvements may be removed without
petitioners needing to pay.
b. Effect of loss or
deterioration
i. Without debtor’s fault
Loss: 1189, pars 1 and 3:
(1) If the thing is lost without
the fault of the debtor, the
obligation shall be
extinguished;
(3) When the thing deteriorates
without the fault of the debtor,
the impairment is to be borne
by the creditor
ii. With debtor’s fault
Deterioration: 1189, par 2
and 4:
(2) If the thing is lost through
the fault of the debtor, he shall
be obliged to pay damages; it
is understood that the thing is
lost when it perishes, or goes
out of commerce, or disappears
 [ C 2011 ]
in such a way that its
existence is unknown or it
cannot be recovered;
(4) If it deteriorates through
the fault of the debtor, the
creditor may choose between
the rescission of the
obligation and its fulfillment,
with indemnity for damages in
either case;
c. Effect of Improvement
i. by nature or
time: 1189,
par 5
(5) If the thing is
improved by its
nature, or by time, the
improvement shall
inure to the benefit of
the creditor;
ii. at the
debtor’s
expense:
1189, par. 6
(6) If it is improved at
the expense of the
debtor, he shall have
no other right than
that granted to the
usufructuary.
4. Effect of prevention of the fulfilment
of the condition by the obligor
Art. 1186. The condition
shall be deemed fulfilled when
the obligor voluntarily
prevents its fulfillment.
Constructive fulfilment
-a condition which, although
not exclusively within the will
of the debtor, may in some
way be prevented for the
debtor from happening.
2 requisites:
1) Intent of obligor to prevent
fulfilment of the condition
2) actual prevention of
fulfilment
HERRERA vs LEVISTE
Herrera may not redeem the property.
Petitioner’s loss was due to his failure to
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[ UP COLLEGE OF LAW ] 31
submit collateral to GSIS, non-payment of the
mortgage debt and not making an earnest
effort to redeem the property. Petitioner did
not validly and fully comply with the
conditions in their contract.
TEEHANKEE (DISSENT): Leviste failed to
complete all the necessary steps to inform
GSIS and arrange conformity of Herrera’s
assumption of the mortgage obligation.
Herrera was informed that he could not
assume payment of the mortgage until a final
deed of sale was submitted. But GSIS still
received payments.
While it is true that under paragraph 11 of
the contract, failure to fulfil would result in a
cancellation of the contract, and all payments
being kept by vendor, Herrera was prevented
from fulfilling the condition of assuming the
GSIS mortgage because of Leviste’s own non-
compliance with its obligation of securing the
consent of GSIS. Leviste made no effort,
despite clear stipulations in the contract.
Despite payment by Herrera of remaining
price to Leviste, Leviste still refused to
execute the final deed of sale in favour of
Herrera as required by GSIS.
II. RECIPROCAL OBLIGATIONS
Art. 1191. The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
should not comply with what is
incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of
damages in either case. He may also
seek rescission, even after he has
chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with Articles 1385 and
1388 and the Mortgage Law. (1124)
Art. 1192. In case both parties have
committed a breach of the obligation,
 [ C 2011 ]
the liability of the first infractor shall
be equitably tempered by the courts.
If it cannot be determined which of
the parties first violated the contract,
the same shall be deemed
extinguished, and each shall bear his
own damages.
1. Concept
Reciprocal Obligations
– those which arise from
the same cause and in
which each party is a
debtor and a creditor of
the other, such that the
obligation of one is
dependent upon the
obligation of the other.
They are to be performed
simultaneously, so that
the performance of one is
conditioned upon the
simultaneous fulfilment.
2. Alternative
Remedies
Of Injured Party in case
of Breach
a. Action for
Fulfillment
-ask for specific
performance of the
obligation
-payment for damages
-if fulfilment is no
longer possible,
rescission with
damages to injured
party may be fulfilled.
-it does not affect third
parties
-no partial rescission
and partial fulfilment/
no simultaneous
specific performance
and rescission
b. Action for Rescission
-a power, by
declaration of the
injured party
i. Requisites
1) breach must be by
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 32
fault or fraud of
defendant, creating
liability for damages and
entitling other party to
ask for rescission
a. one single breach
except in contrary
stipulation, or sale in
instalments
b. an action must be
filed or a notarial
demand made
-damages must be
adjudicated in the
same action for
rescission
-rescission may
not be for slight or
casual breach, but only
for breaches so
substantial as to defeat
the object of the parties
in making the
agreement
ii. How made
-rescission takes place
upon declaration of the
injured party
-party should apply to
courts for a decree of
rescission or resolution
-when injured party has
already performed,
judicial action must be
undertaken.
iii. Effects
-extinguished obligatory
relation as if it never
existed
-equivalent to unmaking
and invalidating the
juridical tie
-it is the duty of the
court to require both
parties to surrender
what they have
respectively received
 [ C 2011 ] [ UP COLLEGE OF LAW ]
-rescission abrogates
the contract in all parts
-defendant’s sole duty
is to return what he
has received, with
legal interest (no
attorney’s fees);
return to plaintiff as
well
-no partial rescission
and resolution
-no judgment rendered
declaring rescission,
creditor may change
his mind and ask for
fulfilment
-no availment of
pledge
-in rescission,
purchaser is only
entitled to interest on
amount he paid
-damages are only
those compatible with
the idea of rescission
-parties may choose to
waive rescission in
reciprocal obligations
BOYSAW vs INTERPHIL PROMOTIONS
This occasion led to a reciprocal obligation.
Boysaw violated the contract when he
engaged in a boxing match in Las Vegas.
Also, the change of management, without
consent or knowledge of defendant
constituted another violation. Such
violations allowed defendant the right to
rescind and repudiate the contract
altogether.
UP vs HON. DE LOS ANGELES
In the “Acknowledgement of Debt &
Proposed Manner of Payment,” upon default
by debtor ALUMCO, creditor had “the right
and power to consider logging agreement
dated December 2,1960 may be considered
rescinded without necessity of a juridical
suit. The party who deems the contract
Simoun Antonio Montelibano Salinas - 2002-24124
33
violated may act as if contract were
rescinded, but proceeds at its own risk.
Although only the final judgment may
determine the correctness of the action,
judicial action is needed to ascertain the final
award and resolution. The court erred in
punishing UP for simply protecting its own
interest.
SIR JJ: This case changes the rule
regarding rescission.
DE ERQUIAGA vs CA & REYNOSO
In rescission of contracts of reciprocal
obligations, there should be simultaneous
restitution of the principal object of the
contract to sell and the consideration paid.
Despite the unfinished accounting for the
fruits, the restitution must still take place. But
defendant is ordered to finish the accounting.
IRINGAN vs CA
Rescission took place upon filing of JCR in
RTC. Judicial notice is needed before one
party can unilaterally affect a rescission.
Rescission did not take place with the letter,
but with Palao’s filing of the judicial notice of
rescission.
ONG vs CA
Petitioner entered into contract with
respondents on the basis that issuance of
deed of absolute sale would be granted upon
full payment of 2M pesos. This was a
suspensive condition, and a contract to sell
took place. No breach took place, but a
situation took place that prevented the
obligation of the vendor to convey title from
acquiring an obligatory force.
VISAYAN SAW MILL vs CA
What took place in this case was a contract to
sell wherein the failure of respondent to
ensure the opening of the letter of credit prior
to May 15 1983 led to the inability of
petitioner to fulfil its obligation. It was not a
contract of sale, where implied delivery took
place. No breach took place, but the failure
to comply with a positive suspensive
condition. Also the letter of credit did not
involve respondent RJH but another company
and it was set to expire on July 24, 1983.
Therefore, no obligation arose on the part of
petitioner; Article 1597 should apply, which
allows for rescission by providing notice. Also,
 [ C 2011 ] [ UP COLLEGE OF LAW ] 34
the implied delivery is a mere sanctioning infringement of a contractual
accommodation. obligation.

ROMERO (dissent): SURIA vs IAC

1) Time was not explicitly provided as Petitioner and respondents entered into a
essential to the contract. It was an absolute contract of sale. The vendor obligates himself
contract of sale. to transfer ownership and to deliver a
determinate thing to the buyer, who in turn,
2) Delivery did take place. is obliged to pay a price in money or its
equivalent. Both parties fulfilled their
Article 1191 obligation. It became a contract between
In all mortgagor and mortgagee, and is a perfected
contracts contract of sale. Rescission is not a principal
involving action retaliatory in character, but becomes
reciprocal subsidiary when it is available only in absence
obligations, of any legal remedy. Foreclosure here is a
Article 1191 specific provision found in the contract
is ALWAYS between the parties. Mortgage has the
applied. option of seeking fulfilment or suing for
breach, If the contract is rescinded, property
DEIPARINE vs CA & CARUNGAY & reverts to mortgagee.
TRINIDAD

Article 1191 is predicated on breach of faith Art. 1786. Every partner is a

by one of them that violates reciprocity debtor of the partnership for
between them. Deiparine’s failure has given whatever he may have
the Carungay spouses the right to rescind or promised to contribute thereto.
cancel, since he did not follow their
stipulated plans and specifications. Article He shall also be bound for
1191 imposes upon petitioner to build the warranty in case of eviction
structure and private respondents to pay for with regard to specific and
it. Therefore, the contract was valid under determinate things which he
Art 1191. may have contributed to the
partnership, in the same cases
GRACE PARK ENGG CO vs DIMAPORO and in the same manner as the
vendor is bound with respect to
When a contract is resolved or rescinded, it the vendee. He shall also be
is the duty of the court to require the liable for the fruits thereof from
parties to surrender that which they have the time they should have been
severally received. It has the effect of delivered, without the need of
abrogating the contract in all parts. It any demand.
would contradict the very notion of
rescission the very notion of rescission
under Article 1385 of the CC. The contract
is deemed extinguished, and no interest
may be claimed by both of the contracting
parties.

ROQUE vs LAPUZ & CA Art. 1788. A partner who has

undertaken to contribute a sum
The respondent’s failure to pay the of money and fails to do so
succeeding monthly instalments was a becomes a debtor for the
failure to comply with the suspensive interest and damages from the
condition which is the full payment of the time he should have complied
price. There was clear bad faith and malice with his obligation.
on the part of respondent, making
inapplicable and unwarranted the benefits of The same rule applies to any
Article 1191, paragraph 3. To do so would amount he may have taken
be tantamount to excusing his bad faith and from the partnership coffers,

Simoun Antonio Montelibano Salinas - 2002-24124

 [ C 2011 ]
and his liability shall begin
from the time he converted
the amount to his own use.
Art. 1484. In a contract of
sale of personal property the
price of which is payable in
installments, the vendor may
exercise any of the following
remedies:
(1) Exact fulfillment of the
obligation, should the vendee
fail to pay;
(2) Cancel the sale, should
the vendee's failure to pay
cover two or more
installments;
(3) Foreclose the chattel
mortgage on the thing sold, if
one has been constituted,
should the vendee's failure to
pay cover two or more
installments. In this case, he
shall have no further action
against the purchaser to
recover any unpaid balance of
the price. Any agreement to
the contrary shall be void.
Art. 1485. The preceding
article shall be applied to
contracts purporting to be
leases of personal property
with option to buy, when the
lessor has deprived the lessee
of the possession or
enjoyment of the thing.
Art. 1486. In the case
referred to in two preceding
articles, a stipulation that the
installments or rents paid
shall not be returned to the
vendee or lessee shall be
valid insofar as the same may
not be unconscionable under
the circumstances. (n)
II. OBLIGATION WITH A PERIOD
Art. 1193. Obligations for
whose fulfillment a day
certain has been fixed, shall
be demandable only when
that day comes.
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 35
Obligations with a resolutory
period take effect at once, but
terminate upon arrival of the
day certain.
A day certain is understood to
be that which must necessarily
come, although it may not be
known when.
If the uncertainty consists in
whether the day will come or
not, the obligation is
conditional, and it shall be
regulated by the rules of the
preceding Section.
Art. 1180. When the debtor
binds himself to pay when his
means permit him to do so, the
obligation shall be deemed to
be one with a period, subject to
the provisions of Article 1197.
-Obligations for whose
fulfilment a day certain
has been fixed, shall be
demandable only when
that day comes (ex die)
Obligations with a
resolutory period take
effect at once, but
terminate upon arrival
of day certain (in diem)
-A day certain is to be
understood to be that
which must necessarily
come, although it may
not be known when
-If uncertainty consists
in whether the day will
come or not, it is a
conditional obligation
A. Period or term
1. Concept
-space of time which,
exerting an influence on
obligations as a consequence
of a juridical act, suspends
demandability or determines
extinguishment
vs
Period/Term Condition
Fulfillment
 [ C 2011 ] [ UP COLLEGE OF LAW ] 36
Must necessarily uncertain
come
Influence 3. As to definiteness
No effect on Gives rise to an a. Definite – when
obligation but only obligation or period is fixed
on its demandability extinguishes one b. Indefinite – when
or performance already existing period is not fixed,
Time as in Art. 1180.
Future May refer to a past Usually, court
event unknown to renders a definite
both parties period.
Will of debtor
Empowers court to Annuls obligation
fix record (exclusively
dependent on
debtor’s will)
4. As to source
Requisites a. Voluntary:
1. future Fixed or stipulated
2. certain by will of the
3. possible parties
b. Legal: Fixed by
law
B. Kinds of Periods/Terms c. Judicial: Fixed or
1. As to effect allowed by the
-Suspensive court
-Resolutory
C. Rules in case of loss,
Suspensive (ex die) deterioration or
– Art. 1193, par 1. improvement before arrival
must lapse before of period.
performance of
obligation can be (See Article 1189, 1194)
demanded (from a day
certain) Art. 1194. In case of loss,
deterioration or improvement
Resolutory ( in of the thing before the arrival
diem) of the day certain, the rules in
Art 1193 par. 2 – Article 1189 shall be observed.
period after which
performance must D. Effect of payment in
terminate advance

2. As to expression Art. 1195. Anything

a. Express: paid or delivered before
specifically the arrival of the period,
stated, or when the obligor being
period is unaware of the period or
specified in the believing that the
obligation or by obligation has become
law due and demandable,
b. Implied: may be recovered, with
When from the the fruits and interests.
nature and
circumstances of Art. 1197, par 3.
obligation, it can
be inferred that a In every case, the
period was courts shall determine
intended (Art. such period as may
1197) under the circumstances
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ] [ UP COLLEGE OF LAW ]
have been probably
contemplated by the
parties. Once fixed by
the courts, the period
cannot be changed by
them.
E. Benefit of Period
1. For whose benefit
a. creditor – antichresis
b. debtor – “within:
c. both – generally, when
a period is designated,
it
is presumed to be for
the benefit of both
creditor and debtor
-unless from tenor or
other circumstances, it
appears that the
period has been
established in favour of
one or the other
2. Effects
1. Creditor cannot compel
debtor to pay in
advance of fixed date,
nor can debtor compel
creditor to receive
payment in advance
2. Effect of antichresis:
Compulsion of debtor
to retake possession
and pay balance of
debt (beneficial for
creditor)
3. Presumption
PONCE DE LEON vs SYJUCO INC
Syjuco is allowed to refuse payment
tendered by De Leon. The period is set for
the benefit of both the creditor and the
debtor. Syjuco has nothing to lose, but
interest is not the only reason why period is
fixed. Creditor may want to keep his money
safely invested, or wants to avoid the
Simoun Antonio Montelibano Salinas - 2002-24124
37
sudden decline in purchasing power of
currency, especially at a time of uncertainty.
PARAS (dissent): If by early payment of
obligation, the creditor would not lose any
part of stipulated interest, payment must be
received.
PADILLA: Creditor should not be allowed to
exact and impose unfair terms and
conditions, such as that of barring debtor
from paying principal of loan prior to agreed
time.
BUCE vs CA & SPOUSES TIONGCO
In a reciprocal contract like a lease, the
period must be deemed to have been agreed
upon by and for the benefit of both parties.
It was not specifically indicated who may
exercise the option to renew, neither was it
stated that the option was given for
petitioner’s benefit. After termination of the
lease, petitioner became subject to ejectment
from the premises. But no prayer was
included for possession or restoration of
leased properties.
4. When debtor loses right
to make use of period
Art. 1198. The debtor
shall lose every right to
make use of the period:
(1) When after the
obligation has been
contracted, he becomes
insolvent, unless he
gives a guaranty or
security for the debt;
(2) When he does not
furnish to the creditor
the guaranties or
securities which he has
promised;
(3) When by his own
acts he has impaired
said guaranties or
securities after their
establishment, and
when through a
fortuitous event they
disappear, unless he
immediately gives new
 [ C 2011 ] [ UP COLLEGE OF LAW ] 38
ones equally ARANETA vs PHIL SUGAR ESTATES DEVT
satisfactory;
The issue was not the court fixing the time of
(4) When the debtor performance but determining whether or not
violates any the parties agreed that Araneta should have
undertaking, in reasonable time to perform its part in the
consideration of which bargain. In no case can the court hold that
the creditor agreed to under the plea mentioned, the intervention of
the period; the court to fix the period of performance was
warranted. No basis is stated to support the
(5) When the debtor court’s intervention, or the period of two
attempts to abscond. years it granted.

Article 1197 has a 2 step process. It has to be

determined that the obligation does not fix a
period; then, it has to determine the period
probably contemplated by the parties. The
F. When Court May Fix Period
period contemplated was the performance of
the eviction of the squatters.
Art. 1197. If the
obligation does not fix a DEUDOR vs JM TUASON CO
period, but from its nature
and the circumstances it When the court exercises the power to fix the
can be inferred that a period, it does not modify or alter but merely
period was intended, the enforces period. It can be inferred that a
courts may fix the period was intended by the parties thereto.
duration thereof. The period within which delivery was made
sprang from the agreement between Deudor
The courts shall also fix and JM Tuason.
the duration of the
period when it depends
upon the will of the
III. ALTERNATIVE OBLIGATIONS
debtor.

In every case, the courts A. Concept –

shall determine such Art. 1199. A person alternatively
period as may under the bound by different prestations shall
circumstances have been completely perform one of them.
probably contemplated by The creditor cannot be compelled to
the parties. Once fixed by receive part of one and part of the
the courts, the period other undertaking.
cannot be changed by
them. -several objects being due, the
fulfilment of one is sufficient,
1. Period is implied determined by the choice of the debtor
2. Period depends who generally has the right of election.
solely on will of
debtor -The obligation is extinguished by
performance of only one of the
LACHICA vs ARANETA prestations.

A term is fixed and presumed to have been B. Right of Choice

established for the benefit of both creditor
and debtor, unless from its tenor, it should Art. 1200. The right of choice
appear that the term was established for the belongs to the debtor, unless it
sale. The contract did not prohibit payment has been expressly granted to
before the fixed date. Although defendant the creditor.
holds that the reason for the dates is for
stipulated interest. -Proper election does
not require assent.

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 [ C 2011 ]
C. Effect of Notice of Choice
-Expressed by election
or choice; once made,
election is irrevocable
-Election ceases to be
alternative from the
time creditor’s choice
is made, when he is
expressly allowed to
do so.
D. When Notice Produces Effect –
Art. 1201. The choice shall
produce no effect except from
the time it has been
communicated.
E. Effect of loss or impossibility
of one or all prestations- Art.
1202 to 1205
Art. 1202. The debtor shall
lose the right of choice when
among the prestations
whereby he is alternatively
bound, only one is
practicable. (1134)
Art. 1203. If through the
creditor's acts the debtor
cannot make a choice
according to the terms of the
obligation, the latter may
rescind the contract with
damages. (n)
Art. 1204. The creditor shall
have a right to indemnity for
damages when, through the
fault of the debtor, all the
things which are alternatively
the object of the obligation
have been lost, or the
compliance of the obligation
has become impossible.
The indemnity shall be fixed
taking as a basis the value of
the last thing which
disappeared, or that of the
service which last became
impossible.
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 39
Damages other than the value
of the last thing or service may
also be awarded. (1135a)
Art. 1205. When the choice
has been expressly given to the
creditor, the obligation shall
cease to be alternative from
the day when the selection has
been communicated to the
debtor.
Until then the responsibility of
the debtor shall be governed by
the following rules:
(1) If one of the things
is lost through a
fortuitous event, he
shall perform the
obligation by delivering
that which the creditor
should choose from
among the remainder,
or that which remains if
only one subsists;
(2) If the loss of one of
the things occurs
through the fault of the
debtor, the creditor may
claim any of those
subsisting, or the price
of that which, through
the fault of the former,
has disappeared, with a
right to damages;
(3) If all the things are
lost through the fault of
the debtor, the choice
by the creditor shall fall
upon the price of any
one of them, also with
indemnity for damages.
The same rules shall be
applied to obligations to
do or not to do in case
one, some or all of the
prestations should
become impossible.
F. Facultative Obligation-
Art. 1206 When only
one prestation has been
agreed upon, but the
obligor may render
another in substitution,
the obligation is called
facultative.
 [ C 2011 ] [ UP COLLEGE OF LAW ]
The loss or
deterioration of the
thing intended as a
substitute, through the
negligence of the
obligor, does not
render him liable. But
once the substitution
has been made, the
obligor is liable for the
loss of the substitute
on account of his
delay, negligence or
fraud.
40
creditor or a third discretion and choice
person. of the debtor.
3. Effect of Substitution
Substitute: the thing or
service owed to the creditor
instead of the original or
main obligation
-before substitution:
substitution is at debtor’s
option and cannot be
compelled by the creditor,
nor may the creditor refuse
the substitution

1. Concept – in facultative
obligations, only one thing is IV. JOINT AND SOLIDARY
due. But the debtor has
OBLIGATIONS
reserved the right to
substitute it with another. In
a facultative obligation, loss of A. Joint Obligations
that which may be given as
substitute does not affect the 1. Concept: A joint obligation
delay. is one in which each of the
debtors is liable only for a
-In facultative proportionate part of the debt
obligations, the choice and each of the creditors is
never falls on the entitled only to a proportionate
creditor. The creditor part of the debt. Each creditor
can never refuse or can only recover his share of
reject the substitution the obligation and each debtor
can be made to pay only his
2. Distinguished from part.
Alternative Obligation
-Obligations existing between
several persons, among whom
ALTERNATIVE FACULTATIVE
the benefit or the burden of the
1. Several 1. Only one principal
obligation is divided.
prestations due; prestation due, but
many constitute accessory only as
prestations that are means to facilitate A. Requisites
part of the payment. 1. Plurality of
obligation. Subjects: More
2. Nullity of one 2. The nullity of the than one creditor or
prestation does not principal prestation debtor or both
invalidate the invalidates the
obligation which is obligation and the 2. Determination of
still in force. creditor cannot shares in the
demand the demandability or
substitute even when the fulfilment of
this is valid.
the obligation:
3. Loss of one 3. Loss of the
Shares may be
alternative substitute due to
unequal, but the
prestation due to debtor’s fault does
presumption is that
debtor’s fault not render him liable
shares are equal, if
renders him liable if for damages
from the law, the
the choice is by the
nature or the
creditor.
wording of the
4. Choice may be 4. Substitution is obligation, the
granted to the always at the
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ] [ UP COLLEGE OF LAW ] 41
contrary does not
appear. -When two persons are
liable under a contract
Shares shall be or under a judgment,
considered distinct and no words appear
from one another in the contract or
subject to rules of judgment to make
court governing each liable for the entire
multiplicity of suits obligation,
the presumption is that
B. Words used to their obligation is joint
indicate and each debtor is liable
Joint Obligations only for a proportionate
-“We promise to pay” part of the obligation.
used by two or more
signers -It is not necessary that
the agreement should
use precisely the word
2. Presumption- Art. 1207, 1208 “solidary” for an
obligation to do so.
When a final judgment
Art. 1207. The does not specify that it
concurrence of two or is solidary liability, it is
more creditors or of presumed joint.
two or more debtors in
one and the same
3. Effects- Art. 1207, 1208
obligation does not
imply that each one of
a. Extent of liability of
the former has a right
debtor
to demand, or that
b. Extent of right of creditor
each one of the latter
is bound to render,
1. The demand by one creditor upon
entire compliance with
one debtor, produces the effects of
the prestation. There is
default only with respect to the
a solidary liability only
creditor who demanded and the debtor
when the obligation
on whom the demand was made, but
expressly so states, or
not with respect to the others.
when the law or the
nature of the
2. The interruption of prescription by
obligation requires
the judicial demand of one creditor
solidarity.
upon a debtor, does not benefit other
creditors nor interrupt the prescription
Art. 1208. If from as to other debtors. Partial payment or
the law, or the nature acknowledgment made by one of the
or the wording of the debtors does not stop the running of
obligations to which the statute of limitations against the
the preceding article others.
refers the contrary
does not appear, the 3. The vices of each obligation arising
credit or debt shall be from the personal defect of a
presumed to be particular debtor or creditor does not
divided into as many affect the obligation or rights of the
shares as there are others.
creditors or debtors,
the credits or debts 4. The insolvency of a debtor does not
being considered increase responsibility of his co-
distinct from one debtors nor does it authorize a creditor
another, subject to the to demand anything from his co-
Rules of Court creditors.
governing the
multiplicity of suits.
Simoun Antonio Montelibano Salinas - 2002-24124
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5. Res judicata is not extended from
one debtor to another in a joint
divisible obligation.
Divisible- each creditor may
independently demand and
compel performance of his
share of the credit
c. In case of novation,
compensation, confusion
(Art. 1277), remission
[ UP COLLEGE OF LAW ] 42
equivalent, the creditor
renounces the
enforcement of the
obligation, which is
extinguished in its
entirety or in that part
or aspect of the same to
which the remission
refers. It is gratuitous.

Art. 1215. Novation, B. Solidary Obligations

compensation, confusion or 1. Concept: One in which
remission of the debt, made each debtor is liable for the
by any of the solidary entire obligation
creditors or with any of the
solidary debtors, shall
a. Requisites - solidary
extinguish the obligation,
liability exists only when
without prejudice to the
the obligation expressly so
provisions of Article 1219.
states or when the law or the
nature of the obligation
Novation - extinguishment
requires solidarity
of an obligation by
substitution or change of the
i. use of the term
obligation by a subsequent
“solidary” is not required
one which extinguishes or
modifies the first.
-plurality of subjects
shares unity of
Compensation –
prestation
capacity to dispose of
the thing paid and
ii. intention to establish
capacity to receive
solidary liability must
payment is not
clearly appear
necessary. It results
in a partial
iii. Philippine doctrine
extinguishment of an
requires express
obligation.
provision. There exists a
presumption against
Confusion – the
solidarity and a
meeting in one person
presumption of joint
of the qualities of
obligations
creditor and debtor of
the same obligation.
b. Words used to indicate
Art. 1277. Confusion solidary obligations
does not extinguish a
joint obligation except “joint and several” or “in
as regards the share solidum”
corresponding to the
creditor or debtor in -“I promise to pay” with two or
whom the two more persons
characters concur.
-“use of the words individually
Remission – without and collectively”
receiving any

Simoun Antonio Montelibano Salinas - 2002-24124

 [ C 2011 ] [ UP COLLEGE OF LAW ] 43
2. Kinds for the purpose of
a. As to source enforcing neutrality.

Art. 1208. If from the law,

or the nature or the wording
of the obligations to which the ii. Conventional
preceding article refers the
contrary does not appear, the iv. Real – from the
credit or debt shall be nature of the
presumed to be divided into obligation, such
as many shares as there are as mortgage of
creditors or debtors, the one object by its
credits or debts being co-owners
considered distinct from one
another, subject to the Rules
of Court governing the
multiplicity of suits.

i. Legal
b. As to parties bound
Art. 1915. If two or i. Active: solidarity of
more persons have creditors, each having
appointed an agent for the right to collect from
a common transaction the common debtor
or undertaking, they
shall be solidarily liable -its essence consists of
to the agent for all the the authority to claim
consequences of the and enforce the rights of
agency. all, with the resulting
-co-principals to obligation of paying
a common anyone what belongs
agent to him.

Art. 1945. When -the credit and its

there are two or more benefits are equally
bailees to whom a divided among the
thing is loaned in the creditors
same contract, they
are liable solidarily. ii. Passive: solidarity
-of bailees of debtors, where each
is liable to pay the
Art. 2194. The whole
responsibility of two or to the common creditor
more persons who are
liable for quasi-delict is -its essence is that each
solidary. debtor can be made to
-of tortfeasors answer for the others
with the right on the
part of the debtor –
Art. 119, RPC: The payor to recover from
penalty of prision the others their
correctional shall be respective shares
inflicted upon any one
who, on the occasion iii. Mixed:
of a war, in which the simultaneously
government is not active and passive
involved, violates any
regulation issued by c. As to uniformity
competent authority
i. Uniform: with the

Simoun Antonio Montelibano Salinas - 2002-24124

 [ C 2011 ] [ UP COLLEGE OF LAW ] 44
same terms and can be sued, despite the SEC order, since the
conditions for all said order only affects PBM and not Ching.
When an obligation states solidary liability,
-debtors are bound concurrence of 2 or more creditors or 2 or
by same conditions or more debtors in one obligation implies that
clauses one of the former can demand or that each of
the latter is bound to render entire
ii. Varied/Non- compliance of the prestation.
uniform- Art. 1211
LAFARGE CEMENT PHIL vs CONTINENTAL
Art. 1211. Solidarity CEMENT
may exist although the
creditors and the The fact that the liability sought against
debtors may not be respondent Continental Cement is solely for
bound in the same tort does not negate the solidary nature of
manner and by the their liability.
same periods and
conditions.

3. Effects
-with different periods a. Solidary creditor in
and conditions for each relation to:
1. common debtor –
effects right to demand

-only the portion due Art. 1215. Novation,

at the time is compensation, confusion
collectible from any or remission of the debt,
one of the debtors or made by any of the
by any one of the solidary creditors or with
creditors. any of the solidary
debtors, shall extinguish
YNCHAUSTI vs YULO the obligation, without
prejudice to the
The obligation being solidary, the remission provisions of Article
of any part of the debt made by a creditor in 1219.
favor of one or more of the solidary debtors
necessarily benefits the others and The creditor who may
therefore, there can be no doubt that all have executed any of
debtors have a right to enjoy the benefits of these acts, as well as he
the partial remission granted by the who collects the debt,
creditor. Only the 225,000 in the second shall be liable to the
contract can be recovered, on the basis of others for the share in
the remission of the 3 debtors. the obligation
corresponding to them.
INCIONG vs CA (1143)

The promissory note expressly states three Art. 1216. The

signatories as jointly and severally liable. creditor may proceed
Any one, some or all of them may be against any one of the
proceeded against for the entire obligation. solidary debtors or some
The choice is left to the solidary creditor to or all of them
determine against whom he will enforce simultaneously. The
collection. demand made against
one of them shall not be
RCBC vs CA an obstacle to those
which may subsequently
The ‘Comprehensive Surety Agreement’ the be directed against the
parties entered into expressly consider others, so long as the
Ching as a surety. Liability may not be
restricted or extended by implication. He
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ] [ UP COLLEGE OF LAW ] 45
debt has not been fully - in case of novation,
collected. (1144a) compensation, confusion,
remission-
Art. 1217 (par 1).
Payment made by one Art. 1215 par. 2. The
of the solidary debtors creditor who may have
extinguishes the executed any of these
obligation. If two or acts, as well as he who
more solidary debtors collects the debt, shall
offer to pay, the be liable to the others
creditor may choose for the share in the
which offer obligation corresponding
to accept. to them.

-Other creditors may

recover their respective
shares in the obligation
from creditors who
effected novation,
compensation, confusion
or remission.
Effects of acts of novation,
compensation, confusion - prejudicial acts
of the debt prohibited-
-These are considered from
two aspects: Art. 1212. Each one of
the solidary creditors
1) the relation between the may do whatever may
creditors on one hand and be useful to the others,
the debtors on the other but not anything which
and may be prejudicial to
2) the relations among co- the latter.
debtors themselves
-A solidary creditor
Between Creditors & cannot do anything
Debtors prejudicial to the co-
-any of these acts will creditors. The act of
extinguish the obligation extinguishment will be
valid so as to extinguish
Between Creditors: claim against debtors,
-extinguishment of obligation but not with respect to
does not prejudice the right of co-creditors whose
the other creditors to recover rights subsist and can
their share in obligation from be enforced against
creditor who effected any of creditor who performed
the above the act alone.

Between Debtors: Co-

debtor to whom obligation - assignment of
was extinguished cannot rights not allowed-
recover from his co-debtors
more than their respective Art. 1213. A solidary
shares in whatever he may creditor cannot assign
have given up or lost as his rights without the
consideration for consent of the others.
extinguishment of other
obligation -the solidary creditor is
an agent of the others,
2. solidary co-creditor/s hence he cannot assign
that agency to a third
person without the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 46
consent of other Novation,
creditors. Mutual compensation, confusion
agency, the essence of or remission of the debt,
active solidarity, made by any of the
implies mutual solidary creditors or with
confidence; hence, it is any of the solidary
just to require consent debtors, shall extinguish
of others. Take note: the obligation, without
the power of the prejudice to the
creditor to extinguish provisions of Article
the obligation justifies 1219.
this rule.

b. Solidary debtor in
relation to: ii. solidary co-debtor

i. common creditor - in case of payment

by a co-debtor- Art.
- obligation to 1217-1220
perform-

Art. 1207. The Art. 1217. Payment

concurrence of two or made by one of the
more creditors or of solidary debtors
two or more debtors in extinguishes the
one and the same obligation. If two or
obligation does not more solidary debtors
imply that each one of offer to pay, the creditor
the former has a right may choose which offer
to demand, or that to accept.
each one of the latter
is bound to render, He who made the
entire compliance with payment may claim
the prestation. There is from his co-debtors only
a solidary liability only the share which
when the obligation corresponds to each,
expressly so states, or with the interest for the
when the law or the payment already made.
nature of the If the payment is made
obligation requires before the debt is due,
solidarity. no interest for the
intervening period may
- in case of be demanded.
novation,
compensation, When one of the
confusion, solidary debtors cannot,
remission by a because of his
creditor- Art. insolvency, reimburse
1215 par. 1 his share to the debtor
paying the obligation,
such share shall be
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 47
borne by all his co- After one solidary debtor
debtors, in proportion has paid the entire
to the debt of each. obligation, it is
extinguished and there
-Payment by one is nothing to remit, even
solidary debtor partially.
extinguishes the
obligation. He who Art 1220. The
made payment may remission of the whole
claim from his co- obligation, obtained by
debtors only the share one of the solidary
which corresponds to debtors, does not entitle
each, with interest of him to reimbursement
payment already from his co-debtors.
made.

-He cannot claim

entire amount, but
only that share
pertaining to each with
interest on the amount
advanced

in case of fortuitous
Art. 1218. Payment event- Art. 1221
by a solidary debtor
shall not entitle him to Art. 1221. If the thing
reimbursement from has been lost or if the
his co-debtors if such prestation has become
payment is made after impossible without the
the obligation has fault of the solidary
prescribed or become debtors, the obligation
illegal. shall be extinguished.

-It is no longer due, If there was fault on the

and none of the part of any one of them,
solidary debtors may all shall be responsible
be compelled to pay. If to the creditor, for the
one does pay, he does price and the payment
not revive the of damages and
obligation. interest, without
prejudice to their action
Art. 1219. The against the guilty or
remission made by the negligent debtor.
creditor of the share
which affects one of If through a fortuitous
the solidary debtors event, the thing is lost
does not release the or the performance has
latter from his become impossible after
responsibility towards one of the solidary
the co-debtors, in case debtors has incurred in
the debt had been delay through the
totally paid by anyone judicial or extrajudicial
of them before the demand upon him by
remission was the creditor, the
effected. provisions of the
preceding paragraph
-Exemption of co- shall apply.
debtor in such a case
will give way to fraud.
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-If anyone was at
fault, all shall be
responsible to the
creditor. In case of
fortuitous event, the
things lost or
impossible due to
delay, provision of
preceeding paragraph
shall apply.
JAUCIAN vs QUEROL
Article 1144 of the old Civil Code states that
a creditor may sue any of the joint and
several debtors or all of them
simultaneously. Rogero was liable
absolutely for the full amount of the
obligation. Her position so far as the
creditor was concerned was exactly the
same as if she had been the principal
debtor.
RFC vs CA
The obligation to pay the balance had
already been assumed by RFC. With no
other conditions other than the title first be
conveyed to Dominguez and the lien
registered.
QUIOMBING vs CA
It did not matter who between the
petitioners would file the complaints since
the respondents were liable to either of
them as a solidary creditor for the full
amount of the debt.
4. Defenses available to a
solidary debtor against the
creditor- Art. 1222
Art. 1222. A solidary
debtor may, in actions
filed by the creditor,
avail himself of all
defenses which are
derived from the
nature of the
obligation and of those
which are personal to
him, or pertain to his
own share. With
respect to those which
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 48
personally belong to the
others, he may avail
himself thereof only as
regards that part of the
debt for which the latter
are responsible.
a. Types
i. those derived from the
nature of the obligation
-defenses which may
contribute to or weaken
or destroy vinculum
juris
-nullity due to capacity
or consent of all
debtors; mistake, fraud,
violence
-invalidate original
contract
-death of principal
debtor only bars
execution against
debtor’s estate, not
nature of obligation
itself
ii. personal defenses
-partial or total defense
-those which annul
consent
iii. defenses pertaining to
his share
-special terms or
conditions affecting his
part of the obligation
iv. those personally
belonging to the other co-
debtors
-those which exempt
him from payment
or obligation pertaining
to other debtors who
have personal defense
b. Effects
ALIIPIO vs CA
The debt to be demanded is accountable to
the couple’s conjugal partnership of gains.
Hence, an ordinary proceeding for a money
claim in the settlement of the estate of the
 [ C 2011 ]
decedent. Upon death of Alipidio, the CPG
was dissolved, and debts chargeable to it
are paid in accordance with the settlement
of estate proceedings. In this case, the
spouses did not jointly and severally claim
the debt to respondent. The obligation
assumed in this case is joint. Also, no
stipulation was present to render the
obligation solidary.
C. Joint Indivisible Obligations
1. Concept
-Necessity of collective
fulfilment and the action
must be against all
debtors.
-When there are several
debtors or creditors, but
the prestation is
indivisible, the obligation
is joint.
-midway between joint
and solidary obligations
-its fulfilment requires
concurrence of all debtors
-ex: delivery of a house
Distinguished from
joint obligations:
1) No creditor can do
an act prejudicial
to others
2) No debtor can be
made to answer for
others
3) Collective action is
expressly required
4) Various creditors
Distinguished from
solidary obligations:
1) requires plurality of
subjects
2) not required in
indivisibility
Art. 1209. If the division
is impossible, the right of
the creditors may be
prejudiced only by their
collective acts, and the
debt can be enforced only
by proceeding against all
the debtors. If one of the
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 49
latter should be insolvent,
the others shall not be liable
for his share.
2. Indivisibility vs.
Solidarity
Art. 1210. The
indivisibility of an obligation
does not necessarily give
rise to solidarity. Nor does
solidarity of itself imply
indivisibility.
-in solidary obligations,
each creditor may demand
the full prestation and each
debtor has the duty to
comply.
-in indivisible joint
obligations, each creditor
cannot demand more than
his share and each debtor is
not liable for more than his
share
solidarity – legal tie or
vinculum juris defining
extent of liability
indivisibility - -prestation
which is not capable of
partial performance
3. Effects
(Art. 1209)
a. Liability for
damages in case of
breach
Art. 1224. A joint
indivisible obligation
gives rise to indemnity
for damages from the
time anyone of the
debtors does not comply
with his undertaking.
The debtors who may
have been ready to fulfill
their promises shall not
contribute to the
indemnity beyond the
corresponding portion of
the price of the thing or
of the value of the
service in which the
obligation consists.
 [ C 2011 ] [ UP COLLEGE OF LAW ] 50
rendered, as the case
may be.

-identity: very thing or

service due

-integrity: fulfilled
completely

B. Indivisible Obligations
1. Concept: when it cannot be
validly performed in parts

a. Distinguished from
solidary obligations

solidarity: vinculum juris and

refers to subject of obligation

indivisibility: prestations
or object of the obligation

V. DIVISIBLE AND INDIVISBLE

OBLIGATIONS 2. Kinds
a. Natural- Art. 1225 par. 1
Art. 1225 par. 1. For
A. Divisible Obligations the purposes of the
1. Concept: When each of the preceding articles,
parts into which it is divided obligations to give
is divided forms a definite things and
homogenous and analogous those which are not
object to the other parts as susceptible of partial
well as the thing itself. performance shall be
deemed to be
2. Effects- Art. 1223, 1233 indivisible.
Art. 1223. The -when the object
divisibility or is, by nature,
indivisibility of the indivisible,
things that are the so that it could
object of obligations in never be due
which there is only one without being
debtor and only one indivisible
creditor does not alter
or modify the b. Legal- Art. 1225 par. 3
provisions of Chapter 2 However, even though
of this Title. the object or service
may be physically
divisible, an obligation is
Art. 1233. A debt indivisible if so provided
shall not be by law or intended by
understood to have the parties.
been paid unless the
thing or service in c. Conventional- Art. 1225 par. 3
which the obligation (intended by the parties)
consists has been
completely delivered or 3. Presumptions
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a. Of indivisibility-
Art. 1225 par. 1 1. Principal Obligations:
For the purposes of those that can stand alone,
the preceding independently of the
articles, obligations existence of other obligations
to give definite things and have individual and
and those which are independent purpose.
not susceptible of
partial performance
shall be deemed to
be indivisible.
Accessory obligations:
b. Of divisibility- Those attached to a
Art. 1225 par. 2 principal obligation in order
When the obligation to complete the same or
has for its object the take their place in case of
execution of a certain breach.
number of days of
work, the VS Conditional Obligations:
accomplishment of -in conditional obligations, no
work by metrical units, obligation exists before
or analogous things suspensive condition happens;
which by their nature it is the fulfilment that gives
are susceptible of rise to the obligation
partial performance, it
shall be divisible.
Penal Clause: an existing
obligation (the principal) exists
4. Divisibility and indivisibility in from the very beginning
obligations not to do-
Art. 1225 par. 3 Conditional: principal
-determined by the character obligation dependent on
of the prestation in each case Uncertain event

5. Effects- Art. 1223, 1233, 1224 Penal Clause: accessory

- see Joint Indivisible Obligations dependent on principal

6. Cessation of indivisibility VS Alternative Obligations:

A. Natural Indivisibility: by Alternative: 2 or more
conversion of the obligation obligations are due, but
into an obligation to pay fulfilment of one is sufficient
damages
Penal: Only one prestation and
B. Conventional or Legal only in its non-performance is
Indivisibility penal clause enforceable
-by novation of the obligation
-by death of creditor or Alternative: impossibility of
debtor (heirs may pursue) one makes other obligations
subsist
VI. OBLIGATIONS WITH A PENAL
CLAUSE Penal: impossibility of principal
obligation extinguishes penalty

A. Concept: an accessory Alternative: debtor chooses

undertaking to assume greater obligation
liability in case of breach. It is
attached to an obligation in Penal: debtor cannot choose
order to insure performance. It payment of penalty to address
may be a sum of money, or principal obligation absent
anything stipulated by parties, express right
including acts and abstentions.
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VS Facultative Obligations:
Facultative: power of debtor
to make substitution is
absolute
Penal: power granted only
by
express stipulation
Facultative: creditor can
never demand both
prestations
Penal: such right may be
granted to him
Penal Clause vs Guaranty
-guaranty: contract by virtue
of which a 3rd person called
the guarantor binds himself to
fulfil the obligations to
principal in case debtor fails
to do so
SAME: Both insure
performance of principal
obligation
-Both accessory and
subsidiary obligations
DIFF:
1) Penal: obligation to pay
penalty is different from
principal obligation
Guaranty: object of
obligation of principal debtor
and guarantor is the same
2) Penal: principal obligation
of penalty can be assumed by
same person
Guaranty: Guarantor can
never be the principal debtor.
3) Penal: penalty is
extinguished by nullity of
principal obligation
Guaranty: guaranty subsists
even when principal obligation
is void or unenforceable or is
a natural one.
B. Kinds of Penal Clause
1. As to effect
a. Subsidiary: when only
the penalty may be enforced
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b. Complementary: when
both the principal obligation
and the penalty may be
enforced
2. As to source
a. Conventional: produced
by agreement
b. Legal: provided by law
3. As to purpose
a. Punitive: where damages
may be collected
b. Reparatory: where the
penalty substitutes
indemnification for damages
C. Demandability of Penalty-
Art. 1226 par. 2 The
penalty may be enforced
only when it is
demandable in
accordance with the
provisions of this Code.
D. Effects of Penal Clause
1. Substitute for
indemnity for damages and
payment of interest-
Art. 1226. . In
obligations with a penal
clause, the penalty shall
substitute the indemnity
for damages and the
payment of interests in
case of noncompliance,
if there is no stipulation
to the contrary.
Nevertheless, damages
shall be paid if the
obligor refuses to pay
the penalty or is guilty
of fraud in the fulfillment
of the obligation.
The penalty may be
enforced only when it is
demandable in
accordance with the
provisions of this Code.
-Unless the contrary is
stipulated, the penalty
shall substitute the
indemnity and the
payment of interests in
case of non-compliance
 [ C 2011 ] [ UP COLLEGE OF LAW ] 53
by lessee’s violation is a valid penal clause.
a. Exception- Art. 1226 The undertaking assumed by Country Bankers
-Damages shall be Insurance refers to all such damages vas
paid if the obligor such party may sustain by reason of the
refuses to pay the injunction if the court should finally decide
penalty or is guilty of that the plaintiffs were not entitled thereto.
fraud in the fulfillment There is a stipulation in the contrary in this
of the obligation. case.

-When purpose is 2. Not exempt debtor from

punishment, question performance-
of indemnity for Art. 1227The debtor cannot
damages is not exempt himself from the
resolved, but is performance of the obligation by
subsisting. paying the penalty…

-When purpose is a. Exception-

reparation, damages
Art. 1227…save in the
are generally resolved.
case where this right
has been expressly
reserved for him.

MKTI DEV’T CORP vs EMPIRE 3. Creditor cannot demand both

INSURANCE performance and penalty at the
same time-
The ‘special condition’ was, in fact, a penal Art. 1227 …Neither
clause. According to Article 1229 of the Civil can the creditor demand
Code, the judge shall reduce the penalty the fulfillment of the
when the principal obligation has been obligation and the
partly or irregularly complied with by the satisfaction of the
debtor. Since there was a partial penalty at the same
performance of the obligation, courts are time…
called to apply strictly against enforcement
a. Exceptions-
of penalty in its entirety. Also, nothing in
the deed of sale restricted Anda’s right to
Art. 1227… unless
this right has been
sell the lot within the two year period.
clearly granted him.
TAN vs CA 4. Creditor cannot collect other
damages in addition to penalty-
The promissory note clearly makesv the Art. 1226
stipulation of payment of interest. Penalty a. Exceptions- Art. 1226:
clauses can be in the form of penalty or 1) express provision to that
compensatory interest. It was through the effect
fault of the defendant that said default had 2) debtor refuses to pay the
taken place. However, petitioner had made penalty
several payments and the continued
3) debtor is guilty of fraud
monthly accrual of the 2% penalty was
deemed unconscionable by the court, led to
a reduction to 12% total. E. When penalty shall be equitably
reduced-
COUNTRY BANKERS INSURANCE vs CA
Art. 1229 The judge
A provision for forfeiture of the remaining shall equitably reduce
deposit still in possession of the lessor in the the penalty when the
event of the cancellation of the agreement principal obligation has
Simoun Antonio Montelibano Salinas - 2002-24124
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been partly or public order or public
irregularly complied policy
with by the debtor.
Even if there has been -if principal obligation is
no performance, the valid, it exists
penalty may also be
reduced by the courts
if it is iniquitous or
unconscionable.

-In any case where

there has been partial
or irregular
compliance with
provisions of a contract
with a penal clause,
courts apply strictly
against enforcement of
penalty in its entirety

F. Nullity of Principal Obligation or

Penal Clause
1. Effects-
Art. 1230 The nullity
of the penal clause
does not carry with it
that of the principal
obligation.
CHAPTER 4: EXTINGUISHMENT OF
OBLIGATIONS
I. Modes of Extinguishment-
Art. 1231. Obligations are
extinguished:

The nullity of the (1) By payment or

principal obligation performance:
carries with it that of
the penal clause. (2) By the loss of the thing
due:
-exception: when
penalty undertaken by (3) By the condonation or
3rd person precisely for remission of the debt;
obligation that is
unenforceable, void or (4) By the confusion or merger
natural, it assumes the of the rights of creditor and
form of a guaranty debtor;

-when nullity of a (5) By compensation;

principal obligation
itself gives rise to a (6) By novation.
liability of debtor for
damages Other causes of extinguishment
of obligations, such as
2. Rationale annulment, rescission,
fulfillment of a resolutory
-if it is contrary to law, condition, and prescription, are
morals, good customs, governed elsewhere in this
Code.
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ii. effects- Art. 1302[3] It is
II. Payment or Performance presumed that there is legal
A. Concept- subrogation:

Art. 1232. Payment (3) When, even without the

means not only the knowledge of the debtor, a
delivery of money but person interested in the
also the performance, fulfillment of the obligation
in any other manner, pays, without prejudice to the
of an obligation. effects of confusion as to the
latter's share.
- it is the fulfillment of
the prestation due, a -subrogation transfers to the
fulfillment that third person or new creditor the
extinguishes the entire credit, with all the
obligation by corresponding rights
realization of the
purpose for which it c. third person who is not an
was constituted/ interested party but with
consent of debtor
-Payment, and i. effects-
fulfillment are Art. 1302[2], When a
identical. third person, not
interested in the
obligation, pays with the
express or tacit approval
of the debtor;

B. Requisites
1. the person who pays
2. the person to whom 1236 par. 1 The
payment is made creditor is not bound to
3. the thing to be paid accept payment or
4. the manner, time and performance by a third
place of payment, etc. person who has no
interest in the fulfillment
1. Who can pay of the obligation, unless
a. in general: the debtor or there is a stipulation to
his duly authorized agent the contrary.

-the debtor’s heir or successor -This is because

in interest whenever a third
person who has
-any person interested in the no interest in the
fulfillment of obligation obligation pays,
there is a
b. third person who is an modification of a
interested party prestation that is
i. meaning of “interested due. A creditor
party” - the persons who should not be
have an interest in the compelled to
fulfillment of the obligation accept payment
are those who would be from a third
benefited by the person whom he
extinguishment of the may dislike or
obligation (co-debtors, distrust.
sureties, guarantors)
d. third person who is not
an interested party and
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without knowledge or 1427 under the Title on
against the will of the "Natural Obligations."
debtor
i. effects- Art. 1236, -when the person
par. 1; par. 2. paying has no capacity
Whoever pays for to make the payment,
another may demand the creditor cannot be
from the debtor what compelled to accept it;
he has paid, except in case he accepts it,
that if he paid without the payment will not be
the knowledge or valid, except in the case
against the will of the of Article 1427.
debtor, he can recover
only insofar as the Art. 1427. When a minor
payment has been between eighteen and twenty-
beneficial to the one years of age, who has
debtor. entered into a contract without
the consent of the parent or
Art. 1237 Whoever guardian, voluntarily pays a
pays on behalf of the sum of money or delivers a
debtor without the fungible thing in fulfillment of
knowledge or against the obligation, there shall be no
the will of the latter, right to recover the same from
cannot compel the the obligee who has spent or
creditor to subrogate consumed it in good faith.
him in his rights, such
as those arising from a
mortgage, guaranty,
or penalty.

i. effect of incapacity

e. third person who does

not intend to be g. in case of active solidarity-
reimbursed- Art. 1214. The debtor
Art. 1238. .Payment may pay any one of the
made by a third person solidary creditors; but if
who does not intend to any demand, judicial or
be reimbursed by the extrajudicial, has been
debtor is deemed to be made by one of them,
a donation, which payment should be
requires the debtor's made to him.
consent. But the
payment is in any case -equality of
valid as to the creditor rights of solidary
who has accepted it. creditors by
virtue of mutual
-no one should representation
be compelled to lasts only until
accept the one of therm
generosity of goes ahead of
another the others and
sues the debtors.
f. in obligation to give- 2. To whom payment may be made
Art. 1239. In obligations to a. in general-
give, payment made by one Art. 1240. Payment
who does not have the free shall be made to the
disposal of the thing due and person in whose favor
capacity to alienate it shall the obligation has been
not be valid, without prejudice constituted, or his
to the provisions of Article successor in interest, or
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any person authorized
to receive it. i. requisites
1. if the payee has
-The repayment kept the thing
of debt must be delivered, or
made to the 2. insofar as the
person in whose payment has been
favor the beneficial to him
obligation is 3. payment made to a
constituted or creditor after debtor
to another has been judicially
authorized to ordered to retain the
receive the debt.
payment in his c. third person-
name. Art. 1241 par. 2
Payment made to a third
-at the time of person shall also be
payment. valid insofar as it has
redounded to the benefit
-also to a of the creditor. Such
person not benefit to the creditor
authorized to need not be proved in
receive the following cases:
payment , by
law or (1) If after the payment,
stipulation the third person
acquires the creditor's
rights;

(2) If the creditor

ratifies the payment to
the third person;
b. incapacitated person-
Art. 1241 par. 1 (3) If by the creditor's
Payment to a person conduct, the debtor has
who is incapacitated to been led to believe that
administer his property the third person had
shall be valid if he has authority to receive the
kept the thing payment.
delivered, or insofar as i. requisites (same as prior)
the payment has been
beneficial to him. ii. when proof of benefit not
required-
-when the Art. 1241 par. 3.
creditor is Art. 1242 Payment
incapacitated to made in good faith to
receive any person in
payment, this possession of the credit
must be made shall release the debtor.
to his legal
representative -the person in
if there is one. possession of the
credit is neither
-the debtor the creditor nor
may pay again one authorized
to the by him, to
incapacitated receive payment,
person when he but appears,
attains under the
capacity. circumstances

Simoun Antonio Montelibano Salinas - 2002-24124

 [ C 2011 ] [ UP COLLEGE OF LAW ] 58
of the case, to circumstances have not
be been stated, the creditor
the creditor. cannot demand a thing
of superior quality.
d. in case of active solidarity- Neither can the debtor
Art. 1214. The debtor deliver a thing of inferior
may pay any one of quality. The purpose of
the solidary creditors; the obligation and other
but if any demand, circumstances shall be
judicial or taken into consideration.
extrajudicial, has been
made by one of them, -Quality in cases
payment should be of disagreement
made to him. as to quality, the
court should
3. What is to be paid (“Identity”) decide whether
a. in general: the very thing or said quality
service due complies with the
b. in obligations to: obligation, with
i. give a specific thing- the attendant
Art. 1244 The debtor circumstances.
of a thing cannot
compel the creditor to iii. pay money-
receive a different one,
although the latter Art. 1249. The payment of
may be of the same debts in money shall be made
value as, or more in the currency stipulated, and
valuable than that if it is not possible to deliver
which is due. such currency, then in the
currency which is legal tender
in the Philippines.

In obligations to do or The delivery of promissory

not to do, an act or notes payable to order, or bills
forbearance cannot be of exchange or other mercantile
substituted by another documents shall produce the
act or forbearance effect of payment only when
against the obligee's they have been cashed, or
will. when through the fault of the
creditor they have been
-there is a impaired.
novation when,
upon In the meantime, the action
agreement or derived from the original
consent of the obligation shall be held in the
creditor, the abeyance.
debtor delivers
a different thing Legal tender- currency
or performs a which in a given
different jurisdiction can be used
prestation in for payment of debts
lieu of that
stipulated -other currency, if there
ii. give a generic thing- is a stipulation to that
effect
Art. 1246 When the Art. 1250. In case an
obligation consists in extraordinary inflation or
the delivery of an deflation of the currency
indeterminate or stipulated should supervene,
generic thing, whose the value of the currency at the
quality and time of the establishment of
Simoun Antonio Montelibano Salinas - 2002-24124
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the obligation shall be the
basis of payment, unless
there is an agreement to the
contrary.
PAL vs CA
A negotiable instrument is only a substitute
for money. The payment was not in cash,
but in checks.
c. payment of interest-
Art. 1956. No interest shall
be due unless it has been
expressly stipulated in
writing.
4. How is payment to be made
(“Integrity”)
a. in general-
Art. 1233. A debt shall not
be understood to have been
paid unless the thing or
service in which the obligation
consists has been completely
delivered or rendered, as the
case may be.
-prestation must be
fulfilled completely
General Rule:
Partial payment is not allowed-
Art. 1248 par. 1. Unless
there is an express stipulation
to that effect, the creditor
cannot be compelled partially
to receive the prestations in
which the obligation consists.
Neither may the debtor be
required to make partial
payments.
Exceptions:-
Art. 1248 par. 2. However,
when the debt is in part
liquidated and in part
unliquidated, the creditor may
demand and the debtor may
effect the payment of the
former without waiting for the
liquidation of the latter.
1. express stipulation
2. partial liquidation and
non-liquidation
3. compensation
Simoun Antonio Montelibano Salinas - 2002-24124
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4. several guarantors invoke
benefit of division
5. death of debtor, wherein
each heir answers only for his
share.
6. when work is done by parts,
and there is no contrary
stipulation.
b. substantial performance in
good faith-
Art. 1234. If the obligation has
been substantially performed in
good faith, the obligor may
recover as though there had
been a strict and complete
fulfillment, less damages
suffered by the obligee.
-an attempt in good
faith to perform without
any wilful or intentional
departure; deviation
must be slight, and
omission or defect must
be technical and
unimportant.
c. estoppel-
Art. 1235. When the obligee accepts
the performance, knowing its
incompleteness or irregularity, and
without expressing any protest or
objection, the obligation is deemed
fully complied with.
-Estoppel of creditor: a
creditor cannot object because
of defects in performance
resulting from his own acts or
directions.
Art. 1431. Through estoppel
an admission or representation
is rendered conclusive upon the
person making it, and cannot
be denied or disproved as
against the person relying
thereon.
d. presumptions in payment of
interests and installments-
Art.1176. . The receipt of the
principal by the creditor without
reservation with respect to the
interest, shall give rise to the
presumption that said interest
has been paid.
The receipt of a later
installment of a debt without
 [ C 2011 ]
reservation as to prior
installments, shall likewise
raise the presumption that
such installments have been
paid.
5. When payment is to be made
a. in general:
Art. 1169. . Those obliged to
deliver or to do something
incur in delay from the time
the obligee judicially or
extrajudicially demands from
them the fulfillment of their
obligation.
b. see Chapter 2: Delay
6. Where payment is to made-
Art. 1251 par. 1. Payment
shall be made in the place
designated in the obligation.
a. if no place is expressly
designated-
Art. 1251 par. 2 to par. 4.
There being no express
stipulation and if the
undertaking is to deliver a
determinate thing, the
payment shall be made
wherever the thing might be
at the moment the obligation
was constituted.
In any other case the place of
payment shall be the domicile
of the debtor.
If the debtor changes his
domicile in bad faith or after
he has incurred in delay, the
additional expenses shall be
borne by him.
These provisions are without
prejudice to venue under the
Rules of Court.
7. Expenses of making payment-
Art. 1247. . Unless it is
otherwise stipulated, the
extrajudicial expenses
required by the payment shall
be for the account of the
debtor. With regard to judicial
costs, the Rules of Court shall
govern.
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-payment is his duty,
and it is his duty, and
it inures to his benefit
that he is discharged
from the burden of the
obligation.
C. Application of Payments
1. Concept-
Art. 1252. . He who has
various debts of the same kind
in favor of one and the same
creditor, may declare at the
time of making the payment, to
which of them the same must
be applied. Unless the parties
so stipulate, or when the
application of payment is made
by the party for whose benefit
the term has been constituted,
application shall not be made
as to debts which are not yet
due.
If the debtor accepts from the
creditor a receipt in which an
application of the payment is
made, the former cannot
complain of the same, unless
there is a cause for invalidating
the contract.
-designation of the debt
which is being paid by a
debtor who has several
obligations of the same
kind in favour of the
creditor to whom
payment is made.
REPARATIONS COMMITTEE vs.
UNIVERSAL DEEPSEA
Under Articles 1252-1254, application may be
done by a persn owing several debts of the
same kind to a single creditor. Obligation
included payment. The 10,000 could not be
construed in favour of the debt.
PACULDO vs REGALADO
If the debtor does not declare to which debts
the payment is to be applied, no payment is
to be made to a debt that is not yet due. All
payments are to be made and applied to the
Fairview Wet Market. Consent of the debtor
must be clear and definite. That which is
most onerous to the debtor must be applied
to first.
2. Requisites of Application
 [ C 2011 ]
1. There are several debts owed.
2. They are owed by the same debtor
to the same creditor
3. That the debts be of the same
kind
4. That the debts are due (or the
term
was for the benefit of the party
making the application
5. That the payment made is not
sufficient to cover all the debts.
3. Rules in application of
payments- Art. 1252,
Art. 1253. If the debt
produces interest, payment of
the principal shall not be
deemed to have been made
until the interests have been
covered.
a. if rules inapplicable and
application cannot be inferred-
Art. 1254. When the
payment cannot be applied in
accordance with the preceding
rules, or if application can not
be inferred from other
circumstances, the debt which
is most onerous to the debtor,
among those due, shall be
deemed to have been
satisfied.
If the debts due are of the
same nature and burden, the
payment shall be applied to
all of them proportionately.
i. meaning of “most onerous to
debtor”
-it is assumed that if the
debtor had chosen the debt
to be paid, he could have
relieved himself first of the
more burdensome debt.
-it is relative and is
fundamentally a question of
fact.
More/Most Onerous:
1. principal > accessory
2. oldest > newest
3. debts with interest >
debts w/o interest
4. unsecured debt with
interest > no security,
with interest
5. guaranty>without
security
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6. liquidated debt >
unliquidated
7. default
D. Payment by Cession
1. Concept-
Art. 1255. The debtor
may cede or assign his
property to his creditors
in payment of his debts.
This cession, unless
there is stipulation to
the contrary, shall only
release the debtor from
responsibility for the net
proceeds of the thing
assigned. The
agreements which, on
the effect of the cession,
are made between the
debtor and his creditors
shall be governed by
special laws.
2. Requisites
i. Plurality of Debts
ii. Plurality of Creditors
iii. Partial/relative insolvency
iv. Abandonment of the totality
of the debtor’s properties for
the benefit of the creditors
v. Acceptance by the creditor
3. Effects
1. Assignment liberates the
debtor up to the amount of the
net proceeds of the sale of his
assets.
2. Assignment does not vest
title to the property of the
creditors, who are only
authorized to sell it.
E. Dation in Payment
1. Concept-
Art. 1245. . Dation in
payment, whereby property is
alienated to the creditor in
satisfaction of a debt in money,
shall be governed by the law of
sales.
 [ C 2011 ] [ UP COLLEGE OF LAW ] 62
-the delivery and -merely involves a change of object of
transmission of obligation
ownership of a thing
by the debtor to the -in effect, it is a sale.
creditor as an accepted
equivalent of the
performance of the FILINVEST vs PHIL ACETYLENE
obligation
The consent of appellee is not stipulated or
a. distinguished from presented. No transfer of ownership is
Payment by Cession possible without clear consent of appellee ot
DATION CESSION the preferred special mode of payment.
1. transfer 1. only possession
ownership of thing and administration F. Tender of Payment and
alienated to the are transferred with Consignation
creditor an authorization to 1. Tender of Payment
convert property into a. Concept: the manifestation
cash made by the debtor to the
2. may totally 2. only extinguishes creditor of his desire to
extinguish obligation credits to the extent comply with his obligation
of amount realized with the offer of immediate
from properties performance
assigned
3. cession of only 3. involves all b. Requisites
some specific thing property of the 1. made in lawful currency
debtor 2. include interest due
4. one creditor to 4. various creditors 3. unconditional
satisfy a debt 4. unaccepted offer in writing
5. novatory 5. not novatory to pay is equivalent to
6. no presumption of 6. there exists a actual production and
insolvency presumption of tender of money and
insolvency property

DBP vs CA 2. Consignation
a. Concept: the deposit of the
What took place was not cession because object of the obligation in a
Article 1255 presupposes a plurality of debts competent court in accordance
and creditors. Nor was it dation because a with rules prescribed by law
mortgage is a security, and not a after the tender of payment
satisfaction of indebtedness. It was not has been refused or because of
pactum commissoriu, because the obligation circumstances which render
to pay a sum of money remained because direct payment to the creditor
the assignment merely served as security impossible or inadvisable.
for the loans covered by the promissory
notes. Tender of payment is a
preparatory act which precedes
2. Requisites consignation. Consignation
Completes the extinguishment
-not a money debt of the obligation if done after
-consent, object certain, cause tender of payment.

3. Effects i. purpose: to avoid delay

-extinguishes the obligation to the b. Requisites
extent of the value of thing delivered i. there was a debt due
either as agreed upon or as may be ii. the consignation of the
proved. obligation was made because
of some legal cause
-does not involve plurality of iii. that previous notice of the
creditors consignation has been given to
the persons interested in the
performance of the obligation
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ]
iv. that the amount or thing
due was placed at the
disposal of the court.
v. that after the consignation
had been made the persons
interested were notified
thereof
vi. valid tender of payment
(or no need)
i. when tender and refusal
not required-
Art. 1256 par. 2.
Consignation alone shall
produce the same effect in
the following cases:
(1) When the creditor is
absent or unknown, or does
not appear at the place of
payment;
(2) When he is incapacitated
to receive the payment at the
time it is due;
(3) When, without just cause,
he refuses to give a receipt;
(4) When two or more
persons claim the same right
to collect;
(5) When the title of the
obligation has been lost.
ii. two notice requirement-
Art. 1257 par. 1, In order
that the consignation of the
thing due may release the
obligor, it must first be
announced to the persons
interested in the fulfillment of
the obligation.
-must be given to all
interested, passive or
active subjects
Art. 1258 par. 2. The
consignation having been
made, the interested parties
shall also be notified thereof.
-the requirement is
fulfilled by the service
of the summons upon
the defendant together
with a copy of the
complaint
- effects of noncompliance:
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 63
the lack of notice does not invalidate
the consignation but simply makes the
debtor liable for the expenses
That said, notice of consignation
is ALWAYS required.
c. Effects-
Art. 1260 par. 1. .
Once the consignation
has been duly made, the
debtor may ask the
judge to order the
cancellation of the
obligation.
-Debtor is released in
the same manner as if
he had performed the
obligation at the time of
the consignation
because this produces
the same effect as a
valid payment.
-the accrual of interest
on the obligation is
suspended from the
moment of consignation
-the deteriorations or
loss of the thing or
amount consigned
occurring without fault
of the debtor must be
borne by the creditor
because the risks of the
thing are transferred to
the creditor from the
moment of the deposit
-any increment or
increase in value of the
thing after the
consignation inutes to
the benefit of the
creditor
d. Withdrawal by debtor before
acceptance by creditor or
approval by court; effects-
Art.1260 par. 2. Before the
creditor has accepted the
consignation, or before a
judicial declaration that the
consignation has been properly
made, the debtor may
withdraw the thing or the sum
 [ C 2011 ]
deposited, allowing the
obligation to remain in force.
-debtor is still owner of
the thing or amount
deposited, and other
parties have no right
to oppose withdrawal
of such thing or
amount
e. Withdrawal by debtor after
proper consignation-
Art. 1261. . If, the
consignation having been
made, the creditor should
authorize the debtor to
withdraw the same, he shall
lose every preference which
he may have over the thing.
The co-debtors, guarantors an
sureties shall be released.
i. with creditor’s approval;
effects: a revival of the
obligation takes place, as well
as a restoration of the debtor-
creditor relationship
-guarantors and co-debtors
are freed
ii. without creditor’s
approval; effects
obligation subsists, without
change in the obligation of
the gurantors, co-debtors or
the creditor’s right or
preference
f. Expenses of consignation-
Art.1259. The expenses of
consignation, when properly
made, shall be charged
against the creditor.
-when consignation is
properly made.
DE GUZMAN vs CA
The court ruled that respondent had
substantially complied with the compromise
agreement by validly consigning the amount
of 3,000 pesos with the cashier.
TLG INTL vs CONTINENTAL ENGG
Before creditor accepts consignation, or
before a judicial declaration that
consignment has been made, the debtor
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 64
may withdraw the thing or sum deposited.
The case was dismissed before the amount
was accepted by creditor or the court’s
approval. Respondent judge should have
allowed the withdrawal by peititioner.
MCLAUGHLIN vs CA
There was substantial compliance with the
compromise agreement because respondent
made a valid tender of payment. But
respondent failed to consign the the sum due
with the court. He remains liable for payment
of obligation after December 31, 1980.
SOCO vs MILITANTE
In order that consignation of the thing due
may release the obligor, it must first be
announced to the persons interested in the
fulfillment of the obligation. The letter does
not constitute a valid tender of payment
because it does not indicate what month and
intention there is to deposit the rental with
the court. It is no proof of tender of payment
of other or subsequent monthly rentals.
Respondent failed to prove the second notice
as well, based on the testimony of COMTRUST
comptroller.
SOTO vs MIJARES
To deposit the amount in the court is a right
given to the debtor exclusively. Consignation
is a facultative remedy; he may or may not
avail of it. If debtor has the right of
withdrawal, he has the right to refuse to
make the deposit as well.
RURAL BANK vs CASTRO
At the time of consignation, the Bank had
already foreclosed the mortgage and the sale
of the lot was already extrajudicially
determined. It was useless of her to make a
tender of payment.
LICUANAN vs DIAZ
Consignation must be made with the court
and/or the bank, not the Office of Civil
Relations of the AFP.
CHAN vs CA
The validity of the consignation was not
raised before the Court of Appeals.
MEAT PACKING CORP vs
SANDIGANBAYAN
 [ C 2011 ] [ UP COLLEGE OF LAW ] 65
There was prior tender of payment by of a determinate thing
PCGG. The acceptance of payment negates shall be extinguished if
rescission of lease-purchased agreement. it should be lost or
destroyed without the
III. LOSS OR IMPOSSIBILITY fault of the debtor, and
before he has incurred
A. Loss of thing due in delay.

1. Concept: When by law or

stipulation, the obligor is
(1) If the thing is lost without liable even for fortuitous
the fault of the debtor, the events, the loss of the
obligation shall be thing does not
extinguished; extinguish the
obligation, and he shall
(2) If the thing is lost through be responsible for
the fault of the debtor, he damages. The same rule
shall be obliged to pay applies when the nature
damages; it is understood of the obligation
that the thing is lost when it requires the assumption
perishes, or goes out of of risk.
commerce, or disappears in
such a way that its existence -it must occur
is unknown or it cannot be without the fault
recovered of the debtor,
before the debtor
-non-existence in incurs delay, and
the hands of the after the
obligor obligation is
constituted

2. Kinds 4. Presumption-
a. As to extent Art. 1265. Whenever
i. Total the thing is lost in the
ii. Partial – not imputable possession of the
to the fault or negligence debtor, it shall be
of the debtor but to fortuitous presumed that the loss
events or circumstances was due to his fault,
beyond his control unless there is proof to
the contrary, and
-does not extinguish without prejudice to the
obligation, but the portion provisions of article
lost, if the obligation would 1165. This presumption
not have been constituted does not apply in case of
without it, thus extinguishing earthquake, flood,
the obligation storm, or other natural
calamity.
-intention of parties is Art. 1165
a controlling factor
a. when not applicable
-courts determine these This presumption does not
apply in case of earthquake,
3. Requisites- flood, storm or other natural
Art. 1262. An calamity, EXCEPT FIRE.
obligation which
consists in the delivery 5. Effects
a. in obligation to give a specific
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ]
thing- Art. 1262 the obligation
shall
be extinguished if it should be
destroyed without fault of the
debtor and before he has
incurred in delay
, impossible without the
Art. 1268. When the debt of
a thing certain and
determinate proceeds from a
criminal offense, the debtor
shall not be exempted from
the payment of its price,
whatever may be the cause
for the loss, unless the thing
having been offered by him to
the person who should receive
it, the latter refused without
justification to accept it.
b. in obligation to give a generic
thing-
Art. 1263. The loss or
destruction of anything
of the same kind does
not extinguish the
obligation
[ UP COLLEGE OF LAW ] 66
1. Concept-
Art. 1266. The debtor
in obligations to do shall
also be released when
the prestation becomes
legally or physically
fault of the obligor.
Art.1267. When the
service has become so
difficult as to be
manifestly beyond the
contemplation of the
parties, the obligor may
also be released
therefrom, in whole or in
part.
-includes not only legal
or physical
impossibility, but also
impracticability because
of extreme difficulty,
manifestly beyond the
contemplation of the
parties, must be
subsequent to execution
of contract to extinguish
obligation.

2. Kinds
a. As to extent
i. Total
c. in case of partial loss- ii. Partial: The rule in Art.
1264 may be applied if at the
Art. 1264. The courts time performance becomes
shall determine impossible, the debtor has
whether, under the already fulfilled part of the
circumstances, the obligation, the creditor must
partial loss of the pay the part done so long as he
object of the obligation benefits from such partial
is so important as to compliance
extinguish the
obligation b. As to source
i. legal: when the act by
d. action against third persons- reason of a subsequent law
Art. 1269. The is prohibited
obligation having been
extinguished by the ii. physical: when the act by
loss of the thing, the reason of its nature cannot be
creditor shall have all accomplished
the rights of action
which the debtor may 3. Requisites- Art. 1266 (same_
have against third 4. Effects: releases the debtor from
persons by reason of his obligation. Because the obligation
the loss. is legitimate in origin, the supervening
impossibility of the prestation,
B. Impossibility of Performance independent of will of the obligor,
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ] [ UP COLLEGE OF LAW ]
cannot render the latter liable
beyond restitution of what he may
have received in advance from
creditor, it
cannot make him liable for damages
-where, however, it is not the
prestation that has become
impossible but the act to be
performed after the fulfillment of the
prestation, the obligation is not
extinguished.
a. in obligations to do-
Art. 1266. The debtor
in obligations to do
shall also be released
when the prestation
becomes legally or
physically impossible
without the fault of the
obligor.
Art. 1267. When the
service has become so
difficult as to be
manifestly beyond the
contemplation of the
parties, the obligor
may also be released
therefrom, in whole or
in part.
Art. 1262 par. 2
(by analogy). When
by law or stipulation,
the obligor is liable
even for fortuitous
events, the loss of the
thing does not
extinguish the
obligation, and he shall
be responsible for
damages. The same
rule applies when the
nature of the
obligation requires the
assumption of risk.
i. “impossibility”
distinguished from
“difficulty”
OCCENA vs CA
Respondent may not cite Article 1267 to
modify the existing contract, because Article
1267 is not the difficulty contemplated that
would allow them to modify their said
contract.
NAGATEL CO vs CA
Simoun Antonio Montelibano Salinas - 2002-24124
67
Respondents may be released from said
contract, because article 1267 allows one to
be released from the difficulty of the “service”
or “performance” of the obligation.
Also, the courts are authorized to release the
oblgor in whole or in part.
PNCC vs CA
1266 is only applicable in obligations “to do”
not “to give”. Also, prior to November 18,
1985, when contract was entered into, Ninoy
Aquino had been assassinated and the
political climate was such. Despite these,
petitioner still entered into the contract.
These unforeseen events did not render the
performance of lease contract impractical and
inimical to corporate survival.
b. in case of partial
impossibility- Art. 1264
Art. 1264. The courts shall
determine whether, under the
circumstances, the partial loss
of the object of the obligation is
so important as to extinguish
the obligation.
-partial loss determines
whether or not the obligation
is sustained or is extinguished
based on the extent of the
loss. The intention of the
parties is the controlling factor
in the solution of each case of
partial loss.
IV. Condonation or Remission
A. Concept:
Art. 1270. Condonation or
remission is essentially
gratuitous, and requires the
acceptance by the obligor. It
may be made expressly or
impliedly.
One and the other kind shall be
subject to the rules which
govern inofficious donations.
Express condonation shall,
furthermore, comply with the
forms of donation.
-an act of liberality, by
virtue of which, without
receiving any
equivalent, the creditor
renounces the
 [ C 2011 ]
enforcement of the
obligation, which is
extinguished in its
entirety or in that part
or aspect of the same
to which the remission
refers.
B. Kinds
1. As to extent
a. Total
b. Partial: refers to amount of
indebtedness, or to an
accessory obligation only,
or to some other aspect of
the obligation only (such as
pledge or interest or to
some other aspect of the
obligation (such as
solidarity)
2. As to form-
Art. 1270 par. 1
a. Express: made formally
b. Implied: it can be inferred
through the acts of the
parties
C. Requisites
i. debt must be existing
and demandable at the
time of the remission
ii. the renunciation must
be gratuitous without any
equivalent or consideration
iii. debtor must accept the
remission
a. when formalities
required-
Art. 1270 par. 2. One and
the other kind shall be subject
to the rules which govern
inofficious donations. Express
condonation shall,
furthermore, comply with the
forms of donation.
YAM vs CA
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 68
Remission did not take place because Article
1270 paragraph 2 requires that express
condonation must comply with forms of
donation. It must be made in writing,
pursuant to Article 748. Reduction or
condonation of P266, 146. 88 was not
reduced in writing. Also, the voucher was not
a receipt.
D. Presumptions-
Art. 1271 The delivery of a
private document evidencing a
credit, made voluntarily by the
creditor to the debtor, implies
the renunciation of the action
which the former had against
the latter.
If in order to nullify this waiver
it should be claimed to be
inofficious, the debtor and his
heirs may uphold it by proving
that the delivery of the
document was made in virtue
of payment of the debt.
Art. 1272. Whenever the
private document in which the
debt appears is found in the
possession of the debtor, it
shall be presumed that the
creditor delivered it voluntarily,
unless the contrary is proved.
Art. 1274. It is presumed
that the accessory obligation of
pledge has been remitted when
the thing pledged, after its
delivery to the creditor, is
found in the possession of the
debtor, or of a third person who
owns the thing.
E. Effects
1. in general: extinguishes
obligation in its entirety
2. in case of joint or solidary
obligations: when obligation is joint,
the presumption of remission can refer
only to the portion of the debt in
possession of the instrument
evidencing possession of debt.
F. Governing Rules- Art. 1270.
-express condonation must
comply with forms of donation,
 [ C 2011 ]
which requires express
acceptance.
G. Renunciation of Principal or
Accessory Obligation
1. effects-
Art. 1273. The
renunciation of the principal
debt shall extinguish the
accessory obligations; but the
waiver of the latter shall leave
the former in force.
2. rationale: This applies the rule
that accessory obligation
simply follows the principal
V. Confusion or Merger of Rights
A. Concept
-Merger or confusion is the meeting
in one person of the qualities of the
creditor and debtor with respect to
the same obligation.
B. Requisites
i. must take place between creditor
and principal debtor
ii. the very same obligation must
be involved (if debtor acquires rights
from creditor, but not obligation in
question, no merger takes place)
iii. the confusion must be total or as
regards the entire obligation.
C. Effects
1. in general-
Art. 1275. The obligation is
extinguished from the time
the characters of creditor and
debtor are merged in the
same person.
2. in case of joint (Art. 1277) or
solidary obligations
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 69
Art. 1277. Confusion does not
extinguish a joint obligation
except as regards the share
corresponding to the creditor or
debtor in whom the two
characters concur.
Solidary obligations: total
extinction in a merger of the
creditor with one solidary
debtor or of one solidary
creditor and debtor
D. Confusion in Principal or
Accessory Obligation-
Art. 1276. Merger which takes
place in the person of the
principal debtor or creditor
benefits the guarantors.
Confusion which takes place in
the person of any of the latter
does not extinguish the
obligation.
-extinguishment of the
principal obligation
through confusion
releases the guarantor
because the obligation
of the latter is merely
accessory
VI. Compensation
A. Concept-
Art. 1278.
Compensation shall take
place when two persons,
in their own right, are
creditors and debtors of
each other.
Distinguished from Confusion:
In Confusion/Merger, only
one obligation is involved.
In compensation, there must
always be two obligations.
Confusion: one person in
whom the character of creditor
and debtor meet.
Compensation: two persons
mutually debtors and creditors
of each other, each arising from
a different cause.
 [ C 2011 ]
B. Kinds
1. As to extent
a. Total: if debts are of the same
amount
b. Partial: if one debt is larger
than the other
2. As to origin
a. Legal: takes place by operation
of law, because all requisites
are present.
b. Conventional: when parties
agree to compensate their
mutual obligations, even if
some requisites are lacking,
such as those in Article 1282.
Art. 1279 inapplicable, 1282
c. Judicial-
Art. 1283. If one of
the parties to a suit
over an obligation has
a claim for damages
against the other, the
former may set it off
by proving his right to
said damages and the
amount thereof.
d. Facultative: it can be claimed
by one of the parties who,
however, has the right to
object to it, such as when one
of the obligations has a period
for the benefit of one party
alone, who renounces that
period so as to make the
obligation due.
C. Legal Compensation
1. Requisites-
Art. 1279. In order that
compensation may be proper,
it is necessary:
(1) That each one of the
obligors be bound principally,
and that he be at the same
time a principal creditor of the
other;
(2) That both debts consist in
a sum of money, or if the
things due are consumable,
they be of the same kind, and
also of the same quality if the
latter has been stated;
(3) That the two debts be
due;
(4) That they be liquidated
and demandable;
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 70
(5) That over neither of them
there be any retention or
controversy, commenced by
third persons and
communicated in due time to
the debtor.
Art. 1280. Notwithstanding
the provisions of the preceding
article, the guarantor may set
up compensation as regards
what the creditor may owe the
principal debtor.
a. “due” distinguished from
“demandable”
GAN TION vs. CA
Legal compensation did not prevent Gan Tion
from having to pay attorney’s fees. In this
case, it is the litigant who is owed the
attorney’s fees, not Ong Wan Sieng. They are
not principally bound either.
BPI vs. REYES
Respondent Reyes is not entitled to
restitution because legal compensation
already took place. Both are creditors and
debtors of each other. There is a sum of
money involved. It was due, liquidated and
demandable, and was not claimed by a third
person.
PNB vs. SAPPHIRE SHIPPING
PNB had no right to intercept the sum of
money from private respondent, because PNB
had to transmit the money transfer to
Citibank. PNB, as NCB’s correspondent bank,
was tasked with this obligation. Legal
compensation had not taken place.
CKH vs CA
Article 1279 requires that the parties be
principal contracting parties. CKH and
Century were not principal contracting
parties. Corporations have personalities
separate from stockholders. Choi and Kev are
only stockholders, and not parties in the sale.
MIRASOL vs. CA
In this case, the parties are not mutual
creditors and debtors. The claim is still
subject to litigation and cannot be liquidated.
Therefore, compensation did not take place.
 [ C 2011 ]
ASSOCIATED BANK vs TAN
The relationship between banks and
depositor is creditor-debtor. The bank’s
premature withdrawal of amount led Tan’s
account debit. Also, there was a grave error
in the lack of notice. Hence, petitioner had
no right to debit Tan’s account for a
dishonored check.
VILLANUEVA vs TANTUICO
Without an express admission of
indebtedness, no compensation takes place.
PEREZ vs CA
For amounts rolled over on September 9,
1974 or October 3, 1974, legal
compensation took place, because this was
due and demandable. But bills and
principals were rolled over to other dates,
not September 9, 1974 or October 3, 1974,
namely those on October 4 and October 11
were not subject to legal compensation
since they were not yet due and
demandable.
SILAHIS vs IAC
Compensation is not proper because the
22,000 did not offset the indebtedness, and
the amount was still subject to a claim by a
third party.
2. Effects-
Art. 1290. When all the
requisites mentioned in Article
1279 are present,
compensation takes effect by
operation of law, and
extinguishes both debts to the
concurrent amount, even
though the creditors and
debtors are not aware of the
compensation.
--it takes effect the
moment that articles
1278 and 1279 co-
exist
i. both debts are
extinguished to
concurrent amount
ii. interests stop
accruing on
extinguished obligation
or part extinguished
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 71
iii. period of prescription
stops with respect to
obligation or part
extinguished
iv. all accessory
obligations of
extinguished principal
obligation are also
extinguished
Art. 1289. If a person should
have against him several debts
which are susceptible of
compensation, the rules on the
application of payments shall
apply to the order of the
compensation.
D. When Compensation is Not Allowed-
Art. 1287. Compensation shall
not be proper when one of the
debts arises from a depositum
or from the obligations of a
depositary or of a bailee in
commodatum.
Art 1288. Neither shall there
be compensation if one of the
debts consists in civil liability
arising from a penal offense.
Depositum: contract by
virtue of which a person
receives personal
property belonging to
another with the
obligation of safely
keeping it and returning
the same
Commodatum:
gratuitous contract by
virtue of which one of
the parties delivers to
other a non-consumable
personal property
-civil liability due to a
penal offense must be
served and honoured
imperatively.
E. Compensation of Debts Payable
in Different Places-
Art. 1286. Compensation
takes place by operation of law,
even though the debts may be
payable at different places, but
 [ C 2011 ] [ UP COLLEGE OF LAW ] 72
there shall be an indemnity that which pertains to
for expenses of exchange or the debtor
transportation to the place of
payment. 3. without knowledge of debtor-
Art. 1285 par. 3 If the
assignment is made
F. Effect of Nullity of Debts to be without the knowledge
Compensated- of the debtor, he may
Art. 1284. . When one or set up the compensation
both debts are rescissible or of all credits prior to the
voidable, they may be same and also later
compensated against each ones until he had
other before they are knowledge of the
judicially rescinded or assignment.
avoided.
G. Effects of Assignment of Credit a. rationale: to prevent
one party from being
1. with consent of debtor- fraudulently deprived of
Art. 1285 par. 1 The debtor the benefits of
who has consented to the compensation
assignment of rights made by
a creditor in favor of a third
person, cannot set up against
the assignee the
compensation which would
pertain to him against the
assignor, unless the assignor
was notified by the debtor at
the time he gave his consent,
that he reserved his right to
the compensation.

-compensation takes
place before
assignment, there had
already been an
extinguishment of one VII. Novation
of the obligations. A A. Concept-
subsequent Art. 1291. Obligations may be
assignment of an modified by:
extinguished obligation
cannot produce any (1) Changing their object or
effect against debtor. principal conditions;

2. with knowledge but without (2) Substituting the person of

consent of debtor- the debtor;
Art. 1285 par. 2. If the
creditor communicated the (3) Subrogating a third person
cession to him but the debtor in the rights of the
did not consent thereto, the creditor.
latter may set up the
compensation of debts - extinguishment of an
previous to the cession, but obligation by substitution or
not of subsequent ones. change of the obligation by a
subsequent one which
-if debtor was notified extinguishes or modifies the
he did not give his first.
consent, the credit
assigned to a 3rd - a juridical act of dual function
person matures after in that at the time it

Simoun Antonio Montelibano Salinas - 2002-24124

 [ C 2011 ]
extinguishes one obligation, it
creates a new one in lieu of
the old one.
B. Kinds
1. As to form
a. Express: when parties declare
that the old obligation is
extinguished by the new
obligation
b. Implied: when there is such
an incompatibility between
the old and new obligation
that they cannot stand
together
2. As to origin
a. Conventional
b. Legal
3. As to object
a. Objective or Real
-change of obligation by
substitution or changing the
object with another or
changing the principal
conditions
b. Subjective or Personal
-modification of obligation by
change of subject; passive
when a debtor is substituted,
active when a third person is
subrogated in the rights of the
creditor.
C. Requisites-
Art. 1292. In order that an
obligation may be
extinguished by another
which substitute the same, it
is imperative that it be so
declared in unequivocal
terms, or that the old and the
new obligations be on every
point incompatible with each
other.
i. a previous valid obligation
ii. agreement of all parties
to the new contract
iii. extinguishment of the old
contract
iv. validity of the new contract
Requisites imply that parties
had the capacity for new contract
and intend to bring about the
novation (animus novandi)
MILLAR vs CA
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The mere reduction of the amount due in no
sense constitute a sufficient indicion of
incompatibility. There was no express nor
implied novation. The deed of chattel
mortgage simply specified how much Gabriel
still owed Millar.
DORMITORIO vs. FERNANDEZ
The presence of animus novandi is
undeniable. When after judgment has become
final, facts and circumstances transpire which
render its execution impossible or unjust, the
interested party may ask the court to modify
or alter the judgment to harmonize the same
with justice and facts.
MAGDALENA ESTATES vs. RODRIGUEZ
The fact that Magdalena accepted the
subsequent surety agreement without
providing for accruing interest does not imply
novation. The mere fact that a person
receives a guaranty does not constitute a
novation.
REYES vs CA
No new agreement for substitution of creditor
was forged among the parties concerned
which would take the place of the preceding
contract. In the second case, no evidence was
presented to show that AFP intended to
release Reyes from her obligation to pay. In
novation by substitution of debtor, the
creditor must always consent.
BROADWAY CENTRUM vs TROPICAL HUT
The agreement did not extinguish or alter the
obligations of Tropical, as it was expressly
stated that it should not be interpreted as an
amendment to the lease contract.
MOLINO vs SECURITY DINERS
The upgrading was a novation of the original
agreement of the first credit card. But, the
novation did not release Molino because she
expressly waived discharge in case of change
or novation in the Surety Undertaking.
GARCIA vs LLAMAS
There is no incompatibility between the note
and the check. In fact, the note evidences the
loan obligation, which the check answers for.
Hence, no novation took place.
CALIFORNIA BUS LINE INC vs STATE
INVESTMENT HOUSE
 [ C 2011 ]
The restructuring agreement did not novate
the promissory notes. The agreement shows
hat the parties did not expressly stipulate
that the restructuring agreement novated
the promissory notes. Also, no
incompatibility was present, because the
two can stand together.
BABST vs. CA
BPI did not object to the substitution of
debtors, only to the payment formula of
DBP. BPI’s conduct evinced a clear and
unmistakable consent of DBP for Eliscon as
debtor. There was a valid extinctive
novation, releasing Eliscon from its
obligation to BPI.
D. Effects
1. in general-
Art. 1296. When the principal
obligation is extinguished in
consequence of a novation,
accessory obligations may
subsist only insofar as they
may benefit third persons who
did not give their consent.
-extinguishment of
principal obligation
releases pledges,
mortgages, guarantors
and sureties
2. when accessory obligation
may subsist- Art. 1296
-except in reference to a
stipulation in favor of a third
person, which is subordinated
to the principal obligation. It
is in reality a distinct
obligation in favor of a third
person and cannot be
extinguished by novation
without consent of the latter.
E. Effect of the Status of the
Original or New Obligation
1. nullity or voidability of
original obligation-
Art. 1298. The novation is
void if the original obligation
was void, except when
annulment may be claimed
only by the debtor or when
ratification validates acts
which are voidable.
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-no obligation, no
novation
2. nullity or voidability of new
obligation-
Art. 1297. If the new
obligation is void, the original
one shall subsist, unless the
parties intended that the
former relation should be
extinguished in any event.
-if new obligation is
voidable, the novation
becomes effective
3. suspensive or resolutory
condition of original obligation-
Art. 1299. . If the original
obligation was subject to a
suspensive or resolutory
condition, the new obligation
shall be under the same
condition, unless it is otherwise
stipulated.
-novation is also
conditional, and its efficacy
depends upon whether the
condition which affects the
former is complied with or not.
F. Objective Novation
1. meaning of “principal
conditions”: making the debt
absolute instead of conditional or vice
versa)
G. Subjective Novation
1. By change of debtor
a. Expromision
i. requisites-
Art. 1293. . Novation which
consists in substituting a new
debtor in the place of the
original one, may be made
even without the knowledge or
against the will of the latter,
but not without the consent of
the creditor. Payment by the
new debtor gives him the rights
mentioned in Articles 1236 and
1237.
i. consent of two
parties – creditor and
new debtor.
ii. knowledge or consent
of old debtor is not
required
ii. effects-
 [ C 2011 ]
Art. 1294. If the substitution
is without the knowledge or
against the will of the debtor,
the new debtor's insolvency
or non-fulfillment of the
obligations shall not give rise
to any liability on the part of
the original debtor.
i. the old debtor is r
released from the
obligation
ii. insolvency of the
new debtor does not
revive the old
obligation
b. Delegacion
i. requisites- (vs. Art. 1293)
i. consent of:
-the old debtor
-the new debtor
-necessarily, of the
old creditor, which
may be given
at any time, or
implied in any
form
ii. effects-
Art. 1295. . The insolvency of
the new debtor, who has been
proposed by the original
debtor and accepted by the
creditor, shall not revive the
action of the latter against the
original obligor, except when
said insolvency was already
existing and of public
knowledge, or known to the
debtor, when the delegated
his debt.
-insolvency of new
debtor revives the old
obligation if it was
anterior and public
or anterior and known
to the two debtors
QUINTO vs PEOPLE
The changes consist only in the manner of
payment. There really was no substitution of
debtors since Aurelia merely acquiesced to
the payment but did not give her consent to
the contract.
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2. By change of creditor:
Subrogation of a third person in
the rights of the creditor-
Art. 1300. Subrogation
of a third person in the
rights of the creditor is
either legal or
conventional. The
former is not presumed,
except in cases
expressly mentioned in
this Code; the latter
must be clearly
established in order that
it may take effect.
-subrogation is transfer
of all the rights of the
creditor to a 3rd person
who substitutes him in
all his rights
a. Conventional subrogation
-requires agreement by the
parties, consent and
intervention of the original
creditor, the new creditor and
the debtor
i. requisites-
Art. 1301. Conventional
subrogation of a third person
requires the consent of the
original parties and of the third
person.
-original creditor’s right
is extinguished,
new creditor becomes a
part of the new relation
and consent of the
debtor is necessary
because the old
obligation is
extinguished and he
becomes liable under
the new obligation
ii. distinguished from
Assignment of Credit
-consent is necessary
-extinguishes an obligation
and gives rise to anew one
Assignment of credit requires
consent, and it
refers to the same right which
passes from one person to
another
 [ C 2011 ]
iii. effects-
Art. 1303. Subrogation
transfers to the persons
subrogated the credit with all
the rights thereto
appertaining, either against
the debtor or against third
person, be they guarantors or
possessors of mortgages,
subject to stipulation in a
conventional subrogation.
Art 1304. . A creditor, to
whom partial payment has
been made, may exercise his
right for the remainder, and
he shall be preferred to the
person who has been
subrogated in his place in
virtue of the partial payment
of the same credit.
LICAROS vs GATMAITAN
The Memorandum of Agreement provided
for the need to get the bank’s consent.
Therefore, conventional subrogation, which
required the consent of the third party, took
place. The failure to get the agreement of
the bank prevented the agreement from
becoming effective, much less a source of
cause of action for both parties.
b. Legal subrogation
i. requisites:
not presumed except:
ii. when presumed-
Art. 1302. It is presumed
that there is legal
subrogation:
(1) When a creditor pays
another creditor who is
preferred, even without the
debtor's knowledge;
(2) When a third person, not
interested in the obligation,
pays with the express or tacit
approval of the debtor;
(3) When, even without the
knowledge of the debtor, a
person interested in the
fulfillment of the obligation
pays, without prejudice to the
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effects of confusion as to the
latter's share.
iii. effects- Art. 1303, 1304
ASTRO PHIL vs PHIL EXPORT
Philguarantee has the right to proceed
against the petitioner, since it already paid
70% of the loan, subject to the condition that
upon payment, Philguarantee shall be
proportionally subrogated. Legal subrogation
took place, and consent or knowledge of
debtor Astro was not needed. Now,
Philguarantee received Philtrust’s right to
proceed against Roxas and Astro.
TITLE II: CONTRACTS
CHAPTER I: GENERAL PROVISIONS
A. Definition –
Art. 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.
Sanchez-Roman:
“A juridical convention
manifested in legal
form, by virtue of which
one or more persons
bind themselves in favor
of another or others, or
reciprocally, to vthe
fulfillment of a
prestation to give, to do,
or not to do.”
 [ C 2011 ]
-an agreement on the
declaration of a
common will
-a bilateral legal
transaction to create,
modify, or terminate a
legal tie between the
parties
-A contract is the
accord of two or more
persons (with
previously diverging
interests) for the
purpose of creating a
juridical relation
between them
B. Elements
1. Essential elements (see
Chapter II, infra)
a. Consent
b. Object/Subject Matter
c. Cause
2. Natural elements: those which
exist as part of the contract
even if the parties do not
provide for them because
the law creates them
(warranty in sales)
3. Accidental elements (see D.,
3., infra): exist only when
stipulated, or agreed upon by parties
and cannot exist without being
stipulated or predetermined
stipulation
C. Characteristics/Basis of
Binding Effect
1. Obligatory force –
Art. 1308. The contract must
bind both contracting parties;
its validity or compliance
cannot be left to the will of
one of them.
-validity and
performance cannot
be left to the will of
one of the parties
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2. Mutuality – Arts. 1308-1310
(see also Art. 1473)
Art. 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.
Art. 1310. The determination
shall not be obligatory if it is
evidently inequitable. In such
case, the courts shall decide
what is equitable under the
circumstances.
-mutuality between
parties based on
essential equality
-no unilateral
cancellation
Art. 1473. The fixing of the
price can never be left to the
discretion of one of the
contracting parties. However, if
the price fixed by one of the
parties is accepted by the
other, the sale is perfected.
GSIS vs CA
The purchase price mutually agreed upon by
the parties was P19, 740. The respondent
spouses did not give their consent for
petitioner to make a unilateral upward
adjustment of this purchase price. Also, it
was established that the said notation was
not in the original deed agreed upon by the
parties. Also, petitioner is bound for the
admission the omission of said notation was
an honest mistake, thus solidifying the
contention that the said notation was not
present in the signed Deed of Conditional
Sale.
PAPI vs CRISOSTOMO
Punzalan’s letter did not cancel the first MOA.
It only signified the suspension of the
acceptance of new applications. No unilateral
cancellation or rescission of the first MOA
 [ C 2011 ]
took place. Once a contract is entered into,
no party can renounce it unilaterally or
without the consent of the other, based on
the principle of mutuality it contains
embodied in Article 1308.
3. Relativity: Contracts take effect
only between the parties, their
assigns and heirs.
Art. 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.
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.
-contracts produce
effect only as between
the parties who
execute them
MLA RAILROAD vs LA COMPANIA
There was an express contractual relation
between Atlantic Co and Steamship Co.
Atlantic Co was bound by its undertaking to
use due care. That said, Atlantic Co cannot
assume the double responsibility to both
Steamship Co and Mla Railroad since it is a
general rule that an implied contract never
arises where an express contract has been
made. If Atlantic refused to carry out its
agreement to discharge, plaintiff could not
have enforced the action. Hence, Mla
Railroad has no right to recover damages
from Atlantic Co for the wrongful act, which
constituted the violation of said contract.
The Mla Railroad can only be made effective
through the Steamship Co with whom the
contract was made. Hence, the Steamship
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Co must pay Mla Railroad, and Steamship Co
must recover the same amount from Atlantic.
DKC HOLDINGS vs CA, BARTOLOME
Heirs are bound by contracts entered into by
their predecessors in interest, except in
stipulations, nature or provisions that make
said rights or obligations intransmissible. The
character of the contract is such that its
obligation may be performed by promissor’s
personal representatives.
b. No one may contract in the name
of another –
Art. 1317. No one may contract in
the name of another without being
authorized by the latter, or unless he
has by law a right to represent him.
A contract entered into in the name of
another by one who has no authority
or legal representation, or who has
acted beyond his powers, shall be
unenforceable, unless it is ratified,
expressly or impliedly, by the person
on whose behalf it has been executed,
before it is revoked by the other
contracting party.
HERMANOS vs. ORENSE
Duran sold Orense’s land to Hermanos
despite the lack of legal authority to do so.
Normally, the contract entered into by Duran
with plaintiff Hermanos is void. But the sale
became valid by the verbal confirmation given
by Orense in the trial where plaintiff filed a
case against Duran for estafa. The defendant
conferred agency or implied said power to
Duran. His consent to Duran’s selling the
property must hold.
D. Parties
1. Auto-contracts:
Where one contracts with
himself; it is valid because
the existence of a contract is
not determined by the
number of persons who
intervene in it, but by the
number of parties thereto.
2. Freedom to contract –
 [ C 2011 ] [ UP COLLEGE OF LAW ] 79
Art. 1306. The contracting (1) When a separation of
parties may establish such property was agreed upon in
stipulations, clauses, terms the marriage settlements; or
and conditions as they may
deem convenient, provided (2) When there has been a
they are not contrary to law, judicial separation or property
morals, good customs, public under Article 191. (1458a)
order, or public policy
Art. 1491. The following
persons cannot acquire by
GABRIEL vs MONTE DE PIEDAD purchase, even at a public or
judicial auction, either in
The contract which calls for petitioner to pay person or through the
P14, 679.07 does not in any way militate mediation of another:
against the public good. Despite petitioner’s
claim of deceit, said contract does not (1) The guardian, the property
contravene the policy of the law nor the of the person or persons who
established interests of society. may be under his guardianship;

PAKISTAN INTL AIRLINES vs OPLE (2) Agents, the property whose

administration or sale may
The contracts of employment violated the have been entrusted to them,
freedom of contracts. Pakistan Intl may not unless the consent of the
contract away applicable provisions of law, principal has been given;
especially provisions impressed with public
interest. The law relating to labor and (3) Executors and
employment is such a concern. Parties are administrators, the property of
not at liberty to insulate themselves and the estate under
their relationship from the impact of labor administration;
laws and regulations.
SIR JJ: The reasoning of the Supreme
Court is wrong. They should have based
their reasoning on the fact that there
are substantial contacts between
contracts and the Philippines, not on
the violation of freedom to contract.
Also, what is wrong with the stipulation (4) Public officers and
that the contracts be tried in Pakistani employees, the property of the
territory? State or of any subdivision
thereof, or of any government-
a. Special disqualifications owned or controlled
1) Art. 87, Family Code corporation, or institution, the
Every donation or grant of administration of which has
gratuitous advantage, direct been intrusted to them; this
or indirect, between the provision shall apply to judges
spouses during the marriage and government experts who,
shall be void, except in any manner whatsoever,
moderate gifts which the take part in the sale;
spouses may give each other
on the occasion of any family (5) Justices, judges,
rejoicing. The prohibition shall prosecuting attorneys, clerks of
also apply to persons living superior and inferior courts,
together as husband and wife and other officers and
without a valid marriage. employees connected with the
administration of justice, the
2) Arts. 1490 and 1491, CC property and rights in litigation
Art. 1490. The husband and or levied upon an execution
the wife cannot sell property before the court within whose
to each other, except: jurisdiction or territory they
exercise their respective
functions; this prohibition
Simoun Antonio Montelibano Salinas - 2002-24124
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includes the act of acquiring
by assignment and shall apply
to lawyers, with respect to the
property and rights which
may be the object of any
litigation in which they may
take part by virtue of their
profession.
(6) Any others specially
disqualified by law.
3) Art. 1782, CC
Art. 1782. Persons who are
prohibited from giving each
other any donation or
advantage cannot enter into
universal partnership.
3. What they may not stipulate –
Art. 1306
a. Contrary to law, e.g.:
1) pactum
commissorium
Art. 2088. The
creditor cannot
appropriate the things
given by way of pledge
or mortgage, or
dispose of them. Any
stipulation to the
contrary is null and
void.
2) pactum leonina
Art. 1799. A stipulation
which excludes one or more
partners from any share in
the profits or losses is void.
3) pactum de non alienado
Art. 2130. A stipulation
forbidding the owner from
alienating the immovable
mortgaged shall be void.
b. Contrary to morals:
morals may be considered as those
generally accepted principles of
morality which have received some
kind of social and practical
confirmation
-morals have particular reference to
standards of justice (right and
wrong) and decency acknowledged
by society
c. Contrary to good customs
-contracts which limit in an excessive
manner the personal or economic
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freedom of a person (promise not to
engage in work, a promise to vote,
to do something at risk of life)
d. Contrary to public order
-public order: public, social and
legal interest in private law, that
which is permanent and essential
in institutions, which, even if favoring
some individual to whom the right
pertains, cannot be left to his own will.
-the public weal, peace, safety and
health of the community
e. Contrary to public policy
-public policy: the idea of variable
content, depending on the stage of
social culture in the community
-has a tendency to injure the publicis
against the public good, or
contravenes some established
interest of society or is inconsistent
with sound policy and good morals, or
tends to clearly to undermine the
security of individual rights
CUI vs ARELLANO UNIVERSITY
The stipulation that Cui can only recover his
transcript after he reimburses the funds he
received during his scholarship is one that is
contrary to public policy. Scholarships are
awarded in recognition of merit, not to keep
outstanding students in order to bolster the
school’s prestige.
SIR JJ: There must be some lawful
motivation for granting scholarships.
Going against these lawful motivations is
violative of public policy.
ARROYO vs BEARWIN
An agreement by the owner of stolen goods
to stifle prosecution of the accused for a
pecuniary or some other valuable
consideration is contrary to public policy and
due administration of justice. It is in the
interest of the public that criminals be
prosecuted.
FILIPINAS COMPANIA vs MANDANAS
Article 22 of the Constitution of the Philippine
Rating Bureau is lawful. Its purpose is not to
eliminate competition but to promote ethical
practices in duly registering with the Bureau.
It eliminates unfair competition. It is not
violative of public policy.
 [ C 2011 ]
SIR JJ: Territorial jurisdiction
determines public policy.
BUSTAMANTE vs ROSAL
The stipulation in the loan contract was not
valid and enforceable, Because the sale of
the collateral is an obligation with a
suspensive condition. The event did not
occur. Petitioner did not fail in tendering
payment. Therefore, respondents have no
right to demand the purchase of the
collateral. The stipulation is pactum
commissorium, which involves the
automatic appropriation of property that
was mortgaged by way of security of
payment of principal obligation.
SIR JJ: This was not pactum
commissorium. No automatic
appropriation took place. Technically, it
was a forced sale.
E. Classification
1. According to subject-matter
a. Things
b. Services
2. According to name
a. Nominate: where the law
gives the contract a special
designation or particular
name.
-those with particular names
(purchase and sale, lease,
agency)
b. Innominate –
Where the contract has no
special name
Art. 1307. Innominate
contracts shall be
regulated by the
stipulations of the
parties, by the
provisions of Titles I
and II of this Book, by
the rules governing the
most analogous
nominate contracts,
and by the customs of
the place.
DIZON vs GABORRO
The true intention of the parties, presented
in the Deed of Sale with Assumption of
Mortgage and Option to Purchase Real
Estate was that Gaborro would assume and
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pay indebtedness of Dizon to DBP and PNB,
and Gaborro was given the possession until
petitioner can fully reimburse the respondent.
Thus, the agreement was an innominate
contract under Article 1307 of the Civil Code.
CORPUS vs CA
There was an implied agreement for payment
of Attorney’s fees. Petitioner’s act of giving
the 2,000 check indicates petitioner’s
commitment to pay the fees. The innominate
contract of facio ut des applies.
1) do ut des – I give and you give
-A will give one thing to B, so that B
will give another thing to A.
2) do ut facias – I give and you do
-A will give something to B, in order
that B may do something for A.
3) facio ut facias (I do and you give)
-A binds himself to do something for
B so that B will give something to A.
4) facio ut des (I do and you do)
-A is to do something for B, so that
B will render some service for A.
3. According to perfection
a. By mere consent
(consensual) –
Art. 1315. Contracts are
perfected by mere consent, and
from that moment the parties
are bound not only to the
fulfillment of what has been
expressly stipulated but also to
all the consequences which,
according to their nature, may
be in keeping with good faith,
usage and law.
-perfection is the
moment from which it
exists, the juridical tie
between the parties
arise from that time.
-from the moment the
parties are bound
b. By delivery of the object (real)
–
Art. 1316. Real contracts, such
as deposit, pledge and
Commodatum, are not
perfected until the delivery of
the object of the obligation.
 [ C 2011 ] [ UP COLLEGE OF LAW ] 82
- a real contract is not 9. According to risk
perfected by mere a. Commutative – fulfillment is
consent; delivery of predetermined in advance
the thing is also -lease
required b. Aleatory – fulfillment is
dependent upon chance
-not arbitrary nor -insurance
formulistic, but is
demanded by the very
nature of real F. Stages
contracts and their 1. Preparation: when negotiations
purpose are in process; bargaining;
ends at the moment of
Solemn – formal, special agreement of the parties
formalities

4. According to its relation to

other contracts (dependence) 2. Perfection: the moment when
a. Preparatory – where the parties come to agreement
contract looks forward to other
future transactions 3. Consummation or death:
b. Principal - where the contract the fulfillment or performance
may exist alone of the terms agreed upon in
c. Accessory – where the contract the contract; when said
depends upon some other contract is fully executed
contract for its existence
G. As distinguished from a
5. According to form perfected promise and an
a. Common or informal imperfect promise (policitacion)
- a loan
b. Special or formal -perfect promise: tends only
-where the law requires to assure and pave the way
certain formality (usually for the celebration of a
some writing) to perfect the contract in the future; until
contract and make it binding said contract is actually
in addition to consent made, rights and obligations
are not yet determined.

6. According to purpose -imperfect promise: a

a. Transfer of ownership, mere unaccepted offer
e.g., sale
b. Conveyance of use, e.g., H. With respect to third persons
commodatum 1. Stipulations in favor of third
c. Rendition of services, persons (stipulations pour autrui)
e.g., agency –
7. According to the nature of the Art. 1311, 2nd par. If a
vinculum produced contract should contain
a. Unilateral – where only one of some stipulation in favor
the parties is bound by a prestation of a third person, he
b. Bilateral – where both parties may demand its
are fulfillment provided he
bound to reciprocal prestations communicated his
c. Reciprocal acceptance to the
obligor before its
8. According to cause revocation. A mere
a. Onerous – where there is an incidental benefit or
exchange of equivalent values interest of a person is
b. Gratuitous or lucrative – not sufficient. The
where no equivalent prestation is contracting parties must
received by one party have clearly and
deliberately conferred a
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favor upon a third land was to supply the water requirements of
person. Marmont.

FLORENTINO vs ENCARNACION MANDARIN VILLA vs CA

The stipulation for the fruits of the land
paying for the expenses of the Church
festivities is a stipulation pour autrui. It is
in favor of a third person, the Church. The
Church did accept the stipulation pour
autrui. The enjoyment of the benefits
flowing from the land for 17 years without
question can be construed as an implied
acceptance by the Church of the stipulation
pour autrui.
An existing agreement between petitioner and
Bankard existed where petitioner shall honor
credit cards by Bankard, provided the
expiration date had not elapsed. Private
respondent may not be a party to the
contract between Mandarin and Bankard, but
the stipulation confers upon him a favor,
constituting a stipulation pour autrio. De
Jesus may then demand its fulfillment under
Article 1311.

COQUIA vs FIELDMEN’S INSURANCE 2. Possession of the object of

contract by third persons –
The stipulation pour autrui is explicit in its Art. 1312. . In contracts
mention that Fieldmen’s Insurance will creating real rights, third
insure and indemnify the personal relatives persons who come into
of the deceased, in this case Coquia’s possession of the object of the
relatives. The 3rd party in this case are the contract are bound thereby,
heirs of the insured. subject to the provisions of the
Mortgage Law and the Land
CONSTANTINO vs ESPIRITU Registration Laws.
-a real right directly
The inclusion of the beneficiary under the affects the property
contract and as co-plaintiff would allow the subject to it; hence,
court to adjudicate. This is a stipulation pour whoever comes into
autrui and the third person whose benefit possession of such
the contract was entered into may demand property must
its fulfillment. respect that real right

SIR JJ: In this case, the entire contract

is for the benefit of Constantino’s son,
not just a stipulation. This is a trust,
not a stipulation pour autrui.

YOUNG vs CA 3. Creditors of the contracting

parties –
Young was not a party in the case. She
cannot enforce a compromise agreement Art. 1313. Creditors are
which she clearly was not a part of. Also, protected in cases of contracts
she did not communicate her acceptance intended to defraud them.
whether expressly or impliedly. However,
her contention that said stipulation has not -when a debtor enters
yet been revoked, the sale of said property into a contract in
effectively revoked Young’s right of first fraud of his creditors,
refusal. the creditor, although
not parties to such
MARMONT RESORT vs GUIANG contract of alienation,
may ask for its
It was clear that Marmont was to benefit rescission
from the second MOA, an a stipulation pour
autrui was present. The purpose and intent 4. Interference by third persons
of stipulating parties Maris Trading and the
Guiang spouses was to benefit petitioner Art. 1314. Any third person
Marmont. Albeit Marmont was not a party, who induces another to violate
the sole purpose of Maris entering into the his contract shall be liable for

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 [ C 2011 ] [ UP COLLEGE OF LAW ] 84
damages to the other contract, in such a case, is
contracting party presumed to have been entered
into in the place where the
-inducement by a offer was made.
3rd person of a party
to the contract to - counter offer
violate the terms is a rejection of
thereof may hold him the first offer
liable for damages
-conformity of
DAYWALT vs. CORP the parties on
The cause of action here is based on a the terms of the
liability derived from a the wrongful contract
interference of defendant in the
performance of a contract between plaintiff requisites:
and Endencia. However, the extent of the
liability for breach must be determined in i. plurality of subjects
light of the situation in existence. ii. capacity
iii. intelligence and free
SO PING BUN vs CA will
Tort interference consists of the existence of iv. express or tacit
a valid contract, knowledge of the third manifestation of the will
person and the interference of the third v. conformity of the will
person without legal justification. For that, and its manifestation
petitioner is guilty for damages.
a. Must be manifested by
LAGON vs CA the concurrence of the offer
and acceptance
The petitioner conducted his own
investigation and exercised all due diligence.
The record also shows that he did not ROSENSTOCK vs. BURKE
induce his heirs to sell. Thus, he is not
liable for tortuous interference. The letter is not a definite offer to purchase
because the use of the word “entertain”. This
is not tantamount to a resolution to perform
said act. Said letter was written in
defendant’s presence. Plaintiff was not in a
position to make a definite offer.

DISSENT: There was a completed contract

CHAPTER II: ESSENTIAL REQUISITES FOR by Elser, since the sailboat was already in his
CONTRACTS possession and nothing remained to be done
except the payment of the purchase price.
A. Consent
1. Requisites – MALBAROSA vs CA
Art. 1319. Consent is
manifested by the meeting of An offer that is not accepted does not give
the offer and the acceptance rise to consent. Respondent required
upon the thing and the cause petitioner to accept by making his signature
which are to constitute the on the space indicated, which foreclosed any
contract. The offer must be implied acceptance or any other mode of
certain and the acceptance acceptance for that matter.
absolute. A qualified
acceptance constitutes a SAN LORENZO DEVT CORP vs CA
counter-offer.
The acts of the spouses Lu indicated that they
Acceptance made by letter or never intended to transfer ownership to
telegram does not bind the Babasanta. That said, SLDC is a purchaser in
offerer except from the time it good faith because at the time of the sale of
came to his knowledge. The
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property to SLDC, the vendors were still the perfection prevents the
registered owners. contractual tie from
being performed.
MMDA vs JANCOM
e) Business advertisements of
The contract between MMDA and JANCOM is things for sale –
binding because there was a clear signing Art. 1325. . Unless it appears
and execution of the contract by an otherwise, business
authorized representative, in this case, the advertisements of things for
DENR Secretary who is authorized by law to sale are not definite offers, but
enter into publicly bidded contracts. mere invitations to make an
offer.

1) Offer f) Advertisements for bidders –

a) Must be certain – Art. 1326. Advertisements for
Art. 1319. bidders are simply invitations
- an offer is a unilateral to make proposals, and the
proposition which one party advertiser is not bound to
makes to another for the accept the highest or lowest
celebration of a contract bidder, unless the contrary
appears.

b) What may be fixed by the 2) Acceptance

offeror – a) Must be absolute –
Art. 1321. . The person Art. 1319
making the offer may fix the b) Kinds
time, place, and manner of i. Express – Art. 1320
acceptance, all of which must ii. Implied – Art. 1320
be complied with. iii. Qualified – Art. 1319
-a counter offer

c) If made by letter or telegram –

c) When made through an Art. 1319, 2nd par.
agent
Art. 1322. An offer made i. Four theories on when the
through an agent is accepted contract is perfected:
from the time acceptance is
communicated to him. 1. Manifestation theory
2. Expedition thory
3. Reception theory
d) Circumstances when offer 4. Cognition theory –
becomes ineffective Art. 1319, 2nd par.
Art. 1323. An offer becomes
ineffective upon the death, d) Period of acceptance –
civil interdiction, insanity, or Art. 1324. When the offerer
insolvency of either party has allowed the offeree a
before acceptance is certain period to accept, the
conveyed. offer may be withdrawn at any
time before acceptance by
-the contract is not communicating such
perfected except by withdrawal, except when the
the option is founded upon a
concurrence of two consideration, as something
wills paid or promised.
which exist and
continue -the law permits the
until the moment that offerror to withdraw
they occur, hence, the the offer at any time
disappearance of before acceptance.
either party or the loss of his This does not mean
capacity before the that he can exercise
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 [ C 2011 ]
this right absolutely
without the regard of
others.
SANCHEZ vs RIGOS
Both parties entered into a perfected
contract of sale. Since Rigos’ offer to sell
was accepted by Sanchez before she could
withdraw her offer, a bilateral reciprocal
contract to sell and buy was generated.
e) Contract of option – Art.
1324
b. Necessary legal capacity
of the parties
1) Who cannot give consent –
Art. 1327. The following
cannot give consent to a
contract:
(1) Unemancipated minors;
(2) Insane or demented
persons, and deaf-mutes who
do not know how to write.
2) When offer and/or
acceptance is made
a) during a lucid interval
b) in a state of drunkenness
c) during a hypnotic spell
Art. 1328. Contracts entered
into during a lucid interval are
valid. Contracts agreed to in a
state of drunkenness or
during a hypnotic spell are
voidable.
c. The consent must be
intelligent, free, spontaneous,
and real – Arts. 1330-1346
1) Effect –
Art. 1330. A contract where
consent is given through
mistake, violence,
intimidation, undue influence,
or fraud is voidable.
2) Vices of consent
a) Mistake or error
i. kinds
1. Mistake of fact
- a ground for
annulling the contract
-mistake as to the
identity or
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[ UP COLLEGE OF LAW ] 86
qualifications of one of the
parties will vitiate consent
a. as to substance of
the object
-nature of the
transaction
b. as to principal
conditions
-those key conditions or
considerations which
produced consent;
conditions that are of
essential or substantial
character
c. as to identity or
qualifications of
one of the parties
-where confidence,
individual
skill or qualities are
considered
(error in persona)
d. as to quantity, as
distinguished
from a simple mistake
of account: in the first
case, there is a real
mistake with respect to
one of the principal
conditions, of the thing,
thus the contract is
vitiated. In the second,
that is not the case
ASIAIN vs JALANDONI
Asiain is not allowed to recover the amount
from Jalandoni because the phrase “more or
less” can only be considered as covering
small or excusable differences. There was a
mutual mistake as to the quantity. There was
a gross mistake of fact that may make the
contract rescindable.
HEIRS of WILLIAM SEVILLA vs SEVILLA
At the time of the execution of the deed of
extrajudicial partition, Felisa was no longer
the owner of the contested land, since she
donated said land to respondent Leopold
Sevilla who accepted the donation in the
same deed. She did not possess the capacity
to give consent or execute the said deed,
hence, there is no consent.
 [ C 2011 ] [ UP COLLEGE OF LAW ] 87
ANDRES vs MANUFACTURERS HANOVER When one of the
parties is unable to
Although FACETS has outstanding debt to read – Art. 1332.
petitioner, the contract of petitioner was When one of the parties
with FACETS and FACETS alone. The is unable to read, or if
contract for transmittal of dollars from the the contract is in a
US to petitioner was with FNSB. Petitioner language not
was not privy to the contract. There was a understood by him, and
mistake in the name written on the check. mistake or fraud is
This is a case of solutio indebiti, where if alleged, the person
something is received when there is no right enforcing the contract
and it was unduly delivered by mistake, the must show that the
obligation to return it arises. Hence, private terms thereof have been
respondent may recover the $10,000 from fully explained to the
petitioner, who has no right to apply it to former.
the account of FACETS.
DUMASUG vs MODELO
THEIS vs CA, TAGAYTAY, CALSONS It is evident that said document was not the
instrument of debt which Dumasug signed.
The mistake or error on the subject of the Dumasug signed without understanding the
sale in question is substantial, as to the contents. The consent given by Dumasug
object land of the same transaction is was given by mistake and is null andd void.
different from that intended by the parties.
There was an honest mistake by the HEMEDES vs CA
surveyor, which respondent tried to remedy.
Hence, the contract of sale is voidable on Strong, clear and unconvincing evidence to
the ground of mistake. overcome the value of the Deed is present.
The deed was written in English, which
petitioner did not understand.

LUSTAN vs CA

Petitioner had no knowledge that the contract

she signed was indeed a deed of sale. The
contents were not read nor explained to her,
hence, her consent was given by mistake.

KATIPUNAN vs KATIPUNAN
2. Error of law
Petitioners made use of undue influence in
a. General rule: making Katipunan sign a contract he thought
Ignorantia legisneminem was a labor contract, when it was actually a
excusat – Deed of Absolute Sale.
Art. 3 Ignorance of
the law excuses no one LEONARDO vs CA
from compliance
therewith. The presumption of mistake was not
addressed by private respondent. Petitioner
b. Exception: Mutual error did not understand English, but the document
of law – was not interpreted to her.

Art. 1334. Mutual iii. Inexcusable mistake –

error as to the legal Art. 1333. . There is no
effect of an agreement mistake if the party alleging it
when the real purpose knew the doubt, contingency or
of the parties is risk affecting the object of the
frustrated, may vitiate contract.
consent.

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 [ C 2011 ]
-to invalidate
consent, error
b) Violence and intimidation –
Art. 1335. There is violence
when in order to wrest
consent, serious or irresistible
force is employed.
There is intimidation when
one of the contracting parties
is compelled by a reasonable
and well-grounded fear of an
imminent and grave evil upon
his person or property, or
upon the person or property
of his spouse, descendants or
ascendants, to give his
consent.
To determine the degree of
intimidation, the age, sex and
condition of the person shall
be borne in mind.
A threat to enforce one's
claim through competent
authority, if the claim is just
or legal, does not vitiate
consent.
-violence: external,
generally done to
prevent an act from
being done;
intimidation is done
internally on the
person, in order to
change the will and
induce action
i. Effect – Art. 1336.
Violence or intimidation shall
annul the obligation, although
it may have been employed
by a third person who did not
take part in the contract.
MARTINEZ vs HSBC
Attendant circumstances show that no
violence was done upon Martinez and her
person. The contract she entered into is
valid, even though it may have been
entered into against her will and desire.
She sought the compromise and she had
attendant counsel. She also had time to
solicit advice from her friends and family.
Hence, no violence or duress may be
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 88
claimed. Also, she benefited from the
contract.
SIR JJ: Just because she had access to
legal counsel and family and friends’
advice, no violence was done unto her?
That is weak reasoning.
LEE vs CA
There is a need to make a distinction where a
person gives his consent reluctantly and one
where he acts against his will under pressure.
She was able to move freely about in the
office, and she was not barred from leaving.
She refused to sign the note, which showed a
lack of immediate and continuous threat.
c) Undue influence –
Art. 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.
Undue influence:
no unlawful act
done; any means
employed upon a party
which, under the
circumstances, he could
not well resist which
controlled his volition
and induced him to give
his consent
d) Fraud or dolo –
Art. 1338. 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.
i. Kinds
1. dolo causante –
 [ C 2011 ] [ UP COLLEGE OF LAW ]
Art 1338. 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.
-fraud in the
conception or
realization of the
obligation/contract,
which vitiates
consent: if defrauded
party had been aware
of, he would not have
entered into the
contract or given his
consent
2. dolo incidente –
Art. 1344, 2nd par.
Incidental fraud only
obliges the person
employing it to pay
damages.
-fraud in the
performance of the
obligation, which
does not vitiate
consent: which, even
if defrauded party
were still aware of, he
would have still
entered into the
contract or given his
consent
HILL vs VELOSO
Deceit takes place when by words or
machinations, one of the contracting parties
induces another to execute a contract.
Franco, is not one of the contracting parties.
It would have been deceit by a third party,
which does not annul the consent of the
parties.
SIERRA vs. CA
The mere assertion that said note was not
notarized in their presence does not
constitute fraud, for a promissory note does
not need to be notarized to be binding.
ii. Failure to disclose facts;
duty to reveal them –
Art. 1339. Failure to
disclose facts, when
Simoun Antonio Montelibano Salinas - 2002-24124
89
there is a duty to reveal
them, as when the
parties are bound by
confidential relations,
constitutes fraud.
TUASON vs MARQUEZ
The innocent non-disclosure of a fact does not
affect the formation of the contract or operate
to discharge the parties from their
agreement.
RURAL BANK vs CA
Respondents had no duty to disclose the real
consideration of the sale between them and
Behir. The bank had other means to
determine the financial capacity of the
respondents. Also, said land was security for
the debt, and it remained unimpaired
regardless of the consideration of the sale.
iii. Usual exaggerations in
trade; opportunity to
know the facts –
Art. 1340. The usual
exaggerations in trade,
when the other party
had an opportunity to
know the facts, are not
in themselves
fraudulent.
-tolerated fraud or
dolus bonus:
considerable latitude is
given to seller’s
statement or dealer’s
talk
AZARRAGA vs GAY
The law allows dealer’s talk, which is risky by
nature. Defendant had ample opportunity to
appraise the condition of the land, and
plaintiff did nothing to prevent her from
making the investigation.
TRINIDAD vs IAC
Petitioner, herself a real estate broker, was
given ample opportunity to examine the land,
and was given considerable warning of the
flooding prior to her purchase.
iv. Mere expression of an
opinion –
Art. 1341. A mere
expression of an opinion
does not signify fraud,
unless made by an
expert and the other
 [ C 2011 ]
party has relied on the
former's special
knowledge.
1. Effects –
Art. 1344. In order
that fraud may make a
contract voidable, it
should be serious and
should not have been
employed by both
contracting parties.
SONGCO vs SELLNER
A misrepresentation upon a mere matter of
opinion is not an actionable deceit. Said
representation was merely an opinion
regarding the cane in the field, and the
potential quantity of sugar to produce.
e) Misrepresentation
i. By a third person –
Art. 1342 Misrepresentation
by a third person does not
vitiate consent, unless such
misrepresentation has created
substantial mistake and the
same is mutual.
ii. Made in good faith –
Art. 1343.
Misrepresentation
made in good faith is
not fraudulent but may
constitute error.
iii. Active/passive
MERCADO & MERCADO vs ESPIRITU
The sale of real estate made by minors
pretending to be of legal age is valid. This is
an active misrepresentation.
BRAGANZA vs VILLA ABRILLE
Plaintiffs did not specifically state that they
were of legal age, when they were minors at
the time of the celebration of the contract.
This is passive misrepresentation.
f) Simulation of Contracts
RODRIGUEZ vs RODRIGUEZ
The two contracts of sale were not
simulated, but were real and intended to be
fully operative, since they were the means
to achieve the result desired, which was the
ownership of the fishponds.
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SUNTAY vs CA
Suntay refused to assert his rights of
ownership over the land and rice mill. He did
not even intend to take exclusive possession.
The claim that it was a valid sale was
incongruous to since he never considered the
land one of his assets.
PANGADIL vs CFI
The simulation here is only relative.
Petitioners admit that they were bound; their
sole contention was that it was based on an
oral contract of mortgage, when in fact it was
an oral contract of sale.
UMALI vs CA
Since Santiago received the tractor subject
matter of the sales agreement, it shows that
petitioners intended to fulfill their obligations.
i. Kinds –
Art. 1345. Simulation
of a contract may be
absolute or relative. The
former takes place when
the parties do not intend
to be bound at all; the
latter, when the parties
conceal their true
agreement.
1. Absolute: when parties do
not intend to be bound at all;
want of true consent. The
contract does not legally exist;
it is illusory, a mere phantom.
2. Relative: when parties
conceal their true agreement
MACAPAGAL vs REMORIN
The fact that the deed of sale between
respondents did not accurately reflect the
true consideration is not cause for declaration
of nullity. When parties intend to be bound,
but the contract does not reflect the actual
purchase price, it is only a relative simulation
subject to reformation.
ii. Effects –
Art. 1346. An
absolutely simulated or
fictitious contract is
void. A relative
simulation, when it does
 [ C 2011 ] [ UP COLLEGE OF LAW ] 91
not prejudice a third possible to determine
person and is not the same, without the
intended for any need of a new contract
purpose contrary to between the parties.
law, morals, good
customs, public order 3. What may not be the objects of
or public policy binds contracts
the parties to their real a. Future inheritance, except
agreement. when authorized by law –
Art. 1347. All things
B. Object of Contracts which are not outside
1. What may be the objects of the commerce of men,
contracts – including future things,
Art. 1347. All things may be the object of a
which are not outside contract. All rights which
the commerce of men, are not intransmissible
including future things, may also be the object
may be the object of a of contracts.
contract. All rights No contract may be
which are not entered into upon future
intransmissible may inheritance except in
also be the object of cases expressly
contracts. authorized by law.
No contract may be
entered into upon All services which are
future inheritance not contrary to law,
except in cases morals, good customs,
expressly authorized public order or public
by law. policy may likewise be
the object of a contract.
All services which are
not contrary to law, -outside the
morals, good customs, commerce of men:
public order or public all kinds of things and
policy may likewise be interests whose
the object of a alienation or free
contract. exchange is restricted
by law or stipulation,
which parties cannot
modify at will

-all intransmissible
a. All things not outside the rights, including strictly
commerce of man personal rights such
b. All rights not parental or marital
intransmissible authority
c. All services not contrary to
law, morals, good customs, -in order to be a future
public, or public policy inheritance:
1) succession must not
2. Requisite - must be have been opened
determinate as to its kind – 2) the object of the
Art. 1349. The object contract forms part of
of every contract must the inheritance
be determinate as to 3) that the promissory
its kind. The fact that has an expectancy of a
the quantity is not right which is purely
determinate shall not hereditary of nature.
be an obstacle to the
existence of the
contract, provided it is BLAS vs SANTOS
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 [ C 2011 ]
Exhibit A is not a contract on future
inheritance. It refers to existing property
that she will receive by operation upon her
husband’s death. It existed at the time of
its celebration on December 26, 1936.
JLT AGRO vs. BALANSAG
Article 1080 of the Civil Code authorizes a
testator to execute an instrument of special
character which is revocable at any time
during his lifetime. Because of this, Lot 63
is not a future inheritance, since it was
conveyed.
b. Impossible things or services –
Art. 1348. Impossible things
or services cannot be the
object of contracts.
-impossible: not
susceptible or existing,
outside of the
commerce
of man
C. Cause of Contracts
1. Meaning of cause –
-cause: the ‘why’ of
its contract, the
immediate and
proximate purpose of
the contract, the
essential reason which
impels the contracting
parties to enter into it
and which explains or
justifies the creation of
the obligation
-the obligation
established by the
contract, whence it
follows that if
obligations are created
for both parties, there
must be more than
one “causa”
Art. 1350. In onerous
contracts the cause is
understood to be, for each
contracting party, the
prestation or promise of a
thing or service by the other;
in remuneratory ones, the
service or benefit which is
remunerated; and in contracts
of pure beneficence, the mere
liberality of the benefactor.
a. In onerous contracts
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 92
the understanding or the
promise of a thing or service by
the other party
b. In remuneratory
contracts
where a party gives something
to another because of some
service or benefit, where such
service or benefit was no due
as a legal obligation
c. In contracts of pure
beneficence
gratuitous contracts are
essentially agreements to give
donations
2. As distinguished from
motive –
Art. 1351. . The particular
motives of the parties in
entering into a contract are
different from the cause
thereof.
Cause: objective, intrinsic and
juridical reason for the
existence of the contract itself;
objective of the party
Motive: the psychological,
individual or personal purpose
of a party to a contract; what
drives one to enter into said
contract
You can have two differing
motives for entering into a
contract, but one causa.
their effects:
a. Absence of cause and
unlawful cause –
Art. 1352. Contracts without
cause, or with unlawful cause,
produce no effect whatever.
The cause is unlawful if it is
contrary to law, morals, good
customs, public order or public
policy.
LIGUEZ vs CA
Lopez conveyed said parcel of land for the
purpose of cohabitation with Liguez. Said
condition was unlawful. Courts will not aid
either party to enforce an illegal contract.
However, Lopez, had he been living, would be
barred from setting up his own defense, since
he cannot donate the entirety of the property
 [ C 2011 ]
in litigation; he can only donate insofar as it
does not prejudice his wife. The children
may set aside the donation in so far as it is
in excess of the portion of free disposal.
b. Statement of a false
cause in the contract –
Art. 1353. The statement of
a false cause in contracts
shall render them void, if it
should not be proved that
they were founded upon
another cause which is true
and lawful.
c. Lesion or inadequacy of
cause –
Art. 1355. Except in cases
specified by law, lesion or
inadequacy of cause shall not
invalidate a contract, unless
there has been fraud, mistake
or undue influence.
CARANTES vs CA
The contract cannot be considered as one to
declare the inexistence of a contract for lack
of consideration. In this case, the sum of
1.00 appears in the document as one of the
considerations. It is only total absence of
cause or consideration that renders a
contract void and inexistent.
SPS BUENAVENTURA vs CA
Failure to pay the consideration is different
from lack of consideration. Also, apparent
gross inadequacy shall not invalidate a
contract.
Requisite of Cause:
1. it must exist
2. it must be true
3. it must be licit.
4. Presumption of the existence
and lawfulness of a cause,
though
it is not stated in the contract –
Art. 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.
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[ UP COLLEGE OF LAW ] 93
-unless the contrary is
proved, a contract is
presumed to have a
good and sufficient
consideration.
Chapter III. Form of Contracts
A. General rule: Contracts shall
be obligatory, in whatever form
they may have been entered into,
provided all the essential
requisites for their validity are
present. (“Spiritual system” of
the Spanish Code) –
Art. 1356. Contracts shall be
obligatory, in whatever form they
may have been entered into,
provided all the essential requisites
for their validity are present.
However, when the law requires that
a contract be in some form in order
that it may be valid or enforceable, or
that a contract be proved in a certain
way, that requirement is absolute
and indispensable. In such cases, the
right of the parties stated in the
following article cannot be exercised.
-validity of the contract
in whatever
form it may have
B. Exception: When the law
requires that a contract be in
some form in order that it may
be valid or enforceable. (Anglo-
American principle) –
Art. 1356. Contracts shall be
obligatory, in whatever form they may
have been entered into, provided all
the essential requisites for their
validity are present. However, when
the law requires that a contract be
in some form in order that it may
be valid or enforceable, or that a
contract be proved in a certain
way, that requirement is absolute
and indispensable. In such cases,
the right of the parties stated in the
following article cannot be exercised.
HERNAEZ vs DE LOS ANGELES
The oral contract in this case is still valid and
enforceable. Hernaez is entitled to the money
she was promised as star of the films she is
claiming.
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C. Kinds of formalities required
by law:
1. Those required for the
validity of contracts, such as
those referred to in Arts. 748,
749, 1874, 2134, 1771, 1773;
2. Those required, not for
validity, but to make the contract
effective as against third
persons, such as those covered
by Arts. 1357 and 1358; and
3. Those required for the purpose
of proving the existence of the
contract, such as those under the
Statute of Frauds in Art. 1403.
RESUENA vs CA
Assuming the verbal agreement, said Article
grants a coercive power to the parties by
which they can reciprocally compel the
documentation of the agreement.
Chapter IV. Reformation of
Instruments
A. Requisites (Art. 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.
If mistake, fraud, inequitable
conduct, or accident has
prevented a meeting of the
minds of the parties, the
proper remedy is not
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reformation of the instrument
but annulment of the contract.
1. Meeting of the minds upon
the contract;
2. The true intention of the
parties is not expressed in the
instrument; and
3. The failure of the instrument
to express the true agreement
is due to mistake, fraud,
inequitable conduct, or accident.
-it is unjust to allow the
enforcement of a written
instrument, which does not
reflect the real meeting of
the minds
-valid contract exists;
whether written or not.
Sometimes, in reducing the
agreement in writing, the true
intention of the contracting
parties are not correctly
expressed.
GARCIA vs BISAYA
An allegation is essential because the object
sought is to make an instrument conform to a
real agreement or intention of the parties.
The function of reformation is to establish and
perpetuate an existing agreement, not to
make a new agreement. Appellant’s complaint
does not ask for annulment.
BENIR vs LEANDA
The complaint for reformation has not
prescribed. The prescriptive period of a
written contract is within 10 years.
SIR JJ: Before you can claim
prescription, you should determine
whether or not reformation is possible.
QUIROS vs ARJONA
The inability of the municipal court to identify
the exact location did not negate the principal
object of the contract. This error is
correctible by reformation, and does not
indicate the absence of the principal object.
The requisites for reformation must concur: a
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meeting of the minds, and an instrument
that does not express the true intention.
B. Cases where no reformation is
allowed –
Art. 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.
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The mistake did not vitiate the consent. In
this case, the deed of sale executed need not
be reformed. The parties retain possession of
their property and all they should do is
execute mutual deeds of sale.
SARMING vs DY
Silveria was a party to the contract.
Remember, she sold the coconut trees, and
was also one of the heirs entitled to the
estate. The mistake in the preparation of the
contract may be privy to reformation.

-wills and donations are

gratuitous dispositions of
property. An action for
reformation is tantamount to
an action for specific
performance , which is an
element lacking as between
donor and donee and between
testator and beneficiary.

C. Implied Ratification –
Art. 1367. When one of the
parties has brought an action
to enforce the instrument, he
cannot subsequently ask for
its reformation.

-there has been an Chapter V. Interpretation of

election as between Contracts (Compare with Rules on
inconsistent remedies, Statutory Construction)
one in affirmance of
the contract, and A. Primacy of intention –
another in Art. 1370. If the terms of a
disaffirmance. contract are clear and leave no
doubt upon the intention of the
D. Who may ask for reformation contracting parties, the literal
– meaning of its stipulations shall
Art. 1368. Reformation may control.
be ordered at the instance of
either party or his successors -the language of a
in interest, if the mistake was writing is to be
mutual; otherwise, upon interpreted according
petition of the injured party, to the legal meaning it
or his heirs and assigns. bears in the place of
its execution, unless
E. Procedure of reformation – parties have reference
Art. 1369. The procedure for to a different place
the reformation of instrument
shall be governed by rules of -when the terms of
court to be promulgated by the agreement are
the Supreme Court. so clear and explicit
ATILANO vs ATILANO
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 [ C 2011 ]
that they do not
justify an attempt
to read into it
only alleged intention
of the parties, the
terms are to be
understood literally.
-when the true intent
and agreement of
the parties is
established, it must be
given effect and
prevail as the bare
words of the contract
Art. 1372. . However general
the terms of a contract may
be, they shall not be
understood to comprehend
things that are distinct and
cases that are different from
those upon which the parties
intended to agree
- a particular intent
will prevail over a
general one. The
contract cannot be
construed to include
matters distinct from
those with respect
to what parties
intended to contract
BORROMEO vs CA
It is a fundamental principle in the
interpretation of contracts that while
ordinarily the literal sense of the words
employed is followed, such is not the case
where they appear to be contrary to the
evident intention of the contracting parties.
The payment is due.
KASILAG vs RODRIGUEZ
The verbal contract they entered into sought
to alter the mortgage contract into a
contract of antichresis, which is illegal and
void. The clauses regarding said contract of
antichresis, being independent of the
mortgage, can be eliminated because said
contract of mortgage is legal and valid.
SANTI vs CA
The phrase “automatically extended” did not
appear in the contract of lease between Jose
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and Reyes. The difference in the two
contracts is present.
SIR JJ: The problem with the clause is
that it is written in the passive voice. It
does not state who has the capacity to
extend the contract. Always write in the
active voice.
B. How to determine intention –
Art. 1371. In order to judge
the intention of the contracting
parties, their contemporaneous
and subsequent acts shall be
principally considered.
-The circumstances
under which the
contract was made,
and the circumstances
including the situation
of the subjects
RAPANUT vs CA
Petitioner has complied with his obligation.
The correct view is that the 500 peso monthly
installments with a 10% interest per annum,
not placing an additional 10% interest on the
500 pesos monthly. Respondent is also in
estoppel, since she accepted petitioner’s
payments.
C. How to interpret a contract
1. When it contains
stipulations that admit
several meanings –
Art. 1373. If some
stipulation of any
contract should admit of
several meanings, it
shall be understood as
bearing that import
which is most adequate
to render it effectual.
OIL & NATURAL GAS CO vs CA
Petitioner’s displacement of the comma in its
complaint cannot circumvent that clause 16
deals with the fact that ‘except when
otherwise provided in the supply/order
contract’, thus indicating that jurisdiction of
the arbitrator is not all encompassing.
SIR JJ: Do not take structuring of
arguments for granted. If you’re going
to construct an argument, go through
 [ C 2011 ] [ UP COLLEGE OF LAW ] 97
each step. Do it step by step. Explain keeping with the nature
why the ruling applies. Analyze how and object of the
the SC reaches its conclusion. contract
-determined by
2. When it contains various a consideration
stipulations, some of of the general
which are doubtful – scope and
Art. 1374. The purpose of the
various stipulations of instrument in
a contract shall be which it occurs
interpreted together,
attributing to the 4. When it contains
doubtful ones that ambiguities and omission of
sense which may stipulations –
result from all of them Art. 1376. . The usage
taken jointly. or custom of the place
shall be borne in mind in
-a contract the interpretation of the
cannot be ambiguities of a
construed in contract, and shall fill
parts, but its the omission of
clauses must be stipulations which are
interpreted in ordinarily established.
relation to one
another -An instrument
may be
construed
according to
usage, in order
to determine
the true
character

CHUA vs CA
RIGOR vs CONSOLIDATED ORIX
Article 1376 states that the custom of the
Both promissory note and the chattel place shall be used in interpreting ambiguities
mortgage must be treated as a singular of the contract. In this case, “putting one’s
contract, with one complementing the other, papers in order” does not involve payment of
pursuant to Article 1374. The deed of the capital gains tax is not a pre-requisite of
chattel mortgage modified this condition transferring ownership to the buyer.
where the promissory note confined the
proper court to Makati. Since respondent 5. With respect to the party
moved to Dagupan, this is the proper who caused the obscurity –
venue. Art. 1377. The
SIR JJ: Let the acts determine the interpretation of obscure
intention, absent any other possible words or stipulations in
means of interpretation. a contract shall not
favor the party who
3. When it contains words caused the obscurity.
that have different
significations – -the party who draws
Art. 1375. Words up a contract in which
which may have obscure terms or
different significations clauses appear, is
shall be understood in the one responsible
that which is most in
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 [ C 2011 ] [ UP COLLEGE OF LAW ]
for the obscurity or
ambiguity; they must
therefore be construed
against him.
RCBC vs CA & ILUSTRE
There is no evidence that Ilustre acted with
malice or negligence, that RCBC claimed he
did when he failed to sing a check which
they claim violated Paragraph 11 of the
Chattel Mortgage.
6. When it is absolutely
impossible to settle doubts
by the rules above –
Art. 1378. When it is
absolutely impossible
to settle doubts by the
rules established in the
preceding articles, and
the doubts refer to
incidental
circumstances of a the least transmission of
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.
If the doubts are cast
upon the principal
object of the contract
in such a way that it
cannot be known what
may have been the
intention or will of the
parties, the contract
shall be null and void.
-construction which
would amount to
impairment or loss of
right is not favored;
conservation and
preservation, not
waiver, abandonment
or forfeiture of a right
is the rule.
a. in gratuitous contracts
-doubts are resolved in favor
of least resolved in favor of
the least transmission of right
GACOS vs. CA
Simoun Antonio Montelibano Salinas - 2002-24124
98
Art. 1378 states that there will be an
inclination against the least possible
transmission of rights and interests. Hence,
the interpretation will be that Gacos did not
sell her entire share.
b. in onerous contracts
-doubts are resolved in favor
of greater reciprocity/
equivalence
7. When the doubts are cast
upon the principal object so
that the intention cannot be
known –
Art. 1378. When it is
absolutely impossible to
settle doubts by the
rules established in the
preceding articles, and
the doubts refer to
incidental circumstances
of a gratuitous contract,
rights and interests shall
prevail. If the contract is
onerous, the doubt shall
be settled in favor of the
greatest reciprocity of
interests.
If the doubts are cast
upon the principal object
of the contract in such a
way that it cannot be
known what may have
been the intention or
will of the parties, the
contract shall be null
and void.
-if the will or intent
of the parties cannot be
ascertained, the
contract is null and void.
D. Applicability of Rule 123, Rules
of Court (now Secs. 10-19, Rule
130)
 [ C 2011 ] [ UP COLLEGE OF LAW ] 99
(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.

-a valid contract can

only be rescinded for
legal cause.

-to give rise to

rescission, lesion must
have been known or
could have been
known at the time of
making the contract

Lesion: the injury which one

of the parties suffers by virtue
of a contract which is
disadvantageous to him.

-the idea is to establish parity

between the value of the thing
and its price, so that if the price
is less than the true value of
the thing at the time of the
perfection of a contract, there
DEFECTIVE CONTRACTS is lesion.

Chapter VI. Rescissible Contracts Contracts & guardians: a

guardian is only to manage the
A. Kinds – estate of his word, hence, he
Art. 1381. The following has no power to dispose of any
contracts are rescissible: portion thereof without
approval of the court when a
(1) Those which are entered guardian enters into a contract,
into by guardians whenever he must secure the approval of
the wards whom they the guardianship court
represent suffer lesion by
more than one-fourth of the Contracts for absentees –
value of the things which are principles for wards and
the object thereof; guardians also apply, since the
powers and duties of a legal
(2) Those agreed upon in representative of an absentee
representation of absentees, and the same as those of
if the latter suffer the lesion guardians
stated in the preceding
number; B. Characteristics

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 [ C 2011 ]
1. Their defect consists in injury
or damage either to one of the
contracting parties or to third
persons.
2. They are valid before
rescission.
3. They can be attacked directly
only, and not collaterally.
4. They can be attacked only
either by a contracting party or
by a third person who is injured
or defrauded.
5. They can be convalidated only
by prescription, and not by
ratification.
C. Rescission – Art. 1380
1. Definition
2. As distinguished from
rescission under Art. 1191
1191: rescission – RESOLUTION –
principal
1381: rescission – LESION - subsidiary
UNIVERSAL FOOD CORP vs. FRANCISCO
In this case, the dismissal of respondent
from his work as head scientist was a
fundamental and substantial breach of the
Bill of Assignment. Hence, respondents-
appellees had no alternative but to file the
present action for rescission and damages.
Hence, what is applicable is rescission or
resolution under Article 1191.
PRYCE CORP vs PAGCOR
When parties pray for payment of rental,
the aggrieved party sought the partial
enforcement of a lease contract. The
remedy is not rescission but termination.
Termination entails enforcement of its terms
prior to the declaration of its cancellation.
CANNU vs. GALANG
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[ UP COLLEGE OF LAW ] 100
The Deed of Sale is rescissible. However, this
is the rescission of Article 1191, which means
that they must return the partial payment
made by petitioner.
IRINGAN vs CA
The applicable period of rescission here is not
under Article 1389 (4 years) but under Article
1144 (10 years) since it is a principal action,
not a subsidiary one limited to case of
rescission under Article 1381.
RIVERA vs DEL ROSARIO
Article 1383 only applies to those found under
Article 1381. The ‘Kasunduan’ does not fall
under any one of them.
EQUATORIAL REALTY vs MAYFAIR
Rescission creates the obligation to return the
things object of the contract, and all fruits
and price with interest. Petitioner is only
entitled to the return of the purchase price,
no more, no less.
VITUG (DISSENT): Rescissible contracts are
not void ab initio. They are valid, until set
aside in an appropriate action.
3. Requisites:
a. The contract is
rescissible;
b. The party asking for
rescission has no other legal
means to obtain reparation
– Art. 1383. The action for
rescission is subsidiary; it
cannot be instituted except
when the party suffering
damage has no other legal
means to obtain reparation for
the same.;
UNION INSURANCE vs CA
Philippine Tugger’s acquisition, albeit
rescissible is valid until legally rescinded.
Hence, petitioner may ask for value of ships.
The vessels are no longer owned by private
respondent. Petitioner should have impleaded
Peninsula Tourist Shipping who owned the
vessels.
 [ C 2011 ] [ UP COLLEGE OF LAW ] 101
together with their
c. He is able to return fruits, and the price with
whatever he may be its interest;
obliged to restore if consequently, it can be
rescission is granted – carried out only when he
Art 1385. Rescission who demands rescission
creates the obligation can return whatever he
to return the things may be obliged to
which were the object restore.
of the contract,
together with their Neither shall rescission
fruits, and the price take place when the
with its interest; things which are the
consequently, it can be object of the contract
carried out only when are legally in the
he who demands possession of third
rescission can return persons who did not act
whatever he may be in bad faith.
obliged to restore.
In this case, indemnity
Neither shall rescission for damages may be
take place when the demanded from the
things which are the person causing the loss.
object of the contract
are legally in the a. with respect to third
possession of third persons who acquired the
persons who did not thing in good faith – Art.
act in bad faith. ; 1385, 2nd and 3rd par.

d. The object of the

contract has not passed
legally to the possession of
a third person acting in
good faith – Art. 1385;

e. The action for rescission

is brought within the
prescriptive period of four
(4) years –
Art 1389. The action 5. Extent of rescission –
to claim rescission Art. 1384. Rescission shall be
must be commenced only to the extent necessary to
within four years. cover the damages caused.

For persons under -it is only in favor of

guardianship and for plaintiff creditor, not all
absentees, the period of the creditors. The
of four years shall not extent of the revocation
begin until the is only to the amount
termination of the of the prejudice suffered
former's incapacity, or by creditor.
until the domicile of
the latter is known. 6. Presumptions of fraud –
Art. 1387. All contracts by
4. Effect of rescission – virtue of which the debtor
alienates property by gratuitous
Art. 1385. Rescission title are presumed to have
creates the obligation been entered into in fraud of
to return the things creditors, when the donor did
which were the object not reserve sufficient property
of the contract,
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 [ C 2011 ]
to pay all debts contracted
before the donation.
Alienations by onerous title
are also presumed fraudulent
when made by persons
against whom some judgment
has been issued. The decision
or attachment need not refer
to the property alienated, and
need not have been obtained
by the party seeking the
rescission.
In addition to these
presumptions, the design to
defraud creditors may be
proved in any other manner
recognized by the law of
evidence.
-this article presumes
the existence of fraud
by a debtor. To raise the
presumption of fraud
in
case of attachment,
it is enough that it be
issued.
-proof of fraud must
be met.
a. Badges of fraud
ORIA vs MCMICKING
Courts have laid down certain rules by
which the fraudulent character of the
transaction is determined. These are the
badges of fraud, which are all present in this
present case.
CHINA BANKING CORP vs CA
There are two badges of fraud present in
this case: Chua sold the only property which
was his right to redeem to his son. Also,
said land was sought by China Banking
Corp.
MR HOLDINGS vs BAJAR
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[ UP COLLEGE OF LAW ] 102
It is inconceivable that ADB will connive with
Marcopper to defraud Solidbank. Solidbank
was not prejudiced.
7. Liability for acquiring in bad
faith the things alienated in fraud
of creditors –
Art. 1388. Whoever acquires
in bad faith the things alienated
in fraud of creditors, shall
indemnify the latter for
damages suffered by them on
account of the alienation,
whenever, due to any cause, it
should be impossible for him to
return them.
If there are two or more
alienations, the first acquirer
shall be liable first, and so on
successively.
Chapter VII. Voidable or
Annullable Contracts
A. Kinds –
Art. 1390. The following
contracts are voidable or
annullable, even though there
may have been no damage to
the contracting parties:
(1) Those where one of the
parties is incapable of giving
consent to a contract;
(2) Those where the consent is
vitiated by mistake, violence,
intimidation, undue influence or
fraud.
These contracts are binding,
unless they are annulled by a
 [ C 2011 ]
proper action in court. They
are susceptible of ratification.
-they are existent and
binding and valid
although they can be
annulled because of
want of capacity or
vitiated consent of one
of the parties but
before annulment,
they are valid until it is set
aside.
B. Characteristics
1. Their defect consists in the
vitiation of consent of one of the
contracting parties.
2. They are binding until they are
annulled by a competent court.
3. They are susceptible of
convalidation by ratification or by
prescription.
FELIPE vs HEIRS of ALDON
The deed of sale is a voidable contract,
because Gimena had no capacity to give
consent to the contract, which she sold
without her husband’s consent. After
Maximo, Gimena’s late husband, died, it was
only the heirs of Aldon who could acquire
the right to question the defective contract,
since it deprives them of their hereditary
rights. Gimena cannot assail the deed of
sale.
SIR JJ: This is more of an
unenforceable contract than it is a
voidable contract.
C. Annulment
1. As distinguished from
rescission: Both rescission and
nullity when declared, render the
contract inofficious.
DIFFERENCES:
1. nullity declares the
inefficacy which the contract
already
carries in itself, while
rescission merely produces that
inefficacy which did not exist
essentially in the contract.
2. nullity, to be cured,
requires an act of ratification.
Rescission needs no
ratification.
Simoun Antonio Montelibano Salinas - 2002-24124
[ UP COLLEGE OF LAW ] 103
3. In nullity, the direct
influence of the public interest
is noted, while in rescission,
private interest governs.
4. nullity is based on a vice of
the contract which invalidates
it, while rescission is
compatible with the perfect
validity of the contract.
5. nullity is a sanction while
rescission is a remedy. The law
predominates the former,
equity dominates the latter.
6. while nullity can be
demanded only by parties to
the contracts, rescission may
be demanded even by third
party affected by it.
2. Grounds – Art. 1390
3. Who may and may not institute
action for annulment –
Art. 1397. The action for the
annulment of contracts may be
instituted by all who are
thereby obliged principally or
subsidiarily. However, persons
who are capable cannot allege
the incapacity of those with
whom they contracted; nor can
those who exerted intimidation,
violence, or undue influence, or
employed fraud, or caused
mistake base their action upon
these flaws of the contract.
-plaintiff must have
an interest in the
contract
-the victim and not
the party responsible
for the defect is the
one who must assert
the same
SINGSONG vs ISABELLA SAWMILL
Plaintiffs may institute an action for
annulment, even if they are not parties to the
contract, since he is prejudiced in his rights
with respect to one of the contracting parties,
and can show detriment which would
positively result to him from the contract in
which he has no intervention. However,
Saldajeno has a right to be reimubursed,
 [ C 2011 ] [ UP COLLEGE OF LAW ] 104
since the parties explicitly agreed to release -This does not apply
her from the partnership. to third persons but
only to the parties to
SAMAHAN NG MAGSASAKA vs SAN the contract
JOSEP 5. Effect
a. Mutual restitution –
The redemption made by the minors is only Arts. 1398. An obligation
voidable. It is not void ab initio. The action having been annulled, the
to annul the minors’ redemption was one contracting parties shall restore
that could only have been initiated by the to each other the things which
minors themselves, which they never have been the subject matter
initiated. of the contract, with their
fruits, and the price with its
MALABANAN vs GAW CHING interest, except in cases
provided by law.
Contracts take effect only between the
parties, their assigns and heirs. Gaw Ching And Arts. 1402. As long as
had no legal right of preemption in respect one of the contracting parties
of the house. It is outside the Urban Land does not restore what in virtue
Refor Zone. He could not pursue the nullity of the decree of annulment he
of the contract, where the land was sold, is bound to return, the other
because the land at the time belonged to cannot be compelled to comply
the lessee and not Gaw Ching, who was with what is incumbent upon
renting the land. him.

ARMENTIA vs PATRIARCA -the effect of

annulment is to wipe
If no rights, action or obligation is the contract out of
transmitted to the heir, the heir cannot existence and to
bring an action to annul the contract. restore the parties to
Armentia adjudicated to herself a parcel of their original situation
land; she was 13 years old at the time of before the contract
the sale. was entered into.
SIR JJ: This is an absolutely simulated
contract. It is not voidable. Erlinda -principle of unjust
Armentia and Patriarca clearly did not enrichment is the basis
intend to be legally bound by their of the second paragraph
actions.

4. Prescription –
Art. 1391. The action for
annulment shall be brought
within four years. CADWALLER vs SMITH, BELL

This period shall begin:
In cases of intimidation,
violence or undue influence,
from the time the defect of
the consent ceases.
In case of mistake or fraud,
from the time of the discovery
of the same.
And when the action refers to
contracts entered into by
minors or other incapacitated
persons, from the time the
guardianship ceases.
The defendants were not entitled to retain
their commission under the annulled contract,
which was ½ of whatever sum was obtained.
INES vs CA
Interest may be allowed in discretion of
damages. The award of legal interest is a
necessary consequence the finding that the
Contract of Sale is void that Ines existed.
SIR JJ: It is voidable, because it was
valid until the lower court declared it.
However, this is dangerous because the
other party would only want to delay the
case as to incur greater interest.
VELARDES vs CA

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 [ C 2011 ] [ UP COLLEGE OF LAW ] 105
Rescission in this case is for mutual Annulment:
restitution as well. -by the fault or
negligence of one
ARRA REALTY vs GUARANTEED DEVT party: he must restore
the fruits and value of
ARC failed to transfer property to the thing lost plus
respondent’s name because of mortgage to interest at the time
CBC, and sale of GDCIA, respondent of the loss
Penaloza is entitled to refund the amount
she paid to petitioner ARC. -by fortuitous event:
SIR JJ: This is a valid contract! Breach only the fruits received
took place. and restored

1) When one of the parties 6. Extinguishment of the action

is incapacitated – a. By ratification –
Art. 1399. When the defect Art. 1392. Ratification
of the contract consists in the extinguishes the action to annul
incapacity of one of the a voidable contract.
parties, the incapacitated b. When the thing is lost
person is not obliged to make through the fault of the
any restitution except insofar person who has the right to
as he has been benefited by file the action –
the thing or price received by Art. 1401. The action for
him. annulment of contracts shall be
extinguished when the thing
-a person must which is the object thereof is
see to it that lost through the fraud or fault
the other party has of the person who has a right
sufficient to institute the proceedings.
capacity to bind
himself . If If the right of action is based
nullity is on upon the incapacity of any one
account of of the contracting parties, the
incapacity of loss of the thing shall not be an
one of the obstacle to the success of the
contracting action, unless said loss took
parties, the place through the fraud or fault
party suffering of the plaintiff.
from such
incapacity is -Until the annulment of
only bound to the contract, it is valid
return what he and produces legal
has profited. effect; hence, the
plaintiff who was in

possession of the object

2) When the thing is lost at the time of the loss if
through the fault of the he were to be given
party obliged to return the back the consideration
same – Art. 1400. that he had paid to the
Whenever the person obliged defendant
by the decree of annulment to
return the thing can not do so D. Ratification
because it has been lost 1. Requisites:
through his fault, he shall a. The contract is voidable;
return the fruits received and b. The ratification is made with
the value of the thing at the knowledge of the cause for nullity;
time of the loss, with interest c. At the time of the ratification,
from the same date. the cause of nullity has already
ceased to exist.
Loss after the decree of -efficacy is given to a
Simoun Antonio Montelibano Salinas - 2002-24124
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contract which suffers
from a vice of curable
nullity
-when a contract
entered into through
error is approved by a
party after discovering
his error, there is
confirmation or
ratification;
acknowledgement –
remedy of proof
confirmation – remedy
of a defect of nullity
2. Forms
a. Express or tacit –
Art. 1393. Ratification may
be effected expressly or
tacitly. It is understood that
there is a tacit ratification if,
with knowledge of the reason
which renders the contract
voidable and such reason
having ceased, the person
who has a right to invoke it
should execute an act which
necessarily implies an
intention to waive his right.
Express ratification:
Any oral or written
manifestation of
the person entitled to
ask for annulment that
he agrees to be bound
by the contract or that
he will not seek the
annulment
Implied ratification:
Based on the conduct
of acts or the party
who is entitled to ask
for annulment. This
may include silence,
acquiescence or
acceptance
b. By the parties themselves or
by the guardian in behalf of an
incapacitated party –
Art. 1394. Ratification may
be effected by the guardian of
the incapacitated person.
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106
-the right to ratify
pertains to the
incapacitated persons;
hence, during the
existence of incapacity,
it may be exercise by
the guardian for him
-ratification does not
require consent of the
party who could not
ask for annulment of
the contract
3. Effects:
a. Action to annul is extinguished
– Art. 1392. Ratification extinguishes
the action to annul a voidable
contract.
UY SOO LIM vs TAN UNCHUAN
By virtue of ratification, Uy Soo had not
sustained the burden of proof of fraud.
Through his actions, Uy Soo cannot seek to
have the contract annulled when he himself
benefited from it. He disposed of the whole
85,000 pesos he now seeks to be paid to him.
b. The contract is cleansed
retroactively from all its defects –
Art. 1396. Ratification cleanses the
contract from all its defects from the
moment it was constituted.
-the action to annul
the same can be
maintained based
upon defects relating
to its original validity
-ratification is merely
declaratory of the
waiver of the right
to ask for annulment
Chapter VIII. Unenforceable
Contracts
A. Characteristics
-an unenforceable contract is one
which cannot be enforced unless it
is first ratified in the manner provided
by law. It is distinguished from the
rescissible contracts and annullable
contracts in that the latter two
contracts produce legal effects
unless they are set aside by a
competent court
1. They cannot be enforced by a
 [ C 2011 ]
proper action in court.
2. They are susceptible of
ratification.
3. They cannot be assailed by
third persons.
- contracts that by reason of
statutory defects do not
confer any action to enforce
the
same until and unless they
are ratified in the manner
prescribed by law are called
unenforceable contracts.
B. Kinds – Art. 1403. The following
contracts are unenforceable, unless
they are ratified:
(1) Those entered into in the name
of another person by one who has
been given no authority or legal
representation, or who has acted
beyond his powers;
(2) Those that do not comply with
the Statute of Frauds as set forth in
this number. In the following cases
an agreement hereafter made shall
be unenforceable by action, unless
the same, or some note or
memorandum, thereof, be in writing,
and subscribed by the party charged,
or by his agent; evidence, therefore,
of the agreement cannot be received
without the writing, or a secondary
evidence of its contents:
(a) An agreement that by its terms
is not to be performed within a year
from the making thereof;
(b) A special promise to answer for
the debt, default, or miscarriage of
another;
(c) An agreement made in
consideration of marriage, other
than a mutual promise to marry;
(d) An agreement for the sale of
goods, chattels or things in action,
at a price not less than five
hundred pesos, unless the buyer
accept and receive part of such
goods and chattels, or the
evidences, or some of them, of
such things in action or pay at the
time some part of the purchase
money; but when a sale is made by
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auction and entry is made by the
auctioneer in his sales book, at the
time of the sale, of the amount and
kind of property sold, terms of sale,
price, names of the purchasers and
person on whose account the sale is
made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a
longer period than one year, or for
the sale of real property or of an
interest therein;
(f) A representation as to the credit
of a third person.
(3) Those where both parties are
incapable of giving consent to a
contract
1. Unauthorized contracts
- when a person enters into a
contact for and in the name of
another, without authority to
do so, the contract does not
bind the latter
a. Governing rules –
Art. 1404. Unauthorized
contracts are governed by
Article 1317 and the principles
of agency in Title X of this
Book.
2. Contracts covered by the
Statute of Frauds
-the term ‘Statute of Frauds’
is descriptive of statutes
which require certain classes
of contracts to be in writing.
It regulates the formalities of
the contract necessary to
Render it enforceable
a. Purpose of Statute
-prevent fraud and perjury in
the enforcement of contracts
depending for their evidence
upon the unassisted memory
of witnesses by requiring
certain enumerated contracts
& transactions to be evidenced
by a writing signed by the party
to be charged.
-since the Statute of Frauds
was enacted for the purpose
of preventing frauds, it should
not be made the instrument
 [ C 2011 ] [ UP COLLEGE OF LAW ] 108
to further them. Thus, where – Art. 1407. In a contract
one pary has entirely where both parties are
performed his obligation incapable of giving consent,
under an oral contract, equity would express or implied ratification
agree that all evidence be by the parent, or guardian, as
admitted to prove the alleged the case may be, of one of the
agreement. contracting parties shall give
the contract the same effect as
b. How ratified – if only one of them were
incapacitated.
Art. 1405. . Contracts
infringing the Statute of b. Effect of ratification by the
Frauds, referred to in No. 2 of parents or guardian of both
Article 1403, are ratified by parties – Art. 1407. In a contract
the failure to object to the where
presentation of oral evidence both parties are incapable of
to prove the same, or by the giving consent, express or
acceptance of benefit under implied ratification by the
them. parent, or guardian, as the
case may be, of one of the
-If the parties make no contracting parties shall give
objection to the the contract the same effect as
admissibility of oral if only one of them were
evidence to support incapacitated.
a contract covered by
the Statute of Frauds -Defense is personal
and therein permit to the party of the
such contract to be agreement. It is like
proved orally. It will minority, fraud,
be just and binding mistake or of the
upon the parties as similar defects which
if it had been reduced may be asserted or
to writing. The Statute waived by the parties
of Frauds cannot be to the contract or their
invoked when the representatives, and
contract had been cannot be set up by
partly executed; it only strangers to the
applies to executory agreement.
contracts

c. Right of the parties when a

contract is enforceable but a
public document is necessary for
its registration –
Art. 1406. When a contract
is enforceable under the
Statute of Frauds, and a
public document is necessary
for its registration in the Chapter IX. Void or Inexistent
Registry of Deeds, the parties Contracts
may avail themselves of the A. Characteristics
right under Article 1357. 1. Void from the beginning
2. Produces no effect whatsoever
3. Contracts executed by parties 3. Cannot be ratified –
who are both incapable of giving Art. 1409. The following
consent to a contract contracts are inexistent and
void from the beginning:
a. Effect of ratification by the
parents or guardian of one of the (1) Those whose cause, object
parties or purpose is contrary to law,

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 [ C 2011 ]
morals, good customs, public
order or public policy;
(2) Those which are
absolutely simulated or
fictitious;
(3) Those whose cause or
object did not exist at the
time of the transaction;
(4) Those whose object is
outside the commerce of
men;
(5) Those which contemplate
an impossible service;
(6) Those where the intention
of the parties relative to the
principal object of the
contract cannot be
ascertained;
(7) Those expressly prohibited
or declared void by law.
These contracts cannot be
ratified. Neither can the right
to set up the defense of
illegality be waived.
-No force and effect
from the very
beginning
-Consent was not
produced by the
concurrence of the
offer and acceptance
and did not pass the
stage of generation to
the point of perfection
-those which violate
some mandatory
provisions of law
B. Kinds –Art. 1409
1. Contracts that are void
a. Those whose cause, object,
or purpose is contrary to law,
morals, good customs, public
order or public policy
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[ UP COLLEGE OF LAW ] 109
1) When the act constitutes a
criminal offense –
Art. 1411. When the nullity
proceeds from the illegality of
the cause or object of the
contract, and the act
constitutes a criminal offense,
both parties being in pari
delicto, they shall have no
action against each other, and
both shall be prosecuted.
Moreover, the provisions of the
Penal Code relative to the
disposal of effects or
instruments of a crime shall be
applicable to the things or the
price of the contract.
This rule shall be applicable
when only one of the parties is
guilty; but the innocent one
may claim what he has given,
and shall not be bound to
comply with his promise.
a) in pari delicto rule
-parties who voluntarily enter
into a compromise agreement
which is “expressly prohibited
or declared void by law”
cannot withdraw, recall or
render ineffective acts already
done in the performance of
their part in the illegal bargain
2) When the act is unlawful but
does not constitute a criminal
offense –
Art. 1412. If the act in which
the unlawful or forbidden cause
consists does not constitute a
criminal offense, the following
rules shall be observed:
(1) When the fault is on the
part of both contracting parties,
neither may recover what he
has given by virtue of the
contract, or demand the
performance of the other's
undertaking;
(2) When only one of the
contracting parties is at fault,
he cannot recover what he has
given by reason of the contract,
or ask for the fulfillment of
what has been promised him.
The other, who is not at fault,
may demand the return of what
he has given without any
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obligation to comply his
promise.
a) in pari delicto rule
3) When the purpose is illegal,
and money is paid or property
delivered therefor –
Art. 1414. When money is
paid or property delivered for
an illegal purpose, the
contract may be repudiated
by one of the parties before
the purpose has been
accomplished, or before any
damage has been caused to a
third person. In such case,
the courts may, if the public
interest will thus be
subserved, allow the party
repudiating the contract to
recover the money or
property.
-when parties to an
illegal contract are not
equally guilty, and
when public policy is
considered as
advanced by allowing the
more excusable of
the two to sue
for relief, the
transactory relief is
given to him
4) When the contract is illegal
and one of the parties is
incapable
of giving consent –
Art. 1415. . Where one of
the parties to an illegal
contract is incapable of giving
consent, the courts may, if
the interest of justice so
demands allow recovery of
money or property delivered
by the incapacitated person.
5) When the agreement is not
illegal per se but is prohibited –
Art. 1416. When the
agreement is not illegal per se
but is merely prohibited, and
the prohibition by the law is
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[ UP COLLEGE OF LAW ] 110
designated for the protection of
the plaintiff, he may, if public
policy is thereby enhanced,
recover what he has paid or
delivered.
-illegal per se: an act
or contract that is
illegal per se is one
that is universally
recognized standard
or inherently or by its
very nature bad,
improper, immoral, or
contrary to good
conscience
6) When the amount paid exceeds
the maximum fixed by law –
Art. 1417. When the price of
any article or commodity is
determined by statute, or by
authority of law, any person
paying any amount in excess of
the maximum price allowed
may recover such excess.
7) When by virtue of a contract a
laborer undertakes to work longer
than the maximum number of
hours of work fixed by law –
Art. 1418. When the
law fixes, or authorizes
the fixing of the
maximum number of
hours of labor, and a
contract is entered into
whereby a laborer
undertakes to work
longer than the
maximum thus fixed, he
may demand additional
compensation for
service rendered beyond
the time limit.
8) When a laborer agrees to
accept a lower wage than that set
by law –
Art. 1419. When the law sets,
or authorizes the setting of a
minimum wage for laborers,
and a contract is agreed upon
by which a laborer accepts a
lower wage, he shall be entitled
to recover the deficiency.
9) When the contract is divisible –
 [ C 2011 ] [ UP COLLEGE OF LAW ] 111
Art. 1420. In case of a Art.1421. The defense of
divisible contract, if the illegal illegality of contract is not
terms can be separated from available to third persons
the legal ones, the latter may whose interests are not directly
be enforced. affected.
-void stipulations have
no effect
-exceptions: when the
nature of the contract
requires divisibility

2) when the intention

of the parties is that
the contract be entire

10)When the contract is the

direct result of a previous illegal
contract –
Art. 1422. . A contract
which is the direct result of a
previous illegal contract, is
also void and inexistent.
b. Those whose object is outside
the commerce of man

c. Those which contemplate an

impossible service

d. Those where the intention of

the parties relative to the
principal object of the contract
cannot be ascertained

e. Those expressly prohibited or

declared void by law

2. Contracts that are inexistent

a. Those which are absolutely
simulated or fictitious (see Arts.
1345 and 1346)

b. Those whose cause or object

did not exist at the time of the
transaction

C. Right to set up defense of

illegality cannot be waived – Art.
1409

D. The action or defense for the

declaration of the inexistence of
a contract
1. does not prescribe –
Art. 1410. The action or TITLE III.
defense for the declaration of
NATURAL OBLIGATIONS
the inexistence of a contract
does not prescribe.
A. Definition –
2. is not available to third
Art. 1423. Obligations are civil
persons whose interest is not
or natural. Civil obligations give
directly affected –
a right of action to compel their
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ] [ UP COLLEGE OF LAW ] 112
performance. Natural he has delivered or the value of
obligations, not being based the service he has rendered.
on positive law but on equity
and natural law, do not grant Art. 1425. When without the
a right of action to enforce knowledge or against the will of
their performance, but after the debtor, a third person pays
voluntary fulfillment by the a debt which the obligor is not
obligor, they authorize the legally bound to pay because
retention of what has been the action thereon has
delivered or rendered by prescribed, but the debtor later
reason thereof. Some natural voluntarily reimburses the third
obligations are set forth in the person, the obligor cannot
following articles. recover what he has paid.
-midway between civil
and moral obligation Art. 1426. When a minor
between eighteen and twenty-
-an obligation without one years of age who has
a sanction, susceptible entered into a contract without
of voluntary the consent of the parent or
performance, but not guardian, after the annulment
through compulsion of the contract voluntarily
by legal means. It is returns the whole thing or price
a real obligation to received, notwithstanding the
which the law denies fact the he has not been
an action, but which benefited thereby, there is no
the debtor may right to demand the thing or
perform voluntarily. price thus returned.

B. As distinguished from civil Art. 1427. When a minor

obligations – Art. 1423 between eighteen and twenty-
Civil obligations: juridical one years of age, who has
obligation which are entered into a contract without
apparently in conformity the consent of the parent or
with positive law, but are guardian, voluntarily pays a
contrary to juridical principles sum of money or delivers a
and susceptible of being fungible thing in fulfillment of
annulled; given effect by law the obligation, there shall be no
Natural obligations: there is a right to recover the same from
juridical tie the obligee who has spent or
consumed it in good faith.
C. As distinguished from moral (1160A)
obligations: duties of conscience
completely outside of the field Art. 1428. When, after an
of law action to enforce a civil
D. Conversion to civil obligation obligation has failed the
1. By novation defendant voluntarily performs
2. By ratification the obligation, he cannot
demand the return of what he
has delivered or the payment of
the value of the service he has
rendered.

Art. 1429. When a testate or

E. Examples – Arts. 1424-1430 intestate heir voluntarily pays a
Art. 1424. When a right to debt of the decedent exceeding
sue upon a civil obligation has the value of the property which
lapsed by extinctive he received by will or by the
prescription, the obligor who law of intestacy from the estate
voluntarily performs the of the deceased, the payment
contract cannot recover what is valid and cannot be
rescinded by the payer.
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Art. 1430. When a will is
declared void because it has
not been executed in
accordance with the
formalities required by law,
but one of the intestate heirs,
after the settlement of the
debts of the deceased, pays a
legacy in compliance with a
clause in the defective will,
the payment is effective and
irrevocable.
TITLE IV. ESTOPPEL
A. Definition – Art. 1431.
Through estoppel an
admission or representation is
rendered conclusive upon the
person making it, and cannot
be denied or disproved as
against the person relying
thereon.
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[ UP COLLEGE OF LAW ] 113
-origin in equity
-a bar which precludes
a person from denying,
or asserting anything
to the contrary of that
which has in
contemplation of law
been established
as the truth, either by
the acts of judicial or
legislative officer, or
by his own deed or
representation either
expressed or implied
-whenever a party has, by his
own declaration, act or
omission, intentionally and
deliberately led another to
believe a particular thing to be
true, and to act upon such
belief, he cannot, in any
litigation arising out of such
declaration, act or omission, be
permitted to falsify it.
B. Kinds
1. Technical estoppel
a. By record
-the preclusion to deny the
truth of matters set for him a
record, whether judicial or
legislative and also to deny
the facts adjudicated by a
court of competent jurisdiction
example: the conclusiveness
of a judgment on the parties
to a case
b. By deed –
-a bar which precludes one
party to a deed and his privies
from asserting as against the
other party and the other
party or from denying the
truth of any material facts
asserted in it.
Art. 1433. Estoppel may be in
pais or by deed.
3. Equitable estoppel or estoppel
in pais – Art. 1433
-applied to a situation where
because of something he has
done or omitted to do, a
party is denied the right to
plead or prove an otherwise
important fact
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C. Persons bound –
Art. 1439. Estoppel is
effective only as between the
parties thereto or their
successors in interest.
D. Cases where estoppel applies
– Arts. 1434-1438
Art. 1434. When a person
who is not the owner of a
thing sells or alienates and
delivers it, and later the seller
or grantor acquires title
thereto, such title passes by
operation of law to the buyer
or grantee.
-a person who sells
property when he did
not have title to it,
cannot deny validity
to the sale after
he has acquired title
[ UP COLLEGE OF LAW ] 114
(3) The party misled must have
been unaware of the true facts;
and
(4) The party defrauded must
have acted in accordance with
the misrepresentation.
Art. 1438. One who has allowed
another to assume apparent
ownership of personal property
for the purpose of making any
transfer of it, cannot, if he
received the sum for which a
pledge has been constituted,
set up his own title to defeat
the pledge of the property,
made by the other to a pledgee
who received the same in good
faith and for value.

Art. 1435. If a person in

representation of another
sells or alienates a thing, the
former cannot subsequently
set up his own title as against
the buyer or grantee.

Art. 1436. A lessee or a bailee

is estopped from asserting
title to the thing leased or
received, as against the lessor
or bailor.

Art. 1437. When in a contract

between third persons
concerning immovable
property, one of them is
misled by a person with
respect to the ownership or
real right over the real estate,
the latter is precluded from
asserting his legal title or
interest therein, provided all
these requisites are present:

TITLE V. TRUSTS
(1) There must be fraudulent
Chapter I. General Provisions
representation or wrongful
concealment of facts known to
A. Definition
the party estopped;
Trust is the legal relationship
between one person having an
(2) The party precluded must
equitable ownership in property
intend that the other should
and another person owning the
act upon the facts as
legal title to such property,
misrepresented;
the equitable ownership of the
Simoun Antonio Montelibano Salinas - 2002-24124
 [ C 2011 ]
former entitling him to the
performance of certain duties
and the exercise of certain
powers by the latter
-a fiduciary relationship with
respect to property subjecting
the person holding the same
to the obligation of dealing
with the property benefit
of another person
B. Governing rules –
Art. 1442. The principles of
the general law of trusts,
insofar as they are not in
conflict with this Code, the
Code of Commerce, the Rules
of Court and special laws are
hereby adopted.
C. Parties –
Art. 1440. A person who
establishes a trust is called
the trustor; one in whom
confidence is reposed as
regards property for the
benefit of another person is
known as the trustee; and the
person for whose benefit the
trust has been created is
referred to as the beneficiary.
1. Trustor, who establishes or
creates trust
2. Trustee, who holds the property
in trust
3. Beneficiary or cestui que ,
the person for whose benefit
the property is held by the
trustee
4. Trust property, which is held
by the trustee for the
beneficiary
D. Kinds –
Art. 1441. Trusts are either
are created by the intention of
the trustor or of the parties.
Implied trusts come into
being by operation of law.
1. Express Trusts
a. Proof required –
Art. 1443. No express trusts
concerning an immovable or
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any interest therein may be
proved by parol evidence.
b. Form –
Art. 1444. No particular words
are required for the creation of
an express trust, it being
sufficient that a trust is clearly
intended.
- it is possible to create a
trust without using the word
‘trust’ or ‘trustee’. The mere
fact that these words are used
does not necessarily indicate
an intention to create a trust
c. Want of trustee –
Art. 1445. No trust shall fail
because the trustee appointed
declines the designation, unless
the contrary should appear in
the instrument constituting the
trust.
-equity will not allow a trust
to fail for want of a trustee is
clearly established
d. Acceptance by the beneficiary
– Art. 1441. Trusts are either
express or implied. Express
trusts are created by the
intention of the trustor or of the
parties. Implied trusts come
into being by operation of law.
2. Implied Trusts
a. How established – Art. 1441
b. How proved –
Art. 1457. An implied trust
may be proved by oral
evidence.
c. Examples – Arts. 1448-1456
Art. 1448. There is an implied
trust when property is sold, and
the legal estate is granted to
one party but the price is paid
by another for the purpose of
having the beneficial interest of
the property. The former is the
trustee, while the latter is the
beneficiary. However, if the
person to whom the title is
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conveyed is a child, legitimate
or illegitimate, of the one
paying the price of the sale,
no trust is implied by law, it
being disputably presumed
that there is a gift in favor of
the child.
Art. 1449. There is also an
implied trust when a donation
is made to a person but it
appears that although the
legal estate is transmitted to
the donee, he nevertheless is
either to have no beneficial
interest or only a part thereof.
Art. 1450. If the price of a
sale of property is loaned or
paid by one person for the
benefit of another and the
conveyance is made to the
lender or payor to secure the
payment of the debt, a trust
arises by operation of law in
favor of the person to whom
the money is loaned or for
whom its is paid. The latter
may redeem the property and
compel a conveyance thereof
to him.
Art. 1451. When land passes
by succession to any person
and he causes the legal title
to be put in the name of
another, a trust is established
by implication of law for the
benefit of the true owner.
Art. 1452. If two or more
persons agree to purchase
property and by common
consent the legal title is taken
in the name of one of them
for the benefit of all, a trust is
created by force of law in
favor of the others in
proportion to the interest of
each.
Art. 1453. When property is
conveyed to a person in
reliance upon his declared
intention to hold it for, or
transfer it to another or the
grantor, there is an implied
trust in favor of the person
whose benefit is
contemplated.
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Art. 1454. If an absolute
conveyance of property is made
in order to secure the
performance of an obligation of
the grantor toward the grantee,
a trust by virtue of law is
established. If the fulfillment of
the obligation is offered by the
grantor when it becomes due,
he may demand the
reconveyance of the property
to him.
Art. 1455. When any trustee,
guardian or other person
holding a fiduciary relationship
uses trust funds for the
purchase of property and
causes the conveyance to be
made to him or to a third
person, a trust is established
by operation of law in favor of
the person to whom the funds
belong.
Art. 1456. If property is
acquired through mistake or
fraud, the person obtaining it
is, by force of law, considered a
trustee of an implied trust for
the benefit of the person from
whom the property comes.
-mutual mistake
Why you must know the
difference among trusts?
-If the person to whom the title is conveyed is
a child, no trust is implied by law, it being
disputably presumed that there is a gift in
favor of the child.