OBLIGATIONS & CONTRACTS Has the juridical necessity of adjusting his conduct to the

demand of the creditor pursuant to the obligatory tie.

Chapter 1- GENERAL PROVISIONS
NB: It is not necessary that the active/passive subject (also
known as the personal elements of the obligation) be
Art. 1156. An obligation is a juridical
determinate at the time of the constitution, but they must at
necessity to give, to do or not to do.
least be determinable. When the subject cannot be
determined, the obligatory tie can have no effect.
An incomplete definition because it only refers to the debt side; it only
refers to the conduct to be observed by the obligor; there is no debt C.The object or the prestation
without credit. The object is not a thing but a particular conduct of the
debtor. It is the subject matter of the obligation which has an
o Complete definition: A juridical relation between two persons, economic value or susceptible to pecuniary substitution in
known as the creditor and debtor, whereby the former can case of noncompliance.
demand from the latter the observance of a determinate conduct D. Efficient cause or juridical tie between the two subjects
and in case of breach, may obtain satisfaction from the assets of
The vinculum by which the debtor is bound to in favor of the
the latter.
creditor to perform the prestation. It is determined by
knowing the sources of the obligation (Art. 1157)
Why is it a juridical necessity? Because the term, “juridical necessity” Note: Additional elements from RAM Notes:
connotes that in case of noncompliance, there will be legal sanction.
- Note: It covers only civil obligations, not natural obligations. 5. Causa debendi/ obligationes (Castan).-- This is what makes the obligation
demandable. This is the proximate why of an obligation.
Characteristics of an Obligation:
6. Form.-- This is controversial. This is acceptable only if form means some
1. It represents an exclusively private interest manifestation of the intent of the parties.
2. It creates ties that are by nature transitory
3. It involves the power to make the juridical tie effective in case of
non-fulfillment through an economic equivalent obtained from the KINDS OF PRESTATION:
debtor's patrimony.
a. “to give” consists of the delivery of a movable or immovable thing which
Types of obligations: is either determinate (specific) or indeterminate (generic). This is in order
to create a real right, or for the use of the creditor, or for its simple
a. Civil obligations - those which derive their binding possession, or in order to return to its owner.
force from positive law, and can be enforced by court action or b. “to do” involves all kinds of work or services whether physical or mental,
the coercive power of public authority. but in most cases the essence of the act man not be such, but merely the
b. Natural obligations - refer to those which derive their necessity of concluding a juridical operation, such as, when a person
binding force from equity and natural justice, and its fulfillment promises to give a bond.
cannot be compelled by court action but depends exclusively on
the conscience of the debtor. c. “not to do” is a negative obligation which consists of abstaining from
c. Moral obligations - are those which arise from moral some act, it includes “not to give”.
law developed by the church and not enforceable in court. It
deals with the spiritual obligation of a person in relation to his REQUISITES OF PRESTATION
God and church
1. it must be physically and juridically possible;
2. it must be determinate or at least determinable according to pre-
ELEMENTS of an OBLIGATION CODE: A P O E established elements or criteria;
3. it must have a possible equivalent in money or a pecuniary value.
A. Active subject (creditor, obligee)- (why: so in case of breach, one can demand damages)
Has the power to demand the prestation; it is he who in his
favor the obligation is constituted, established or created; it Article 1157 – Sources of obligation
is he who has the right to demand. a. Law;
b. Contracts;
B. Passive subject (debtor, obligor) c. Quasi-Contracts;
One who is bound to perform the prestation; passive because d. Crimes;
without the demand, there will be no action, he has to wait e. Quasi-delicts;
for the demand from the creditor.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 1
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 The enumeration of the sources of obligation is exclusive; no has the force of law between parties, each is bound to fulfill what has been
obligation exists if its source is not one of those enumerated expressly stipulated therein.
above.
Note: does not apply to attorney’s contracts: courts can decide whether or not
attorney’s fees are reasonable.
1. Unilateral promise is admitted by modern doctrine,
which recognizes that unilateral engagements may give rise to obligations Art. 1160. Obligations derived from quasi-contracts
without the need of acceptance. shall be subject to the provisions of Chapter 1, Title
XVII,of this book.
2. Contrary to Pineda, Tolentino supports that it cannot
be said with certainty that the enumeration in this article is exclusive
A quasi-contract is a juridical relation which arises from certain lawful,
because there is nothing which expressly precludes other sources of
voluntary and unilateral act/s executed by somebody for the benefit of
obligation, such as the unilateral promise to the public of an award for a
another and for which the former must be indemnified to the end that no
certain act or accomplishment.
one shall be enriched or benefited at the expense of another; It is a kind of
contract created without the consent of one party but whose missing
3. The clear implication of Sagrada Orden vs. Nacoco is that, these five (5)
consent is given by law (presumptive consent).
are the only sources of obligations.

Articles 1158 - 1162 specify the general principles regarding the sources of Characteristics of a Quasi-Contract
obligation enumerated in Art. 1157. a. The acts executed must be lawful
b. The acts executed must be voluntary
c. The acts executed must be unilateral
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 TWO PRINCIPLE TYPES:
regulated by the precepts of the law which establishes 1. NEGOTIORUM GESTIO- (officious manager) juridical relation which
them; and as to what has not been foreseen, by the takes place when somebody takes charge of the agency or
provisions of this Book. management of the business or property of another without any
power form the latter. The owner shall reimburse the gestor for the
necessary and useful expenses incurred by the latter, and for the
Note: When we say that law is an independent source of obligation, it does not
damages suffered by him in the performance of his functions.
mean that law and human acts exclude each other completely. The law cannot
exist as a source of obligation, unless the acts to which its principles may be
2. SOLUTIO INDEBITI – a juridical relation which takes place when
applied exists. But once those acts exist, the obligations arising from them by
somebody received something from another without any right to
virtue of law are entirely independent of the agreement of the parties.
demand for it, and the thing was unduly delivered through mistake
(compared to Art. 22 or unjust enrichment wherein there was no
NB: When the law merely acknowledges the existence of an obligation generated
mistake). Obligation to return the thing arises on the part of the
by an act which constitutes a contract, quasi-contract, delict or quasi-delict, and its
recipient.
only purpose is to regulate such obligation which did not arise from it, the act itself
is the source of obligation and not the law. But, when the law creates the
obligation, and the act upon which it is bases is nothing more that a mere factor in Art. 1161. Civil obligations arising from criminal
determining the moment when it becomes demandable, then the source of offenses shall be governed by the penal laws, subject to
obligation is the law itself. (i.e. a husbands’ obligation to his spouse is not anchored the provisions of Article 2177, and of the pertinent
upon the contract of marriage but on the law which dictates it.) provisions of Chapter 2, Preliminary Title on Human
Relations, and of Title XVIII of this Book, regulating
damages.
Art. 1159. Obligations arising from contracts have the
force of law between the contracting parties and should
be complied with in good faith. Basis is Article 100 of RPC, that every person criminally liable is also civilly
liable
Known as the Principle of autonomy of will. The parties can stipulate
anything (they have the freedom), provided that the terms of the contract Art. 1162. Obligations derived from quasi-delicts shall
are not contrary to law, public policy or public order. be governed by the provisions of Chapter 2, Title XVII of
this Book, and by special laws.
Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly Chapter 2- NATURE AND EFFECT OF OBLIGATIONS
stipulated but also to all the consequences which according to their
nature, may be in keeping with good faith, usage and law. Since a contract Art. 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 2
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 of a good father of a family, unless the law or the
stipulation of the parties requires another standard of The creditor has a right to the fruits of the thing from the time to
care. deliver it arises. The fruits referred involve only determinate things.

Refers to the obligation to give. Kinds of fruits: (cf: Property)

1) Natural
The obligation to give may refer to a determinate object / thing or to 2) Civil
an indeterminate or generic thing. 3) Industrial

A generic thing/ indeterminate thing is one that is indicated by its The moment when the obligation to deliver arises varies in
kinds, without being designated and distinguished from the others of the different types of obligations:
same kind. In an obligation to deliver a generic or indeterminate thing, the
thing is determinable and becomes determinate from the time the a. In obligations arising form law, quasi-delicts, quasi-
obligation has been fulfilled or performed. A generic thing is something contracts and crimes, the specific provisions of law applicable to the
which is not particularized or specified but has reference to a class or obligation determine when the delivery should be made.
genus.
b. Suspensive conditions attached to an obligation to
deliver arises only form the moment the condition happens.
A limited generic obligation is one when a the generic objects are
classified to a particular class, i.e. one of my cars
c. Suspensive periods agreed upon for the performance of
the obligation gives rise to its delivery only upon the expiration of the
A Determinate thing is something which is susceptible of particular term.
designation or specification. It is one which is individualized and can be
identified or distinguished form the others of its kind. d. Pure obligations are immediately demandable

Read in relation to Art. 1173 - The fault or negligence of the obligor The right to the fruits of the thing shall only be
consists in the omission of that diligence which is required by the nature personal, and only upon the delivery of the thing, its fruits, accessory and
of the obligation and corresponds with the circumstances of the persons, accession shall the creditor acquire a real right over it.
of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.
Classes of Delivery or Tradition:
Effect of breach: Liability for damages, unless the loss or damage of the a. REAL or ACTUAL tradition- This
thing is due to a fortuitous event. contemplates the actual delivery of the thing from the hand of the
grantor to the hand of the grantee , if it is a personal property. If it is a
Art. 1164.The creditor has a right to the fruits of the thing from real property, it is manifested by certain possessory acts executed by
the time the obligation to deliver it arises. However, he shall the grantee with the consent of the grantor such as by taking over the
acquire no real right over it until the same has been delivered to property; occupying the property.
him.
b. CONSTRUCTIVE tradition- when
Delivery is essential to acquire real right1. the delivery of the thing is not actual but representative or symbolical
in essence. But there must be intention to deliver the ownership.
WHEN DOES OBLIGATION TO DELIVER ARISE?
Kinds of
a. Perfection of contract if no term/condition; CONSTRUCTIVE TRADITION:
b. From the moment the term/condition arrives if there is a term
i. Tradicion Symbolica- delivery of certain symbols or
1 things representing the thing to be delivered such as
REAL right- is the power belonging to a person over a specific thing, without a passive subject keys, titles.
individually determined, against whom such right may be personally exercised. It gives to a person a
direct and immediate juridical power over a thing, which is susceptible of being exercised against the ii. Tradicion Instrumental – consists in the delivery of
whole world. There is a need for tradition or delivery since from the time the obligation to deliver a the instrument of conveyance to the grantee by the
determinate thing arises, the creditor has only a personal right. He can only demand that the debtor grantor.
deliver such thing and its fruit. The delivery or tradition of a thing constitutes a necessary and
indispensable requisite for the purpose of acquiring ownership. The ownership of things is transferred iii. Tradicion Longa Manu – consists in the pointing to a
not by mere agreements but by delivery. movable property within sight by the grantor to the
grantee but which at the time of the transaction, the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 3
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 thing could not be placed yet in the possession of the 2. Obligor is guilty of bad faith;
grantee.
Art. 1166. Obligation to give a determinate thing
iv. Tradicion Brevi Manu – consists in the grantee’s includes that of delivering all its accessions and
continuation of his possession over the thing delivered accessories, even though they may not have been
but now under a title of ownership as in case of a lessee mentioned.
who had purchased the property leased to him.
(Jovellanos)
Art. 1167. If a person obliged to do something fails to
v. Tradicion Constitutum Possessorium – consists in
do it, the shall be executed at his cost.
the owner’s continuous possession of the property he
This same rule shall be observed if he does it in
had sold to another person and his present possession
contravention of the tenor of the obligation.
thereof is no longer that of the owner but of a lessee.
Furthermore, it may be decreed that what has been
poorly done be undone.
vi. Tradicion by operation of law – consists in the
delivery of the thing by operation of law such as
intestate succession Remedies:
1. have obligation executed at debtor’s expense;
vii. Quasi-Tradicion- consists in the delivery of incorporeal 2. obtain damages.
property.
Thing may be ordered undone if done poorly or obligation is a negative
one
Art. 1156. When what is to be delivered is a This article presupposes that the thing can be done
determinate thing, the creditor, in addition to the right by the creditor himself or a third person. However, if the prestation
granted to him by article 1170, may compel the debtor can be done only by the debtor, the only recourse available to the
to make the delivery. creditor is a claim for damages since it is against the constitution to
force the debtor to perform the obligation.
If the thing is indeterminate or generic, he may ask that Coverage:
the obligation be complied with at the expense of the a. the obligor failed to fulfill a positive personal obligation, that is TO DO
debtor. something;
b. he fulfilled the obligation but in contravention of the agreement;
If the obligor delays, or has promised to deliver the c. There was fulfillment but the same was poor or inadequate.
same thing to 2 or more persons who do not have the
same interest, he shall be responsible for any fortuitous Note: if any of the above happens, the creditor is entitled to have the
event until he has effected the delivery. thing done in a proper manner, by himself or by a third person, at the
expense of the debtor. The court has no discretion to merely award
RULES: damages to the creditor when the act can be done in spite of the refusal
or failure of the debtor to do so.
OBLIGATION TO DELIVER REMEDY
1. Determinate thing Creditor may compel debtor to deliver Art. 1168. When the obligation consists in not
2. Indeterminate or generic thing Creditor may ask for compliance at the doing and the obligor does what has been
expense of the debtor forbidden him, it shall also be undone at his
expense.
REMEDIES OF CREDITOR
Art. 1169. Those obliged to deliver or to do
a. Demand for specific performance - This action presupposes that it is based something incur in delay from the time the
on a contractual relationship between the contending parties. Specific obligee judicially or extrajudicially demands from
performance is available even if the thing to be delivered is indeterminate. them the fulfillment of their obligation
b. Rescission of the obligation which is under Art. 1380.
c. Resolution of the contract under Art. 1191 if it is a reciprocal obligation. Demand is generally necessary, even if a period has been fixed in the obligation.
d. Damages exclusively or in addition to either of the first actions. Even in obligations where there is an acceleration clause, there is still a need for
demand.
General Rule: Obligation to deliver a specific thing is extinguished by fortuitous
INSTANCES when demand by Creditor not necessary in order that delay
event; Indeterminate thing is however not extinguished.
may exist:
Exceptions:
a. when there is an express stipulation between the parties to that effect;
1. If obligor delays or in default;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 4
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 b. where the law so provides; II. MORA ACCIPIENDI- delay in the performance of the obligation based on the
c. when time or period is the controlling motive or the principal inducement omission by the creditor of the necessary cooperation, especially in acceptance on
for the creation of the obligation; his part.
d. when demand would useless;
e. when the obligor admits he is in delay - it is necessary that it be lawful for the debtor to perform, and that he can
perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon REQUISITES FOR MORA ACCIPIENDI TO EXIST
him. From the moment one of the parties fulfills his obligation, delay by the other 1. an offer of performance by the debtor who has the required capacity;
begins. 2. the offer must be to comply with the obligation as it should be
performed;
Note: 3. the creditor refuses the performance without just cause
The demand must refer to the prestation due and not to another, however,
there will still be delay even if the demand was wrong if: CONSEQUENCES OF MORA ACCIPIENDI
1. even if the demand had been absolutely correct, the debtor 4. the responsibility of the debtor for the thing is reduced and limited to
would not have performed the obligation, or fraud and gross negligence;
2. in the light of good faith he should have offered the prestation in 5. the debtor is exempted from the risks of loss of the thing, which
the form and manner that it is due. automatically pass to the creditor;
6. all expenses incurred by the debtor for the preservation of the thing
When the time for the fulfillment of the obligation is fixed, no further
after the mora shall be chargeable to the creditor;
demand is necessary. In case of doubt on whether the debtor has incurred
7. the debtor may relieve himself from the obligation by consignation of
delay, the doubt is resolved in favor of the debtor. REASON: because the
the thing.
dispensing of demand is only an exception, it is not a general rule.
III. COMPENSATIO MORAE – applies only in reciprocal obligations. Where the
The law does not require expressly that the debtor should know that the parties are both guilty of mora or mutual default, the default of one compensates
fixing of the date for the performance was a controlling motive on the part the default of the other.
of the creditor; but this knowledge is essential in order that it can be said o Delay begins when one party fulfills his obligation.
that the debtor has tacitly consented to incur delay without the necessity
o When one party does not fulfill his obligation, he releases the other
of delay.
from his obligations, who therefore does not become delinquent in the
fulfillment.
KINDS OF DELAY: o Neither party incurs delay if the other does not comply or is not ready
A. MORA SOLVENDI – default on the part of the debtor which may to comply in a proper manner with what is incumbent upon him.
either be ex re (real obligations; obligations to give) or ex
persona (personal obligations; obligations to do) CESSATION OF THE EFFECTS OF DELAY:
B. MORA ACCIPIENDI – default on the part of the creditor (may the right to place the debtor in delay be renounced or waived? Yes. How: )
C. COMPESATIO MORAE – default on the part of both parties in 1. Renunciation by the creditor, which may be implied or expressed.
reciprocal obligations There is implied renunciation when the creditor, even after the delay,
grants an extension of time to the debtor or agrees to a novation of the
obligation. (remember Tayag vs. Leyva case. The effects of delay was
I. MORA SOLVENDI- not applied since there was a waiver on the part of Tayag when she
accepted the payments even after the due date)
REQUISITES FOR MORA SOLVENDI TO EXIST:
1. the obligation pertains to the debtor or obligor; 2. Prescription
2. the obligation is determinate or liquidated, due and demandable;
3. the obligation has not been performed on its maturity date;
Art. 1170. Those who in the performance of their
4. there is a demand made by the creditor on the debtor for the
obligations are guilty of fraud, negligence, or
fulfillment of the obligation that is due.
delay and those who in any manner contravene
the tenor thereof, are liable for damages.
DOES NOT APPLY IN THE FF. OBLIGATIONS:
1. natural obligations;
2. negative obligations GROUNDS FOR LIABILITY:
1. Fraud;
CONSEQUENCES/EFFECTS OF MORA SOLVENDI: 2. negligence;
1. debtor may be liable for damages or interests; 3. default; and
2. debtor may bear the risk or loss of the things even if the default is 4. violation of terms of obligations.
due to fortuitous event, subject to equitable mitigation if the loss would
have still occurred even if there was no default on the part of the debtor. Damages: MENTAL

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 5
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
Indemnity for damages consists of: 1. that agreed upon by parties;
2. in the absence of #1, that required by law;
a. that agreed upon; 3. in absence of #2, that expected of a good father of a family.
b. in absence of agreement, legal rate of interest.
(cases) SABEDA airlines, Prudential Bank cases
Art. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an Art. 1174.Except in cases expressly specified by
action for future fraud is void. 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
Art. 1172. Responsibility arising from negligence be responsible for those events which could not
in the performance of every kind of obligation is be foreseen, or which, though foreseen, were
also demandable, but such liability may be inevitable.
regulated by the Courts, according to the
circumstances. o General Rule: Fortuitous events absolve Obligor from liability.

KINDS: o ELEMENTS OF FORTUITOUS EVENT:

1. Culpa Contractual – breach of contract
2. Culpa Aquiliana – civil negligence, tort or quasi-delict; 1. The cause of the unforeseen and unexpected occurrence, or the failure of the
3. Culpa Criminal – criminal negligence that which results in commission debtor to comply with his obligations must be independent of the human will,
of crime or a delict. or of the debtor’s will.

In the case of PAL, the hijacking was independent of the will of PAL.
Culpa Contractual Culpa Aquiliana Culpa Criminal
1. negligence is incidental; N is direct, substantive N is direct, substantive 2. It must be impossible to foresee the event which constitute the caso fortuito,
oblig. Exists- contract and independent; or if it can be foreseen, it was inevitable to avoid
2. there is pre-existing No pre-existing No pre-existing obligation
obligation. obligation; except not to harm others Although under normal circumstances, it was not impossible for PAL to foresee the
3. preponderance of - same - Guilt beyond reasonable hijacking of the airplane, the military take over that took place that afternoon
evidence doubt rendered the foreseeability of the event as impossible since it was the army already
conducting the checking and frisking.
4. master-servant rule Defense of a good ER’s guilt- civilly liable in
Note: In the case of PHILCOMSAT v Globe: the SC held that although the parties
father of a family case of insolveny
could have foreseen the closure of the military bases, it was impossible to avoid.
5. there is a contract Prove that defendant is Presumption of innocence
negligent until contrary is proved. 3. The occurrence must be of such as to render it impossible for the debtor
to fulfill his obligation in a normal manner.
Case: Prudential Bank vs. CA: responsibility from negligence in the performance
of every kind of obligation is demandable. While in the case at bar there was no 4. The obligor must be free from any participation in, or aggravation of, the
bad faith, respondent still suffered anxiety, embarrassment and humiliation. Hence, injury resulting to the creditor.
entitle to recover (moral) damages.
Note:
Art. 1173. The fault or negligence of the obligor o An obligation consisting of the delivery of a specified thing shall be
consists in the omission of that diligence which is extinguished when the said thing shall be lost or destroyed without the
required by the nature of the obligation and fault of the obligor and before he is in default.
corresponds with the circumstances of the
persons, of the time and of the place. When o The obligor is released from liability no only when the non-performance of
negligence shows bad faith, the provisions of the obligation is due to fortuitous events, but also when it is due to the act
articles 1171 and 2201, paragraph 2, shall apply. of the creditor himself, such as defective packing.
If the law or contract does not state the diligence o EXCEPTIONS: (when obligor is still liable even if there is a fortuitous
which is to be observed in the performance, that event)
which is expected of a good father of a family 1. When the law so provides;
shall be required. 2. When it is expressly stipulated by the parties;
3. When the nature of the obligation requires the assumption of risk;
DILIGENCE REQUIRED: 4. When the obligor is in delay already;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 6
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 5. When the obligor has promised the same thing to two or more Art. 1178. Subject to the laws, all rights acquired
persons who do not have the same interest (Art. 1165); in virtue of an obligation are transmissible, if
6. When the possessor is in bad faith and the thing is lost or there has been no stipulation to the contrary.
deteriorated due to a fortuitous event; (1112)
7. When the obligor contributed to the loss of the thing during the
fortuitous event; Gen. Rule: All rights acquired in virtue of an obligation are transmissible.
8. When the obligor is guilty of fraud, negligence or delay or if he
contravened the tenor of the obligation. Exceptions:
1. if law provides otherwise;
o ASSUMPTION OF RISKS: (doctrine of created risk) 2. if contract provides otherwise;
3. if obligation is purely personal
The exception is based on social justice: If a person, for his convenience or profit,
creates risks for the public which formerly did not exist, although morally his fault Note: The exceptions refer to:
or negligence may not be the cause of the damages resulting therefrom, he should a. those not transmissible by their nature, i.e. purely personal rights; and
nevertheless be held liable for such. If he benefits from the means that have b. those not transmissible by law or by stipulation of the parties.
produced the loss, it is only equitable that he should bear the consequences of
such loss. CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
Case: Yobido vs. CA: Even if the tires are new, or that it had a good brand name,
it is settled that all accident caused either by defects in the automobile Or through SECTION 1. - Pure and Conditional Obligations
the negligence of its driver is not a caso fortuito that would exempt the carrier from
liability for damages. Moreover, a common carrier may not be absolved from PURE AND CONDITIONAL OBLIGATIONS:
liability in case of force fortuitous event alone. The common carrier must still prove
that it was not negligent in causing the death or injury resulting from an accident. o Condition: An event which is both future and uncertain upon which the
Petitioners should have shown that it undertook extraordinary diligence in the care existence or extinguishment of an obligation is made to depend. The element of
of its carrier, such as conducting daily routinary check-ups of the vehicle's parts. futurity and uncertainty must concur. The condition must be imposed by the will of
a party and must not be a necessary legal requisite of the act.
Art. 1175. Usurious transactions shall be
governed by special laws. (n) o PAST EVENTS can be conditions too. The futurity required in past events is the
future knowledge or proof of a past event unknown to the parties, not the event
Art. 1176. The receipt of the principal by the itself. Example: I will pay you 1,000 if the number of people who died in the 9/11
creditor without reservation with respect to the attack exceeds 2,000. In past events, the contract or obligation arises not when the
interest, shall give rise to the presumption that event happened or the fact came into existence, but when the proof of such fact or
said interest has been paid. event is presented, which would be in the future.

The receipt of a later installment of a debt Art. 1179. Every obligation whose
without reservation as to prior installments shall performance does not depend upon a future or
likewise raise the presumption that such uncertain event, or upon a past event unknown to
installments have been paid. the parties, is demandable at once.
Art. 1177. The creditors, after having pursued the Every obligation which contains a resolutory
property in possession of the debtor to satisfy condition shall also be demandable, without
their claims, may exercise all the rights and bring prejudice to the effects of the happening of the
all the actions of the latter for the same purpose, event. (1113)
save those which are inherent in his person; they
may also impugn the acts which the debtor may
o Kinds of Obligations:
have done to defraud them. (1111)
a. PURE - When the obligation contains no term or condition whatever upon which
Rights of Creditors:
depends the fulfillment of the obligation contracted by the debtor. it is immediately
demandable and there is nothing to exempt the debtor from compliance therewith.
1. exact payment;
If the debtor does not fulfill his prestation, especially after a valid demand, he is
2. exhaust debtor’s properties generally by attachment;
placed in default.
3. subrogatory action – exercise all rights and actions except inherent
rights;
4. impugn/rescind acts or contracts done by debtor to defraud them.
b. CONDITIONAL – with a condition

CONDITION- is an uncertain event w/c wields an influence on a legal relation.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 7
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 - Here, the moment of payment is dependent upon the will of he debtor but
TERM – is that w/c necessarily must come whether the parties know when it will not the payment. (or not the performance of the condition)
happen or not.
Art. 1181. In conditional obligations, the
INSTANCES WHEN AN OBLIGATION IS DEMANDABLE AT ONCE: acquisition of rights, as well as the
extinguishment or loss of those already acquired,
a. when it is pure; shall depend upon the happening of the event
b. when it has resolutory condition. which constitutes the condition. (1114)

a. Suspensive – conditions precedent/antecedent. The happening of w/c

CLASSIFICATION OF CONDITIONS will give rise to the acquisition of a right – future & uncertain event.
b. Resolutory -- conditions subsequent – rights are lost once the
A. SUSPENSIVE - happening of event/condition gives rise to obligation. condition is fulfilled.

RESOLUTORY – happening of event/condition extinguishes the obligation. Case: Padilla vs. Paredes: there was no obligation to perform since the suspensive
condition did not happen.
B. POTESTATIVE – depends upon the will of the debtor.
Art. 1182. When the fulfillment of the condition
CASUAL – depends on chance/will of a 3rd person. depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends
MIXED – depends partly on will of 3rd person and partly on chance. upon chance or upon the will of a third person,
the obligation shall take effect in conformity with
C. DIVISIBLE – capable of partial fulfillment. the provisions of this Code. (1115)

INDIVISIBLE – not capable of partial fulfillment.

3 KINDS OF CONDITIONS
D. POSITIVE – an act is to be performed
a. Potestative (facultative)
NEGATIVE – something will be omitted. b. Casual
c. Mixed
E. CONJUNCTIVE – if all the conditions must be performed.
POTESTATIVE ON THE PART OF THE DEBTOR
ALTERNATIVE – if only a few of the conditions have to be performed. 1. IF SUSPENSIVE – both condition and obligation are void.
2. IF RESOLUTORY – valid.
Q: What does automatically/immediately demandable mean?
Pure potestative conditions renders the whole obligation void.
A: Immediate demandability is not impaired when the performance of the
obligation is allotted a reasonable time by the court. It does not imply immediate o This article applies only to potestative SUSPENSIVE CONDITIONS. Potestative and
instantaneous compliance. resolutory valid since there is immediate performance on the part of the
obligor.
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 o If it depends solely on the will of the creditor, it is valid. Reason: to allow
of article 1197. (n) conditions whose fulfillment depends exclusively on the debtor’s will, is to
sanction illusory obligations; this cannot happen when the fulfillment depends
 payment does not depend on debtor’s will for he has promised to pay. on the will of the creditor. This is because the creditor is naturally interested in
 TIME when payment is to be made depends upon the DEBTOR. the fulfillment of the condition which will benefit him.

HOW LONG? COURTS will fix the duration of the period. Art. 1183. Impossible conditions, those contrary
to good customs or public policy and those
Article 1180- read in relation with Art. 1197. prohibited by law shall annul the obligation which
- in cases falling under this article, the creditor should file an action to fix a depends upon them. If the obligation is divisible,
period for the payment of the obligation. An action to enforce the that part thereof which is not affected by the
obligation is premature if the court has not yet fixed a period. impossible or unlawful condition shall be valid.
- covers cases wherein the debtor binds himself to pay when his means
permit him to do so, such as “I’ll pay you little by little; as soon as
possible; as soon as I have the money; in partial payments ”

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 8
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 The condition not to do an impossible thing shall Art. 1186. The condition shall be deemed
be considered as not having been agreed upon. fulfilled when the obligor voluntarily prevents its
(1116a) fulfillment. (1119)

EFFECTS: Requisites:

1. If condition is to do an impossible or illegal thing – CONDITION & 1. Voluntarily made – the intent to prevent is present.
OBLIGATION ARE VOID. 2. Actual prevention of compliance.
2. If condition is negative (not to do) DISREGARD CONDITION BUT
OBLIGATION REMAINS. Note: This refers to Constructive Fulfillment/ Implied fulfillment
3. If condition is negative (not to do an illegal thing) BOTH CONDITION &
OBLIGATION ARE VALID. o Applies to a condition which, although not exclusively within the will of the
debtor, may in some way be prevented by the debtor from happening.

Note: o There is constructive fulfillment only if the act of the debtor had in fact
o This article applies only to cases where the conditions was already prevented compliance with the condition.
impossible from the time of the constitution of the obligation, and also to
POSITIVE SUSPENSIVE CONDITIONS. o EXCEPTION: if in preventing the fulfillment of the condition the debtor acts
pursuant to a right, the condition will not be deemed fulfilled. Example: B
o The condition must already be existing at the time of the creation of the ordered A to stop building because it was against the city ordinance.
obligation. Supervening events which would render the obligation no
longer impossible does not affect the effect of annulling the obligation. Art. 1187. The effects of a conditional obligation
o In order for the condition to be considered as illicit or juridically to give, once the condition has been fulfilled, shall
impossible, it must consist of an act or fact for one of the parties. The retroact to the day of the constitution of the
mere mention of a juridically impossible condition does not annul the obligation.
obligation. The criterion is the effects upon one of the parties.
o Reason: one who promises something under a condition that is Nevertheless, when the obligation imposes
impossible or illicit knows that it cannot be fulfilled, and reciprocal prestations upon the parties, the fruits
manifests that he does not have any intention to be bound. and interests during the pendency of the
condition shall be deemed to have been mutually
o NEGATIVE SUSPENSIVE CONDITIONS have the effect of converting the compensated.
obligation into a pure and simple one. It is simply considered not written,
thus as if no condition exists. If the obligation is unilateral, the debtor shall
appropriate the fruits and interests received,
Art. 1184. The condition that some event happen unless from the nature and circumstances of the
at a determinate time shall extinguish the obligation it should be inferred that the intention
obligation as soon as the time expires or if it has of the person constituting the same was different.
become indubitable that the event will not take
place. (1117) - positive condition In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of
the condition that has been complied with. (1120)
Effect if Period of Fulfillment is not fixed: the Court considering the parties
intentions should determine what period was really intended.  In conditional oblig, to give, once fulfilled, shall retroact to the day of the
constitution of obligation.
Art. 1185. The condition that some event will not  In reciprocal oblig. – the fruits and interests during the pendency of condition,
happen at a determinate time shall render the shall be deemed to have been mutually compensated.
obligation effective from the moment the time  In unilateral oblig. – the debtor shall appropriate the fruits and interests
indicated has elapsed, or if it has become evident received UNLESS from the nature of the obligation it should be inferred that
that the event cannot occur. the intention of person was different.
If no time has been fixed, the condition shall be  In Obligation to do or not to do – the Court shall determine the retroactive
deemed fulfilled at such time as may have effect of condition that has been complied with.
probably been contemplated, bearing in mind the
nature of the obligation. – Negative Condition - Remember: between the constitution and the happening of the suspensive
condition, the creditor cannot enforce the obligation.
- The right of the creditor during the period is mere expectancy. (Jovellanos
case: The right of Daniel to the property was merely inchoate and

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 9
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 expectant right which would ripen into a vested right only upon his - No express provision regarding fruits and interests, however, there can be
acquisition of the ownership) recovery by the provisions of solution indebiti.
- The moment the suspensive condition happens, the right becomes
enforceable and the debtor may be compelled to perform the obligation. Art. 1189. When the conditions have been
Cause of action accrues, and prescription is computed from this time. imposed with the intention of suspending the
- The EFFECTS, however, RETROACTS to the moment of constitution of such efficacy of an obligation to give, the following
obligation. Reason: suspensive conditions are merely accidental to the rules shall be observed in case of the
obligation, they are not essential elements of the obligation. An obligation improvement, loss or deterioration of the thing
is deemed constituted when all the necessary elements are present. The during the pendency of the condition:
suspensive condition only prevents the efficacy of the obligation.
- Case: DBP vs. CA (1) If the thing is lost without the fault of the
- Limitations to retroactivity: the right to the fruits or interests of the thing debtor, the obligation shall be extinguished;
accruing before the happening of the condition, unless otherwise
stipulated by the parties. (2) If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; It is
Art. 1188. The creditor may, before the fulfillment understood that the thing is lost:
of the condition, bring the appropriate actions for a. when it perishes; (physical loss) or
the preservation of his right. b. goes out of commerce; (legal loss) or
c. disappears in such a way that its existence is
The debtor may recover what during the same unknown or it cannot be recovered; (civil loss)
time he has paid by mistake in case of a
suspensive condition. (1121a) (3) When the thing deteriorates without the
fault of the debtor, the impairment is to be borne
APPROPRIATE ACTIONS FOR CREDITOR TO PRESERVE HIS RIGHTS: by the creditor;

a. action for prohibition restraining the alienation of the thing pending the (4) If it deteriorates through the fault of the
happening of the condition debtor, the creditor may choose between the
b. petition for the annotation of the creditor’s right, if real property is rescission of the obligation and its fulfillment,
involved; with indemnity for damages in either case;
c. action to demand security in case the debtor becomes insolvent;
d. action to set aside alienations made by the debtor in fraud of the (5) If the thing is improved by its nature, or
creditors; by time, the improvement shall inure to the
benefit of the creditor;
2nd Par: a case of solutio indebiti (undue payment) if creditor is in bad faith, debtor
is entitled to fruits and interests. (6) If it is improved at the expense of the
debtor, he shall have no other right than that
IF PAYMENT WAS NOT BY MISTAKE, CAN THERE BE RECOVERY? granted to the usufructuary. (1122)

a. If condition is fulfilled – NO RECOVERY Article applies if:

b. If condition is not fulfilled, there should be recovery EXCEPT when a
pure donation was intended. a. suspensive condition is fulfilled;
b. and if object is specified (not generic)
Note:
- Before the happening of the suspensive condition, the debtor cannot
alienate the subject property if it is a determinate thing. Art. 1190. When the conditions have for their
- If the obligor alienated the determinate property to a 3 rd person (good purpose the extinguishment of an obligation to
faith on part of the 3rd person), the creditor cannot reclaim the property as give, the parties, upon the fulfillment of said
the delivery of the thing vests ownership. His only recourse is damages conditions, shall return to each other what they
against the debtor. However, if there was bad faith on the part of the 3 rd have received.
person, he may be compelled to deliver the thing to the creditor.
- Creditors can however, alienate their inchoate right. In case of the loss, deterioration or improvement
- If payment was a determinate thing, the cause of action is accion of the thing, the provisions which, with respect to
revindicatoria, otherwise the provisions of solution indebiti applies. the debtor, are laid down in the preceding article
- If however, payment was made with the knowledge of the condition, there shall be applied to the party who is bound to
is an implied waiver of the condition and what has been paid cannot be return.
recovered.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 10
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 As for the obligations to do and not to do, the b) If lessor demands rescission, he gets only the back rents and ouster the
provisions of the second paragraph of article 1187 lessee plus damages but not future rents.
shall be observed as regards the effect of the
extinguishment of the obligation. (1123) Note:
- This article is applicable only to reciprocal obligations. Reciprocal
EFFECTS WHEN RESOLUTORY CONDITION IS FULFILLED: obligations are those which arise from the same cause, and in which each
party is a debtor and a creditor of each other, such that the obligation of
1. Obligation is extinguished; one is dependent upon the obligation of the other. They are to be
2. Parties shall return what they have received, including fruits & performed simultaneously, so that the performance of one is conditioned
interests; upon the simultaneous fulfillment of the other. It is not enough that both
3. Courts shall determine the retroactivity of resolutory conditions parties are creditor and debtor or each other, the reciprocity in the
4. In case of loss, deterioration, or improvement, apply Art. 1189. obligation must arise from the same cause.

- Even if there is no corresponding agreement between the parties, the law

provides for such power to rescind. This article does not apply when the
Art. 1191. The power to rescind obligations is
parties made a stipulation providing for the automatic rescission of the
implied in reciprocal ones, in case one of the
contract in case of violation of the terms thereof without need of judicial
obligors should not comply with what is
intervention or permission.
incumbent upon him.
- The breach contemplated is the obligor’s failure to comply with an
The injured party may choose between the
obligation already existing, not a failure of a condition to render binding
fulfillment and the rescission of the obligation,
that obligation. There can be no breach of a non-existent obligation. Case:
with the payment of damages in either case. He
“Failure to pay, in this instance, is not even a breach but merely an event
may also seek rescission, even after he has
which prevents the vendor's obligation to convey title from acquiring
chosen fulfillment, if the latter should become
binding force. Hence, the agreement of the parties in the case at bench
impossible.
may be set aside, but not because of a breach on the part of petitioner for
failure to complete payment of the purchase price. Rather, his failure to do
The court shall decree the rescission claimed,
so brought about a situation which prevented the obligation of respondent
unless there be just cause authorizing the fixing
spouses to convey title from acquiring an obligatory force. (Ong vs. CA)
of a period.
- Case: Padilla vs. Paredes : There can be no rescission of an obligation
This is understood to be without prejudice to the
that is non-existent, considering that the suspensive condition has not yet
rights of third persons who have acquired the
happened. The right of rescission of a party to an obligation under Article
thing, in accordance with articles 1385 and 1388
1191 of the Civil Code is predicated on a breach of faith by the other party
and the Mortgage Law. (1124)
who violates the reciprocity between them. The breach contemplated in
the said provision is the obligor’s failure to comply with an existing
o CHARACTERISTICS OF RIGHT TO RESCIND obligation. When the obligor cannot comply with what is incumbent upon
it, the obligee may seek rescission and, in the absence of any just cause
1. It exists only in reciprocal obligations. If there is a fixed period, no for the court to determine the period of compliance, the court shall decree
actions can be done before the expiration of period. the rescission.
2. can be demanded only if the plaintiff is ready, willing and able to
comply with his own obligation and the other is not. - “Rescission” here is to be understood as “resolution” or cancellation of the
3. not absolute contract.
 slight breach is not sufficient as held in Tayag vs. CA- The right to
rescind is not absolute and will not be granted if there has been - Who can demand rescission: The party who can demand rescission should
substantial performance by partial payments. be the party who is ready, willing and able to comply with his own
4. it needs judicial approval in some cases – when there has already obligations while the other is not capable to perform his own. A party who
been delivery of thing. If there’s no delivery, judicial approval may has not performed his pat of the obligation cannot rescind.
not be needed; if there has been delivery, the contract stipulates for
rescission in case the other has not performed. - When one party fails to comply with his obligation under a contract, the
5. the right to rescind is implied to exist; other party has the right to either demand performance, or ask for the
6. the right to rescind may be waived expressly or impliedly resolution of the contract. These remedies/choices are mutually exclusive.
One cannot choose specific performance then rescission. Case: Velarde vs.
o DAMAGES FOR BREACH OF LEASE CONTRACT: CA: when Padilla chose to rescind the contract, although Velarde opted to
pay, the choice had already been made and to allow Velarde to pay the
a) If he selects specific performance as an action, he can demand the existing amount would tantamount to a novation of the contract
accrued rent plus the future rent for the unexpired term; .

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 11
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
- In cases of specific performance, there is always a need for judicial action effect. The rescission has the effect of abrogating the contract in all parts
if the other party refuses to make the delivery of the thing promised. and The parties will be brought back, as much as possible to the status
exception: when the injured party chose specific performance, and the quo before they entered into the contract. Hence, there is always a need
prestation had become impossible to perform, he may then cancel or for restitution. The resolution or cancellation shall take effect only after the
rescind the contract. However, so long as there has been no judgment creditor has notified the debtor of his choice of rescission.
declaring rescission, however, the creditor who has asked for it may
change his mind and demand specific performance instead, or vice-versa,
unless he has previously renounced one of these remedies. (case: Laperal vs. Solid Homes. Rescission under Art. 1191 always carries with it
the obligation of mutual restitution. However, in this case, Laperal was not made to
- Where both parties have committed a breach of obligation, and it cannot pay restitution since the parties had expressly stipulated the payment for damages
be determined who was the first infractor, the contract shall be deemed in case of breach.)
extinguished and each shall bear his own damages.
In Ong vs. CA, the SC held that Ong was not entitled to reimbursement as regards
- EXTRAJUDICIAL rescission produces legal effects. Once one of the parties the improvements he made on the property because he contracted these
fails to comply with his obligation, the other is relieved from complying improvements in bad faith.
with his, and he may therefore by his own declaration elect to rescind by - In estimating the damages to be awarded in case of rescission or
not performing his own undertaking. resolution, those elements of damages only can be admitted that are
compatible with the idea of rescission
- When can there be extrajudicial rescission? When there has been no - In case of resolution of a contract of sale, the purchaser is entitled to
performance of the obligation or whatsoever. If the obligation has not yet indemnity for damages. This indemnity, in case of resolution for non-
been performed, extra-judicial declaration of rescission by the party who is delivery of the thing sold cannot consist in the fruits, to which he is
ready and willing to perform would suffice. However, if the injured party entitled only when delivery is made. Having chosen rescission, he is only
has already performed such as when property has already been delivered entitled to the interest on the amount he has paid.
by him to the other party, he cannot by his own declaration rescind the - Tayag case: WAIVER.
contract. Hence, the court must declare the rescission.
- Case: Cannu vs. Galang- o Inapplicability of Art. 1191:

o Limitations/Restrictions on the right to rescind: 1. in obligations of sales of real property by installments since
Maceda Law RA 6552 governs;
1. DUE PROCESS MUST BE OBSERVED- the rescission authorized is 2. sales of personal property by installments governed by RA 1484
judicial rescission; the other party must be given his day in court. (Recto Law)
It is the judgment of the court and not the mere act of the vendor 3. Contracts of partnerships
which produces the rescission of the sale (Cannu) 4. Contracts of lease
2. The right to rescind is SUBORDINATED TO THE RIGHTS OF 3 RD
PERSONS who acquired the thing in good faith. o Cases when judicial approval is not needed in rescission:
3. The injured party must respect the power of the court to fix
period in lieu of decreeing rescission. (case: Central Univ- the a. if there is an express stipulation of automatic rescission;
court may fix the period for the fulfillment of the obligation, b. if there is no express stipulation of automatic rescission in case of breach,
however, in this case, the court held that there was no need to fix judicial approval is needed when there has been already delivery of the
the period since sufficient time had already lapse for the plaintiff object—unless the debtor voluntarily returned the thing.
to fulfill the condition.)
Art. 1192. In case both parties have committed a
Note: When the contract, however, is one of lease, and the lessee breach of the obligation, the liability of the first
fails to pay the rents stipulated within the time agreed upon, the court infractor shall be equitably tempered by the
will have no discretion to grant the lessee a period within which to courts. If it cannot be determined which of the
pay the rents. parties first violated the contract, the same shall
be deemed extinguished, and each shall bear his
4. Evidence is needed to justify the rescission. own damages. (n)
-
5. Slight breach of the contract will not justify rescission, the breach SECTION 2. - Obligations with a Period
should be substantial and fundamental as to defeat the object of
the parties in making the contract.
Art. 1193. Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only
o EFFECTS OF RESCISSION
when that day comes.
- Note that the exercise of the power to rescind extinguishes the obligatory
relation as if it had never been created, the extinction having a retroactive

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 12
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Obligations with a resolutory period take effect at 1. Must refer to the future;
once, but terminate upon arrival of the day 2. must be certain but can be extended;
certain. 3. must be physical and legally possible otherwise it is void.

A day certain is understood to be that which must NOTE: An action may be brought to immediately enforce an obligation originally
necessarily come, although it may not be known with a term if:
when. a. the contract in which the terms is imposed has been cancelled by mutual
agreement of the parties; or
If the uncertainty consists in whether the day will b. When the non-fulfillment of the terms of the contract resolves the period
come or not, the obligation is conditional, and it and authorizes the creditor to immediately demand performance. (the
shall be regulated by the rules of the preceding obligation is converted into a pure obligation)
Section. (1125a)
Art. 1194. In case of loss, deterioration or
improvement of the thing before the arrival of the
Period: A certain length of time which determines the effectivity or the day certain, the rules in article 1189 shall be
extinguishments of obligations. observed. (n)

PERIOD vs. CONDITION Article 1194- Article 1189 is applicable in cases of loss, deterioration, and
improvement during the pendency of condition.
A. As to their fulfillment – Thing Is Lost When –
1. It perishes.
1. a condition is an uncertain event; 2. It goes out of commerce.
2. a period is an event which must happen sooner or later at a date
known beforehand or a time which cannot be determined.
3. It disappears in such a way that its existence is unknown.
B. With reference to time 4. It disappears in such a way that it cannot be recovered.
1. Period refers to future; Note: “Genus nunquam perit” – in an obligation to deliver generic thing the loss or
2. Condition may under the law refer to past. destruction of anything of the same kind does not extinguish the obligation.
C. As to Influence on the obligation
If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages.
1. Condition causes an obligation to arise or to cease;
2. Period merely fixes the time or the efficaciousness of an
obligation. If the thing deteriorates through the fault of the debtor, the creditor may
choose between (1) rescission of the agreement or obligation plus
damages, or (2) fulfillment of the obligation plus damages.
DIFFERENT KINDS OF TERMS/PERIODS
If the thing is improved by nature, or by time, the creditor gets the benefit.
a. DEFINITE – exact date/time is known and given
INDEFINITE – something that will surely happen, but date of happening is If the thing has improved through the expense of the debtor, he shall have
unknown. the rights granted to a usufructuary for improvements on a thing held in
usufruct.
b. LEGAL – a period granted by law
CONVENTIONAL/VOLUNTARY – period agreed upon or stipulated by parties.
JUDICIAL – period or term fixed by Courts for the performance of an
Art. 1195. Anything paid or delivered before the
obligation, or for its termination.
arrival of the period, the obligor being unaware of
the period or believing that the obligation has
c. EX DIE or SUSPENSIVE PERIOD– a period with suspensive effect.
become due and demandable, may be recovered,
Obligation begin only from a day certain; upon arrival of period.
with the fruits and interests. (1126a)
IN DIEM or RESOLUTORY PERIOD– a period/term with a resolutory effect.
Termination of obligation upon the arrival of said period. PERIOD W/IN W/C RECOVERY MAY BE MADE

REQUISITES FOR A VALID PERIOD/TERM Without Debtor’s knowledge –

1. Before the debt matures ( Art. 1194)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 13
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 2. Even after maturity – if creditor is in bad faith – the right prescribes in and when through a fortuitous event they
5 years after premature payment disappear, unless he immediately gives new ones
equally satisfactory;
With Debtor’s knowledge – NO RECOVERY (implied waiver)
(4)When the debtor violates any undertaking, in
Note: the law presumes that the debtor knew of the prematureness. consideration of which the creditor agreed to the
period;
Art. 1196. Whenever in an obligation a period is
designated, it is presumed to have been (5)When the debtor attempts to abscond. (avoid
established for the benefit of both the creditor legal process) (1129a) – actual absconding, intent
and the debtor, unless from the tenor of the same to do so is sufficient.
or other circumstances it should appear that the
period has been established in favor of one or of
Note: the insolvency referred to does not have to be judicially declared; it is
the other. (1127)
sufficient for him to find a hard time paying off his obligations
because of financial reverses that have made his assets less than
Art. 1197. If the obligation does not fix a period,
his liabilities.
but from its nature and the circumstances it can
be inferred that a period was intended, the courts
may fix the duration thereof.
SECTION 3. - Alternative Obligations
The courts shall also fix the duration of the period
when it depends upon the will of the debtor.
Art. 1199. A person alternatively bound by
different prestations shall completely perform one
In every case, the courts shall determine such
of them.
period as may under the circumstances have been
probably contemplated by the parties. Once fixed
The creditor cannot be compelled to receive part
by the courts, the period cannot be changed by
of one and part of the other undertaking. (1131)
them. (1128a)
Alternative Obligation is one where out of the 2 or more prestations which may be
WHEN THE COURT MAY FIX A PERIOD
given, only one is due.
1. When the duration depends upon the will of the debtor.
2. When although the obligation does not fix a period, it can be inferred that Art. 1200. The right of choice belongs to the
a period was intended. debtor, unless it has been expressly granted to
the creditor.
INSTANCES WHEN THE COURT MAY NOT FIX THE TERM:
The debtor shall have no right to choose those
1. When no term was specified because no term was ever intended; prestations which are impossible, unlawful or
2. When the obligation or not is “payable on demand”; which could not have been the object of the
3. When specific periods are provided for in the law; obligation. (1132)
4. When what appears to be a term is really a condition;
5. When the period w/in which to ask the court to have the period fixed In obligation with a term – general rule: term is for both parties’ benefit
has itself already prescribed.
In obligation/alternative oblig – general rule: Debtor has the right of choice.
PRESCRIPTIVE PERIOD: ACTION MUST FIX THE PERIOD – 10 YEARS
The Debtor Shall Have No Right To Choose Those Prestations Which Are:
Art. 1198. The debtor shall lose every right to 1. Impossible.
make use of the period: 2. Unlawful.
3. Or which could not have been the object of the obligation.
(1) When after the obligation has been
contracted, he becomes insolvent, unless he gives Art. 1201. The choice shall produce no effect
a guaranty or security for the debt; except from the time it has been communicated.
(1133)
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised; Means of Communication to other party – oral, written, implied, express
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, EFFECT OF NOTICE THAT CHOICE HAS BEEN MADE

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  Obligation becomes a simple obligation to do or deliver the object
selected. (2) If the loss of one of the things occurs through
 PURPOSE: To inform the creditor that the obligation is now a simple the fault of the debtor, the creditor may claim any
one, no longer alternative and if already due, for the creditor to of those subsisting, or the price of that which,
receive the object being delivered, if tender of the same has been through the fault of the former, has disappeared,
made. with a right to damages;

REQUISITES FOR MAKING A CHOICE (3) If all the things are lost through the fault of
the debtor, the choice by the creditor shall fall
1. Made properly so that creditor or agent will know;
upon the price of any one of them, also with
2. made with full knowledge that a selection is indeed being made (if
indemnity for damages.
there is error – choice can be annulled)
3. made voluntarily and freely (no force, coercion etc. )
The same rules shall be applied to obligations to
4. made in due time and that is before or upon maturity;
do or not to do in case one, some or all of the
5. made to all the proper persons;
prestations should become impossible. (1136a)
6. made w/o conditions unless agreed to by the creditor;
7. may be waived, expressly/impliedly.
 if contract does not state to whom the right to choose is given, THE
DEBTOR MAY CHOOSE.
Art. 1202. The debtor shall lose the right of choice
when among the prestations whereby he is
Effect if Creditor delays in making the choice:
alternatively bound, only one is practicable.
 he cannot hold the debtor in default for the debtor does not know
(1134)
what to deliver;
 if debtor wants to relieve himself from the obligation, he may petition
Example: Objects A,B & C. A&B are destroyed; C can only be delivered- if C is the court to compel Creditor to accept in the alternative, at the
destroyed (fortuitous event) obligation is extinguished. petitioner’s option with damages.

Art. 1203. If through the creditor's acts the debtor Art. 1206. When only one prestation has been
cannot make a choice according to the terms of agreed upon, but the obligor may render another
the obligation, the latter may rescind the contract in substitution, the obligation is called facultative.
with damages. (n)
The loss or deterioration of the thing intended as
Art. 1204. The creditor shall have a right to a substitute, through the negligence of the
indemnity for damages when, through the fault of obligor, does not render him liable. But once the
the debtor, all the things which are alternatively substitution has been made, the obligor is liable
the object of the obligation have been lost, or the for the loss of the substitute on account of his
compliance of the obligation has become delay, negligence or fraud. (n)
impossible.
FACULTATIVE OBLIGATION – it is one where only one prestation has been agreed
The indemnity shall be fixed taking as a basis the
upon but the obligor may render another in substitution.
value of the last thing which disappeared, or that
of the service which last became impossible.
DISTINCTIONS
Damages other than the value of the last thing or
service may also be awarded. (1135a)
ALTERNATIVE FACULTATIVE
Art. 1205. When the choice has been expressly
given to the creditor, the obligation shall cease to 1. various things are due, but giving of 1. only one thing is
be alternative from the day when the selection one is enough; principally due but may be
has been communicated to the debtor. substituted.
2. if one prestation is illegal, others may 2. if principal obligation
Until then the responsibility of the debtor shall be be valid and the obligation remains; is void, giving of the substitute is
governed by the following rules: no longer necessary. (NULLITY OF
PRINCIPAL CARRIES WITH IT THE
(1) If one of the things is lost through a fortuitous NULLITY OF SUBSTITUTE.)
event, he shall perform the obligation by 3. if it is impossible to give all except 3. If it is impossible to
delivering that which the creditor should choose one, the one left must still be given. give the principal, the substitute
from among the remainder, or that which remains does not have to be given; if vice
if only one subsists; versa, the principal must be given.
4. the right to choose may be given 4. The right to choose is

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 15
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
either to debtor/creditor given only to the debtor. Art. 1208. If from the law, or the nature or the
wording of the obligations to which the preceding
SECTION 4. - Joint and Solidary Obligations article refers the contrary does not appear, the
credit or debt shall be presumed to be divided
Art. 1207. The concurrence of two or more into as many shares as there are creditors or
creditors or of two or more debtors in one and the debtors, the credits or debts being considered
same obligation does not imply that each one of distinct from one another, subject to the Rules of
the former has a right to demand, or that each Court governing the multiplicity of suits. (1138a)
one of the latter is bound to render, entire
compliance with the prestation. There is a Art. 1209. If the division is impossible, the right
solidary liability only when the obligation of the creditors may be prejudiced only by their
expressly so states, or when the law or the nature collective acts, and the debt can be enforced only
of the obligation requires solidarity. (1137a) by proceeding against all the debtors. If one of
the latter should be insolvent, the others shall not
JOINT SOLIDARY be liable for his share. (1139)
 Each of the debtors is liable only for  Each debtor – entire obligation;
a proportionate part of the debt and each creditor is entitled to demand  Indivisible joint obligation – requires the consent of all debtors
each creditor is entitled to a the whole obligation.
proportionate part of the credit. CHARACTERISTICS
 Obligation is joint but since it is indivisible, creditor must proceed against
GENERAL RULE: When there are 2 or more debtors or creditors, all the joint debtors.
the obligation is JOINT.  Demand must be to all joint debtors;
 In case of insolvency of one debtor; others are not liable for his share;
EXCEPTIONS:  If there are joint creditors, delivery must be made to all unless authorized
1. when there is a stipulation in the contract that the obligation is by others;
solidary;  Each joint creditor may renounce his share
2. when the nature of the obligation requires liability to be solidary;
3. when the law declares so Art. 1210. The indivisibility of an obligation does
not necessarily give rise to solidarity. Nor does
INSTANCES WHERE LAW IMPOSES SOLIDARY LIABILITY solidarity of itself imply indivisibility. (n)

a. obligation arising from torts;  Solidarity ---the tie between parties

b. quasi-contracts;  Indivisibility --- subject matter
c. legal provisions re: the obligation of legatees and devisees;
d. liability of principals, accomplices and accessories of a felony;
KINDS OF SOLIDARITY
e. bailees in commodatum.

a) There may be plurality of creditors 1. ACTIVE – on the part of creditors/obliges

b) Plurality of both debtors and creditors; 2. PASSIVE – debtors/obligors part
c) Plurality of debtors. 3. MIXED – both
4. CONVENTIONAL – agreed by parties
5. LEGAL – imposed by law
EFFECTS OF JOINT LIABILITY
Art. 1211. Solidarity may exist although the
a. Demand by one creditor upon one debtor produces effects of default only with creditors and the debtors may not be bound in the
respect to both parties but not with respect to the others; same manner and by the same periods and
b. Interruption of prescription by judicial demand of one creditor upon one debtor conditions. (1140)
does not benefit the other creditors;
c. Vices of each obligation arising from personal defect of a particular debtor or Art. 1212. Each one of the solidary creditors may
creditor does not affect the obligation or rights of the others; do whatever may be useful to the others, but not
d. Insolvency of a debtor does not increase the responsibility of his co-debtors anything which may be prejudicial to the latter.
nor does it authorize a creditor to demand anything from his co-creditors; (1141a)
e. In joint divisible obligation, the defense of res judicata is not extended from Art. 1213. A solidary creditor cannot assign his
one debtor to another. rights without the consent of the others. (n)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 16
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Art. 1214. The debtor may pay any one of the 2. Solidary debtor can be reimbursed with what he has paid less his own
solidary creditors; but if any demand, judicial or share; SURETY can be reimbursed for everything he has paid.
extrajudicial, has been made by one of them, 3. SD receives an extension of period of payment, others are still liable for
payment should be made to him. (1142a) the whole obligation minus the share of the debtor who has extension. If
the principal debtor receives extension w/out surety’s consent, the surety
Art. 1215. Novation, compensation, confusion or is released.
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall Art. 1217. Payment made by one of the solidary
extinguish the obligation, without prejudice to the debtors extinguishes the obligation. If two or
provisions of article 1219. more solidary debtors offer to pay, the creditor
may choose which offer to accept.
The creditor who may have executed any of these
acts, as well as he who collects the debt, shall be He who made the payment may claim from his co-
liable to the others for the share in the obligation debtors only the share which corresponds to each,
corresponding to them. (1143) with the interest for the payment already made. If
the payment is made before the debt is due, no
NOVATION; EFFECT interest for the intervening period may be
 Modification of an obligation by changing its object or principal conditions; demanded.
by substituting the person of debtor; subrogation
When one of the solidary debtors cannot, because
COMPENSATION of his insolvency, reimburse his share to the
 Is that w/c takes place when 2 persons in their own right, are creditors and debtor paying the obligation, such share shall be
debtors of each other. borne by all his co-debtors, in proportion to the
debt of each. (1145a)
CONFUSION/ MERGER
 W/c takes place when the characters of creditor and debtor are merged in Art. 1218. Payment by a solidary debtor shall not
the same person, as when a check issued by A, in the course of entitle him to reimbursement from his co-debtors
negotiation, is eventually endorsed to him. if such payment is made after the obligation has
 The solidary obligation is extinguished; but the other is still indebted to prescribed or become illegal. (n)
the other for his share.
Art. 1219. The remission made by the creditor of
REMISSION (WAIVER) the share which affects one of the solidary
 That act of liberality whereby a creditor condones the obligation of debtors does not release the latter from his
the debtor; that where the creditor tells the debtor to “forget about responsibility towards the co-debtors, in case the
the whole thing.” debt had been totally paid by anyone of them
before the remission was effected. (1146a)
Art. 1216. The creditor may proceed against any
one of the solidary debtors or some or all of them Art. 1220. The remission of the whole obligation,
simultaneously. The demand made against one of obtained by one of the solidary debtors, does not
them shall not be an obstacle to those which may entitle him to reimbursement from his co-debtors.
subsequently be directed against the others, so (n)
long as the debt has not been fully collected.
(1144a.) Art. 1221. If the thing has been lost or if the
prestation has become impossible without the
fault of the solidary debtors, the obligation shall
Effect of not proceeding against ALL – there is no waiver against those not yet
be extinguished.
sued; they may be proceeded against later.
If there was fault on the part of any one of them,
 Applies only to solidary obligation, not joint.
all shall be responsible to the creditor, for the
price and the payment of damages and interest,
PASSIVE SOLIDARITY & SURETYSHIP (similarities)
without prejudice to their action against the
1. both the solidary debtor and the surety guarantee for another person.
guilty or negligent debtor.
2. both can demand reimbursement
If through a fortuitous event, the thing is lost or
Differences:
the performance has become impossible after one
of the solidary debtors has incurred in delay
1. Solidary debtor indebted for own share only; SURETY is indebted only for
through the judicial or extrajudicial demand upon
the share of the principal debtor;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 17
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 him by the creditor, the provisions of the KINDS OF DIVISION
preceding paragraph shall apply. (1147a) 1. Quantitative – depends of quantity
2. Qualitative – depends of quality
3. Intellectual/ moral – one that exists merely in the mind and not in
PAYMENT physical reality
Payment is one of the ways by which an obligation is extinguished and
consists in the delivery of the thing or the rendition of the service which is the Art. 1224. A joint indivisible obligation gives rise
object of the obligation to indemnity for damages from the time anyone of
the debtors does not comply with his undertaking.
EFFECTS OF LOSS/ IMPOSSIBILITY The debtors who may have been ready to fulfill
1. if w/out fault – no liability their promises shall not contribute to the
2. if w/ fault – liable + damages and interest indemnity beyond the corresponding portion of
3. fortuitous event after default – there is liability because of default. the price of the thing or of the value of the
service in which the obligation consists. (1150)
Art. 1222. A solidary debtor may, in actions filed
by the creditor, avail himself of all defenses which EFFECT OF NON-COMPLIANCE – the obligation is converted into a monetary one for
are derived from the nature of the obligation and indemnity.
of those which are personal to him, or pertain to
his own share. With respect to those which Art. 1225. For the purposes of the preceding
personally belong to the others, he may avail articles, obligations to give definite things and
himself thereof only as regards that part of the those which are not susceptible of partial
debt for which the latter are responsible. (1148a) performance shall be deemed to be indivisible.

KINDS OF DEFENSES When the obligation has for its object the
a. Those derived from the nature of the obligation execution of a certain number of days of work, the
b. Those personal to the debtor sued. accomplishment of work by metrical units, or
analogous things which by their nature are
SECTION 5. - Divisible and Indivisible Obligations susceptible of partial performance, it shall be
divisible.
Art. 1223. The divisibility or indivisibility of the
things that are the object of obligations in which However, even though the object or service may
there is only one debtor and only one creditor be physically divisible, an obligation is indivisible
does not alter or modify the provisions of Chapter if so provided by law or intended by the parties.
2 of this Title. (1149)
In obligations not to do, divisibility or indivisibility
 Divisible obligation – capable of partial performance; shall be determined by the character of the
 Indivisible – not capable of partial fulfillment. prestation in each particular case. (1151a)

OBLIGATIONS THAT ARE DEEMED INDIVISIBLE

1. Obligations to give definite things.
2. Those which are not susceptible of partial performance.
3. Even if the thing is physically divisible, it may be indivisible if so provided
INDIVISIBILITY vs. SOLIDARITY by law.
4. Even if the thing is physically divisible, it may be indivisible if such was the
SOLIDARITY INDIVISIBILITY
intention of the parties concerned.
1. refers to the tie between parties;  Refers to nature of obligation;
2. needs at least 2 debtors or creditors;  May exist even if there is one
OBLIGATIONS THAT ARE DEEMED DIVISIBLE
debtor and one creditor;
1. When the object of the obligation is the execution of a certain number of
3. fault of one is fault of others  Fault of one – not fault of others days of work.
2. When the object of the obligation is the accomplishment of work by
CLASSES/KINDS OF INDIVISIBILITY metrical units.
3. When the purpose of the obligation is to pay a certain amount in
1. Conventional – agreed to by parties; installments.
2. Natural/absolute – nature of obligation 4. When the object of the obligation is accomplishment of work susceptible
3. Legal – by law of partial performance.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 18
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 SECTION 6. - Obligations with a Penal Clause Art. 1228. Proof of actual damages suffered by
the creditor is not necessary in order that the
penalty may be demanded. (n)
Art. 1226. In obligations with a penal clause, the
penalty shall substitute the indemnity for Art. 1229. The judge shall equitably reduce the
damages and the payment of interests in case of penalty when the principal obligation has been
noncompliance, if there is no stipulation to the partly or irregularly complied with by the debtor.
contrary. Nevertheless, damages shall be paid if Even if there has been no performance, the
the obligor refuses to pay the penalty or is guilty penalty may also be reduced by the courts if it is
of fraud in the fulfillment of the obligation. iniquitous or unconscionable. (1154a)
The penalty may be enforced only when it is
WHEN PENAL CLAUSE CANNOT BE ENFORCED:
demandable in accordance with the provisions of
this Code. (1152a)
a) The breach is the fault of creditor;
b) Fortuitous event intervened unless the debtor expressly agreed on his
PENAL CLAUSE – a coercive means to obtain from debtor compliance. It is liability in case of fortuitous event.;
an accessory undertaking to assume greater liability in case of breach. c) When debtor is not yet in default.

KINDS OF PENAL CLAUSE Art. 1230. The nullity of the penal clause does not
carry with it that of the principal obligation.
a. legal;
b. conventional/ voluntary The nullity of the principal obligation carries with it that of the penal clause. (1155)
c. Subsidiary – when only penalty may be asked.
d. Joint – when both the principal contract and penal clause can be enforced CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
*** be noted on this points (read the book)
 Penal Clause constitutes an obligation although an accessory
Art. 1231. Obligations are extinguished:
 May become demandable in default of the unperformed principal obligation
(1) By payment or performance:
(2) By the loss of the thing due:
PURPOSE: to insure performance and also to substitute for damages and the
(3) By the condonation or remission of the
payment of interest in case of non-compliance
debt;
(4) By the confusion or merger of the rights
EXCEPTIONS:
of creditor and debtor;
(5) By compensation;
1. Expressly stipulated – to the effect that damages and interests may still be
(6) By novation.
recovered despite the presence of Penal clause
Other causes of extinguishment of obligations,
2. When debtor refuses to pay the penalty imposed in the obligation.
such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are
3. When debtor is guilty of fraud or dolo in the fulfillment of the obligaton. (reason:
governed elsewhere in this Code. (1156a)
no waiver of future action for fraud)
CLASSIFICATION OF CAUSES OF EXTINGUISMENT
Art. 1227. The debtor cannot exempt himself from
A. VOLUNTARY
the performance of the obligation by paying the
1. Performance
penalty, save in the case where this right has
- payment
been expressly reserved for him. Neither can the
- consignation
creditor demand the fulfillment of the obligation
2. Substitution of Performance
and the satisfaction of the penalty at the same
- compensation
time, unless this right has been clearly granted
- novation
him. However, if after the creditor has decided to
- dacion en pago
require the fulfillment of the obligation, the
3. Agreement to Obligation
performance thereof should become impossible
without his fault, the penalty may be enforced.
a. Subsequent to Obligation
(1153a)
- unilateral waiver
- natural waiver
- remission
- mutual dissent

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 19
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 - compromise 3. if debt is doing of a personal undertaking, by performance of said
undertaking;if debt is not doing of something, by refraining from
b. Simultaneous with Creation of Obligation doing such.
- resolutory term or extinctive period
- resolutory condition or condition subsequent Note: A debtor cannot compel the creditor to accept partial payment. But, he can
accept partial payment. If he voluntarily accepts such payments then he is deemed
B. INVOLUNTARY to have waived the requirements in Art. 1233 that the performance of the
a) by failure to bring an action (prescription) obligation is not considered complete unless there is complete delivery or complete
b) resolutory/ condition subsequent (merger/confusion; in personal performance.
obligation- death; change of civil status)
c) by reason of object – impossibility of performance; loss of thing due While it may be true that there is no payment if there is no complete delivery or
performance of the service, there are two exceptions to the general rule. And those
SECTION 1. - Payment or Performance are Art. 1234 and 1235.

Art. 1232 Payment means not only the delivery of Art. 1234. If the obligation has been substantially
money but also the performance, in any other performed in good faith, the obligor may recover
manner, of an obligation. (n) as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
PAYMENT – mode of extinguishing obligation consists of:
c. delivery of money; Note:
d. performance in any other manner of an obligation;
1. In 1234 there has been substantial performance by the obligor in good faith. So,
Payment is defined as not only the delivery of money but also the performance, in if there has been substantial performance IN GOOD FAITH by the obligor, then the
any other manner, of an obligation. Payment is the satisfaction or fulfillment of a obligor can recover as though there had been strict and complete fulfillment, less
prestation that is due, resulting in the extinguishment of the obligation of the of course the damages suffered by the creditor.
debtor. (Pineda); Payment and performance is identical.
2. The omission or defect must be slight and unimportant, that is, it must not be so
material as to frustrate the accomplishment of the intended work.
Two kinds of payment:
3. There must be no willful or intentional deviation from the contract or prestation
1. It is normal (or voluntary) when the obligor voluntarily pays the obligation. by the debtor, and the omission or defect must not be material, otherwise, the
2. It becomes abnormal (involuntary) when the creditor institutes an action to performance will not amount to substantial compliance.
collect payment in order that the obligor shall comply with his obligation.
Art. 1235. When the obligee accepts the
 Requisites of a valid payment: performance, knowing its incompleteness or
1. Capacity of the person paying; irregularity, and without expressing any protest
2. Capacity of the person receiving the payment; or objection, the obligation is deemed fully
3. Delivery of the full amount or the full performance of the prestation; complied with. (n)
4. Propriety of time, place and manner of payment;
5. Acceptance of the payment by the creditor.  In this case, OBLIGEE is in ESTOPPEL – barred from further action for claims.

Art. 1233: A debt shall not be understood to have How shall it happen? The creditor accepts the performance despite knowledge of
been paid unless the thing or service in which the the incompleteness or irregularity and without protest or objection accepts the
obligation consists has been completely delivered performance. In effect, he is deemed to have waived the irregularity because the
or rendered, as the case may be. (1157) law requires that he must know the incompleteness or irregularity of the
performance and accept it without protest or objection.
Requisites of Valid Payment:
Art. 1236. The creditor is not bound to accept
1. the very thing/ service contemplated must be paid; payment or performance by a third person who
2. fulfillment must be complete. has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.
HOW PAYMENT/ PERFORMANCE IS MADE
Whoever pays for another may demand from the
1. If monetary obligation, by delivery of money – in full payment unless debtor what he has paid, except that if he paid
otherwise stipulated in contract; without the knowledge or against the will of the
2. if debt is delivery of thing/s, by delivery of such thing/s debtor, he can recover only insofar as the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 20
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 payment has been beneficial to the debtor. knowledge, then he has no right to demand that he be subrogated into the right
(1158a) of the creditors. Such right is not granted to him by law as stated in Art. 1237.
Art. 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the SUBROGATION – act of putting somebody into the shoes of the Creditor, hence,
latter, cannot compel the creditor to subrogate enabling the former to exercise all the rights and actions that could be exercised by
him in his rights, such as those arising from a the creditor.
mortgage, guaranty, or penalty. (1159a)
Rights w/c may be exercised by Person subrogated in the Place of Creditor:
The creditor can refuse payment by a 3rd person, EXCEPT:
1. arising from mortgage;
a. When stipulated; 2. guaranty;
b. If said 3rd person has an interest in the fulfillment of the 3. penalty
obligation.
SUBROGATION REIMBURSEMENT
Instance when RECOVERY can be had from Creditor and not from Debtor: 1. recourse can be had to the mortgage  no recourse
or guaranty or pledge;
1. Prescription; 2. debt is extinguished in one sense but  new creditor has different rights
2. Remission; a new creditor appears with same
3. Paid/performed debt; rights;
4. When legal compensation had already taken place 3. there is something more than a  Personal action
personal action of recovery.
NB:
 If the 3rd person pays the obligation of the debtor with the knowledge and Art. 1238. Payment made by a third person who
consent of the debtor, the payor is entitled to be reimbursed for the full amount. does not intend to be reimbursed by the debtor is
The same applies if the debtor knows that the third person is making the deemed to be a donation, which requires the
payment but he did not object thereto, or he did not repudiate the same at debtor's consent. But the payment is in any case
anytime. valid as to the creditor who has accepted it.

 If payment was made without the knowledge or without the consent of the If the creditor accepts payment even if it is against the will of the debtor, the
debtor, the reimbursement shall be only up to the amount or extent by which the payment is still valid, only that we will apply 1236, with respect to reimbursement.
debtor was benefited. (With knowledge but without consent of debtor falls under
this situation) But take note that if the payment made by the third person who does not intend to
be reimbursed exceeds P5,000 the requirement of the law is that the payment
o From transcription: So, if he does not consent even if he knew about it, must be in writing.(to be considered as a valid donation) But the payment is still
how much can the 3rd person demand reimbursement? Only to the valid since the consent of the debtor is immaterial as the extinguishment of the
extent that the debtor is benefited. What if he has the knowledge but he obligation is concerned.
does not say anything? Full reimbursement, because the law does not
require that knowledge and consent must come together. There can be Art. 1239. In obligations to give, payment made
knowledge without the consent, in effect he has the knowledge but the by one who does not have the free disposal of the
consent is tacit or implied. Because if he does not want that the 3rd thing due and capacity to alienate it shall not be
person will pay his obligation, then definitely he would express his valid, without prejudice to the provisions of
refusal, diba? This is just like the MU sa inyo. So, if he pays with the article 1427 under the Title on "Natural
knowledge, then the third person can demand full reimbursement, or Obligations." (1160a)
with the consent. Consent of course always means with the knowledge.
Knowledge does not always mean there is consent because consent can PAYMENT BY AN INCAPACITATED PERSON
be implied. But with the knowledge but without the consent, only so
much as the payment redounded to the benefit of the debtor, and we GENERAL RULE: If payment is made by a person incapacitated to give:
call that beneficial reimbursement. 1. payment is not valid – if accepted;
2. creditor cannot be compelled to accept;
 Consequently, if the debt had already prescribed or had already been 3. remedy of consignation is not proper.
compensated, the payment would no longer be beneficial. Under this situation,
the payor is definitely not entitled to reimbursement from the debtor. EXCEPT: Art. 1247 -- The minors who entered into a contract, without the consent of
the parents or the guardian, but voluntarily pays a sum of money or delivers a
 Another effect if payment was with the knowledge and consent is that the 3 is rd
fungible thing for the fulfillment of the obligation, the minor cannot recover the
subrogated into the rights of the former creditor. He becomes the new creditor. same from the creditor who accepted it or consumed it in good faith.
But if it is without the consent or against the will of the debtor or without the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 21
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Art. 1240. Payment shall be made to the person in Payment to a third person shall also be valid if it has redounded to the benefit of
whose favor the obligation has been constituted, the creditor. So, you have the burden of proving that payment made to the third
or his successor in interest, or any person person redounded to the benefit of the creditor. But benefit need not be proved in
authorized to receive it. (1162a) the following instances:
1. if after the payment, the third person acquires the creditor's rights – Ex:
TO WHOM PAYMENT MUSTBE MADE you have an obligation to deliver a diamond ring, and it was received by a third
person, and later on you saw the third person wearing the same ring, the
1. To person in whose favor the obligation has been constituted presumption is that he had acquired ownership over the property you had
(creditor); delivered;
2. successor in interest;
3. to any person authorized to receive it (eg. Guardian of insane, agent) 2. the creditor ratifies the payment to the third person. So it follows that at the time
of payment, the creditor had no authority to accept payment, but when you made
the payment, he ratified it. Ratification comes after, because if it is prior, ano yan?
Q: Pedro borrowed money (900,000) from Juan, who is married to Petra. Petra died. Authorization. The presumption is that the payment was without his authority, only
They had a child, JR (17 years old). Juan remarried to Jane. Juan died. Pedro, when that he ratified it.
the obligation became due and demandable, paid Jane. Is the payment valid?
3. You lead the debtor to believe that the third person is authorized to receive
Answer: The payment is not valid despite the authority of Juan. It belongs to the payment.
first marriage. What about the authority? Authority terminates upon the death of
the person executing that authority. It terminates upon the death, diba? So, the Other instances where payment to a third person releases the
payment is not valid. So, kanino pala nya ibayad? To the administrator of the debtor:
property. Now, if JR is of age, then the payment to JR is valid. But definitely not to
the 2nd wife, because the 2nd wife is not part of the agreement. This belongs to 1. When the creditor assigns his credit to a third person, without the consent of the
the estate of the former marriage. debtor, and the debtor paid the original creditor. When a creditor assigns credit to a
third person, the third person becomes the new creditor, but in as much as he did
(Discussion of Culaba case) not inform the debtor, and the debtor paid the old creditor, the payment is still
valid. Why? Because he did not inform the debtor.
Art. 1241. Payment to a person who is
incapacitated to administer his property shall be 2. Another instance is, under 1242 payment is made to a third person in
valid if he has kept the thing delivered, or insofar possession of the credit. In possession of the credit, not the evidence of the credit.
as the payment has been beneficial to him.
What is the difference between a person in possession of the credit? An example of
Payment made to a third person shall also be a document which is the credit itself is a check payable to the order of the bearer,
valid insofar as it has redounded to the benefit of or in cash. But if what is presented is the evidence of the credit, an example a
the creditor. Such benefit to the creditor need not promissory note payable to the order of Pedro, the person must present evidence
be proved in the following cases: that he is Pedro. So, that is the difference between possession of the credit and the
evidence of the credit.
(1) If after the payment, the third person
acquires the creditor's rights; Cases: Culaba vs. CA; PnB vs. CA; Sering vs. CA; Meat Packing vs. Sandiganbayan;
(2) If the creditor ratifies the payment to the FEB vs. Diaz Realty; Seguvia Dev't case; Pabugais vs. Sahijwani; Torquator vs.
third person; Bernabe;
(3) If by the creditor's conduct, the debtor
has been led to believe that the third person had Art. 1242. Payment made in good faith to any
authority to receive the payment. (1163a) person in possession of the credit shall release
the debtor. (1164)

 If payment was made to the incapacitated creditor who cannot Requisites:

administer his property, or if he has not kept the thing delivered, the
debtor may be compelled by the creditor to pay anew when he 1. payment must be in good faith;
regains capacity, or by the latter’s representative during the time of 2. payee must be in possession of the credit itself.
the incapacity of the creditor. (Pineda)
 Benefit may be in the form of financial, moral or intellectual Art. 1243. Payment made to the creditor by the
advantages which must be proved. debtor after the latter has been judicially ordered
to retain the debt shall not be valid. (1165)
From Transcription:
 judicial order prompted by an order of attachment, injunction, or garnishment

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 22
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
GARNISHMENT- takes place when the debtor of a debtor is ordered not to pay the SALE DATION IN PAYMENT
latter so that preference would be given to the latter’s creditor. 1. no pre-existing credit; 1. There is pre-existing credit;
2. gives rise to obligations; 2. Extinguishes the obligation;
INTERPLEADER – action in w/c a certain person in possession of certain property 3. cause/consideration is the price or 3. Extinguishment of his debt &
wants claimants to litigate among themselves for the same. obtaining the object; acquisition of object offered in
credit (part of creditor);
INJUNCTION – a judicial process by virtue of w/c a person is generally ordered to 4. greater freedom in determining price; 4. Less freedom
refrain from doing something. 5. giving of price may generally end the 5. May extinguish completely or
obligation of buyer. partially the credit.

Art. 1244. The debtor of a thing cannot compel CONDITIONS under w/c a Dation in Payment is valid
the creditor to receive a different one, although
the latter may be of the same value as, or more a) If creditor consents;
valuable than that which is due. b) If dation in payment will not prejudice the other creditors;
c) If debtor is not judicially declared insolvent.
In obligations to do or not to do, an act or
forbearance cannot be substituted by another act Q: Suppose there was an agreement between the parties but the debtor delivered a
or forbearance against the obligee's will. (1166a) car and the creditor accepts, what presumption arises? Is dation in payment
presumed?
EXCEPTIONS:
A: When there is delivery and you cannot presume what the agreement of the
a) In case of FACULTATIVE OBLIGATION parties is, and money is exchanged for the delivery, the presumption is there is
b) In case there is another agreement resulting in: merely a pledge.
- Dation in payment
- Novation Art. 1246. When the obligation consists in the
c) In case of waiver by creditor delivery of an indeterminate or generic thing,
whose quality and circumstances have not been
SPECIAL FORMS OF PAYMENT stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a
A. Dation in payment thing of inferior quality. The purpose of the
B. Application of payments obligation and other circumstances shall be taken
C. Assignment in favor of Creditors (cession) into consideration. (1167a)
D. Tender of payment and consignation.
Except: if there is WAIVER.

I. DATION IN PAYMENT /DATION EN PAGO/ ADJUDICACION EN  When the Kind and quantity cannot be determined w/out need of a
PAGO new agreement, the contract is VOID.

Art. 1245. Dation in payment, whereby property is

alienated to the creditor in satisfaction of a debt Art. 1247. Unless it is otherwise stipulated, the
in money, shall be governed by the law of sales. extrajudicial expenses required by the payment
(n) shall be for the account of the debtor. With regard
to judicial costs, the Rules of Court shall govern.
Concept: Property is alienated to the creditor in satisfaction of a debt in money. At (1168a)
the time of the constitution of the obligation what is due is money, but at the time
of fulfillment, the debtor could no longer deliver the money. So, what he did instead
is to offer that instead of the money, he will deliver another thing in lieu of the Art. 1248. Unless there is an express stipulation
money. If the creditor accepts, then the obligation is extinguished, depending on to that effect, the creditor cannot be compelled
the agreement of the parties. If it extinguishes the entire obligation then there is partially to receive the prestations in which the
full extinguishment. But, if it will only be based on the value of the thing that is obligation consists. Neither may the debtor be
delivered, and it is not sufficient to cover the monetary obligation, then there is required to make partial payments.
partial fulfillment.
However, when the debt is in part liquidated and
Take note that as soon as the agreement has been perfected, it is no longer in part unliquidated, the creditor may demand
governed by the law on obligations and contracts but the law on sales. and the debtor may effect the payment of the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 23
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 former without waiting for the liquidation of the There being no express stipulation and if the
latter. (1169a) undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might
GEN. RULE: Payment shall be complete be at the moment the obligation was constituted.
EXCEPT:
In any other case the place of payment shall be
1. when it is stipulated otherwise;
the domicile of the debtor.
2. when different prestations are subject to different conditions or
terms;
If the debtor changes his domicile in bad faith or
3. when debt is part liquidated and part unliquidated;
after he has incurred in delay, the additional
4. when a joint debtor pays his share or the creditor demands the
expenses shall be borne by him.
same;
5. when a solidary debtor pays only the part demandable;
These provisions are without prejudice to venue
6. in case of compensation, when one debt is bigger than the other;
under the Rules of Court. (1171a)
7. when work is to be done by parts.

Art. 1249. The payment of debts in money shall be WHERE PAYMENT MUST BE MADE
made in the currency stipulated, and if it is not
possible to deliver such currency, then in the 1. If there is a stipulation – in designated place.
currency which is legal tender in the Philippines. 2. if there is no stipulation
i. if its determinate, at the place where the thing might be at
The delivery of promissory notes payable to order, the time the obligation was constituted.
or bills of exchange or other mercantile ii. If its generic/personal, at the domicile of the Debtor.
documents shall produce the effect of payment Note: the creditor shall bear the expenses, unless the
only when they have been cashed, or when debtor changes his domicile in bad faith.
through the fault of the creditor they have been
impaired. Transcription: Now what about if payment is made through couriers, like the LBC?
Suppose the debtor sent the money through the LBC, and the courier ran away with
In the meantime, the action derived from the the money, who shall bear the loss? It depends. If it was the creditor was the one
original obligation shall be held in the abeyance. who said that it should be sent to him through the courier, then he bears the loss.
(1170) What will the creditor do? Wala na syang pag-asa? The creditor would run after the
courier. But if it was through the initiative of the debtor, then he should bear the
LEGAL TENDER – is that w/c a debtor may compel a creditor to accept in payment loss? Merisi. Why is he merisi? What will be your defense? In the absence of any
of the debt. stipulation, payment shall be made in the domicile of the debtor.

case of International Corporate Bank vs. Gueco II. APPLICATION OF PAYMENT

Art. 1250. In case an extraordinary inflation or Art. 1252. He who has various debts of the
deflation of the currency stipulated should same kind in favor of one and the same creditor,
supervene, the value of the currency at the time may declare at the time of making the payment,
of the establishment of the obligation shall be the to which of them the same must be applied.
basis of payment, unless there is an agreement to Unless the parties so stipulate, or when the
the contrary. (n) application of payment is made by the party for
whose benefit the term has been constituted,
Applies only to cases where a contract or agreement is involved. This application shall not be made as to debts which
does not apply where obligation to pay arises from law, independent of are not yet due.
contracts. (This applies only to contractual obligations, to indebtedness. If the debtor accepts from the creditor a receipt in
This will not apply to quasi-delict, quasi-contract, to obligations arising which an application of the payment is made, the
from law. Purely contractual obligations; payment of monetary obligations. former cannot complain of the same, unless there
is a cause for invalidating the contract. (1172a)
Case of Filipino Bank vs. MWSA,

Art. 1251. Payment shall be made in the place APPLICATION OF PAYMENT – shows w/c debt, out of 2 or
designated in the obligation. more debts owing the same creditor, is being paid.

Note: The right to choose w/c debt to serve first is vested to the DEBTOR except:

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 24
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
  If there was a valid prior but contrary agreement; 1. In case of partner-creditor
 Debtor cannot choose to pay part of the principal ahead of the 2. Surety or a solidary guarantor – one debt only not several.
interest unless the creditor consents.
From transcription: Now, suppose, the debtor has 50,000, and the debtor has to
Note: When shall the debtor make the choice? At the time payment shall be made, make the choice under the given situation:
but subject to certain conditions:
1. 20,000 due on June 25, 2004 with an interest of 6% plus a penalty of 2%
First, that he cannot apply it to a debt which will not cover the entire on the interest in case of delay;
obligation because under the law, the creditor cannot be compelled to accept 3. 20,000 due on Dec. 25, 2004, secured by a mortgage.
partial payment. 4. 10,000 without interest;
5. a 4 carat pink diamond ring
Second, he cannot choose to apply it first to the principal. The law says 6. 50,000 with interest and penalty due on Dec. 24, 2006.
interest should be paid first before the principal.
To where shall the 50,000 be applied? To the most onerous of the debts already due
Third, he cannot choose a debt that is not yet due and demandable. and demandable. The most onerous of the 3 debts due is the 20,000 because of
the penalty. The debt with a mortgage is less onerous because there is only that
Fourth, he cannot choose a debt or an obligation which is not of the same kind tendency to lose the mortgage, and once the mortgage is foreclosed, the obligation
of the other debt. So those are the limitations. is extinguished. A simple debt, (without interest) is the least onerous because it can
run up to how many years and the amount would be the same. Number 4 cannot
REQUISITES FOR APPLICATION OF PAYMENT be the subject of application of payment because it is not of the same kind.
Likewise, 50,000 is the most onerous of the debts, however, it is not yet due and
1. There must be 2 or more debts (severalty of debts); demandable. So, the application of payment will only be centered on the 3.
2. Debts must be of the same kind;
3. Debts are owed by the same debtor in favor of the same creditor; Art. 1253. If the debt produces interest, payment
4. All debts must be due unless contrary is provided – eg. Stipulated by of the principal shall not be deemed to have been
parties. made until the interests have been covered.
5. Payment is not enough to extinguish all the debts. (1173)

RULE WHEN DEBTS ARE NOT YET DUE – there may be  Interest must be paid first except if creditor consents to payment
application of payments when: of the principal first

a. the parties so stipulate; WHAT INTEREST IS SUPPOSED TO BE PAID?

b. when application of payment is made by the party for whose benefit the a. interest by way of compensation;
term has been constituted. b. interest by way of damages by way of default.

Art. 1254. When the payment cannot be applied in

HOW APPLICATION IS MADE accordance with the preceding rules, or if
application cannot be inferred from other
circumstances, the debt which is most onerous to
A. Debtor designates the debtor, among those due, shall be deemed to
B. If not, creditor makes it – known or made at the time of the issuance of the have been satisfied.
receipt; unless there is cause for voiding the contract ( ex. Creditor does it w/o
debtor’s consent) If the debts due are of the same nature and
C. If both do not avail of it, by operation of law. (Applying Arts. 1253 and 1254) burden, the payment shall be applied to all of
them proportionately. (1174a)
REVOCATION
Burdensome Debts
GEN. RULE: Once application of payment is made, it cannot be 1. Older accounts in case of running accounts
revoked. 2. Interest-bearing debts;
3. If 2 interest-bearing debts, that w/c charges the higher interest;
EXCEPT: 4. debts secured by mortgage/pledge;
 If both parties agree 5. debts w/ penal clause;
 Even if both parties agree, if it will prejudice 3 rd persons—cannot 6. advances for subsistence than cash advances;
revoke 7. a debt where debtor is in mora (default)
8. exclusive debt than solidary
WHEN APPLICATION CANNOT BE AVAILED OF?

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 25
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
Note: The “more burdensome rule” does not apply if debtor has used “application
of payment”. a) Creditors do not become owners; merely assignees with authority to sell;
b) Debtor is released up to the amount of the net proceeds unless stipulated;
From transcription; What are the rules to remember? c) Creditors will collect credits in the order of preference agreed upon or in
1. Creditor cannot be forced to accept partial payment. default, in the order established by law.
2. Payment cannot be applied to the principal first if there is interest
due. DACION EN PAGO CESSION
Except: if creditor agrees.
3. The debtor cannot also pay the debt not yet due. 1. does not affect all properties; In general, affects all properties;
Exception: if the period is for the benefit of the debtor, he
2. does not require plurality of Requires more than 1 creditor;
can choose a debt not yet due.
creditors;
4. When the parties have an agreement as to which debt shall be
paid first, then the debtor cannot vary the agreement. 3. only the specific creditor’s All creditors’ consent; (there are
5. All obligations must be due and of the same kind, generally. consent is needed; (transfer is only various creditors)
Exception: unless the obligation is converted into the in favor of one creditor to satisfy a
payment of damages. It becomes monetary in character. debt)

III. PAYMENT BY CESSION OR ASSIGNMENT 4. may take place during solvency; Requires full/partial insolvency;
(no presumption of insolvency) (there is presumption of
It is the process of transfer of debtor’s property to creditors not subject to insolvency)
execution so that the latter may sell them and thus apply the proceeds to 5. transfers ownership upon Does not transfer ownership, only
their credits. The purpose of the transfer or the assignment or the cession, delivery; possession and administration are
is for the creditors to sell these properties, and to apply the proceeds in transferred to the creditors with
proportion to their respective credit. the authorization to convert the
property into cash with which the
An assignment of credit is an agreement by virtue of which the owner of a debts shall be paid.
credit, by legal causes (such has sale, dation, etc) without the need of the
debtor’s consent, transfers the credit and its accessory rights to another 6. there is an act of novation Not an act of novation
who acquires the power to enforce it to the same extent as the assignor
could have enforced it against the debtor. 7. May totally extinguish the Only extinguishes the credits to the
obligation and release the debtor extent of the amount realized from
the properties assigned, unless
Art. 1255. The debtor may cede or assign his
otherwise agreed upon.
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 SUBSECTION 3. - Tender of Payment and Consignation
assigned. The agreements which, on the effect of
IV. TENDER OF PAYMENT AND CONSIGNATION
the cession, are made between the debtor and his
creditors shall be governed by special laws.
TENDER OF PAYMENT – the act of offering the creditor what is due him together
(1175a)
with a demand that the creditor accept the same.

CONSIGNATION – the act of depositing the thing due with court or judicial
2 Kinds of Assignment authorities whenever the creditor cannot accept or refuse to accept payment.
a. Legal – majority of creditors must agree
b. Voluntary – all creditors must agree From transcription: tender of payment is the manifestation made by the debtor to
the creditor of his desire to comply with his obligation with the offer of immediate
performance. But mere tender alone does not extinguish the obligation. It must be
REQUISITES FOR VOLUNTARY ASSIGNMENT
followed by consignation, if the creditor refuses what you have tendered, without
just cause.
1. More than 1 debt
2. More than 1 creditor
Note: Tender and consignation is only true if there is a debt due. Because if it were
3. Complete or partial insolvency of debtor
in an exercise of a right, then mere tender is sufficient, as in the case of exercising
4. Abandonment of all debtor’s property not exempt from execution to the
the right to repurchase
creditors
5. Acceptance or consent on creditor’s part
(Meat Packing case).
Like the case of DBP, that act of the respondent in buying the property was an
EFFECTS OF VOL. ASSIGNMENT exercise of the right to repurchase.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 26
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 e) Subsequent notice of consignation
Art. 1256. If the creditor to whom tender of f) Hearing;
payment has been made refuses without just g) Judgment
cause to accept it, the debtor shall be released
from responsibility by the consignation of the DEPOSIT; EFFECTS OF
thing or sum due.
a) The property is in “custodia legis”;
Consignation alone shall produce the same effect b) Not exempt from attachment and execution;
in the following cases: c) But if property be perishable by nature, the court may order the sale of the
property;
(1) When the creditor is absent or unknown, d) The debtor by consigning the thing practically makes himself the agent or
or does not appear at the place of payment; receiver of the court, particularly if for some reason, the property cannot
(2) When he is incapacitated to receive the actually be placed in the hands of the court.
payment at the time it is due;
(3) When, without just cause, he refuses to From transcription:
give a receipt;
(4) When two or more persons claim the same REQUISITES FOR VALID CONSIGNATION
right to collect; 1. There must be a debt due; there must be a debt owing.
(5) When the title of the obligation has been 2. That the consignation was made because of some legal cause
lost. (1176a) provided in the present article. (the unjust refusal of the creditor)
3. Previous notice of the consignation has been given to the persons
interested in the performance of the obligation.
4. That the amount or thing due was placed at the disposal of the
REQUISITES OF A VALID TENDER OF PAYMENT court (actual consigning or depositing the thing due with the
clerk of court); and
a) Must be in legal tender (lawful currency) – not a check but if there is consent – 5. That after the consignation had been made, the persons
valid; interested were notified thereof.
b) It must include whatever interest is due;
c) It must be unconditional; but if made with conditions and no protest on Q: what if the debtor decides to withdraw what has been consigned, would that be
creditor’s part, he cannot later on prescribe the terms for the validity of the allowed?
acceptance w/c he had already made – complete payment; A: Yes. The original obligation is revived.
d) The obligation must be due.
Q: Can he withdraw after the court finds that consignation is proper?
A: Generally, no, unless or the exception is the creditor consents.
Requisites wherein the creditor is deemed to have unjustly refused the
tender of payment
Q: what are the consequences if the creditor consents to the withdrawal after the
1. That there was previous tender of payment
finding of the court that consignation is proper? One of the consequences is that
2. That the tender of payment was of the very thing due, or in case of
the creditor loses the preference of credit; He loses the security attached to that
money obligations, that the legal tender currency was offered;
obligation.
3. That the tender of payment was unconditional; and,
4. that the creditor refused to accept payment without just cause.
EFFECT OF PROPER CONSIGNTATION: It retroacts to the time of consignation.
Likewise, all interest shall be deemed to stop running from the time of
consignation.
Art. 1257. In order that the consignation of the
thing due may release the obligor, it must first be
Art. 1258. Consignation shall be made by
announced to the persons interested in the
depositing the things due at the disposal of
fulfillment of the obligation.
judicial authority, before whom the tender of
payment shall be proved, in a proper case, and
The consignation shall be ineffectual if it is not
the announcement of the consignation in other
made strictly in consonance with the provisions
cases.
which regulate payment. (1177)
The consignation having been made, the
REQUISITES OF CONSIGNATION interested parties shall also be notified thereof.
(1178)
a) Existence of a valid debt;
b) Valid prior tender of payment, unless tender is excused;
c) Prior notice of consignation (before deposit);
HOW IS CONSIGNATION MADE?
d) Actual consignation (deposit);

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 27
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
1. The things due must be deposited with the proper judicial authorities; Note: The term loss does not refer strictly to actual or physical loss but
2. There must be proof that: contemplates also impossibility of performance.
 Tender was previously made;
 Or that the creditor had previously notified the debtor that consignation WHAT IMPOSSIBILITY OF PERFORMANCE INCLUDES
will be made (in case tender is not required)
a) Physical impossibility;
Art. 1259. The expenses of consignation, when b) Legal impossibility;
properly made, shall be charged against the  Directly – prohibited by law;
creditor. (1178)  Indirectly – e.g when debtor is required to enter a military draft.
c) Moral impossibility
Art. 1260. Once the consignation has been duly
made, the debtor may ask the judge to order the
cancellation of the obligation. Art. 1262. An obligation which consists in the
delivery of a determinate thing shall be
Before the creditor has accepted the extinguished if it should be lost or destroyed
consignation, or before a judicial declaration that without the fault of the debtor, and before he has
the consignation has been properly made, the incurred in delay.
debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in When by law or stipulation, the obligor is liable
force. (1180) even for fortuitous events, the loss of the thing
does not extinguish the obligation, and he shall
be responsible for damages. The same rule
VALID CONSIGNATION, EFFECTS OF:
applies when the nature of the obligation requires
the assumption of risk. (1182a)
1. Debtor may ask the judge to cancel the obligation;
2. The running of interest is suspended;
3. It should be observed that before the creditor accepts or before the 2 Kinds of Obligation “to give”
judge declares that consignation has been properly made, the 1. to give a generic thing;
obligation remains. 2. to give a specific thing

IMPROPER CONSIGNATION; EFFECTS: Effect of Loss

1. If improperly made, obligation remains; GEN. RULE: Obligation is extinguished

2. At the time of consignation, the debt already due; requisites are EXCEPTIONS
absent – DEBTOR is in default. 1. If debtor is at fault;
2. When debtor is made liable for fortuitous event because of:
 Provision of law;
Art. 1261. If, the consignation having been made,
 Contractual stipulation;
the creditor should authorize the debtor to
 Nature of obligation requires the assumption of risk (debtor)
withdraw the same, he shall lose every preference
which he may have over the thing. The co-
INSTANCES when Law requires Liability even in case of Fortuitous Event:
debtors, guarantors and sureties shall be
released. (1181a)
1. Debtor is in default;
2. When debtor has promised to deliver the same thing to 2 or more persons who
Effects of Withdrawal do not have the same interest;
a) Obligation remains; 3. Obligation arises from a crime;
b) Creditor loses any preference over the thing; 4. When borrower has lent the thing to another who is not a member of his own
c) Co-debtors, guarantors and sureties are released (unless they consented) HH;
5. When thing loaned has been delivered with appraisal of value unless stipulated
LOSS OF THE THING DUE exempting borrower from responsibility;
6. When payee in solutio indebiti is in bad faith.
WHEN IS A THING CONSIDERED LOST
Q: What about partial loss? Will that extinguish the obligation? It depends. Why?
a) When it perishes; Generally, if the partial loss is due to a fortuitous event, the obligor has to deliver
b) When it goes out of commerce; the object at its deteriorated state. But if the loss is such that led the parties to
c) When it disappears in such a way that: enter into the contract, then there is extinguishment of the obligation. For instance,
 Its existence is unknown; or you bought a lot at Royal Pines because of the view that it affords. And then a high
 It cannot be recovered.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 28
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
rise hotel was constructed which obstructed the view. Is there total loss? No, but 3. Objective when the act or service itself, without considering the person of
there is extinguishment of the obligation. the obligor, becomes impossible. It is the act itself.
4. The last is subjective which is the opposite of objective. The act or service
Art. 1263. In an obligation to deliver a generic cannot be done by the obligor, and the reason why you entered into the
thing, the loss or destruction of anything of the obligation is the person who would perform the act or the service.
same kind does not extinguish the obligation. (n)
Q: What happens if there is temporary impossibility?
GEN. RULE: Genus never perishes A: You merely wait for the impossibility but you still have to comply with the
EXCEPTIONS obligation. Exception is if the obligation is to be performed at a definite time, and
1. If the generic thing is delimited; that time is within the period of that impossibility, so the obligation is extinguished.
2. If generic thing has been segregated or set aside – it becomes specific
now. Q: What happens if the debtor has complied with the obligation then here comes
this temporary impossibility by reason of a circumstance or a situation. Is he
e.g. MONEY entitled to the payment of his performance of what he has partially performed?
A: Yes, of course, unless it is an indivisible obligation. If it turns out the impossibility
has become permanent, and you have not yet paid, then you have to pay, unless
Art. 1264. The courts shall determine
there is extinguishment of the obligation (falling under 1234 and 1235),
whether, under the circumstances, the partial loss
of the object of the obligation is so important as
to extinguish the obligation. (n) Art. 1267. When the service has become so
difficult as to be manifestly beyond the
Art. 1265. Whenever the thing is lost in the contemplation of the parties, the obligor may also
possession of the debtor, it shall be presumed be released therefrom, in whole or in part. (n)
that the loss was due to his fault, unless there is
proof to the contrary, and without prejudice to the  Refers to moral impossibility or impracticability due to change of
provisions of article 1165. certain conditions;
 Refers to personal obligation (or obligations to do) and not real ( to
This presumption does not apply in case of give)
earthquake, flood, storm, or other natural  Does not cover highly speculative contracts or agreements such as
calamity. (1183a) stocks and aleatory contracts such as insurance contracts
 Based on the doctrine of unforeseen events or rebus sic stantibus
Art. 1266. The debtor in obligations to do shall also be
released when the prestation becomes legally or Requisites:
physically impossible without the fault of the obligor.
(1184a) 1. Even or change of circumstances could not have been forseen at the time of the
execution of the contract;
 Article 1266 refers to impossibility in obligations to do when the 2. Performance is extremely difficult but not impossible;
prestation has become legally or physically impossible without the 3. The impossibility was not due to acts of any of the parties;
fault of the obligor. The impossibility must arise after the constitution 4. The prestation refers to a future one, not an immediate fulfillment;
of the obligation. Because if it were prior or at the time of the
inception, the nullity of the contract. Legal/physical impossibility must Art. 1268. When the debt of a thing certain and
be after the constitution of obligation. determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of
Effect of Loss Thru Fortuitous Event in Reciprocal Obligation its price, whatever may be the cause for the loss,
unless the thing having been offered by him to
GEN. RULE: The obligation that was not extinguished by the fortuitous event the person who should receive it, the latter
remains. refused without justification to accept it. (1185)

EXCEPTIONS:  Effect of Loss in Criminal Offenses – DOES NOT EXTINGUISH OBLIGATION, EVEN
1. In case of lease – if object is destroyed, both lease and rent are IF FORTUITOUS EVENT INTERVENES e.g theft. So this is one of the exceptions
extinguished; to the rule that if a determinate thing is lost through fortuitous events, the
2. In contracts for a piece of work. obligation is extinguished.

Note from transcription: what are the forms of impossibility?  Exception is when Creditor is in Mora Accipiendi (default); otherwise stated, if
1. It might be physical, when by reason of its nature the act cannot be the thing was offered to the person who should receive it and the latter refused
performed. without just cause.
2. Second, legal: a law is subsequently passed making the act illegal.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 29
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Art. 1269. The obligation having been
extinguished by the loss of the thing, the creditor  If debtor does not accept and creditor does not collect within the statute of
shall have all the rights of action which the debtor limitations, the debt may be said to have been extinguished by Prescription.
may have against third persons by reason of the
loss. (1186) Note from transcription: Now, may the creditor waive interest but demand
fulfillment of the principal? Yes. May the court waive interest? No. Can the court
CONDONATION/REMISSION OF A DEBT lower interest? Yes, if unconscionable or inequitous. May the court lower penalty?
Yes. Can it erase penalty? No. (Ligutan case, RCBC case)
It is the gratuitous abandonment by the creditor of his right against the debtor.
Condonation/remission is essentially a donation of the credit to the debtor. It is Art. 1271. The delivery of a private document
a bilateral act (not reciprocal), which requires the acceptance by the donor. It is evidencing a credit, made voluntarily by the
therefore, subject to the rules on donations with respect to acceptance, creditor to the debtor, implies the renunciation of
amount and revocation2. It may be made expressly or impliedly. Express the action which the former had against the latter.
condonation shall, furthermore, comply with the forms of donation.
If in order to nullify this waiver it should be
claimed to be inofficious, the debtor and his heirs
Art. 1270. Condonation or remission is essentially
may uphold it by proving that the delivery of the
gratuitous, and requires the acceptance by the
document was made in virtue of payment of the
obligor. It may be made expressly or impliedly.
debt. (1188)
One and the other kind shall be subject to the
Art. 1272. Whenever the private document in
rules which govern inofficious donations. Express
which the debt appears is found in the possession
condonation shall, furthermore, comply with the
of the debtor, it shall be presumed that the
forms of donation. (1187)
creditor delivered it voluntarily, unless the
contrary is proved. (1189)

ESSENTIAL REQUISITES FOR REMISSION  Presumption of remission prevails over presumption of payment.
 The private document must refer to the original of the original (because it may
1. There must be an agreement; be issued in duplicate copies)
2. Parties must be capacitated and must consent;  Not true in case of public documents because there is always a copy in the
3. There must be subject matter (object/prestation); archives to prove the credit.
4. The cause or consideration must be liberality – essentially gratuitous;
5. Obligation remitted must be demandable at the time of remission; PRESUMPTION IN JOINT/SOLIDARY OBLIGATION
6. The remission must not be inofficious – not excessive;  In Solidary, whole obligation is remitted;
7. Formalities of a donation are required in case of an express remission;  In joint, only the share of the Debtor to whom creditor has granted remission.
8. Waivers/remissions are not to be presumed generally – it must be expressed or
implied;
Art. 1273. The renunciation of the principal debt
9. The debtor must accept the remission.
shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in
force. (1190)
CLASSES OF REMISSION
Art. 1274. It is presumed that the accessory
A. AS TO EFFECT/EXTENT obligation of pledge has been remitted when the
1. Total thing pledged, after its delivery to the creditor, is
2. Partial (upto the portion/ or may refer to accessory obligation) found in the possession of the debtor, or of a third
person who owns the thing. (1191a)
B. AS TO DATE OF EFFECTIVITY
1. Inter vivos (during lifetime)
 Only the accessory is remitted, the principal obligation remains in
2. Mortis Causa (after death)
force.
C. AS TO FORM
CONFUSION OR MERGER OF RIGHTS
1. Implied (no formality) – conduct is enough
2. Express/formal
Art. 1275. The obligation is extinguished from the
2
time the characters of creditor and debtor are
Note: On acceptance: see Art. 745, on amount Arts 750-752, and on merged in the same person. (1192a)
revocation, Arts. 760-765 of the New Civil Code (more thoroughly discussed
in property)
Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 30
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
MERGER/CONFUSION – the meeting in one person of the qualities of creditor and a) LEGAL – takes place by operation of law.
debtor with respect to the same obligation.
b) VOLUNTARY/CONVENTIONAL- agreed to by parties;
REQUISITES - Requisites: (1) each of the parties can dispose of the credit he
seeks to compensate; (2) the parties agree to mutual
1. It should take place between principal debtor and creditor. extinguishment of their credits.
 No confusion if Debtor and Creditor represent different juridical
entities even if both are the same. c) JUDICIAL (SET-OFF)- must be pleaded; effective upon order of the
2. Merger must be clear and definite. Court. (Two debts arising from final and executory judgment)
3. The very obligation involved must be the same or identical
4. The confusion must be total or as regards the entire obligation (exception d) FACULTATIVE – one party has the choice of claiming the
Art. 1277) compensation. This is compensation which can be set up only at
the option of a creditor when legal compensation cannot take
 If the reason for confusion ceases, the obligation is revived. place because of want of some legal requisites for the benefit
(Example: when the merger takes place by a particular title, this of the creditor.
may be set aside for causes of nullity or rescission of contract.
 Effect if mortgagee becomes owner --- mortgage is extinguished DISTINCTIONS
but principal obligation may remain.
PAYMENT COMPENSATION
Art. 1276. Merger which takes place in the person - Payment must be complete and - Partial extinguishment is always
of the principal debtor or creditor benefits the indivisible; allowed.
guarantors. Confusion which takes place in the - Involves action/delivery - True or legal compensation takes
person of any of the latter does not extinguish the place by operation of law.
obligation. (1193) - Capacity to dispose of the thing - No such capacity is necessary
paid and capacity to receive
 The extinguishment of the principal obligation through confusion releases the payment are required
guarantors because the obligation of the latter is merely accessory. However,
when the merger takes place in the person of a guarantor, the obligation is not COMPENSATION MERGER
extinguished. As to # - 2 persons who are - one person in whom is merged the
of mutually creditor and qualities of C and D;
Art. 1277. Confusion does not extinguish a joint Persons debtor to each other;
obligation except as regards the share As to # - 2 obligation - one obligation
corresponding to the creditor or debtor in whom of
the two characters concur. Obligati
on
COMPENSATION OR OFF SETTING
COMPENSATION COUNTERCLAIM OR SET-OFF
 It is a mode of extinguishing to the concurrent amount, the obligations of those - Takes place by operation of law and - Must be pleaded to be effectual
persons who in their own right are reciprocally debtors and creditors of each extinguishes reciprocally the 2
other. It is the offsetting of 2 obligations which are reciprocally extinguished if debts as soon as they exist
they are of equal value, or extinguished to the concurrent amount if of simultaneously to the amount of
different values. respective sums
- Works as a sort of judicial
 It is a simplified or abbreviated payment because the 2 debts are extinguished compensation, provided that
without requiring the transfer of money or property from one party to the requirements of ROC are observed.
other.
Art. 1278. Compensation shall take place when
Kinds/Classes of Compensation two persons, in their own right, are creditors and
debtors of each other. (1195)
I- AS TO ITS EXTENT
Art. 1279. In order that compensation may be
a) TOTAL – obligation are completely extinguished because they are of proper, it is necessary: (although the parties may
the same amount. not be aware of it – CF Art. 1290)
b) PARTIAL - when a balance remains.
(1) That each one of the obligors be bound
II- AS TO ITS ORIGIN/CAUSE principally, and that he be at the same time a
principal creditor of the other;

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 31
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Art. 1282. The parties may agree upon the
(2) That both debts consist in a sum of compensation of debts which are not yet due. (n)
money, or if the things due are consumable, they  Applies to conventional or voluntary compensation.
be of the same kind, and also of the same quality
if the latter has been stated; Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the
(3) That the two debts be due; other, the former may set it off by proving his
right to said damages and the amount thereof. (n)
(4) That they be liquidated and demandable;

(5) That over neither of them there be any

retention or controversy, commenced by third JURISDICTION OF COURT RE: VALUE OF DEMAND
persons and communicated in due time to the
debtor. (1196) GEN. RULE: Jurisdictionn depends upon the totality of the demand in all the
causes of action, irrespective of whether the plural cases arose out of the same or
different transactions.
 NEGATIVE REQUISITES OF LEGAL COMPENSATION
EXCEPTIONS
a) That over neither of the debts must there be any retention or controversy 1. Where the claim joined under the same complainant are separately owed by,
commenced by 3rd persons and communicated in due time to the debtor. or due to, different parties in w/c cases each separate claim furnishes the
b) There must have been no waiver of the compensation; jurisdictional test.
c) The compensation of debts must not have been prohibited by law.
2. Where not all the causes of action joined are demands or claims for money.
 PROHIBITED COMPENSATION
Art. 1284. When one or both debts are rescissible
1. Debts arising from a depositum except bank deposits; or voidable, they may be compensated against
2. Debts arising from the obligations of a depositary; each other before they are judicially rescinded or
3. Debts arising from the obligations of a bailee in commodatum; avoided. (n)
4. Debts arising from a claim for future support due by gratuitous title;
5. Debts consisting in civil liability arising from a penal offense; Note: The rescissible obligations here refer to Art. 1381.
6. Damages suffered by a partnership through the fault of a partner cannot be
compensated with profits and benefits w/c he may have earned for the Art. 1285. The debtor who has consented to the
partnership by his industry. assignment of rights made by a creditor in favor
of a third person, cannot set up against the
Note: There can be no compensation when the object of the obligation is specific or assignee the compensation which would pertain
determinate because there is only one determinate or specific thing, you cannot to him against the assignor, unless the assignor
duplicate that. was notified by the debtor at the time he gave his
consent, that he reserved his right to the
Q: May there be compensation of obligations subject to conditions? compensation.
A: It depends. If the conditions are resolutory, pwede. But if one is reciprocal and
the other is suspensive, there can be no compensation. If the creditor communicated the cession to him
but the debtor did not consent thereto, the latter
Art. 1280. Notwithstanding the provisions of the may set up the compensation of debts previous to
preceding article, the guarantor may set up the cession, but not of subsequent ones.
compensation as regards what the creditor may
owe the principal debtor. (1197) If the assignment is made without the knowledge
of the debtor, he may set up the compensation of
Why is a guarantor allowed to set up compensation? Because it will be beneficial to all credits prior to the same and also later ones
him, he will be released from the debt. until he had knowledge of the assignment.
(1198a)
Art. 1281. Compensation may be total or partial.
When the two debts are of the same amount, RULES:
there is a total compensation. (n)
1. Assignment with consent of debtor -- Compensation cannot be set-up, it serves
 True for all different kinds of compensation whether voluntary, legal, as a waiver except if the right to compensation is reserved
etc.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 32
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
2. Assignment with knowledge but without consent of debtor ---
compensation can be set-up re: debts before the cession, but not after the WHEN LEGAL COMPENSATION CANNOT TAKE PLACE
assignment.
3. Assignment made w/out knowledge of debtor -- debtor can set up 1. When one debt arises from a depositum;
compensation as a defense for all debts maturing prior to his knowledge of 2. When one debt arises from the obligation of a depositary;
assignment. 3. When one debt arises from the obligation of a bailee in commodatum;
4. When one debt arises because of a claim for support due to gratuitous title.
From transcription: 5. When the debt arises from a criminal liability. But the offended party may claim
compensation (this is an example of a facultative obligation)
Situation: A owes B :
1. a bracelet worth 100,000 due on Jan 1, 2004; OBLIGATIONS OF A DEPOSITARY
2. 75,00 due on June 1,2006,
3. 100,000 due on Dec. 1, 05, a) The Depositary is obliged to keep the thing safely and to return it when
4. 25,000 due on Aug. 1, 04 required to the depositor, or to his heirs and successors or to person who may
have been designated in the contract.
B owes A b) Unless stipulated to contrary, the depositary cannot deposit the thing to 3 rd
1. 80,000 due on Feb. 25, 06; persons.
2. 50,000 due on Aug. 15,05. c) If deposit to 3rd person is allowed, the depositary is liable for the loss if the
3. 75, 000 due on Oct. 10,04. person is careless or unfit.
4. A dining set worth 200,000 due on April 1, 03 d) Depositary is responsible for the negligence of his employees.
5. A cow worth 15,000 eonverted into damages by reason of non performance. e) Depositary cannot make use of the thing deposited w/out express permission
of depositor otherwise he shall be liable for damages – except preservation of
B assigned his credit to C on Dec. 25, 2005. thing requires its use.
Q: What are the rights of A? What debts can he claim compensation?
Art. 1289. If a person should have against him
What debts can be the subject of compensation?
several debts which are susceptible of
compensation, the rules on the application of
A: It depends:
payments shall apply to the order of the
1. If with consent, wala. (unless there is reservation of right to claim.)
compensation.
2. If with knowledge, without consent: all debts previous to the assignment. (#2,
#3, #5)
Art. 1290. When all the requisites mentioned
3. Assign without knowledge: it would now depend when A acquired knowledge,
in article 1279 are present, compensation takes
because Dec. 25, 05 is not the reckoning point.
effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the
Art. 1286. Compensation takes place by operation creditors and debtors are not aware of the
of law, even though the debts may be payable at compensation. (1202a)
different places, but there shall be an indemnity
for expenses of exchange or transportation to the  Legal compensation takes place automatically unless there has been
place of payment. (1199a) valid waiver thereof.
 Compensation w/c extinguishes principal obligation carries with it the
 Applies to compensation by operation of law; extinguishments of the accessory obligation.
 Indemnity for expenses of transportation (of goods/objects)  “to the Concurrent amount” means if one debt is bigger than the
 Indemnity for expenses of exchange. other, the balance subsists as debt.

Art. 1287. Compensation shall not be proper when Q: May it be possible for one claiming compensation despite the fact that the one
one of the debts arises from a depositum or from claiming has a debt that already prescribed?
the obligations of a depositary or of a bailee in
commodatum. A: Yes, for as long as the requisites have met at a certain point, even if one of the
debts had already prescribed at the time of the claim for compensation. As long as
Neither can compensation be set up against a at one point, all the requisites mentioned in 1279 are present before the debt
creditor who has a claim for support due by actually prescribed, then there can be compensation.
gratuitous title, without prejudice to the
provisions of paragraph 2 of article 301. (1200a) Q: May the benefit of compensation be renounced or waived?
A: Yes. Example of which would be 1285 paragraph 1.
Art. 1288. Neither shall there be compensation if
one of the debts consists in civil liability arising NOVATION
from a penal offense. (n)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 33
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
NOVATION – substitution or change of an obligation by another w/c Obligations to pay a sum of money is not novated by a new instrument
extinguishes/modifies the 1st either by changing its object or principal condition or which merely changes the terms of payment. Novation however is proper in case of
substituting another in place of debtor, or subrogating a 3 rd person in the rights of change of juridical relation, example would be from commodatum to lease of thing.
creditor. Even if that is merely an implied novation, are there incompatible in all material
points. Yes. In commodatum, it is a free use of thing while in lease, you have to pay.
Art. 1291. Obligations may be modified by: It also says from negotiorum gestio to contract of agency, because it is from a non-
(1) Changing their object or principal contractual relation to a contractual relation. From mortgage to antichrisis. Yes,
conditions; there is a novation. There is a novation if there is a change in the nature of the
(2) Substituting the person of the debtor; prestation.
(3) Subrogating a third person in the rights of
the creditor. (1203) Take note that novation is never presumed. In order that there is implied
novation, the agreements must be incompatible with each other. Otherwise, if the
change is merely accessory or accidental, it does not affect either the principal
KINDS OF NOVATION
object, condition, person of the creditor or debtor, there is no novation. In order
that there shall be novation, four requisites must be complied with:
I- According to its Object/Purpose 1. There must be a previous valid obligation;
a) Real/objective – changing the object/principal conditions of obligation. 2. The consent of the parties to extinguish the prior obligation;
b) Personal/subjective – change of persons 3. A valid new obligation.
i. Substituting the person of debtor. 4. The extinguishment of the old obligation. (Absent any, there is no
ii. Subrogating a 3rd person in the rights of creditor (by novation)
agreement or by law)
c) Mixed (change of object and parties) 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
II- According to Form of its Constitution that the old and the new obligations be on every point incompatible with each
a) Express other. (1204)
b) Implied (incompatibility of 2 obligation)
a) Express Novation – declared in unequivocal terms
III- According to its Extent/Effect b) Implied – complete/substantial incompatibility - substantial changes:
a) Total or extinctive (old obligation is totally extinguished)  In object/subject matter of contract
b) Partial or modificatory (imperfect or improper  In cause or consideration of contract
 In principal terms or conditions of contract
 If debt subject to condition is made an absolute one w/out a condition
REQUISITES OF NOVATION  Reduction of term/period stipulated
 W/out consent of subscribers
a) The existence of a valid old obligation
INSTANCES WHEN COURT HELD: NO EXTINCTIVE NOVATION
 If valid – nothing to novate
 If voidable – possible novation before annulment
a) Slight alterations or modifications in construction plans of buildings.
b) Intent to extinguish or to modify the old obligation by substantial difference
b) New contract merely contains supplementary agreement
c) The capacity and consent of all the parties except in case of expromision – old
c) When additional interest is agreed upon
debtor does not participate
d) When additional security is given
d) Validity of new obligation
e) When after a final judgment, a contract was entered into precisely to provide a
method of payment other than that stated in judgment.
Is there novation if the amount in the new obligation is increased? No. But
f) When a guarantor enters into an agreement with creditor that he (guarantor)
if the new obligation is increased but if separate from the old obligation? (There is
will also be a principal debtor.
an increase in the old but it is found in a separate document) There is because the
g) When creditor in the meantime refrains from suing debtor or even when
prior promissory notes are extinguished and superceded by the new promissory
creditor merely extends the term of payment for here the period merely affects
notes. If the period is increased, is there novation or lengthened or shortened? No.
performance, not the creation of the obligation.
Why? It merely affects the performance of the obligation. If the evidence of credit
h) Place of payment is changed or there is variation in amount of partial
from promissory note payable to order to payable to bearer? There is no novation.
payments.
Renunciation of security? None ha, it merely becomes a simple debt. From
i) When a public instrument is executed to confirm a valid contract.
alternative to simple or simple to alternative? Yes. Surrender of the evidence of
j) When payment of purchase price for certain trucks is made by execution of
credit? No. (remission) There is no novation there because the obligation is
promissory note for said price.
extinguished. From contract of donation to contract of sale? Yes, anong change
dun? The juridical tie. But there is no novation in a subsequent execution of a real
Art. 1293. Novation which consists in substituting a new debtor in the place
estate mortgage as security, why? The mortgage being merely an accessory
of the original one, may be made even without the knowledge or against the will of
obligation to secure the loan or promissory note.
the latter, but not without the consent of the creditor. Payment by the new debtor
gives him the rights mentioned in articles 1236 and 1237. (1205a)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 34
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Art. 1295. The insolvency of the new debtor, who has been proposed by the
2 Kinds of Personal/Subjective Novation original debtor and accepted by the creditor, shall not revive the action of the latter
1. Change of debtor (passive) against the original obligor, except when said insolvency was already existing and
2. Change of Creditor (active) of public knowledge, or known to the debtor, when the delegated his debt. (1206a)
 Refers to delegacion
FORMS (Passive Novation)
Requisites to Hold Old debtor Liable
I- Expromision – initiative comes from 3rd person; it is essential that old 1. Insolvency was already existing and of public knowledge at time of
debtor be released from his obligation. Delegation.
2. Or the insolvency was already existing and known to the debtor at the
time of delegation.
Requisites
When Art. 1295 does not apply:
1. Initiative from 3rd person a. 3rd person is only an agent, messenger or employee of debtor
2. New debtor and creditor must consent b. 3rd person action only as guarantor/ surety
3. Old debtor must be released from his obligations c. New debtor merely agreed to make himself solidarily liable for the
obligation.
II- Delegacion – initiative from debtor for it is he who delegates another to d. New debtor merely agreed to make himself jointly or partly liable for
pay; 3 parties (old, new debtor and creditor) must agree. the obligation
Requisites Art. 1296. When the principal obligation is extinguished in consequence of a
1. Initiative from old debtor novation, accessory obligations may subsist only insofar as they may benefit third
2. All parties concerned must consent persons who did not give their consent. (1207)
 Implied/express
 Before/after new debtor has given consent Art. 1297. If the new obligation is void, the original one shall subsist, unless
 Maybe conditional – has to be fulfilled. the parties intended that the former relation should be extinguished in any event.
Now, what happens if the new oblilgation is void? Would that extinguish
3 Parties the old obligation? It does not. This is 1297. Now what if the old obligation is void,
would that extinguish the new obligation? Yes.
Delegante – original debtor
Delegatario – creditor Art. 1298. The novation is void if the original obligation was void, except
Delegado – new debtor when annulment may be claimed only by the debtor or when ratification validates
acts which are voidable. (1208a)
1293: is expromission. In expromission, the original debtor's consent is  If old obligation is void – no valid novation;
not necessary. Now, what would be the effect: 1236 and 1237. What happens if the  If old obligation is voidable and annulled – no more obligation;
new debtor is insolvent? Is the old debtor liable for the new debtor? No, precisely novation is also void.
because he did not consent or it was made without his knowledge. He cannot be
held liable by reason of insolvency of the new debtor. 1298: When can a debtor claim annulment? What would be an instance
wherein a debtor can claim annulment? A very common defense would be
Now, what about delegacion. Who proposes the new debtor? The old prescription of debt. But can a prescribed debt be the subject of novation? Can a
debtor. So in both cases the consent of the creditor is always necessary. Now what prescribed debt be an object of a contract? Yes. So a prescribed debt can be the
happens if the new debtor is insolvent. Will that revive the old obligation? It does subject of novation in as much as the prescribed debt can be the subject of a
not. Exception: If the insolvency of the new debtor is of public knowledge and contract. But can it be a defense of the obligor? The prescription of the debt? Yes.
existing and known to the Can minority be a defense? Yes. But can it also be subject to ratification? Yes.
(old) debtor, even if it is not of public knowledge, then there is revival of the
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
What happens if the obligation is one with an accessory obligation or otherwise stipulated. (n)
contract and the principal obligation is extinguished? Would that carry the
extinguishment of the accessory obligation? Yes. exception if there is a stipulation GEN. RULE: The conditions attached to the old obligation are also attached to
pour autrui. (an example is being named as a beneficiary of an insurance policy, the new obligation.
review PNB vs. CA compensation case) EXCEPTION: If there is a contrary stipulation.
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 Art. 1300. Subrogation of a third person in the rights of the creditor is either
not give rise to any liability on the part of the original debtor. (n) legal or conventional. The former is not presumed, except in cases expressly
 Refers to expromision mentioned in this Code; the latter must be clearly established in order that it may
take effect.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 35
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Now what if the original obligation has a suspensive or resolutory
condition? Would the new obligation that novates the old obligation carry with it the 2. When a third person, not interested in the obligation, pays with the tacit or
condition? Yes. 1299 says the new obligation shall be under the same condition, express approval of the debtor;
unless it is otherwise stipulated.
3. When, even without the knowledge of the debtor, a person interested in the
SUBROGATION fulfillment of the obligation pays, without prejudice to the effects of confusion as to
the latter's share.
SUBROGATION – transfer to a 3rd person all the rights appertaining to creditor –
right to proceed against guarantors, possessors of mortgages etc. So, those are the situations when legal subrogation takes place.

ASSIGNMENT OF CONVENTIONAL Art. 1303. Subrogation transfers to the persons subrogated the credit with
CREDIT SUBROGATION all the rights thereto appertaining, either against the debtor or against third person,
 Mere transfer of - Extinguishes be they guarantors or possessors of mortgages, subject to stipulation in a
same right or obligation and conventional subrogation. (1212a)
credit (transfer creates a new  If transferred credit is subject to suspensive condition, new creditor
does not one; cannot collect until after such condition is fulfilled.
extinguish credit);
 Does not require - Requires debtor’s 1303: So despite the fact that there is legal subrogation, the parties may
consent of debtor; consent; still enter into a conventional subrogation.
 Defect in - Defect in old
credit/right is not obligation may be Art. 1304. A creditor, to whom partial payment has been made, may
cured by assigning cured in such a exercise his right for the remainder, and he shall be preferred to the person who
the same. way that the new has been subrogated in his place in virtue of the partial payment of the same
obligation credit.
becomes entirely 1304: Speaks of two creditor. The old creditor whose debt has been
valid. partially performed, and the new creditor whose debt has also been partially
performed. As between the two, who is preferred? The old creditor. For as long as
the original credit has not been fully satisfied, then he has a right of preference
Art. 1301. Conventional subrogation of a third person requires the consent over the new creditor.
of the original parties and of the third person.
Subrogation is different from ex promission or delegacion because the
latter involves a change in the person of the debtor, while subrogation involves CONTRACTS
change in the person of the creditor. But subrogation is classified into conventional Art. 1305. A contract is a meeting of minds between two persons whereby
(by agreement of the parties) or legal (1302). But may a legal subrogation be one binds himself, with respect to the other, to give something or to render some
changed into conventional subrogation? Yes, diba? Autonomy of will. service. (1254a)
So, when is there conventional subrogation? It would require the consent CONTRACT – is a juridical convention manifested in legal form, by virtue of w/c, one
of the original parties and of the third person. (Licaros vs. Gatmaitan case) or more persons bind themselves in favor of another or others, or reciprocally, to
the fulfillment of a prestation to give, to do or not to do.
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the ELEMENTS (Essential)
debtor's knowledge; Consent
(2) When a third person, not interested in the obligation, pays with the Subject matter
express or tacit approval of the debtor; Cause/consideration
(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of confusion NATURAL Elements – those found in certain contracts and presumed to exist, unless
as to the latter's share. the contrary has been stipulated.
So, when is there legal subrogation? (1302) ACCIDENTAL Elements – various particular stipulations that may be agreed upon by
1. when the creditor pays another creditor who is preferred, even without the the contracting parties in a contract.
debtor's knowledge;
*Who is the creditor who is preferred? A, whose credit of 100,000 has an CLASSIFICATION OF CONTRACTS
interest of 12% per annum, or B, whose credit of 100,000 is secured by a chattel
mortgage? B is preferred, because in the event of default by the debtor, need not A. According to Formation
go to court to file an action for the collection of the 100,000. All he has to do is to a. Consensual – perfected by consent
foreclose the mortgage and his credit is extinguished by reason of the foreclosure. b. Real - perfected by delivery
So, in this case, if A pays B, even without the knowledge of the debtor, A now steps c. Formal/solemn – those where special formalities are essential before
into the shoes of creditor B and is entitled to the security of B. contract may be perfected.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 36
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 b. Impersonal
B. According to Cause/Equivalence of Value of Prestations
a. Onerous – interchange of equivalent valuable considerations STAGES OF CONTRACT
b. Gratuitous/ lucrative – free, one party receives no equivalent prestation
c. Remunerative – one where one prestation is given for a benefit or service 1. Preparation (conception) – negotiations between parties
that had been rendered previously. 2. Perfection (birth) – agreement; elements of subject matter and valid cause –
accepted by mutual consent.
C. According to Importance/ Dependence of One upon Another 3. Consummation (termination) – terms of contract are perfected.
a. Principal – contract stands alone by itself
b. Accessory – depends for its existence upon another contract. (eg. Basic Principles/Characteristics of Contract
Mortgage; principal is Loan)
c. Preparatory – contract is not the end itself but as means through w/c 1. Freedom to stipulate
future transactions or contracts may be made. 2. Obligatory force and compliance in good faith
3. Perfection by mere consent
D. Parties Delegated 4. Both parties are mutually bound
a. Unilateral – one party has obligation 5. Relativity
b. Bilateral – both parties are obliged to give or render reciprocal prestations

E. Name/Designation Contract: juridical convention manifested in legal form, by virtue of which one or
a. Nominate – contract has a name more persons bind themselves in favor of another or others, or reciprocally, to the
b. Innominate – contract has no name fulfillment of a prestation to give, to do, or not to do.

F. Risk of Fulfillment 1305 says that a contract is the meeting of minds between two persons
a. Commutative – parties contemplated a real fulfillment; equivalent value whereby one binds himself with respect to the other to give some thing or to render
are given (lease) some service. It does not mean that the parties are only limited to only two
b. Aleatory – fulfillment is dependent upon chance; values vary. persons. The appropriate term is to parties because there can be as many persons
in a contract as they are interested in the contract. May a person enter into a
G. Time of Performance contract with himself? Yes, but in different capacities. (contracts of adhesion) He
a. Executed – one contemplated at time the contract is entered into, that is, can be a vendor and a vendee at the same time only that in one contract he might
obligations are complied with at this time (eg. Contract of sale) merely be an agent and the other the buyer. So different capacities in one person.
b. Executory – prestations are to be complied with at some future time (eg. Now, may any person just enter into a contract? Is that right absolute? No, because
Property not yet delivered and price not yet given) there are certain limitations. Such as: husbands and wives cannot enter into
contracts involving properties, except if there is complete separation of property.
H. Subject Matter Other limitations: in agency, if the agent is authorized to borrow money, can the
a. Contract involving things (eg. Sale) agent also be the lender? Or if he is authorized to lend, may he borrow money? But
b. Contract involving Rights/credits (usufruct, assignment of credits) if he is authorized to lend, can he use his own money?
c. Contract involving services (carriage) o The existence of a contract is not determined by the number of persons
who intervene in it, but by the number of declarations of will. (Contracts of
I. Obligation Imposed and regarded by Law adhesion)
a. Ordinary
b. Institutional What are contracts of adhesion? Example of which would be an insurance
contract. Now, we learned before that in cases of contracts of adhesion, in case of
J. Evidence Required for its Proof doubt, the construction is construed strictly against that person who prepared that
a. Parol/oral contract, and liberally in favor of the person who does nothing but merely affixes
b. Required written proof his signature to the already prepared contract. Because in that case, the parties do
not stand on equal footing. The debtor, especially if he borrows money from the
K. No. of Persons actually and physically entering into Contracts bank, cannot stipulate his term. He cannot say that this is onerous on my part. He
a. Ordinary (2) cannot do that. The only option is to either to sign or not to sign. So in those cases
b. Auto-contracts – one represents 2 opposite parties but in different in case of doubt, the interpretation would always be in favor of the person who
capacities merely affixed his signature thereto and who did not participate in the preparation
of the contract.
L. #of Persons participating in Drafting a Contract
a. Ordinary – e.g sale Now, what are the characteristics of a contract? Contracts have three
b. Contract of Adhesion – buyer or person interested is insured, signifies his characteristics: we have the obligatory force of contracts. Now, what is meant by
consent by signing the contract. obligatory force of contracts? Just like autonomy of will, what has been stipulated in
the contract is the law between the parties to the contract. And one cannot be
M. Nature heard later on to say that the agreement is disadvantageous on his part. The
a. Personal presumption is that at the time of the negotiation, prior to the perfection of the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 37
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
contract, the parties freely stipulates the conditions, terms and stipulations that 1306: Autonomy of contract = to autonomy of will; it is the obligatory
may have agreed which arrived at and belong to the perfection of the contract. force between the parties.

The second is mutuality of contract. The validity and performance cannot 1306 Autonomy of Contracts:
be left to the performance of one of the contracting parties and leaving the other
free from complying with what is stipulated in the contract. But there are certain limitations. As I said, it must not be contrary to law,
likewise even if the parties would say "this is valid between us ha, the promissory
The third is the principle of relativity of contracts. That it only binds the note of a gambling debt". So, if X and A played Tong-its and then their bet is 50K,
parties to the contract and their successors in interest. One of the exceptions there natalo si A at umabot ang utang nya ng 300,000. So, sabi ni A, i don't have the
is: if there is a stipulation in favor of a third person. money now, but i will furnish you a promissory note, this PN if suppose A would not
pay what is stated on it, X will not have a cause of action against A. X cannot sue A
Now, contracts have 3 elements. We have the essential elements. by reason of the PN, because this is not a contractual debt. The cause of the
Consent, subject matter, and the cause. The cause is the why of the contract, the issuance is an illegal cause, it is from gambling. (except those allowed). So in this
reason why parties entered into the contract. Then we have the natural case, A in fact can recover what he had lost from X kung nagbigay sya ng pera, of
elements, which are those elements that even if not agreed upon by the parties course he cannot recover under the circumstances of the promissory note, because
form part of the contract. An example of which would be the warranty against as I've said, the PN cannot be the basis for X to file a case against A because the
hidden defects. The third element would be the accidental elements. The source is from a polluted source from one not allowed by law. (illegal gambling)
accidental elements are the ones that must be agreed upon by the parties. That
if it is not stipulated there, the presumption is that it is not part of the agreement. But suppose X would negotiate the PN to Y, who received the PN in good
An example would be that if the parties agree that in case of breach, their liability faith and paid value for it. (like, sige discounted ko yan, 20K). Now, Y would
would be solidary. Because, under the law, solidary liability is not presumed. demand from A the value of the PN. A cannot invoke as a defense that the PN is a
void PN as against a 3rd person who acted in good faith and paid the PN with
To arrive at a consummated or perfected contract, there are three stages: consideration. Between Y and A, Y can still collect the amount stated in the PN. he
when the parties bargain or negotiate, you call that preparation or generation. Ano is not affected by the agreement between X and A. (because 3rd persons are
ang kasama sa negotiation? The price. Then you have perfection, the birth and the always protected.)
perfection of the contract. And when you pay the price and he delivers what you
have bought, then that is consummation or death of the contract. Because there is Now, parties are free to stipulate. Yes, but the juridical relations as well as
now fulfillment or performance of the terms agreed upon in the contract. the rights and obligations that would arise by reason of that contract that you have
entered into is not governed by the stipulation of the parties, but rather by law.
Now, how are contracts classified? First is according to the degree of Such as what? Suppose A executed a deed of Sale with right to repurchase in favor
dependence, a contract may be preparatory in nature such as a contract of agency of C. The deed of Sale with right to repurchase contains that A, for and in
because this would lead to future transactions. Why is it called preparatory? It is consideration of the sum of 20K hereby transfers, sells, conveys, disposes,
called such in as much as it looks forward to future transactions. Now what are alienates his parcel of land covered by TCT 123 located in Ecoland D.C. consisting
those future transactions that will arise from a contract of agency? It would depend of 500 sq. m. And if A will be unable to repurchase the property within the period of
to the powers granted. If Y is authorized to lend money, what would be the future 1 year, then B's right over the property shall be absolute and unconditional.
transaction that would arise? A contract of loan. This is what you call as future
transactions. So, the contract of loan is the principal contract. Now, looking at it, would you believe that that is a valid deed of sale
taking into account that the land is located in Ecoland, and only for 20K for 500sq.
A contract might also be considered accessory because its existence will m.? Would the parties now be bound by that agreement in case there is a doubt?
depend on the principal contract. So if the loan is guaranteed by a mortgage, then No, because while it might be true that the stipulation is the law between the
this is the accessory contract. So the contract of loan is the principal contract, the parties, however, the rights and obligations which arise by reason of this contract is
contract of agency the prepratory contract and the contract of mortgage the not governed by the stipulations. In fact, by looking at it, it would seem that the
accessory contract. contract entered into is one of mortgage, only couched differently by the parties.
For one, the consideration is very very low. Second, there is a period to repurchase
So, how are contracts perfected? It might be perfected by mere consent within one year. So those are the considerations that must be taken together when
and they are called as consensual, such as sale. Now, if a contract of sale does not the parties entered into the agreement. There would be no question if the
have any document is that a valid contract? Yes, because it is perfected by mere consideration was 20million, that would really be a deed of sale with right to
consent. Is marriage a consensual contract? Yes. You don't have to have the repurchase because the consideration given is really equivalent to the value of the
contract or certificate of marriage. Hindi man yan kailangan. But there are certain property based on its location. So in that case, the SC said, in case of doubt, it is
contracts that will require delivery aside from consent, an example of which would one of equitable mortgage, not of sale with right to repurchase.
be antichresis. Remember antichresis? You have to deliver the property in order So, that is an example of the principle that while it may be true that
that antichresis shall be perfected. Because there can be no antichresis if the parties are bound by their stipulations and it shall constitute the law between
debtor does not deliver the property. them, however, the juridical relations as well as the rights and obligations that will
arise by reason of the contract is not governed by the stipulation but rather by law.
Art. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary - not absolute because there are limitations, such as husband and wives
to law, morals, good customs, public order, or public policy. cannot enter into a contract subject to certain exceptions, an agent
authorized to lend cannot borrow.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 38
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Consequences of Mutuality
Art. 1307. Innominate contracts shall be regulated by the stipulations of the 1. A party cannot revoke or renounce a contract w/o the consent of
parties, by the provisions of Titles I and II of this Book, by the rules governing the the other, nor can have it set aside on the ground that he had
most analogous nominate contracts, and by the customs of the place. (n) made a bad bargain.
2. When the fulfillment of condition depends upon the sole will of
4 Kinds of Innominate Contracts debtor, the conditional obligation is void if the condition is
i. Do ut Des ( I give that you may give) suspensive; if it is resolutory it is valid.
ii. Do ut Facias ( I give that you may do)
iii. Facio ut Des (I do that you may give) 1308: Speaks of mutuality of contracts that both parties must be bound by the
iv. Facio ut Facias (I do that you may do) agreements that they have entered into. Its validity and compliance cannot be left
to the will of only one of them. So, in this case, the presumption is that both parties
Rules Governing Innominate at the time of the negotiation, at the time of the bargaining stage, they stood on
i. Stipulations of parties equal footing. Meaning each one of them participated during the negotiation stage,
ii. Provisions of Title I and II precisely which lead to the perfection of the contract.
iii. Rules governing most analogous nominate contract
iv. Customs of place So, mutuality is that both parties must be bound to the contract, it cannot
be left to one of the parties alone leaving the other party free from complying with
1307: Innominate Contracts what is incumbent upon him.
These are contracts that have no specific name. Unlike when you enter - 1308: The contract must bind both contracting parties; its validity cannot
into a contract of sale, there is this deed of sale; when you rent, there is this be left to the will of one of them.
contract of lease, or when you borrow money, and it is secured by a pledge, it is a - Mutuality of contract.
loan with pledge. Here, the agreement has no specific name, like when a lawyer - The binding effect of the contract on both the parties is based on the
and a client enters into an agreement whereby the client hires the services of the principles that (1) obligations arising from contracts have the force of law
lawyer, there is no specific name. between the contracting parties; and (2) there must be mutuality between
the parties based on their essential equality.
There are four kinds of innominate contracts - Just as nobody can be forced to enter into a contract, in the same manner
1. Do ut des ( I give and you give) once a contract is entered into, no party can renounce it unilaterally or
2. Do ut facias ( I give and you do) without the consent of the other. The fact that a party may not have fully
3. Facio ut des ( I do and you give) understood the legal effect of the contract is no ground for setting it aside.
4. Facio ut facias ( I do and you do) The unilateral act of one party in terminating the contract without legal
cause makes it liable for damages.
There was this very old case. There was this Spaniard who came to the
Philippines and wanted to tour the Philippines. Unfortunately, he did not know how - Allied Bank case: . It is a purely executory contract and at most confers a
to speak the local dialect. When one of the Filipinos learned the dilemma of the right to obtain a renewal if there is compliance with the conditions on
Spaniard, the presented himself to do the interpretation. So he went around the which the right is made to depend. The right of renewal constitutes a part
island. After the tour, the Filipino now demanded payment for his services. The of the lessee’s interest in the land and forms a substantial and integral
Spaniard countered that there was no contract between them because the Filipino part of the agreement.
presented himself, voluntarily entered into the request of the Spaniard. But the SC
said that as soon as you have hired the services of the person and you made use of - The fact that such option is binding only on the lessor and can be
the talent of that person, he is therefore entitled for compensation. Regardless if exercised only by the lessee does not render it void for lack of mutuality.
there is a contract or not. After all, the lessor is free to give or not to give the option to the lessee.
And while the lessee has a right to elect whether to continue with the
Now, in one bar examination, the question goes like this: X called B, "can lease or not, once he exercises his option to continue and the lessor
you go to the store to buy for me the following items?". Was there a contract accepts, both parties are thereafter bound by the new lease agreement.
entered into by the parties, and if there was what kind of a contract was it? Can the Their rights and obligations become mutually fixed, and the lessee is
person demand payment for the services he rendered, assumed that the person entitled to retain possession of the property for the duration of the new
consented the request. There is a contract, because he rendered his services and lease, and the lessor may hold him liable for the rent therefor. The lessee
he is entitled to compensation. cannot thereafter escape liability even if he should subsequently decide
o Innominate contracts are, in the absence of stipulations and specific to abandon the premises. Mutuality obtains in such a contract and
provisions of law on the matter, to be governed by rules applicable to the equality exists between the lessor and the lessee since they remain with
most analogous contract. the same faculties in respect to fulfillment. The questioned provision
states that the lease "may be renewed for a like term at the option of the
Art. 1308. The contract must bind both contracting parties; its validity or lessee." The lessor is bound by the option he has conceded to the lessee.
compliance cannot be left to the will of one of them. (1256a) The lessee likewise becomes bound only when he exercises his option and
 Mutuality of contracts – both parties are bound. the lessor cannot thereafter be excused from performing his part of the
agreement

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 39
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Art. 1309. The determination of the performance g) That the favorable condition should not be conditioned or compensated by
may be left to a third person, whose decision shall not be any kind of obligation or whatsoever;
binding until it has been made known to both contracting
parties. (n) Art. 1312. In contracts creating real rights, third persons
who come into possession of the object of the contract
 E.g. in a contract of sale, the fixing of price and delivery date can are bound thereby, subject to the provisions of the
be left to a 3rd person; the decision binds the party only after it is Mortgage Law and the Land Registration Laws.
made known to both.
Art. 1314. Any third person who induces another to
Art. 1310. The determination shall not be obligatory violate his contract shall be liable for damages to the
if it is evidently inequitable. In such case, the courts shall other contracting party.
decide what is equitable under the circumstances. (n)
Requisites:
Art. 1311. Contracts take effect only between the parties, 1. Existence of a valid contract;
their assigns and heirs, except in case where the rights 2. Knowledge by the 3rd person of the existence of the contract;
and obligations arising from the contract are not 3. Interference of the 3rd person in the contractual relation without legal
transmissible by their nature, or by stipulation or by justification.
provision of law. The heir is not liable beyond the value of
the property he received from the decedent. Art. 1315. Contracts are perfected by mere consent, and
If a contract should contain some stipulation in favor of a from that moment the parties are bound not only to the
third person, he may demand its fulfillment provided he fulfillment of what has been expressly stipulated but also
communicated his acceptance to the obligor before its to all the consequences which, according to their nature,
revocation. may be in keeping with good faith, usage and law. (1258)

A mere incidental benefit or interest of a person is not

sufficient. The contracting parties must have clearly and  Consensual contracts are perfected from the moment there is
deliberately conferred a favor upon a third person. agreement (consent) on the subject matter, and the Cause or
(1257a) consideration.
 Note: Contracts are not what the parties choose to call them, but
what they really are as determined by the principles of laws. The
Principle of Relativity validity of stipulations is one thing, and the juridical qualification of
the contract resulting therefrom is another.
 Contracts are generally effective only between the parties, their
assigns and their heirs.
Art. 1316. Real contracts, such as deposit, pledge and
Commodatum, are not perfected until the delivery of the
Exceptions:
object of the obligation. (n)
1. Where obligations arising from the contract are not transmissible by their
nature, by stipulation in favor of a 3rd party.
2. Where there is stipulation Pour Autri ( a stipulation in favor of 3 rd person)  Requires Consent, Subject matter, Cause/consideration and Delivery.
3. Where a third person induces another to violate his contract
4. Where in some cases, 3 rd persons may be adversely affected by a contract Art. 1317. No one may contract in the name of another
where they did not participate. without being authorized by the latter, or unless he has
5. Where law authorizes the creditor to sue on a contract entered into by his by law a right to represent him.
debtor.
A contract entered into in the name of another by one
Requisites of Stipulation Pour Autri who has no authority or legal representation, or who has
acted beyond his powers, shall be unenforceable, unless
a) There must be a stipulation in favor of a 3rd person; it is
b) Contracting parties must have clearly and deliberately conferred a favor ratified, expressly or impliedly, by the person on whose
upon a 3rd person; behalf it has been executed, before it is revoked by the
c) A mere incidental benefit or interest of a person is not sufficient other contracting party. (1259a)
d) The stipulation must be part of contract and not the whole of the contract;
e) 3rd person communicated his acceptance to obligor before its revocation; Requisites for a Person to Contract in the Name of Another
f) There must be no relation of agency between either of the parties and 3 rd
a) He must be duly authorized (express/impliedly)
person. (Neither the contracting parties bears the representation or
b) He must have by law a right to represent him (guardian/administrator)
authorization of the 3rd party.)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 40
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 c) Contract must be subsequently ratified (express/implied, by word or
deed) Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge.
Unenforceable contracts are valid contracts but they cannot be enforced The contract, in such a case, is presumed to have been
through court actions. entered into in the place where the offer was made.
CF: Law on agency (1262a)

ESSENTIAL REQUISITES OF CONTRACTS

Requisites of Consent
Art. 1318. There is no contract unless the following
requisites concur: a) Plurality of subjects/parties;
(1) Consent of the contracting parties; b) Parties must be capable or capacitated;
(2) Object certain which is the subject matter of the c) There must be no vitiation of consent or consent must be made
contract; intelligently and freely;
(3) Cause of the obligation which is established. d) There must be no conflict between what was expressly declared and
what was really intended;
Note: e) The intent must be declared properly (legal formalities must be
1. Consent presupposes legal capacity, otherwise, contract is voidable. complied with)
2. Object certain means at the very least determinable
Note: Accdg. to Tolentino: (f) express or tacit manifestation of the will and (g)
I. CONSENT conformity of the internal will and its manifestation.

It is the meeting of the minds between parties on the subject matter and the cause Requisites for Meeting of Minds
of the contract, even if neither one has been delivered. Consent may be express or a) An offer that must be certain
implied. - An offer must be definite, complete and intentional.

Theories:
b) And an acceptance that must be Unqualified and absolute.
1. Cognition Theory – Contracts are perfected only upon the knowledge of the  If there are 2 contracts and they are independent of each other,
offer of the acceptance of the offeree. (Used if consent is manifested through letter acceptance of one does not imply acceptance of the other. A qualified
or telegram; adhered in the Phil.) acceptance constitutes a counter-offer.

2. Manifestation Theory – Contracts are perfected upon the moment acceptance Note: Offer and acceptance may be withdrawn before perfection of the contract. If
is declared, regardless of whether the declaration has come to the knowledge of a persons offers the same thing to two persons, at different times, and the second
the offeror or not. offeree accepts the offer before the first, the offeror becomes liable for damages to
the 1st offeree if he does not withdraw his offer prior to the acceptance of the 2 nd
3. Expedition Theory – Contracts are perfected the moment the offeree transmits offeree.
the acceptance to the offeror, such as the letter or telegram of acceptance is
placed in the mail box. Q: Is there a perfected contract in a qualified acceptance? No, there is no contract
if there is a qualified acceptance. What happens is a counter-offer.
4. Reception Theory – Contracts are perfected upon the time the acceptance is in
the hand of the offeror (regardless of knowledge or if he read the same) Note: Another type of acceptance is amplified acceptance. Here, there is
acceptance but there is a qualification. So, there is no perfected contract. When we
Note: Offer by telephone similar to face to face conversation. say amplified, "I'm selling you mangosteen at 5/kl but you have to get 100 kilos. I
will buy another 100 for the same price." Is there a perfected contract there? Yes,
Note: In our law, according to ma’am G., silence does not authorize any definite with respect to the first but not to the 2nd. There is a perfected contract with
conclusion. However, according to Tolentino, there are requisites in order that respect to the first (sell at 5/kilo) but not to the second offer (buy 100 kilos).
silence produces tacit acceptance, namely:
a. There is a duty or the possibility to express oneself; Note: Rule on public offers: A promise may be made publicly by way of
b. The manifestation of the will cannot be interpreted in any other way; advertising a reward, compensation, or prize for any person who performs of
c. There is a clear identity in the effect of the silence and the undisclosed will. executes a particular act or obtains a particular result. This is a unilateral promise.
A unilateral promise is not recognized by our Code as having obligatory effect. In
Art. 1319. Consent is manifested by the meeting of the order that such promise can be enforced, there must be an acceptance that shall
offer and the acceptance upon the thing and the cause convert it into a contract. So the performance of the act for which a reward or prize
which are to constitute the contract. The offer must be is promised can be considered as an acceptance.
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer. Art. 1320. An acceptance may be express or implied. (n)

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 41
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 From Transcription: Suppose Y will say "give me 3 days to decide, but here is
Forms of Acceptance 10,000 as earnest money" and A says "okay, i will accept it. We will just execute
1. express the deed of sale as soon as you deliver the balance." Then that is removed from
2. implied 1324 because it says part of the purchase price. Earnest money is actually part of
3. presumed (by law) the purchase price. there is no contract of option here but a perfected contract of
sale.

1321: The person making the offer may fix the time, place Art. 1325. Unless it appears otherwise, business
and manner of acceptance, all of which must be complied advertisements of things for sale are not definite offers,
with. but mere invitations to make an offer. (n)

Note: When the offeror has not fixed a period and the offer is made to a person Unless the object is determinate, the business advertisement is not an
present, the acceptance must be made immediately. offer.

1322: An offer made through an agent is accepted from Art. 1326. Advertisements for bidders are simply
the time acceptance is communicated to him. invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the
Art. 1323. An offer becomes ineffective upon the death, contrary appears. (n)
civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed. (n) Exceptions: Judicial sales and if specifically stated in the advertisement

Other instances when Offer becomes Ineffective Art. 1327. The following cannot give consent to a
a) When the offeree expressly or impliedly rejects the offer; contract:
b) When the offer is accepted with a qualification or condition; (1) Unemancipated minors;
c) When before acceptance is communicated, the subject matter has (2) Insane or demented persons, and deaf-mutes who
become illegal or impossible; do not know how to write. (1263a)
d) When the period of time given to the offeree w/in which he must
signify his acceptance has already lapsed. In General, Contracts w/c they enter into are Voidable, Unless:
e) When the offer is revoked in due time (before the offeror has learned
of its acceptance by the offeree) a) Upon reaching the age of majority, they ratify the same;
b) They were entered into through a guardian and the court having jurisdiction
Art. 1324. When the offerer has allowed the offeree a had approved it;
certain period to accept, the offer may be withdrawn at c) Contracts of life insurance in favor of their parents, spouse, children, brothers
any time before acceptance by communicating such and sisters and provided furthermore that the minor is 18 years and above.
withdrawal, except when the option is founded upon a d) In the form of savings account, provided that minor was at least 7 years old.
consideration, as something paid or promised. (n) e) They were contracts for necessities such as food, but here the people who are
legally bound to give them support should pay therefore.
GEN. RULE: If the offeror has allowed the offeree a certain period to accept, f) They were contracts where the minor misrepresented his age and pretended to
the offer may be withdrawn at any time before acceptance (of thing being offered) be one of major age and is thus in Estoppel.
by communicating such withdrawal.
INSANE/DEMENTED PERSONS– no proper declaration of insanity by the court is
Exception: when the option is founded upon a consideration as something required, as long as it is shown that at the time of contracting, the person was
paid or promised. really insane.

OPTION CONTRACT– contract granting a person the privilege to buy or not to buy Note: But if both are incapable of giving consent, the contract is unenforceable.
certain objects at anytime w/in the agreed period at a fixed price.
- It must have its own cause/consideration because it is a distinct contract; Art. 1328. Contracts entered into during a lucid interval
and the grant must be exclusive are valid. Contracts agreed to in a state of drunkenness or
- The cause is not only price but something/anything of value; may also during a hypnotic spell are voidable. (n)
come in the form of a forfeiture.
- It binds the party who has given the option not to enter into the principal Voidable Contracts:
contract with any other person during the period designated and, within
that period, to enter into such contract with the one to whom the option a) Entered into by insane/demented persons (unless they acted during a
was granted if the latter should decide to use the option. lucid interval)
b) Those in state of drunkenness
c) Under hypnotic spell

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 42
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Art. 1329. The incapacity declared in article 1327 is Note: If the error refers to the rights of the parties in the contract, the contract is
subject to the modifications determined by law, and is not invalidated.
understood to be without prejudice to special
disqualifications established in the laws. (1264) Errors which do not affect the validity of the contract:
1. error with respect to accidental qualifies of the object of the contract;
Incompetents under Rules of Court 2. error in the value of the thing;
a) Under Civil interdiction 3. error which refers to accessory matters in the contract foreign to the
b) Hospitalized lepers determination of the object.
c) Prodigals 4. error in the name of the person, but without error as to the person. Error as to
d) Deaf and dumb; unable to read and write the person will invalidate consent when the consideration of the person has been
e) Unsound mind even though they have lucid intervals the principal cause of the contract.
f) Those who by reason of age, disease, weak mind, and other similar 5. error as to the solvency of the party;
causes, cannot w/o aid, take care of themselves and manage their 6. error as to the motive of a party
property.
Art. 1332. When one of the parties is unable to read, or if
Art. 1330. A contract where consent is given through the contract is in a language not understood by him, and
mistake, violence, intimidation, undue influence, or fraud mistake or fraud is alleged, the person enforcing the
is voidable. (1265a) contract must show that the terms thereof have been
fully explained to the former. (n)
Vices/Causes of Vitiated Consent
 Mistake (error) Presumption: One always acts with due care and signs with full knowledge of
 Fraud (deceit) all the contents of a document even if the mind of the party signing was confused
 Violence at the time of signing as long as he knew what he was doing.
 Intimidation
 Undue influence When Presumption Cannot Apply
Note: Vitiated consent does not avoid the contract but merely renders it voidable. a) When one of the parties is unable to read
b) Or if contract is in a language not understood by one of the parties
 Mere preponderance of evidence is not sufficient.  In both cases, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.
Art. 1331. In order that mistake may invalidate consent, it
Art. 1333. There is no mistake if the party alleging it knew the doubt,
should refer to the substance of the thing which is the
contingency or risk affecting the object of the contract. (n)
object of the contract, or to those conditions which have
principally moved one or both parties to enter into the
Art. 1334. Mutual error as to the legal effect of an agreement when the real
contract.
purpose of the parties is frustrated, may vitiate consent. (n)
Mistake as to the identity or qualifications of one of the
Requisites for Mutual Error To Vitiate Consent
parties will vitiate consent only when such identity or
a) There must be mutual error
qualifications have been the principal cause of the
b) The error must refer to the legal effect of the agreement.
contract.
c) The real purpose of the parties is frustrated.
 If there is no meeting of the mind and both parties erroneously
A simple mistake of account shall give rise to its
that their acts is intended towards a particular contract but the
correction. (1266a)
same was not met/frustrated – then the remedy is annulment,
otherwise it is REFORMATION.
Requisites For Mistake to Vitiate Consent
a) The error must be substantial regarding: 1334: The provision here refers to mistakes of doubtful questions of law. Legal
 Object of contract effects. Doubtful questions of law, or the different interpretations or construction of
 The conditions w/c principally moved/induced one of the parties. the law. So in that case, you cannot agree to a certain provision, that might lead to
 Identity or qualifications but only if such was the principal cause of the frustration of the real intention of the parties that would warrant annulment.
contract.
b) The error must be excusable (not caused by negligence) Art. 1335. There is violence when in order to wrest consent, serious or
c) The error must be a mistake of fact and not of law. (Mistake of law is not a irresistible force is employed.
ground for annulment of contracts) There is intimidation when one of the contracting parties is compelled by a
Error of law refers to a mistake as to the existence of a legal provision or reasonable and well-grounded fear of an imminent and grave evil upon his person
as to its interpretation or application. or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 43
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 To determine the degree of intimidation, the age, sex and condition of the b) Dolo Incidente – even w/o the fraud, the parties would have still agreed,
person shall be borne in mind. fraud is incidental--Contract is valid but damages may be recovered.
A threat to enforce one's claim through competent authority, if the claim is
just or legal, does not vitiate consent. (1267a) B. Fraud in Performance of Obligations stipulated in the Contract

Requisites for Violence to Vitiate Consent Requisites of Dolo Causante

a) Employment of serious or irresistible force. a) Fraud must be material and serious; induced the other to consent;
b) It must have been the efficient cause why the contract was entered into. b) Fraud must have been employed by only one of the contracting
parties, because if both committed fraud, the contract would remain
Requisites for Intimidation to Vitiate Consent valid.
a) Reasonable and well-grounded fear c) There must be a deliberate intent to deceive or to induce therefore
b) Of an imminent and grave evil misrepresentation in good faith is not fraud.
c) Upon his person, property or upon the person or property of his spouse, d) The other party must have relied on the untrue statement and must
descendants or ascendants; himself not be guilty of negligence in ascertaining the truth.
d) Efficient cause of the execution of the contract;
e) The threat must be an unjust act, an actionable wrong. 1338: There is fraud when, through insidouse words or machinations, the
other party was induced. And it must not be employed on a co-party. It must be
Now, when is there violence, when is there intimidation? The same employed against the other contracting parties. And if both parties employed fraud,
definition that you have in your criminal law. (1335) Violence, in order to wrest the courts will leave them where they are. It is as if they were in good faith because
consent, serious or irrisistible force is employed. of the fact that they are in pari delicto. Now, the fraud here is fraud at the time of
Intimidation: compelled by a resonable and well-grounded fear of an the inception of the contract, not the fraud at the time of the fulfillment of the
imminent and grave evil upon the person or property of one of the contracting contract. Because if it were the latter, that belongs to 1171, and it cannot result to
parties, or employed upon the spouse, descendants or ascendants, to give his the nullity or annulment of the contract but will only be a ground for damages. But
consent. (or their properties). if it were fraud under 1338, it can be a ground for nullity or annulment of the
Take note of third paragraph, it is also found in your criminal law. contract plus damages. But the fraud here must be one that is causal. (dolo
The last paragraph is enforcement of one's claim through competent causante). Because if it were merely dolo incidente, no annulment, merely
authority. damages. And the fraud alleged by the other party seeking annulment must be
Undue influence: when a person takes improper advantage of his powe clearly and convincingly established by sufficient and clear evidence, not by mere
over the will of another, depriving the latter of a reasonable freedom of choice. The preponderance.
following shall be considered: the confidential (the priest), family, spiritual and
other relations between the parties, or that the person alleged to have been unduly So, requisites of fraud:
influenced was suffering from mental weakness, or was ignorant or in financial 1. It must have been employed by one contracting party upon the other
distress. contracting party, not against a co-party.
2. It must have induced the other party to enter into the contract;
Art. 1336. Violence or intimidation shall annul the obligation, although it example: when you apply for insurance policy and the amount is one that will not
may have been employed by a third person who did not take part in the contract. require you to undergo medical examination but only to fill up a certain form. You
(1268) are a chain smoker, and there is a question there do you smoke and how many
packs, you answer no, i don't smoke. And you were approved. This is an example of
Art. 1337. There is undue influence when a person takes improper material misrepresentation.
advantage of his power over the will of another, depriving the latter of a reasonable 3. It must have been serious and must have resulted in damage or injury
freedom of choice. to the other party now seeking annulment of the contract.
The following circumstances shall be considered:
 the confidential, family, spiritual and other relations between the
parties, or Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as
 the fact that the person alleged to have been unduly influenced was when the parties are bound by confidential relations, constitutes fraud.
suffering from mental weakness, or 1339: Confidential relations: between the principal and the agent. Like if
 was ignorant or the principal authorizes the agent to sell the property at 100,000. The agent now
 in financial distress. (n) was able to sell it at 200,000. Is the agent bound to disclose to the principal this
fact? Yes, because of the confidential relation between them. Failure to do so
Art. 1338. There is fraud when, through insidious words or machinations of constitutes fraud.
one of the contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to. (1269) Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Kinds of Fraud 1340: Dolos Bonus. Tolerated fraud. common victims are the women. For
as long as the other party has the opportunity to know the facts. The rule is: let the
A. Fraud in the Celebration of Contract buyer beware. According to authors, the reason for the loss is the stupidity of the
a) Dolo Causante – were it not for the fraud, the other party would not have person. Why will you immediately believe that this particular product is a miracle.
consented--the contract is voidable

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 44
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 Basta what is required here is that you must have the opportunity to know Requisites of Simulation
the facts. And if it turns out that the facts are not true, you cannot sue. Because a) Outward declaration of will different from the will of the parties;
that what we call as tolerated fraud. And the rule is let the buyer beware, caveat b) False appearance must have been intended by mutual agreement;
emptor. c) The purpose is to deceive 3rd persons.

Art. 1341. A mere expression of an opinion does not signify fraud, unless Effect: If Absolute simulation, the contract is void. The parties did not intend to be
made by an expert and the other party has relied on the former's special bound by the agreement. But if it were relative simulation, then it shall bind the
knowledge. parties provided that no third person shall be prejudiced by such relative
1341: So, you ask the opinion of a person if this is a true diamond, and the person simulation.
says yes. Is there fraud? No, because that is merely an opinion. Exception, if you
seek the opinion of an expert, an expert would be one that is knowledgeable in that Art. 1346. An absolutely simulated or fictitious contract is
specific area. Exception to the exception, if the expert is the employee of the void. A relative simulation, when it does not prejudice a
person seeking the opinion of the expert. If it turns out the the opinion of the third person and is not intended for any purpose contrary
expert is false, then you cannot sue your own employee. Even if it is given by an to law, morals, good customs, public order or public policy
expert, but the expert is your employee, then there can be no annulment of the binds the parties to their real agreement. (n)
contract based on fraud.
Kinds of Simulated Contracts
Art. 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the same is A. Absolutely Simulated (simulados) fictitious contracts:
mutual.  Parties do not intend to be bound;
1342: There was this case Diaz vs. CA whereby the mistake was committed by a  EFFECT: Contract is Void.
surveyor with respect to the particular location of a particular lot. So in that case,
the mistake was not committed by both parties but by a third person, committed B. Relatively Simulated (disimulados) disguised contracts:
by the surveyor and there was mutual mistake by both parties and the SC said that  Parties conceal their true agreement
annulment is proper because of the mistake.  EFFECT: Parties are bound to the real or true contract/agreement
except:
Art. 1343. Misrepresentation made in good faith is not o If contract should prejudice a 3rd person; or
fraudulent but may constitute error. o If the purpose is contrary to law, morals, good customs, public
order or public policy.
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been Accdg. to Tolentino: If the absolute simulation does not have an illicit purpose, the
employed by both contracting parties. parties to the contract ma prove the simulation in order to recover whatever may
have been given under such simulated act. But if the simulated contract has an
Incidental fraud only obliges the person employing it to illegal object, the provisions of Art. 1411 and 1412 will apply.
pay damages. (1270)
ABSOLUTE SIMULATION FRAUDULENT ALIENATION
Fraud should not be employed by a party against a co-party, i.e. between two 1. Implies that there is no existing 1. Means there is a true and existing
partners. This will not annul the contract. contract; no real act executed; transfer or contract;
2. Can be attacked by any creditor, 2. Can be assailed only by the creditors
Requisites for Fraud to Vitiate Consent including one subsequent to the before the alienation;
a) Fraud must be serious contract
b) The parties must not be in pari delicto; otherwise there can be no 3. The insolvency of the debtor making 3. The action to rescind (accion
annulment. the simulated transfer is not a pre- pauliana) requires that the creditor
requisite to the nullity of the contract; cannot recover in any other manner
 Incidental Fraud – not a cause for annulment, only damages can what is due to him;
be recovered. 4. The action to declare a contract 4. Accion pauliana to rescind a
absolutely simulated does not prescribe fraudulent alienaction prescribes in 4
Art. 1345. Simulation of a contract may be absolute or years.
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties OBJECTS OF CONTRACTS
conceal their true agreement. (n)
Art. 1347. All things which are not outside the commerce
Simulation of Contract – process of intentionally deceiving others by producing of men, including future things, may be the object of a
the appearance of a contract that really does not exist (absolute) or w/c is different contract. All rights which are not intransmissible may also
from the true agreement (relative). be the object of contracts.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 45
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 No contract may be entered into upon future inheritance CAUSE OF CONTRACTS
except in cases expressly authorized by law.
It is the essential and impelling reason why a party assumes, an obligation. It is the
All services which are not contrary to law, morals, good prestation to be performed by the other contracting party.
customs, public order or public policy may likewise be the
object of a contract. (1271a) Art. 1350. In onerous contracts the cause is understood to
be, for each contracting party, the prestation or promise
 Requisites of Object of a Contract of a thing or service by the other; in remuneratory ones,
the service or benefit which is remunerated; and in
a) The thing or service must be w/in the commerce of man; contracts of pure beneficence, the mere liberality of the
b) Must be transmissible; benefactor. (1274)
c) Must not be contrary to law, morals, good customs, public order or policy;
d) Must not be impossible; Classification of Contracts As to Cause
e) Must be determinate as to its kind or determinable w/o need of a new
contract or agreement. a) Onerous – the cause is for each contracting party, the prestation/promise of
thing/service.
Notes: b) Remuneratory – the past service/benefit w/c by itself is a recoverable debt.
c) Gratuitous or contracts of pure beneficence– the cause is the mere liberality
1. There can be sale of future things or objects having potential existence. Also of the benefactor.
there can be sale of hope, but no of vain hope (CF: Sales)
 Contract of guaranty is gratuitous unless there is stipulation to the
2. No contract may be entered upon future inheritance, exceptions: (1) marriage contrary.
settlements. Spouses are allowed to donate to each other future properties  Cause in Accessory Contracts Like Mortgage & Pledge – the same as the
provided that they comply with the forms of will; (2)partition of the property during cause for principal contract of loan.
the lifetime of the testator. (3) When one’s right over the property is not as an heir  Moral obligation may be the cause of civil obligation – if it does not exist ,
but as a creditor. Your rights to the credit are subordinated to the death of the no valid cause.
debtor. So, in that case that is not within the meaning of future inheritance. Ex: X
borrows money from Y, and Y says I will pay you when I die. So in that case, X can Art. 1351. The particular motives of the parties in
enter into a contract involving that credit but subordinated to the death of Y. entering into a contract are different from the cause
thereof. (n)
Art. 1348. Impossible things or services cannot be
the object of contracts. (1272) Q: Is the cause the same as the motive of the contract? No. No matter how illegal
the motive is for as long as the cause is legal and lawful, it does not affect the
Nature of Impossibility validity of the contract. Exception: if the motive predetermines the purpose of the
a) Nature of transaction or because of law contract then the motive becomes the cause of the contract.
b) Absolute (objectively impossible) – “nobody can do it”
c) Relative (subjectively impossible) – “particular debtor cannot comply” Case: Lopez fell in love with Conchita, a 15 year old girl. Because of Lopez' desire
and lust for the body of Conchita, he told the parents and Conchita that he will be
Note: The impossibility must exist at the time of the constitution of the contract. donating a parcel of coconut land if you agree to cohabit with me. The parents and
Conchita consented and they lived and had sexual intercourse. Then Lopez died.
Conchita now demanded for the delivery of the parcel of land. The heirs of Lopez
Art. 1349. The object of every contract must be
now said that the motive predetermined the purpose of the contract. And while it
determinate as to its kind. The fact that the quantity is
may be true that the cause is the liberality, however the real cause is the motive
not determinate shall not be an obstacle to the existence
and the motive is to have sexual intercourse. Conchita said the cause is the
of the contract, provided it is possible to determine the
liberality.
same, without the need of a new contract between the
parties. (1273)

 Object must be determinate determinable (w/out need of a new

agreement); otherwise the contract is void for want of an essential
requisite – the object of contract.
 Difficulty of performance – A showing of mere inconvenience, unexpected
impediments, or increased expenses is not enough to relieve a debtor
from the obligation Equity cannot relieve from bad bargains simply
because they are such. The debtor who does not perform in such cases
The SC said the contract is void. While it is true that motive differs from the cause,
must be held liable for damages.
still a contract conditioned upon the attainment of an immoral motive should be
considered void. For here, it may be regarded as cause when it predetermines the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 46
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
purpose of the contract. It cannot be said that the donation is a contract of pure
benifecence or a contract designed solely and exclusively for the benefit of the Art. 1353. The statement of a false cause in contracts
donee. The donation was designed both for the benefit of the donee and satisfy the shall render them void, if it should not be proved that
sexual desire of Mr. Lopez. But because the donor cannot invoke his own they were founded upon another cause which is true and
immorality, then the more reasons that the heirs are barred in questioning the lawful. (1276)
validity of the donation. Therefore Conchita is entitled to the land.
 False cause does not necessarily mean that contract is void; the
In the MFR filed by the heirs, according to JBL Reyes, the pari delicto rule cannot parties are given a chance to show that a cause really exists and is
apply in the case. Remember that Conchita is a minor, the guilt of the minor cannot lawful and true.
be judged with equal severity with the guilt of an adult. Minors occupy a privilege
position before the law. 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. (1277)
MOTIVE CAUSE  Cause must exist but is not necessary to state the cause;
 May vary although he enters into  The same  Under Statute of Frauds – certain agreement must be in writing,
same contract;
 Maybe unknown to the other;  Always known 1354: So, no matter how inadequate the consideration is, the
 Its presence cannot cure the presumption is that the contract is valid. The exception there is when fraud is
absence of cause employed, or there is mistake or there is undue influence. Like the actual value is
1M and he's only selling it for 100K, and the buyer is the son or daughter, then that
 ILLEGAL CAUSE makes a contract void, ILLEGAL MOTIVE not necessarily is not an absolutely simulated contract but only a relatively simulated one, and the
renders the contract void. parties bound to it unless third persons are prejudiced by such simulation.

Art. 1352. Contracts without cause, or with unlawful Art. 1355. Except in cases specified by law, lesion or
cause, produce no effect whatever. The cause is unlawful inadequacy of cause shall not invalidate a contract, unless
if it is contrary to law, morals, good customs, public order there has been fraud, mistake or undue influence. (n)
or public policy. (1275a)
LESION – inadequacy of cause – (eg. Insufficient price of a thing sold)
Requisites for Cause
a) It must be present – no cause, contract is void
b) It must be true – if cause is false, contract is void unless some other cause w/c
Rules on Lesion
is lawfully really exists.
c) It must be lawful
Gen. Rule: Lesion/inadequacy of price does not invalidate a contract.
Exceptions:
From transcription: There was this case: X is an employee of a business a. When together with lesion there has been
establishment, and it was found out that she was stealing money from the business i. Fraud;
establishment. When she was about to be prosecuted for what she did, the father ii. Mistake; or
and the husband of X executed a PN covering the value of what has been lost by iii. Undue Influence
reason of X's stealing. But X was not made a signatory to the PN. Now, the PN b. In cases expressly provided by law.
remained as a PN, so the employer was not able to collect. So the employer filed an
action to collect the amount stated in the PN. The case was dismissed because
accdg. to the court, the cause was the stifling of the criminal prosecution of X. FORMS OF CONTRACTS
Cause is void.
The general principle is that the law looks more into the spirit, rather than
But in another case, there was A who was given money by B to buy palay in form. Underlying principle that in the interpretation and/or construction of the
within a certain period or if unable to secure the palay by that time, to return the law, we must interpret not by the letter that killeth, but by the spirit that giveth life.
money to B. No palay was bought, no money was returned. So what B did was file a That is how one should construct or interpret the law. But in contracts, there are
case against A for estafa. Now, before the hearing, a friend entered before and in certain exceptions. Because if you were the one who prepared the contract, then
behalf of A, with B seeking consideration that the case would be dismissed because the contract should be construed strictly against the person who prepared it, and
he will try to convince A to issue a promissory note to cover the amount that was liberally in favor of the person who merely affixed his signature and did not
not returned. A executed a PN, but the amount was not paid. So what B did was to participate in the making of the contract.
file an action to recover the amount. A moved for the dismissal of the case, stating
that the cause for the action was illegal because it was to stifle a criminal But with respect to form, contracts are obligatory, in whatever form they
prosecution. But the SC said that motion should be denied because there was an may have been entered into, provided that all the essential requisites for the
admission on the part of A that he really owed B money. This is different from the validity are present. And what are the essential requisites? Consent, cause or
first case.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 47
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
consideration and object/subject matter. So, for as long as the three are found, then b) Enforceability (Statute of Frauds); may be waived by acceptance
the contract is presumed valid, regardless of the form. of benefits (partial) or by failure to object to presentation of oral or parol
evidence.
When we say form, it may refer to the manner in which the contract is c) For convenience
executed, which may be written or oral. So, a sale of a parcel of land orally made is
valid. So a sale involving real property is valid in whatever form it is entered into. 1356 is the spiritual system of a contract, which means that, contracts are
Even if it is orally made between the parties. For what purpose then is the form? It obligatory in whatever form they may have been entered into, provided that all the
is not for validity, but rather to transfer ownership over the property in favor of the essential requisites for its validity are present. But the spiritual system of contract
vendee. The register of deeds will not transfer the title of the property from the cannot be adopted in unqualified manner. Otherwise, oral agreements would often
vendor to the vendee unless it is in a public document. So that is the purpose of lead to fraud in the fulfillment of the obligation. Because the faintest ink is better
the form. And to inform third person that the property has already been bought. than the sharpest memory.
But for validity, no. It is valid. Even if there is no (written) contract, for as long as
there has been payment (vendee) and there has been delivery on the part of the Because if worse comes to worst, you file a case in court and what is your
vendor. proof? It was orally admitted. Who were there when you entered into the
agreement? There were only two of us, then that is highly debatable. So, whether a
But there are certain contracts which would require that they be in a certain form is required or not, better put it into writing.
certain form. One is for validity, and the other for enforceability. A contract may be
valid, but it is unenforceable. When we say enforceable, it cannot be enforced Now, there is this case of Hernaez vs. Delos Angeles. Hernaez was a star
through court action. You cannot maintain an action in court because there is a lack of Philippine Cinema. And her services were engaged by one of the producers. She
in that particular document. But there are certain documents which will require a was paid but there was a balance. So after rendering service, Ms. Hernaez now
certain form in order that it be valid. An example of which would be a donation of a demanded for the payment of the balance. The movie company refused to honor
real property which must be in a public document in order to be valid. And not only the agreement stating that the agreement is deemed void because it was not in
that, the acceptance of the donee must also be in a public document to be valid. writing, and the balance exceeds 500 pesos. So, they went to court. Delos Angeles
Absent one makes the donation void. Another example of a contract which would is the judge, he sided with the movie company. The SC said that the dismissal was
require a certain form is donation involving movable property and the value not proper. Under 1356, all contracts are valid regardless of form, there are only
exceeds 5K. The law require that it must be in writing, but it need not be in a public two exceptions. One is when the contractual form is needed for validity. As in a
document to be valid. case of a donation of real property which needs to be in a public document. Second
when form is needed for enforceability, under the Statute of Fraud. The contract
Now, what else? Contracts involving antichresis. That must be in writing covered by Art. 1358 are binding and enforceable by action despite the absence of
otherwise void. And another is when you are into lending money, agreements for writing because the Article nowhere provides that the absence of written form will
the payment of interests must be in writing otherwise one cannot collect. The make the agreement invalid or unenforceable.
authority of the agent to sell property must be in writing, if not, then the sale is
void. Art. 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article, the contracting parties may
Now, another exception is for purposes of enforceability. Now what would compel each other to observe that form, once the contract has been perfected.
be required, under 1403, paragraph 2, it must be in writing or in some This right may be exercised simultaneously with the action upon the contract.
memorandum or note, subscribed by the parties. (Statute of Fraud). So those are 1357: If the law requires that a document or other special form, as in the
only the exceptions for purposes of validity or enforceability. So that a contract may acts and contracts enumerated in 1358, the contracting parties may compel each
prove in a certain way, that requirement is absolute and indispensable. So, if it is other to observe that form, once the contract has been perfected. This right may
absolute and indispensable, noncompliance with it means the contract is void. In be exercised simultaneously with the action upon the contract.
such cases, the right of the parties stated in the following article cannot be
exercised. Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
Art. 1356. Contracts shall be obligatory, in whatever form they may have modification or extinguishment of real rights over immovable property; sales of real
been entered into, provided all the essential requisites for their validity are present. property or of an interest therein a governed by articles 1403, No. 2, and 1405;
However, when the law requires that a contract be in some form in order that it (2) The cession, repudiation or renunciation of hereditary rights or of those of
may be valid or enforceable, or that a contract be proved in a certain way, that the conjugal partnership of gains;
requirement is absolute and indispensable. In such cases, the right of the parties (3) The power to administer property, or any other power which has for its
stated in the following article cannot be exercised. (1278a) object an act appearing or which should appear in a public document, or should
prejudice a third person;
GEN. RULE: NO FORM IS REQUIRED IN CONSENSUAL CONTRACTS (4) The cession of actions or rights proceeding from an act appearing in a
public document.
 Formal Contracts – requires form ( eg. Donation) All other contracts where the amount involved exceeds five hundred pesos must
 Real Contracts – requires delivery appear in writing, even a private one. But sales of goods, chattels or things in
action are governed by articles, 1403, No. 2 and 1405.
WHEN FORM IS IMPORTANT 1358: Is the requirement that it must be in a public document for the
a) For validity purpose of validity? No. Only for purposes of affecting third persons, or for efficacy
against third persons. So, those enumerated under 1358, even if not in a public

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 48
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
docu are valid. The reason why there is this requirement that it must be in a public Art. 1360. The principles of the general law on the reformation of
document, is that it is to enforce against third person. Because by itself, it is instruments are hereby adopted insofar as they are not in conflict with the
already valid. Now what are those contracts? provisions of this Code.

1. Acts and contracts which have for their object the creation, transmission, Why is there a need to reform instruments? Instruments are reformed in
modification or extinguishment of real rights over immovable property. order that the true intention of the parties is expressed. But all the essential
An example of this is waiver of a right, assignment, barter, mortgage requisites are present. Only that when the parties reduced the agreement into
(modification of one's proprietarial rights), when you enter into a contract of writing, the writing failed to keep the true intention. By reason of what? Fraud,
usufruct because there is a transfer of ownership. mistake, inequitable conduct or accident, one of the parties may ask for the
[Take note that sale involving real properties is already removed from par. 1 of reformation of the instrument to the end that such true intention may be
1358] expressed.

2. The cession, repudiation, or renuncitation of hereditary rights, or of those if the But if any of the vices of consent have prevented the meeting of the
conjugal partnership of gains. You renounce your right over the inheritance that has minds of the parties, then there is no reformation but rather annulment. So here is
already become vested in favor of your siblings; there was failure on the part of the parties to express their true intention. By
reason of Fraud, mistake, inequitable conduct or accident. But if it prevented the
3. The powers to administer property, or any other power which has for its object meeting of the minds, then no reformation but annulment.
an act appearing or which should appear in a public document, or should prejudice
a third person What are the requisites in order that reformation is proper?
In your family code, when one spouse desires to transfer administration
over his communal or paraphernal property to the other spouse, the transfer must 1. There must have been a meeting of the minds upon the contract;
be in a public document. The reason is to inform 3rd persons that the 2. The instrument or document evidencing the contract does not express the true
administration has been transferred. agreement between the parties;
3. the failure of the instrument to express the agreement must be due to mistake,
4. The cession of actions or rights proceeding from an act appearing in a public fraud, inequitable conduct or accident.
document [example Claim of ownership]
Art. 1361. When a mutual mistake of the parties causes the failure of the
All other contracts where the amount involved exceeds 500 must appear instrument to disclose their real agreement, said instrument may be reformed.
in writing, even a private one. But sales of goods, chattels, or things in action are Requisites:
governed by Art. 1403. 1. Mistake must be mutual
2. Mistake may be unilateral under the conditions set forth in Art. 1362 and
Nowhere does it say that if it is not in writing, the contract is void. That's 1363.
the essence of the Hernaez case. 3. Mistake must be of fact.

REFORMATION 1361: The error is thru mistake but all the essential requisites are present
REFORMATION OF INSTRUMENTS (n)
 Remedy in equity by means of w/c a written instrument is made or Art. 1362. If one party was mistaken and the other acted fraudulently or
construed so as to express or conform to the real intention of the inequitably in such a way that the instrument does not show their true intention,
parties when some error or mistake has been committed. the former may ask for the reformation of the instrument.

Art. 1359. When, there having been a meeting of the minds of the parties to 1362: Now, there was this case of Ong vs. Car (?), involving a Spaniard
a contract, their true intention is not expressed in the instrument purporting to and a Chinese. Now the Chinese does not know how to read or speak English. So
embody the agreement, by reason of mistake, fraud, inequitable conduct or the Spaniard was interested to buy the property of the Chinese. Now the Chinese
accident, one of the parties may ask for the reformation of the instrument to the said the agreement should be a pacto de retro. The Spaniard said, ok. When the
end that such true intention may be expressed. document was already prepared, the Chinese aske if he included the condition that
If mistake, fraud, inequitable conduct, or accident has prevented a the sale should be one with a right to repurchase. The Spanish said yes when in
meeting of the minds of the parties, the proper remedy is not reformation of the truth the Spaniard omitted that it was a sale of pacto de retro because he intended
instrument but annulment of the contract. to mortgage the property.
Now in that case, there has been an agreement. There was already a
Requisites for Action for Reformation meeting of the mind with respect to object and the cause, and the parties have
1. There must be meeting of the minds consented. What was only omitted was the right of the buyer to repurchase,
2. True intention is not expressed in the instrument through the fraudulent acts of the other.
3. There must be clear and convincing proof thereof Art. 1363. When one party was mistaken and the other knew or believed
4. It must be brought w/in the proper prescriptive period. that the instrument did not state their real agreement, but concealed that fact from
5. Document must not refer to a simple unconditional donation inter vivos or the former, the instrument may be reformed.
to wills or to a contract where real agreement is void.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith
on the part of the person drafting the instrument or of the clerk or typist, the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 49
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
instrument does not express the true intention of the parties, the courts may order Art. 1370. If the terms of a contract are clear and leave no doubt upon the
that the instrument be reformed. intention of the contracting parties, the literal meaning of its stipulations shall
control.
1364: This is very common in law firms, because lawyers trust their If the words appear to be contrary to the evident intention of the parties, the latter
secretaries. (typographical error) shall prevail over the former.

Art. 1365. If two parties agree upon the mortgage or pledge of real or So, how do you interpret contracts? If the stipulations of the contract are clear and
personal property, but the instrument states that the property is sold absolutely or leave no room for doubt, literal interpretation. Now, the important task of contract
with a right of repurchase, reformation of the instrument is proper. interpretation is to always ascertain the intention of the contracting parties. And
guided by the principle again that we should interpret not by the letter that killeth,
1365: Now there are money lenders who would, instead of having but by the spirit that giveth life. However, that will not find any application if the
executed a deed of real estate mortgage, would say that let's just execute a deed stipulation of the parties are clear and unambiguous which leaves no room for
of sale with a right to repurchase. That is under a different guise. Very common is interpretation. Then we must interpret the law as it is written. Ita Scripta Lex.
equitable mortgage although the document is denominated as deed of sale with a
right to repurchase. It has the following indicators: So, if the words appear contrary to the intention of the parties, then the
intention shall prevail. (1370)
1. The seller remains in possession of the property;
2. the buyer retains a portion of the purchase price. That portion represent If the written instrument is different from what has been verbally agreed
actually the interest. upon? Reformation because it does not express the true agreement. So, if you say
3. The seller, aside from he remains in possession of the property, the sale of land with all the improvements thereon, what are included? Everything
continues to pay the taxes on the property. that is incorporated with the land.
[Because if it were sale, then definitely the seller has to vacate the
property and why should he continue to pay the taxes. Moreover, why should the Art. 1371. In order to judge the intention of the contracting parties, their
buyer retain a portion of the purchase price. ] Now read 1502 contemporaneous and subsequent acts shall be principally considered.
1371: So going back to the example of equitable mortgage, if the buyer is
Art. 1366. There shall be no reformation in the following cases: not yet in possession after several years, so what is the presumption? The
(1) Simple donations inter vivos wherein no condition is imposed; presumption is that what was entered into by the parties is not one of sale but
(2) Wills; mortgage. And the determination is based on their subsequent acts.
(3) When the real agreement is void.
Art. 1372. However general the terms of a contract may be, they shall not
1366: #1 and 2 are contracts based purely on the liberality of the be understood to comprehend things that are distinct and cases that are different
testator, and being gratuitous you cannot question the intention of the person from those upon which the parties intended to agree.
giving or donating the thing/property. 1372: Example is your best friend executed an SPA for you to encumber
#3, being void, how can you reform it. No legal effect shall come from a her property. So you used it as a collateral in your loan. It does not follow that even
void contract. There is no force or effect that arise from a void contract. In fact, in a if your property was used as a surety, you would also be liable for the debt of your
void contract, parties do not intend to be bound by their agreement. friend. Because those are different and distinct from the agreement.

Art. 1367. When one of the parties has brought an action to enforce the Art. 1373. If some stipulation of any contract should admit of several
instrument, he cannot subsequently ask for its reformation. (estoppel, waiver or meanings, it shall be understood as bearing that import which is most adequate to
ratification) render it effectual. (1284)

1367: You cannot ask for reformation and at the same time ask for Art. 1374. The various stipulations of a contract shall be interpreted
enforcement. One is inconsistent with the other. If you say that it does not express together, attributing to the doubtful ones that sense which may result from all of
the true intention of the parties, yet at the same time you are asking for them taken jointly.
performance. So, those are contrary to each other. 1374: (Allied Bank) Harmoninize the provisions. If it cannot be
harmonized, remove those which are incompatible. Then you ascertain the
Art. 1368. Reformation may be ordered at the instance of either party or his intention of the parties. The various stipulations of a contract shall be interpreted
successors in interest, if the mistake was mutual; otherwise, upon petition of the together, attributing to the doubtful ones that sense which may result from all of
injured party, or his heirs and assigns. them taken jointly. So for instance it is a pacto de retro sale. But upon demand, the
- Prescriptive period for reformation of contracts is 10 years price varies. Anong presumption dyan? The difference in the payment actually
refers to the payment of interest.
Art. 1369. The procedure for the reformation of instrument shall be
governed by rules of court to be promulgated by the Supreme Court. Art. 1375. Words which may have different significations shall be
understood in that which is most in keeping with the nature and object of the
contract.
INTERPRETATION OF CONTRACTS: 1375: If you are appointed as an administrator, it does not involve acts of
dominion or acts of ownership.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 50
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established. (1287)

Art. 1377. The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity.

1377: Very common in contracts of adhesion.

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, 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.
1378: So between a commodatum and donation, which has the least
transmission of rights? Commodatum, why? Because there is no transfer of
ownership in commodatum. Whereas if it were a donation, the property has left the
patrimony of the donor forever.
Usufruct or the donation? Usufruct, because the usufructuary is under
obligation to return the property.

(2nd sentence)
Now, what if the contract is onerous? The doubt shall be resolved in favor of the
greatest reciprocity of interest. So a person giving a ring to the other person, and
the other person gives money. What is the presumption? Pledge, because that
would fall under the greatest reciprocity of interest.
Between pledge or mortgage? If there is doubt, mortgage. Why? Because
there is no transfer of possession, but the creditor still enjoys the interest on the
money that was loaned.
Between antichresis and mortgage? Mortgage parin.

(Last paragraph) Lack of object which makes the contract void because
the intention of the parties cannot be ascertained.

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts.

RESCISSIBLE CONTRACTS

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 51
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 (4) Those which refer to things under litigation if they have been entered into
4 Kinds of Defective Contracts by the defendant without the knowledge and approval of the litigants or of
1. Rescissible – contract w/c is valid until rescinded; extrinsic defect consists competent judicial authority;
of economic lesion or damage. (5) All other contracts specially declared by law to be subject to rescission.
2. Voidable – valid until annulled except if ratified – intrinsic defect as in
vitiated consent. LESION – disparity between price and the value.
3. Unenforceable – cannot be sue upon or enforced unless ratified; no effect - mere inadequacy of price, unless shocking to the conscience is
now but it may be upon ratification. not a sufficient ground for setting aside a sale, if there is no
4. Void (inexistent or illegal) – no effect at all; nor can be ratified or validated. showing that, in the event of a resale, a better price can be
obtained.
Rescissible Contracts are valid contracts. Of the four of defective kinds
of contracts, rescissible contracts occupy the highest lesion. The contracts are valid EFFECT OF CONTRACTS ENTERED IN BEHALF OF WARD
but by reason of economic injury caused either to one of the parties, or to a third
person, the contract has to be rescinded. And unlike 1191, when we speak of (1) If an act ownership, Court approval is required otherwise it is
rescission, there is no breach of faith in the performance but rather the ground of unenforceable whether there is lesion or not.
rescission is more on the economic injury suffered by the parties or a third person. (2) If act of administration
i. With Court approval – valid regardless of lesion
Art. 1380. Contracts validly agreed upon may be rescinded in the cases ii. W/out Court approval – rescissible, if lesion is more than ¼
established by law. (1290)
 contract may be rescinded on the ground of lesion is a partition of inheritance.
Requisites for Rescission
1. There must be at the beginning either a valid or a voidable contract. (3) Accion Pauliana – action to rescind made in fraud of creditors.
2. There is an economic or financial prejudice to someone ( a party or a third Requisites
person) a. There must be a creditor who became such Prior to the contract
3. Requires mutual restitution. sought to be rescinded – (a person asking for a rescission is a
judgment creditor – immaterial)
RESCISSION (1380) RESCISSION (1191) b. There must be an alienation made subsequent to such credit.
 Based on lesion or fraud upon  Based on non-performance or non- c. The party alienating must be in bad faith (he knew that damages
creditors; fulfillment of the obligation. would be caused)
 The action is instituted by  Action may be instituted only by the d. There must be no other remedy for the prejudiced creditor – “inability
either of the parties or by injured party to the contract; to collect to the claims due them.”
third parties;
 Courts cannot grant a period  In some cases, the courts may grant  Action to rescind may be brought even if debtor has not been judicially
or term w/in w/c to comply a term. declared insolvent and even if the creditor has not yet brought an action
 Non-performance by other  Non-performance of the party is to collect.
party is immaterial. important.
(4) THINGS IN LITIGATION (eg. A sues B for recovery of ring – pendente ite, B
 Fictitious contract cannot be rescinded since it is null and void. What rescission sells ring to C – sale to C is rescissible)
presupposes is a valid contract. - Property is in litigation after defendant received service of summons.

Rescission under 1381 is a subsidiary remedy, especially if it is found in 1381: #1 and 2: The guardian with respect to the ward, and the representative
number 3 of 1381. You have to prove before the court that you have exhausted all with respect to the absentee are only given the powers of administration. The
the remedies available to you as a creditor before you are given a right to institute powers mentioned in 1381 are powers of administration and the representative or
an action for rescission the guardian entered into a contract and the object of the contract resulted to the
economic injury of either the ward or the absentee. By more than 1/4 of value of
1380: What are those cases? 1381 provides those cases. the object thereof.

Art. 1381. The following contracts are rescissible: So example, you wanted to enhance the development of the farm, so what
(1) Those which are entered into by guardians whenever the wards whom you did was to buy an equipment, a tractor. But you also have other motives in
they represent suffer lesion by more than one-fourth of the value of the things mind. And you tell now the dealer, "can you increase the price by 30%? You get 5%,
which are the object thereof; I get 25%", so in that case the contract entered into by the administrator can be
(2) Those agreed upon in representation of absentees, if the latter suffer the rescinded because it will result to the economic injury of the ward by more than 1/4
lesion stated in the preceding number; of the value of the object which is the tractor. But, even if it exceeds more than 1/4,
(3) Those undertaken in fraud of creditors when the latter cannot in any other but the administrator obtained judicial authorization, then there can be no
manner collect the claims due them; rescission. Only in cases where there has been no judicial authorization obtained by
the representative or the guardian.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 52
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 But what if the guardian or the representative speaks of getting money in But if there was no collusion between the transferor and the 2nd
order to develop the property. He now mortgaged the property. What kind of a transferee, the good faith of the first transferee will cleanse the transfer, hence
contract is that? Unenforceable contract, beyond his authority. there can no longer be rescission, even if the subsequent transfer is in bad faith.
The good faith of the first transfer cures the bad faith of the second transfer.
Now, if you remember in your Family Code, when can you consider a
person an absentee for purposes of administration? 2 years if without Now, if there is bad faith from the first to the 2nd then definitely there can
administrator, and 5 years if there is an administrator. In those cases there is a be rescission. OR suppose there are several transfer. From the 1st transferee who
need for judicial declaration as an absentee. And normally the spouse is given acted in bad faith, to the second transferee who acted in bad faith, to the third
priority. So the spouse' authority only includes powers of administration, it does not transferee who still acted in bad faith and the fourth transferee who acted in good
include acts of ownership. Because if you co-relate that with the provisions of the faith. Then it ends now to the fourth transferee regardless of the bad faith of the
Family Code and there is a need to encumber or dispose a portion of the property subsequent transferee because it ended with the person who acted in good faith,
of the absentee, what will you do? For purposes of supporting the family? You gain when he received the thing transferred. Then there can be damages, not rescission
judicial authority in a summary proceeding, otherwise that act of the other spouse because there has been good faith of the last transferee. So all the of the
is void but it is a continuing offer between the spouse who did not give consent and transferee will be liable, from the first transferee to the third transferee.
the offeree unless earlier revoked. Pag third person ang magbenta, ano?
Unenforceable. If the representative is a third person, unenforceable. But if it were Now what if the transfer is gratuitous? Do we also follow the same
the spouse, void yan. principle? No. The good faith or bad faith of the transferee is immaterial.
Regardless of the good faith or bad faith of the receiver, the contract has to be
rescinded. Why? There is no consideration given by the transferee, so he cannot be
summary: prejudiced by the rescission.
-This only refers to acts of administration, and not acts of ownership
- if the guardian or representative would exercise acts of ownership Now, In Oria vs. Manikil (?), there are also what we call as the badges of
beyond what is authorize, the act will not be rescissible but rather unenforceable. fraud with respect to alienation in order to defraud creditors. Now what are the
That is acted without or in excess of the authority granted to him. But if the badges of fraud:
representative is the spouse, the act is void. But such act prior to the effectivity of 1. the fact that the consideration of the conveyance is inadequate
the family code is not void, but voidable. So this would only refer to in excess of the 2. a transfer made by the debtor after suit has been begun and while it is pending
authority granted to the present spouse and the encumbrance/alienation refers to against him.
the paraphernal property and the capital(?) property of the absentee. -meaning there is already a case filed against him involving collection or
-But if it were acts of administration, to fall whether in number one or money claim, then the debtor now would start to dispose or encumber the
number two 1381, it must exceed 1/4 of the value of the object of the contract. properties that might answer for the judgment award that may be rendered by the
- But even if it exceeds more than one fourth of the value, but there is court against him.
court approval or judicial authorization, then there can be no rescission. 3. a sale upon credity by an insolvent debtor
-The exception in #1 and 2 is judicial authorization, no rescission if with - So if you are insolvent, why will you sell your property on credit when
court approval, even if the wife or the absentee suffers lesion by more than one you are actually in need of money.
fourth. 4. Evidence of large indebtedness or complete insolvency.
-Your assets cannot meet your obligations. Obligations exceeds assets.
3.) Those undertaken in fraud of creditors when teh latter cannot in any other 5. the transfer of all or nearly all of his property by a debtor, especially when he is
manner collect the claim due them. insolvent or greatly embarrassed financially, especially if the transfer is gratuitous
Now the creditor cannot ask for annulment precisely because he is not a in nature.
party to the contract. He can only ask for rescission. The court cannot just grant 6. the fact that the transger is made between father and son, when there are
rescission since there are certain requisites that must be complied with. In order present any of the above circumstances.
that rescission will lie. It will be found in the cases that i've assigned. -The mere fact that there is a transfer between a parent and a child does
not arise that there is a fraudulent transfer. But if it is a transfer between a father
Now if the transfer is onerous, we have to take into account the good faith and a son and it is accompanied by a sale upon credit by an insolvent debtor (Chua
or bad faith of the transferee. vs. CA), then definitely the presumption will arise that the transfer is to defraud
creditors.
So the exception in number three would now depend on the kind of 7. the failure of the vendee to take exclusive possession of all the property
transfer. If suppose it is an onerous transfer, meaning there is an equivalent
consideration given. So if it is onerous and ther is good faith from the first So those are the badges of fraud. And if any of those will be found, then
transferor to the first transferee (meaning the transferee acted in good faith), then the presumption will arise especially if the transfer is made after incurring the
the creditor who is prejudiced by the transfer could no longer ask for the rescission obligation and it can be shown that the debtor has no other property which can
of the transfer because of the good faith. His only recourse is to ask damages from answer for that obligation except that property which he has transferred, then the
the transferor. Exception: even if the first transferee acted in GF, subsequent presumption will arise that he intended to defraud the creditors when he made that
transferee acted in bad faith, and there is collusion between the transferor and the transfer.
second transfeee, to cleanse the transfer of any defect, they would now use the
first transferee as an intermediary or a bridge, then there can be rescission. 4.) Those which refer to things under litigation if they have been enterd into by the
defendant without the knowledge and approval of the litigants or of competent
judicial authority

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 53
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 In this case, indemnity for damages may be demanded from the person
Example of this would be a claim for reconveyance, meaning you're asking causing the loss. (1295)
for the return of real or movable property, if what is involved is real property and  Mutual restitution
you are the complainant, to protect your right, to prevent the defendant in
possession of the property from alienating it without your knowledge or without the Requisites before Rescission can be Brought
approval of court, then you may go to the office of the Register of Deeds and have
it annotated at the back of the title of the property that this property is under a) Generally, plaintiff must be able to return what has been received by
litigation. And we call that notice of lis pendens. virtue of rescissible contract. Except when it is prejudicial to creditors.
Or if what is involved is personal property, then you pray before the court b) The thing-object of the contract is not in the legal possession of 3 rd
that a writ of attachment be issued or a receiver be appointed over the property persons in good faith.
which is the subject matter of the litigation, in order to place the property in c) There must be no other legal remedy.
custodia legis and to take it away from the possession of the debtor. d) The action must be brought w/in proper prescriptive period.

5.) All other contracts specially declared by law to be subject to rescission

Those referred to in Art. 78 with respect to partiton of the estate of the 1385: So what must be returned? The object of the contract, the fruits,
deceased when one of the heirs suffer lesion by more than 1/4 of the value which the price and the interest. And if you cannot return this then you cannot ask for
he is supposed to receive. Others would be those falling under the Law on Sales, rescission. It can be carried out only when he who demands rescission can return
1524, 1526, and 1529 whatever he will be obliged to return. So just like 1191, there is mutual restitution.
And you cannot ask for rescission unless you can return what you have received
Art. 1382. Payments made in a state of insolvency for obligations to whose from the other party.
fulfillment the debtor could not be compelled at the time they were effected, are
also rescissible. (1292) Neither shall rescission take place when the things which are the object of
hte contract are legally in the possession of third persons who did not act in bad
Requisites faith.
(1) The Debtor-payer must have been insolvent (no judicial declaration In this case, indemnity for damages may be demanded from the person
needed) causing the loss.
(2) Debt was not yet due and demandable.
Now, if the transfer is gratuitous and you acted in good faith, you received
Now another act which can be the subject of rescission can be found in the property believing in good faith that the transfer gratuitously is legal and valid,
1382: obligations not yet due. That is what is meant by to whom fulfillment the are you also obliged to return the thing, the fruits, the price and the interest? If you
debtor could not be compelled at the time they were effected, are also rescissible. are a transferee in good faith, your obligations are to return the thing but not to
So it refers to obligations not yet due, yet despite the fact that the debtor is pay for the fruits already received. Second, if you have incurred necessary
insolvent pays the obligation, so there can also be rescission. And that is why we expenses, then you can ask for reimbursement. Third, you return the thing in the
said that the action for rescission is subsidiary, the person who will be prejudiced condition that it is found. Meaning if there has already been deterioration, then you
by such must show proof before court that he had already exhausted all efforts to return the thing in that state. Unless, if the deterioration is caused by your
recover what is due him, and he failed, and he found out that the debtor has negligence or through fraud after receiving the summons for rescission. But if it
already transferred nearly all his property to answer for the credit that is due him. was due to a fortuitous event and before you have received the summons, then
So it cannot be instituted except when the party suffering damage has no other you will not be liable for the deterioration of the thing which is the subject matter
legal means to obtain reparation for the same. (1383) And he cannot ask for more for rescission.
than what is due him. He can only ask to the extent necessary to cover the
damages caused. (1384) Now, restoration or restoration applies only to what under Art. 1381? #1
and 2 and 3, exception is onerous and good faith, and in number 4, exception you
Art. 1383. The action for rescission is subsidiary; it cannot be instituted are the complainant and you have not annotated it, and the 3rd person who
except when the party suffering damage has no other legal means to obtain acquired it had no constructive knowledge of the litigation.
reparation for the same. (1294)
Art. 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not
Art. 1384. Rescission shall be only to the extent necessary to cover the take place with respect to contracts approved by the courts.
damages caused. (n) 1386: Rescission referred to in Nos. 1 and 3 of 1381 shall not take place
 Partial rescission is possible; benefits only the creditor who has asked for with respect to contracts approved by the courts
rescission.
Art. 1387. All contracts by virtue of which the debtor alienates property by
Art. 1385. Rescission creates the obligation to return the things which were gratuitous title are presumed to have been entered into in fraud of creditors, when
the object of the contract, together with their fruits, and the price with its interest; the donor did not reserve sufficient property to pay all debts contracted before the
consequently, it can be carried out only when he who demands rescission can donation.
return whatever he may be obliged to restore. Alienations by onerous title are also presumed fraudulent when made by
Neither shall rescission take place when the things which are the object of persons against whom some judgment has been issued. The decision or
the contract are legally in the possession of third persons who did not act in bad attachment need not refer to the property alienated, and need not have been
faith. obtained by the party seeking the rescission.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 54
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 In addition to these presumptions, the design to defraud creditors may be Transfers
proved in any other manner recognized by the law of evidence. (1297a)  If transferee is in good faith; good/ bad faith of next transferee is immaterial;
 If transferee is in bad faith; the next transferee is only liable if he is in bad
PRESUMPTIONS OF FRAUD faith.

Gratuitous Alienations - presumed fraudulent: when debtor did not 1388: So in this case, the first acquirer shall be liable, then as we said, he
reserve sufficient property to pay all debts contracted “before” the donation. transfers it to T2 and then to T3, the liability will be only upto T3. He will not be
liable to return, precisely because he has transferred it, but he will be liable for
Onerous Alienations - Presumed fraudulent – when made by persons: damages. Because of the impossibility to return what he is supposed to return to
1. Against whom some judgment has been rendered in any instances (even if the debtor for purposes of answering the liabilities of the debtor.
not final); or
2. Against whom some writ of attachment has been issued. Art. 1389. The action to claim rescission must be commenced within four
years.
BADGES OF FRAUD (circumstances that a certain alienation has been made in fraud For persons under guardianship and for absentees, the period of four
of creditors) years shall not begin until the termination of the former's incapacity, or until the
1. The fact that consideration of the conveyance is fictitious or inadequate; domicile of the latter is known. (1299)
2. A transfer made by a debtor after suit has been began and while it is pending
against him; WHO CAN BRING ACTION?
3. A sale upon credit by an insolvent debtor; 1. The injured party (or defrauded creditor)
4. The transfer of all or nearly all of his property by a debtor, especially when he 2. His heir or successor-in-interest
is insolvent or greatly embarrassed financially; 3. Creditors of (a) and (b) by virtue of Art. 1177 of C.C
5. Evidence of large indebtedness or complete insolvency;
6. The fact that the transfer is made between father and son; 1389 Now when do you institute the action for rescission? Must be
7. The failure of vendee to take exclusive possession of all the property. commenced within four years. For persons under guardianship and for absentees,
the four years shall not begin until the termination of the former's incapacity, or
 A gratuitous conveyance or donation, validly executed is presumed until the domicile of the latter is known.
valid unless it can be shown that at the time of execution of Now suppose it does not fall under numbers 1 and 2. When shall you start
conveyance, a creditor/s is/are adversely affected by said transaction. counting the four year period? That was answered in the case of Cheng vs. CA.
Fraud is not sufficient to rescind; for after all transferee may have been in good
faith and is now in legal possession of the property. VOIDABLE CONTRACTS
1387: Presumptions
Par. 1: It is absolutely necessary when you prepare a deed of donation for Art. 1390. The following contracts are voidable or annullable, even though
the donor to state that he has reserved sufficient property for himself to answer for there may have been no damage to the contracting parties:
his support as well as the obligations that he has incurred prior to this donation. (1) Those where one of the parties is incapable of giving consent to a
Otherwise, if that is not found then the presumption is that you intend to defraud contract;
your creditors. (2) Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
Par. 2: So the first is that, even if it is by onerous title, 1. there is already These contracts are binding, unless they are annulled by a proper action in
an on going case filed against you for collection of money, or 2. there is a writ of court. They are susceptible of ratification. (n)
attachment ( a writ of attachment is issued during the pendency of the case asked
by the complainant upon the court that the defendant is about to dispose nearly all RESCISSION ANNULMENT
his property and which if judgment shall be rendered by the court in favor of the  Basis is lesion (damage) - Basis is vitiated consent or incapacity
complainant, the writ of execution issued by the court by reason of that favorable to consent
judgment will be returned unsatisfied by the sheriff)  Defect is external/extrinsic - Defect is internal/intrinsic (in the
meeting of mind)
Par. 3: Badges of fraud  Action is subsidiary - Action is principal
 A remedy - A sanction
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of  Private interest governs - Public interest governs
creditors, shall indemnify the latter for damages suffered by them on account of  Equity predominates - Law predominates
the alienation, whenever, due to any cause, it should be impossible for him to
 Plaintiff may be party or 3rd - Plaintiff must be a party to the
return them.
person contract
If there are two or more alienations, the first acquirer shall be liable first,
 There is damage - Damage is immaterial
and so on successively. (1298a)
 If plaintiff is indemnified; - Indemnity is not a bar to the action
 “due to any cause” includes fortuitous event. rescission will not prosper
 Rescission is merely a secondary remedy --- only if debtor cannot pay.  Compatible w/ perfect validity - Defect is presupposed
 To prevent rescission, - To prevent annulment, ratification is
ratification is not required. required.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 55
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 And when the action refers to contracts entered into by minors or other
There are only two kinds of voidable contracts, and these can be annulled incapacitated persons, from the time the guardianship ceases. (1301a)
by the court even if there may have been no damage to the contracting parties. So
one would be when one of the parties is incapable of giving consent to a contract, Art. 1392. Ratification extinguishes the action to annul a voidable contract.
2. where any of hte vices of consent is employed in order to obtain the (1309a)
consent by one of the contracting parties.
Requisites of Ratification
These contracts are binding, unless there are annulled by a proper action 1. Contract is voidable
in court. They are susceptible of ratification. And voidable or annullable contracts 2. Person ratifying must know the reason for the contract being voidable
cannot be attacked collaterally. You must institute a direct proceeding asking that (cause is known)
the contract be annulled. What do you mean by collateral attack? You say, "By the 3. Cause must not exist/continue to exist anymore at time of ratification
way, the contract is voidable because one of the parties is a minor". When you say 4. Ratification is made expressly or by an act implying a waiver of action to
direct, you insitute an action asking the court asking the court to annul the contract annul
on the ground of 1 or 2. Or you can state it in the counterclaim if you are a 5. Person ratifying must be the injured party.
defendant.
Art. 1393. Ratification may be effected expressly or tacitly. It is understood
And when will you bring the action for annulment? Four years, and the that there is a tacit ratification if, with knowledge of the reason which renders the
period shall begin contract voidable and such reason having ceased, the person who has a right to
1. If it were intimidation, violence or undue influence, form the time the invoke it should execute an act which necessarily implies an intention to waive his
defect of the consent ceases; right. (1311a)
2. In cases of mistake or fraud, from the time of the discovery of the same;
3. and when the action refers to contracts entered into by minors or other Art. 1394. Ratification may be effected by the guardian of the incapacitated
incapacitated persons, from the time the guardianship ceases. May the guardian person. (n)
bring also an action for annulment? of course. But if it were the minor, then upon
reaching the age of majority, if the incapacitated, then from the time of the Art. 1395. Ratification does not require the conformity of the contracting
cessation of guardianship. party who has no right to bring the action for annulment.

What happens if there is ratification? Ratification cleanses the contract of 1395: Ratification does not require the conformity of the contracting party
its defects, and it shall retroact to the day of the inception of the contract. It has who has no right to bring the action for annulment. Ratification does not require the
retroactive effect, and it cleanses the contract of whatever defects it creates. So it consent of the party who has no right to institute the action for annulment.
becomes a valid contract.
So who can ask for annulment? Those who may be obliged either
Now ratification may be express or tacit. It is understood as tacit if with principally or subsidiarily (guarantors, sureties, mortgagors). However, persons who
knowledge of the reason which renders the contract voidable and such reason are capable cannot allege the incapacity of those with whom they contracted; nor
having ceased, the person who has a right to invoke it should execute an act which can those who exerted intimidation, violence, or undue influence, or employed
necessarily implies an intention to waive his right. Now who has the right to invoke fraud, or caused mistake base their action upon these flaws of the contract. So we
it? May the capacitated person invoke the incapacity of the other party? Or the apply the principle of estoppel with respect to those who are capable, they cannot
person who employed any of the vices of the consent on the ground that the ask for annulment on the ground that the other party is incapacitated. Now the
contract is voidable because he used fraud or there was mistake, and he was the exception there is if there is active misrepresentation on the part of the
one who caused the mistake? No. It can only be brought by the aggrieved incapacitated person. Then the incapacitated person cannot be heard later on
party.Who? The minor, the incapacitated, the person upon whom any of the vices of when asking for annulment that at the time he entered into the contract, he was
consent were employed. incapacitated because there was active misrepresentation. Active
misrepresentation, for example: "You are a minor" and you say "No, i am 18 and I
So when is there tacit ratification? For instance, the minor sells the have a cedula to show you" but the cedula is doctored.
property during minority. Upon reaching the age of majority, instead of asking for
the annulment of the contract, he will now rent the very property. Or he buys the Art. 1396. Ratification cleanses the contract from all its defects from the
property during minority, and instead of having that contract of sale annulled upon moment it was constituted. (1313)
reaching the age of majority, he now donates the property. Or during the minority
the purchase price has not been fully paid, and upon reaching the age of majority, Retroactive Effect of Ratification
he asks for the balance of the purchase price. - Once ratified, annulment based on original defect cannot prosper.
- Rights of innocent 3rd persons must not be prejudiced.
So the guardian may effect the ratification.
Art. 1397. The action for the annulment of contracts may be instituted by all
Art. 1391. The action for annulment shall be brought within four years. who are thereby obliged principally or subsidiarily. However, persons who are
This period shall begin: capable cannot allege the incapacity of those with whom they contracted; nor can
In cases of intimidation, violence or undue influence, from the time the those who exerted intimidation, violence, or undue influence, or employed fraud, or
defect of the consent ceases. caused mistake base their action upon these flaws of the contract. (1302a)
In case of mistake or fraud, from the time of the discovery of the same.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 56
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
WHO MAY ASK FOR ANNULMENT: Now, if the lost is fortuitous, then the action will prosper because the law
o The victim (principal or subsidiary party) says through the fault or fraud. So it were lost through fortuitous event, however
o EXCEPT: If person not obliged principally/ subsidiarily in a the defendant cannot be compelled to restore what he is obliged to restore
contract may exercise an action for nullity if he is prejudiced in his because the essence of mutual restitution becomes untenable in as much as there
rights w/ respect to one of the contracting parties. can be no mutual restitution. But it will prosper if the plaintiff if the person who has
the right to institute the action for annulment offers to pay the value of the thing
- Creditors of victim cannot ask for annulment except when it prejudice that he has lost. Now, what will be the basis of the valuation? The value at the time
them and the debtor has no other property. of the loss of the object. Now the defendant will be obliged to return, but the
plaintiff will only be obliged to pay the value. He is exempt from paying the value
Art. 1398. An obligation having been annulled, the contracting parties shall because the lost is through fortuitous event.
restore to each other the things which have been the subject matter of the
contract, with their fruits, and the price with its interest, except in cases provided Art. 1400. Whenever the person obliged by the decree of annulment to
by law. return the thing can not do so because it has been lost through his fault, he shall
In obligations to render service, the value thereof shall be the basis for return the fruits received and the value of the thing at the time of the loss, with
damages. (1303a) interest from the same date. (1307a)

Effects of Annulment Art. 1401. The action for annulment of contracts shall be extinguished when
1. If contract is not complied w/, parties are excused from the obligation. the thing which is the object thereof is lost through the fraud or fault of the person
2. If contract has already been performed . . . Mutual Restitution of: who has a right to institute the proceedings.
a. The thing with fruits; If the right of action is based upon the incapacity of any one of the contracting
b. The price with interest. parties, the loss of the thing shall not be an obstacle to the success of the action,
unless said loss took place through the fraud or fault of the plaintiff.
 Cannot be availed of by strangers to contract and innocent third
parties cannot be obliged to restore. 1401 2nd paragraph speaks of the action instituted by the incapacitated.
 Husband cannot barter away his wife’s paraphernal properties except So the loss shall not be an obstacle to the success of the action. If you remember
when she consents. also, if it were the incapacitated who lost or squandered the object he is not under
obligation to return it. The law only obliges him to return it if it has redounded to his
1398: If there is annulment, what will be the obligation of the parties, benefit or he has kept the thing. So here, under the 2nd par of 1401, it shall not be
again, mutual restitution. And what shall it consist? The subject matter, the fruits, an obstacle to the action, unless the loss is through the fault or fraud of the
the price with its interest. But this will only apply to contracts falling under Number incapacitated.
2. (employment of any of the vices of consent)
Now what if the defendant loss the object of the contract through a
Art. 1399. When the defect of the contract consists in the incapacity of one fortuitous event and a petition for annulment is filed by the party who has the right
of the parties, the incapacitated person is not obliged to make any restitution to institute the action? Is he still obliged to pay the value, interest and fruits? No.
except insofar as he has been benefited by the thing or price received by him. Because he is in good faith, and the loss is not due to his fault, then he is only
obliged to pay the value no longer the interest.
1399: Contract entered into by the incapacitated (number 1). He is only
obliged to restore in so far as he has been benefited by the thing or price received Art. 1402. As long as one of the contracting parties does not restore what in
by him. In relation to that 1241, if he has kept the thing delivered, or if he has virtue of the decree of annulment he is bound to return, the other cannot be
disposed the thing and the disposal was to his benefit, those are the exception. No compelled to comply with what is incumbent upon him. (1308)
restoration except if he has kept the thing delivered, or if he has disposed of it and  Principle of mutual restitution
was benefited by the disposal. So those are the only instances wherein restoration
will be possible with respect to the incapacitated. 1402: As long as one of the contracting parties doesn not restore what in
virtue of the decree of annulment he is bound to return, the other cannot be
The defendant in an annullable contract would either be the capacitated compelled to comply with what is incumbent upon him. There is that mutual
or the person who employed the vices of the consent. Now, if he were the one who obligation to restore. And if the thing is lost, and the party who lost it has the right
lost the thing which is the object of the contract which is annullable, then he shall to institute the action, and it is lost through fortuitous event, he can still compel if
have the obligation to return the fruits received, the price or the value of the thing he offers to pay the value of the object of what he is bound to return. If the thing is
plus the interest. So those are the object that he would have to return in case lost through the fault or negligence of the defendant or the capacitated or the
annulment is possible but he could no longer do it because it has been lost by fault person who excercised the fraud, then he is obliged to pay the value, plus interest,
(or fraud), then he has to return the value, the price and the interest. plus damages because there was negligence.

Now what happens if the thing is lost and the person obliged to return it is CHAPTER 8
the incapacitated, or the person upon whom any of the vices of consent were UNENFORCEABLE CONTRACTS (n)
employed? 1401 says that if the thing is lost through the fault of the person who  Contracts that cannot be sued upon or enforced unless RATIFIED --- no
has the right to institute the action, then the petition for annulment is extinguished. effect yet.

KINDS OF UNENFORCEABLE CONTRACTS

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 57
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 a) Unauthorized contracts STATUTE OF FRAUDS – laws, statutes or provisions w/c require certain agreements
b) Those that fail to comply with the Statute of Frauds to be in writing before they can be enforced in a judicial action.
c) Those where both parties are incapable of giving consent to a  statutes are applicable only to executory contracts, not to partially or
contract. totally executed or performed contracts.
 It may be invoked in actions for damages for breach of said agreement or
Art. 1403. The following contracts are unenforceable, unless they are for specific performance.
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; UNENFORCEABLE CONTRACT
(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 There are three kinds of unenforceable contracts. Unenforceable contracts
unenforceable by action, unless the same, or some note or memorandum, thereof, cannot be enforced through court action, unless first ratified. The first two are
be in writing, and subscribed by the party charged, or by his agent; evidence, enforceable thru court action. There can be compulsion through specific
therefore, of the agreement cannot be received without the writing, or a secondary performance. Here specific performance will not lie, unless the unenforceable
evidence of its contents: contract is ratified.
(a) An agreement that by its terms is not to be performed within a year from
the making thereof; Now, unenforceable contracts are valid contracts only that because they
(b) A special promise to answer for the debt, default, or miscarriage of are still in the stage where there is no performance yet by either of the parties,
another; there can be no action that can be maintained before the court precisely because
(c) An agreement made in consideration of marriage, other than a mutual the agreement is in its executory stage. That is why you cannot prove the existence
promise to marry; of the contract through parol or oral evidence.
(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 That is why, say A and B would enter into an agreement. A says to B that I
goods and chattels, or the evidences, or some of them, of such things in action or am selling my house for 500K, and B says I will buy your house. That is an oral
pay at the time some part of the purchase money; but when a sale is made by agreement. Valid? Yes, because contracts are valid in whatever form they are
auction and entry is made by the auctioneer in his sales book, at the time of the entered into unless forms are necessary for its validity or enforceable. So this one
sale, of the amount and kind of property sold, terms of sale, price, names of the is a purely executory but valid contract. There is an offer and there is an
purchasers and person on whose account the sale is made, it is a sufficient unqualified acceptance. So there is a perfected contract only that there is no
memorandum; execution yet by the parties. Now suppose A now would change his mind and later
(e) An agreement of the leasing for a longer period than one year, or for the on sell it to C, can B sue A for breach of contract? Can B go to court and compel A
sale of real property or of an interest therein; to perform? In that case oral evidence is not allowed to prove the existence of the
(f) A representation as to the credit of a third person. agreement because this is a purely executory agreement involving the sale of real
(3) Those where both parties are incapable of giving consent to a contract. property.
 Mere lapse of time, no matter how long, is not the ratification required
by law. So this will only apply to purely executory contracts. But suppose B says, I
 W/out ratification, the “agent” assumes personal liability. have 50K, as earnest money, then even if A does not issue a receipt, that
agreement is removed from the ambit of purely executory contracts. There is now
STATUTE OF FRAUDS what we call as partial fulfillment or partial execution. So in that case if A changes
his mind and sells to C, B now can go to court and prove before the court the
Purpose: to prevent fraud; thus some agreement are required to be in writing. agreement. And there can be oral proof as to the agreement because of this partial
 Waivable (defense) payment. It applies only to purely executory contracts, and not to contract which
 Personal defense, cannot be assailed by 3rd persons have been consummated, or partially consummated.
 Does not apply to contracts fully or partially performed.
 Does not apply to contract of loan. So let's say its the other way around. B says sige bilihin ko, and A now got
hold of his diary and tore a piece of paper and writes that B agreed to buy my
2 Ways to Waive This Defense property, located at so and so and covered by TCT# 1111, this is already a
(1) Timely failure to object to presentation of oral evidence to prove the oral sufficient note or memorandum. So in that case, if B changes his mind, A now can
agreement. compel B to pay the purchase price, there is now a perfection of the contract and
(2) Acceptance of benefits under them (as where contract is totally or partially the proof is the note. It does not have to be a public document.
performed)
Unenforceable contracts are not curable by any lapse of time. Unlike
Art. 1403;2 (b) - special promise refers to a subsidiary/collateral promise to pay voidable which prescribe in 4 years, if you do not institute the action, and the lapse
like contract of guaranty. of four years will be deemed a waiver of your right to question the voidability of the
contract. Another would be, in rescissible contract, the prescriptive period is also 4
2(c) – agreements in consideration of marriage – marriage settlement; donations years. But here there is no prescription. It gives rise to a defense against its
propter nuptias enforcement. You cannot enforce it thru court action precisely because it is a purely
executory contract. But not an action to set aside a contract. So you cannot enforce
it through court action, but not an action to set aside. It is a defense against its

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 58
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
enforcement. So in this case, if B sues A, then A can say that it cannot be enforced Now, what if you buy a certain good and the price is less than 500, but if
precisely because there was no note or memorandum. But A cannot ask for the you take all together, the price is more than 500. Must it be in writing to be
setting aside of the agreement. So it a sheild but not a sword. enforceable? How will you now interpret the agreement as such? The determining
factor is the intention of the parties. If the intention is that it should be taken as a
So, what are those contracts which are unenforceable unless ratified? whole, then it must be in writing, subscribed and sworn by the person charged to
(1403) be enforceable.
1. Those entered into in the name of another person by one who has been given no
authority or legal representaion or who has acted beyond his powers. If you e. an agreement for the leasing for a longer period than one yaer,
remember, we discussed this already under 1317. The agent is given the authority of for the sale of real property or of an interest therein; contract of lease for
to rent, but not the authority to sell. Then in that case if he sells, then the authority more than one year must be in writing to be enforceable. Take note of the sale of
is in excess of his authority and in that case the contract entered into by the agent real property that is why in 1358, sale of real property is definitely excluded. As
is unenforceable. How shall the principal ratify it? If he demands for the payment of well as of the interest therein, meaning the real property. When we say interest,
the purchase price. Or he delivers the DOS and asks for the purchase price. But does that include boundaries, partition? (Rosencor case)
before the ratification comes, the buyer cannot compel the principal to execute the
deed of sale precisely because the agent was in excess of his authority. f. A representation to the credit of a third person. An example of this
is suppose Lorelie would like to borrow money from Mr. Tan, and asks Mr. Vicente,
2. Those that do not comply with the Statute of Frauds. The enumeration in kilala mo ba si Lorelie? Ah Oo kilala ko yan. Is she a good payor. Ah yes. You are not
paragraph 2 is exclusive, what is not found there is not considered to be included. vouching for the obligation, you are merely vouching for the credit standing of the
a. an agreement that by its terms is not be be performed within a third person. That is a representation to the credit of a third person.
year from the making thereof. So the agreement must not be performed within
a year from the time of its constitution. It will not apply if part of it will be 3. Those where both parties are incapable of giving consent to a contract.
performed within the year although the completion of it will take five years. No Now what if one of the representatives of the incapacitated person would
part of it shall be performed within the entire 1 year period. Or even if on your part ratify the contract, what would now be the nature of the agreement? Voidable. If
it is to be performed within one year but the other party has already performed his both the guardians would ratify, valid. It becomes valid and enforceable.
part, even partially. That is no longer covered.
Art. 1404. Unauthorized contracts are governed by article 1317 and the
b. A special promise to answer for the debt, default or miscarriage principles of agency in Title X of this Book.
of another. An example of this would be a contract of guaranty. But not a credit
extended to a debtor upon the exclusive promise of the promissor. So if the Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of
promissor says, you sell me your credit, ako ang bahala. That is not within the article 1403, are ratified by the failure to object to the presentation of oral evidence
purview of this paragraph, because that will be what, the exclusive promise of the to prove the same, or by the acceptance of benefit under them.
promissor, but if he guarantees, then it falls within this paragraph.
So 1405 is the exception. The failure to object to the presentation of oral
c. An agreement made n consideration of marriage other than the evidence to prove the unenforceable agreement because it is not in writing. That is
mutual promise to marry. Remember in your Family Code that a breach of action one exception.
to marry is not an actionable wrong. It becomes actionable if the breach is coupled
with seduction. What would fall under letter c would be marriage settlements, the Art. 1406. When a contract is enforceable under the Statute of Frauds, and a
ante-nuptial agreements or prenuptial agreements. If you remember your public document is necessary for its registration in the Registry of Deeds, the
requirements in order that prenuptial agreements will be valid, there are only three: parties may avail themselves of the right under Article 1357.
writing, signed by the parties, and executed by the parties before the celebration of  This right is given only when contract is both valid and enforceable.
the marriage. No where does it provide it be in a public document.
Before the effectivity of the family code, donations propter nuptias are 1406: Remember the case of Martinez vs. CA. The public document is only
also covered by letter c but with the effectivity of the FC, letter C is no longer necessary for the registration with the Registry of Deeds and you can compel the
applicable because now it states that donations propter nuptias must observe the other contracting party to observe the required form, and not for purposes of
forms on ordinary donations. And if you do not comply with the formalities of validity or enforceability. But for purposes of registration.
ordinary donations, it is void.
Art. 1407. In a contract where both parties are incapable of giving consent,
Now there is this case of Domalagan vs. Bolifer, sabi ni Domalagan, kunin express or implied ratification by the parent, or guardian, as the case may be, of
ko yung 500 ko, because hindi sila nagkatuluyan. You read this case and Locquiao one of the contracting parties shall give the contract the same effect as if only one
case. of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of
d. An agreement for the sale of goods, chattels or things in action both contracting parties, the contract shall be validated from the inception.
(those movables not susceptible of possession, such as credit, negotiable
instruments) , at a price not less than five hundred pesos, unless the buyer 1407: I have discussed this already.
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 art of the Art. 1408: Unenforceable contracts cannot be assailed by third persons. Only the
purchase money; parties because the defense of Statute of Fraud is personal to the contracting
parties.

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 59
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 e. Produces no effect
f. No action to declare them void is needed
CHAPTER 9 g. Cannot be ratified.
VOID AND INEXISTENT CONTRACTS
VOID/INEXISTENT CONTRACTS
VOIDABLE VOID
 May be ratified - Cannot be ratified And there are 7 (1409). Take note that it is void or inexistent from the
 Produces effect until annulled - No effect beginning. These contracts cannot be ratified. Neither can the right to set up the
 Defect: incapacity/ vitiated consent - Defect is ordinarily against public defense if illegality be waived. There are certain contracts which are void,
policy remember that void contracts do not produce any legal effect and no obligation
 Valid until annulled - Void from the very beginning; no shall arise from a void contract. Exception to the void contracts that cannot be
action is required to set aside, UNLESS ratified: The contract is void and yet the law says that it can be ratified. Ano yon?
contract has been performed Any encumbrance or disposition of the property by the present/capacitated spouse
 May be cured by prescription - Cannot be cured by prescription without the written consent of the incapacitated or absentee spouse or without
 Defense may be invoked only by - Available to anybody – 3rd persons judicial authority is void. But it shall be a continuing offer between the spouse who
parties or their successors-in-interest provided that their interests are affected did not obtain consent and the third person, and shall be considered as a perfected
contract as soon as the written consent of the incapacitated spouse or absent
 Referred to as relative/ conditional - Absolute nullity.
spouse is obtaine or judicial authorization.
nullity
Another is marriage. What kind? When the authority of the solemnizing
officer is absent, but one or both the contracting parties believed in good faith that
UNENFORCEABLE VOID the solemnizing officer has the authority to do. Believed in good faith lang ang
1. may be ratified - Cannot be ratified kailangan.
2. there is contract but it is - No contract at all
unenforceable; It cannot prescribe but can be defeated by laches. When is there laches?
3. cannot be assailed by third parties Can be assailed by anybody directly When you sleep on your rights. You know that the contract is defective, it is void
-
affected. but you did not institute the appropriate action. Because while it may be true that
void contracts have no legal effect from the very beginning. However, if there has
Art. 1409. The following contracts are inexistent and void from the been performance by one of the contracting parties, there is still a necessity for the
beginning: declaring of the contract void. There is no need to declare nullity by the competent
(1) Those whose cause, object or purpose is contrary to law, morals, good court if the contract is still purely executory, but if there is performance already,
customs, public order or public policy; then you have to go to court and let the court declare that the contract is void.
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction; -- Art. 1410. The action or defense for the declaration of the inexistence of a
(the object could not come into existence because the object may legally be a contract does not prescribe.
future thing)
(4) Those whose object is outside the commerce of men; So the right might be lost by the unreasonable passage of time and not by
(5) Those which contemplate an impossible service; prescription. (1410)
(6) Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained; 1410: The action of defense for the declaration of teh inexistence of a contract
(7) Those expressly prohibited or declared void by law. does not prescribe. But as I said, it can be defeated by laches.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived. 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
Special Classification in pari delicto, they shall have no action against each other, and both shall be
1. Inexistent – essential formalities are not complied with. prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of
2. Illegal/ illicit ones effects or instruments of a crime shall be applicable to the things or the price of the
contract.
Simulate Contracts This rule shall be applicable when only one of the parties is guilty; but the
1. Absolute – void for lack of consent innocent one may claim what he has given, and shall not be bound to comply with
2. Relative – hidden/intended contract is binding his promise. (1305)

CHARATERISTICS OF VOID CONTRACTS Art. 1412. If the act in which the unlawful or forbidden cause consists does
a. Right to set up the defense of illegality cannot be waived; appealable even not constitute a criminal offense, the following rules shall be observed:
if not raised in trial court. (1) When the fault is on the part of both contracting parties, neither may
b. Action/defense for declaration as inexistent does not prescribe. recover what he has given by virtue of the contract, or demand the performance of
c. Not available to third persons whose interests are not directly affected. the other's undertaking;
d. Cannot give rise to a contract

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 60
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
(2) When only one of the contracting parties is at fault, he cannot recover the rate of interest agreed upon is not unconscionable and inequitous which is for
what he has given by reason of the contract, or ask for the fulfillment of what has the court to be determine. Moreover, regardless of whether the rate of interest is
been promised him. The other, who is not at fault, may demand the return of what unconscionable or inequitous, your utang shall subsist. It does not mean that the
he has given without any obligation to comply his promise. obligation is deemed extinguished by reason of the rate of interest imposed by the
1411and 1412: creditor.
1411 referst to a contract that is void because it proceeds from the illegality of the
cause or object and the act constitutes a criminal offense. Either both parties are in Art. 1413. Interest paid in excess of the interest allowed by the usury laws
pari delicto, or only one of the parties is guilty. So what would be the rules if both may be recovered by the debtor, with interest thereon from the date of the
parties are in bad faith or in pari delicto? They shall have no action against each payment.
other and both shall be prosecuted. And if you remember your provisions in the
RPC, what would be the general rule with respect to the effects of a crime or its Art. 1414. When money is paid or property delivered for an illegal purpose,
instruments? It shall be seized by the State. An example of which would be, illegal the contract may be repudiated by one of the parties before the purpose has been
drugs. 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
This rule shall be applicable when only one of the parties is guilty; but the repudiating the contract to recover the money or property.
innocent one may claim what he has given and shall not be bound to comply with  Recovery even if it is in pari delicto provided
his promise. The very common example of this is you deal in drugs. The rule is that  The purpose has not yet been accomplished; or
when both parties are in bad faith, then the law leaves them where they are and  If damage has not been caused to any third person.
they have no cause of action against each other. No action can be maintained in an  Applies also if parties are not equally guilty and where public
illicit transaction. policy would be advanced by allowing the suit for relief.
So take note that 1411 speaks of an act which has an illegal cause and the
act constitutes a criminal offense. 1414: So suppose Miranda would give Querubin 100K to kill Gloria. Now
suppose he later on has a change of heart and tells Quirubin please do not proceed
1412 is also a void contract but the unlawful or forbidden cause does not with our plan. In that case if Miranda would decide to repudiate the plan and has a
constitute a criminal offense but nevertheless it is unlawful or forbidden. When the change of heart, then he can now get back what he has earlier given to Querubin
fault is on the part of both contracting parties, again neither may recover what he before the purpose has been accomplished, and when public interest will be
has given by virtue of the contract, or demand the performance of the other's subserved, then the other can recover what he has given either money or property.
undertaking.
Art. 1415. Where one of the parties to an illegal contract is incapable of
When only one of the contracting parties is at fault, he cannot recover giving consent, the courts may, if the interest of justice so demands allow recovery
what he has given by reason of the contract, or ask for the fulfillment of what has of money or property delivered by the incapacitated person.
been promised by him. The other, who is not at fault, may demand the return of
what he has given without any obligation to comply with his promise. 1415: Suppose a minor buys a gram of shabu. Remember the penalty for
illegal possession of drugs has been repealed and is now made to depend on the
That is the distinction between 1411 and 1412. One is that, 1411 amount of the drugs. But if it were the incapacitated or the minor, then definitely
refers to a contract which has an illegal cause which act proceeds from a criminal the law will treat them differently. If you remember the Liguez case (?), Conchita
offense, whereas 1412, it is unlawful or forbidden but it does not constitute a was allowed to get what was promised to her because according to the court, being
criminal offense. Now what would be an unlawful or forbidden cause but does not a minor, she occupies a privileged position under our law. And if you also notice
constitute a criminal offense? Is a contract involving a sale of land to a foreigner most of the provisions in the RPC regarding minors would always lean to the
valid? No. Is that a criminal offense? No. So if the State will find that out, what protection of the minor
happens? Just like when you are a benificiary of CARP, you are prohibited to sell,
transfer, encumber the property you acquired by reason of the implementation of Art. 1416. When the agreement is not illegal per se but is merely prohibited,
CARP within 10 years, and if you violate that undertaking, the government will take and the prohibition by the law is designated for the protection of the plaintiff, he
back what has been given to you. And if you were the one who bought it, you could may, if public policy is thereby enhanced, recover what he has paid or delivered.
no longer get the money back as a form of punishment because there is really that Contracts:
prohibition. (1) Illegal per se – forbidden for it is against public interest.
(2) And merely prohibited contracts
So take note of 1411 and 1412. - forbidden because of private interest

Now, would that apply to inexistent contracts? Inexistent contracts does - recovery is permitted provided that:
not necessarily mean a void contract, because when we say inexistent, it does not
 contract is not illegal per se
actually exist, it is purely or absolutely simulated contract. Would that fall under
 prohibition is for protection of plaintiff;
1411 and 1412, no. If you have read the case of Modina vs. CA and Guan vs. Ong.
 public policy is enhanced.
That will not fall under here because what has been entered into by the parties are
what we call as absolutely simulated contracts.
1416: Example of this is donation of all the properties of the donor, so it is
not illegal per se, but it is prohibited because one is, it might prejudice the creditor.
Now we no longer have the Usury Law. The laws on usury have been
Second is you may no longer have anything to support your needs when you will be
repealed, and parties can agree with respect to the rate of interest, provided that

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 61
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
giving all your properties. Especially if donations inter vivos. This provision is had already started building the slaughter house, and it demanded for the payment
actually designed for the protection of the donor. And in that case he can recover of what it had constructed. The parties and the City of Cebu arrived at a
what he has delivered. Another example would be homestead lands. compromise agreement, the obligation as demanded by the constructor is about
2.5 million so they arrived at about 1.5 M as a compromise but it was questioned
Art. 1417. When the price of any article or commodity is determined by with respect to the compromise and it went to SC. SC said the compromise
statute, or by authority of law, any person paying any amount in excess of the agreement is void because it is a derivative of a void contract.
maximum price allowed may recover such excess.

1417: This is true in basic necessities. And you have your friendly Title III. - NATURAL OBLIGATIONS
neigborhood variety store. So if your sari-sari store sells you more than what is
permitted by DTI, you can go to DTI and complain. So here is you can recover the
excess of what you have paid. Art. 1423. Obligations are civil or natural. Civil obligations give a right of
action to compel their performance. Natural obligations, not being based on
Art. 1418. When the law fixes, or authorizes the fixing of the maximum positive law but on equity and natural law, do not grant a right of action to enforce
number of hours of labor, and a contract is entered into whereby a laborer their performance, but after voluntary fulfillment by the obligor, they authorize the
undertakes to work longer than the maximum thus fixed, he may demand retention of what has been delivered or rendered by reason thereof. Some natural
additional compensation for service rendered beyond the time limit. obligations are set forth in the following articles.

1418: So when the maximum hours of work is fixed, you can demand for Voluntary Fulfillment – debtor complies with the same even if he knows that he
overtime pay. May overtime pay be waived? It depends. If for service rendered, yes. could not have been legally forced to do so.
But if you are still going to render service. No, that is against the law.  In case of partial voluntary fulfillment, the balance cannot be
recovered since on said balance, no legal obligation has yet been
Art. 1419. When the law sets, or authorizes the setting of a minimum wage created.
for laborers, and a contract is agreed upon by which a laborer accepts a lower
wage, he shall be entitled to recover the deficiency. In case of Prescription
 Cannot be waived;  If prescription is unknown, there can be recovery.
 Any contract in violation of this article shall be invalid.  If it is known, no recovery, for this is a case of natural obligation.

1419: Is minimum wage. Example of Natural Obligation

(1) Obligation to pay interest for use of money, even if not agreed upon in
Art. 1420. In case of a divisible contract, if the illegal terms can be writing.
separated from the legal ones, the latter may be enforced. (2) Duty to support natural or spurious children.
 If indivisible, the whole contract is void. (3) Giving of material and financial assistance to children upon their marriage.
 If divisible, the legal terms may be enforced if they can be separated
from illegal terms.  Moral obligation has no juridical tie; though it may be converted into civil
obligation. (e.g. acknowledgment of a prescribed debt)
1420: In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced. So an example of that would be a NATURAL OBLIGATIONS
pledge, and there is that stipulation that you cannot redeem what has been
pledged and it becomes the property of the creditor, that is a void agreement.So in Four kinds of obligations according to juridical science: moral obligations,
that case, the loan obligation shall remain but the pledge shall be stricken out. these are obligations which are purely based on conscience or what we call as duty.
Natural obligations are obligations not sanctioned by any action (court action). Civil
Art. 1421. The defense of illegality of contract is not available to third obligations which are obligations enforceable in court, except unenforceable
persons whose interests are not directly affected. contracts. Mixed is either civil with moral, or moral with natural.

1421: So third persons can invoke as a defense the illegality of the But natural obligations may be converted into civil obligations by novation
contract for as long as they will be affected by such an illegal contract. or by acknowledgement or confirmation such as that of a prescribed debt.

Art. 1422. A contract which is the direct result of a previous illegal contract, 1423: Obligations are either civil or natural. Civil obligations give a right
is also void and inexistent. of action to compel their performance. Precisely when demand is made and the
other person does not perform what is incumbent upon him, the creditor can
1422: A contract which is the direct result of a previouis illegal contract, is also institute an action to compel the obligor to perform his obligation. But such is not
void and inexistent. Precisely because the previous contract might either be one true in natural obligations because natural obligations are not based on positive
that has an illegal object or an illegal cause or forbidden cause. In short, the law but on equity and natural law and being such they do not grant a right of
contract that will arise from such forbidden contract would also be void and action to enforce their performance, but after voluntary fulfillment by the obligor,
inexistent . Now there is this case Osmena vs. Commission on Audit. Now the City they authorize the retention of what has been delivered and rendered by reason
of Cebu appropriated 5 million for the construction of a modern abatoir but the thereof. So if there has been voluntary performance then the person who has
allocation exceeded the budget. The construction company that won the bidding

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 62
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
performed can no longer recover or demand for the return or the payment of what been written in the complaint and delivers voluntarily he could no longer asks for
he has delivered or rendered. the return of what he has delivered or payment for the service he has rendered.

Art. 1424. When a right to sue upon a civil obligation has lapsed by Art. 1429. When a testate or intestate heir voluntarily pays a debt of the
extinctive prescription, the obligor who voluntarily performs the contract cannot decedent exceeding the value of the property which he received by will or by the
recover what he has delivered or the value of the service he has rendered. law of intestacy from the estate of the deceased, the payment is valid and cannot
be rescinded by the payer.
So what are the different kinds of natural obligations? One of which is
found in 1424. So in all instances the performance must be accompanied by 1429: Remember 1311that the heirs is not liable beyond the value of
voluntary because if there is no voluntariness in the performance, then the person what he has received, so he is not liable for the debts of the decedent which
who perform can demand the restoration or the payment of whatever has been exceeds the amount he received from the decedent.
delivered or rendered. So there is always that voluntariness on the part of the
person who performs the obligation. Here is the civil obligation has already Art. 1430. When a will is declared void because it has not been executed in
prescribed, so a debt has already prescribed because no demand was made within accordance with the formalities required by law, but one of the intestate heirs, after
the period of 10 years and therefore the creditos could no longer sue the debtor for the settlement of the debts of the deceased, pays a legacy in compliance with a
the non payment. But the obligor is conscience stricken, he voluntarily delivers. So clause in the defective will, the payment is effective and irrevocable.
in that case he can no longer demand for the return of what has been delivered.  If the will is void, the legacy is also void and the deceased is
considered to have died without a will.
Art. 1425. When without the knowledge or against the will of the debtor, a
third person pays a debt which the obligor is not legally bound to pay because the 1430: Wills are classified either notarial or holographic. Let us go to
action thereon has prescribed, but the debtor later voluntarily reimburses the third holographic or simple will. It has 3 requirements, one is it must be entirely
person, the obligor cannot recover what he has paid. handwritten by the testator, dated by the testator and signed by the testator. The
requirement dated and signed applies to all pages of the will. If there are
Another example would be 1425. Remember 1236 and 1237. Because the alterations, there must be a signature otherwise the will be void. Now suppose one
action the has already prescribed, but the debtor later voluntarily reimburses the of the pages was not dated. So if the testator dies what will the heirs do, they will
third person, the obligor cannot recover what he has paid. He is not under now file before the court a special proceeding for the probate of the will. Now if one
obligation under the law to reimburse the third person because the payment did of the pages was undated, then the court declares the will void. So in that case, the
not redound to his benefit. stipulations in the will will no longer govern the distribution of the estate of the
deceased. So if what is stated here is a legacy (personal movable property) of a car
Art. 1426. When a minor between eighteen and twenty-one years of age and the will is void, then suppose the heirs are A, B, and C could now ignore the
who has entered into a contract without the consent of the parent or guardian, provisions in the holographic will.
after the annulment of the contract voluntarily returns the whole thing or price
received, notwithstanding the fact the he has not been benefited thereby, there is Despite the fact, the heirs chose to honor the legacy stated in the will.
no right to demand the thing or price thus returned.
A, B, C as heirs of X. X already died, the will of X contains a stipulation in
1426. (15 years old to 17) Remember 1241: the minor is not obliged to favor of D which was a legacy. The court declared the will void because one of the
restore. He is only obliged to restore if he has kept the thing or if it has redounded pages was not signed by the testator. But B and C now chose to honor the legacy, A
to his benefit. did not want to. But he was forced by B and C, so there was force employed upon
him, therefore consent was vitiated. Now A died a year later, the heirs of A, Y and R
Art. 1427. When a minor between eighteen and twenty-one years of age, filed now a petition for rescission because the consent of A was vitiated by force.
who has entered into a contract without the consent of the parent or guardian, Being the heirs of A will the action for annulment prosper? No. Because while it
voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the may be true that they are successors in interest, the vice that was employed upon
obligation, there shall be no right to recover the same from the obligee who has A is personal upon A and moreover, they merely have an inchoate right over the
spent or consumed it in good faith. thing that was delivered to D as a legacy at the time of the delivery. So the action is
1427 no longer applies to 18-21, but by analogy it applies to those below true with A but not with Y and R.
18. Correlate to 1239: delivers a sum of money a sum of money or a fungible thing
in fulfillment of an obligation there shall be no right to recover the same from the Natural obligations will only produce a binding effect if the performance is
obligee who has spent or consumed it in good faith. This was mentioned in 1239, coupled with voluntariness. If there is no voluntarines on the performance, then the
you remember that. person who performed it can demand for the return of whatever he has delivered or
payment for the service he has rendered. Otherwise, in the absence of
Art. 1428. When, after an action to enforce a civil obligation has failed the voluntariness, it ceases to be a natural obligation.
defendant voluntarily performs the obligation, he cannot demand the return of
what he has delivered or the payment of the value of the service he has rendered. Title IV. - ESTOPPEL (n)

1428: This time suppose A files a case against B. But the court decided in  A bar w/c precludes a person from asserting or denying anything
favor of B, therefore the complaint of A against B did not prosper so whatever he contrary to that w/c has been, in contemplation of law, established as
has prayed for in that complaint could no longer be recovered from B since there the truth, either by acts of judicial/legislative officers, by his own
was an unfavorable judgment against A. However, if B decides to honor what has deed…

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 63
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
 around the neighborhood. Now a neighbor asked the person whose dog he was
Art. 1431. Through estoppel an admission or representation is rendered walking. And he said, mine. A week later the same dog bit the neighbor. The
conclusive upon the person making it, and cannot be denied or disproved as neighbor went to the person and asked for reimbursement and the person said it is
against the person relying thereon. not my dog but a friend of mine's. I just walked the dog. Well, that is estoppel. He
cannot assert something different from what he has represented earlier.
Art. 1432. The principles of estoppel are hereby adopted insofar as they are
not in conflict with the provisions of this Code, the Code of Commerce, the Rules of Estoppel by silence or inaction. This is sometimes referred to as estopple
Court and special laws. by standing by or laches. The principle behind that is one who is silent when he
ought to speak cannot be heard later on to speak when he ought to be silent. If
Art. 1433. Estoppel may in pais or by deed. there is a need to rebutt or affirm, then rebutt or affirm it otherwise you will be
(1) Estoppel in Pais (Equitable estoppel) estopped later on from denying or affirming it.
a. By conduct or by acceptance of benefits;
b. By representation or concealment; 1431: So estoppel works against the person representing that he is this
c. By silence; type of person and later on he would say that it was just a joke if the other person
d. By omission; has relied on your statement or representation. Now there is also what we call as
e. By laches (unreasonable delay in suing) estoppel by acquiesence. But estoppel is different from laches which is the failure
to institute the action within the reasonable period of time. It is not based on
(2) Estoppel by Deed ( Technical estoppel) positive law unlike prescription. Estoppel cannot be also predicated on an illegal
a. Proper (written instrument may also be in the form of a act. Meaning the person who has acted on a particular illegal act, cannot be
bond/mortgage) estopped. For example a person who is in need of money because a loved one is
b. Estoppel by judgment as a Court record – when court is in res hospitalized and he goes to a money lender, and the money lender says my rate of
judicata. interest is 20% per month. Despite that, he borrows. And later on when payment is
 Prevents the parties from raising questions that could have been to be made, he would now question the interest. The creditor cannot say that you
put in issue and decided in previous case. are estopped from questionning the interest, because that is predicated in an
illegal act. So estoppel will not lie against the debtor.
Estoppel in Pais
 Arises when one, by his acts, representations or admissions or by his silence Now other kinds of estoppel we have, corporation by estoppel. Like two or
when he ought to speak out, intentionally or thru culpable negligence, induces more persons would represent themselves to a person(stranger) that they are
another to believe certain facts to exist, and such the other rightfully relies and officers of a corporation and by reason of that misrepresentation, the third person
acts on such belief, so that he will be prejudiced if the former is permitted to would enter into a transaction with these people who are in fact not a corporation,
deny the existence of such facts. then those who misrepresented themselves are already estopped from denying
that actually no corporation existed. Then we have judgment by estoppel, (Tijam
4 Elements of Laches vs. Sibunghanoy): One of the parties knew that the court trying the case has no
a. Conduct on the part of defendant, or of one under whom he claims, jurisdiction but despite knowledge he entered into trial. Unfortunately the ruling of
giving rise to the situation of w/c the complaint is made and for w/c the court was not favorable to the person who knew. So later he invoked the fact
the complaint seeks a remedy. that the lower court had no jurisdiction, SC said he was estopped.
b. Delay in asserting the complainant’s rights, the complainant having
had knowledge or notice of defendant’s conduct and having been We also have estopple in pais and estoppel by deed. Estoppel in pais is
afforded an opportunity to institute a suit. what we call as equitable estoppel. In cases of contracts, we know that a check is
c. Lack of knowledge or notice on the part of the defendant that not a legal tender. But if the creditor accepts the check without any objection, he
complainant would assert the right on w/c he bases his suit. cannot be heard later on to say that the check is not a legal tender because of his
d. Injury/ prejudice to defendant in the event relief is accorded to acceptance of the check. Estoppel by deed or technical estoppel. Now a house
complainant, or the suit is not held to be barred. made of strong material is an immovable. But the parties in an agreement may
treat the house as a chattel, meaning movable. If the question arises later on about
Estoppel by Deed the contract, the parties cannot be heard later on to say that the contract is void
 A bar w/c precludes a party to a deed and his privies from asserting as against because the object is not actually a movable but an immovable property. Yan,
the other and his privies any right or title in derogation of deed, or from technical estoppel.
denying the truth of any material fact asserted in it.
 There must be a written contract; Art. 1434. When a person who is not the owner of a thing sells or alienates
 If deed/instrument is null and void, estoppel will not apply. and delivers it, and later the seller or grantor acquires title thereto, such title
 If a person notarizes (and is not a party to), the instrument, estoppel does not passes by operation of law to the buyer or grantee.
apply.  In this kind of estoppel, prejudice is not essential.

ESTOPPEL 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
Estoppel is a bar that precludes a person from denying or asserting grantee.
anything contrary to what he has ascertained earlier. A very common example of  Prejudice is not essential
estoppel would be one that came out of a bar exam. This guy was walking a dog

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 64
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009
Art. 1436. A lessee or a bailee is estopped from asserting title to the thing principle of estoppel. Now estoppel does not lie against the state. Neither does
leased or received, as against the lessor or bailor. prescription lie against the state. That is the general rule.
 Presumption does not apply if alleged tenant does not admit
expressly or impliedly the existence of lease contract (such as when
landlord did not, attach or plead in his complaint the contract of
lease.)

1434: Here, the person is nt the owner of the thing alienated but he sold
it. Later on however he acquired ownership of the thing. he cannot be heard later
on that at the time of the alienation, he was not actually the owner but merely a
representative. 1435 is the exact opposite of 1434. But a tenant will not be heard
to dispute the title of the landlord. And the presumption is conclusive. It is not a
disputable presumption. Neither can a bailee dispute the title of the 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:
(1) There must be fraudulent representation or wrongful concealment of facts
known to the party estopped;
(2) The party precluded must intend that the other should act upon the facts
as misrepresented;
(3) The party misled must have been unaware of the true facts; and
(4) The party defrauded must have acted in accordance with the
misrepresentation.

1437 applies to an immovable property and a third person is misled by a

person with respect to the ownership or real right over the immovable. The latter is
precluded from asserting his legal title or interest provided all the requisites are
present.
1. There must be fraudulent representation or wrongful concealment of facts known
to the party estopped;
2. the part precluded must intend that the other should act upon the facts as
misrepresented;
3. the party misled must have been unaware of the true facts;
4. The party defrauded must have acted in accordance with the misrepresentation.
This applies to an immovable. If it were a movable, you apply 1435 and
1436.

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.
 Estoppel resulting from acceptance of benefits (knowledge of true
facts)

1438 applies to a situation wherein you allow your friend to borrow your
jewelry and pawn. And later on also made use of the portion of the proceeds of the
loan. And later on you had a change of heart and tells the owner of the pawnshop
that you are the owner. that is estoppel. Because there is estoppel in the
acceptance of benefits.

Art. 1439. Estoppel is effective only as between the parties thereto or their
successors in interest.

1439: Estoppel is effective only as between the parties thereto or their

successors in interest. But not to third persons. Third persons can invoke the

Obligations and Contracts: Sources 2006 Lectures of Atty. Lydia Galas (Hann Sevilla), 2007 Case Digests (from Erwin Vicente), Book of Tolentino, RAM Notes 65
Compiled by: Hanniyah Sevilla, Christ May Andolana, Ferlyn Ong for 4 th year Batch 2009