CIVIL LAW REVIEW II > An obligation is a juridical relation whereby a person may demand from

another the observance of a determinative conduct, and in case of

OVERVIEW / COVERAGE breach, may demand satisfaction from the assets of the latter.
Obligations > A legal relation established between one person and another, whereby
> Natural Obligations the latter is bound to the fulfillment of a prestation which the former may
Contracts demand of him. (Manresa)
- Estoppel (Extinctive Prescription)
> Trust, Sale, Barter, Lease Article 2236. The debtor is liable with all his property, present and future, for the
> Credit Transactions fulfillment of his obligations, subject to the exemptions provided by law.
- Loan Deposit Guaranty, Suretyship, Mortgage, Pledge, – All of the property of the debtor in case of breach, may be liable to fulfill
Antichresis the obligation. Except when exempted like family home, library of lawyers
> Partnership Agency, Compromise etc (Rules of Court)
Quasi Contacts
Quasi Delicts Essential Elements / Requisites of an obligation
Damages 1) Active Subject – Creditor / Obligee  who has a right to enforce the obligation
Concurrence and preference of Credits 2) Passive Subject – Debtor / Obligor  one who is to perform
3) Prestation / Object  Subject matter, the conduct to be observed. If delivery of a
OBLIGATIONS car, the prestation is the delivery and not the car. The car is merely the object of the
Concept of an obligation prestation
- Obligare; obligation (Latin) – to bind or to tie. “Ob” securely 4) Vinculum Juris  Efficient Cause/Legal Tie/ Juridical Tie – Source of your
obligation
Before, if did not comply with obligation, creditor can have debtor to be
bound in chains Ex 1: Giving of a thing
Ex 2: Purchase of a cell phone. Bilateral obligation will have reverse roles
Definition: after.
Article 1156. An obligation is a juridical necessity to give, to do or not to do. Q: Can you have an obligation where the active subject is unidentified? Ans: Yes. In
Juridical necessity is that no choice. Can go to court to enforce the negotiable instruments were such was payable to bearer.
obligation.  Civil obligation.
* As compared to Natural Obligation under Art 1423 Q: Can you have an obligation where the passive subject is unidentified? Ans: Yes. In
Article 1423. Obligations are civil or natural. Civil obligations give a Real Rights since enforceable to the whole world. Every person has the obligation to
right of action to compel their performance. Natural obligations, not being based on respect the right.
positive law but on equity and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the obligor, they authorize the Sources of Obligations:
retention of what has been delivered or rendered by reason thereof. Some natural Article 1157. Obligations arise from:
obligations are set forth in the following articles. (1) Law;
Civil Obligation Natural Obligation (2) Contracts;
-Based on Positive Law -Based on Equity and Justice (3) Quasi-contracts;
-Can be enforced by court action -Can not be enforce by court action, (4) Acts or omissions punished by law; and
-Depends exclusively on the good (5) Quasi-delicts.
conscience of the debtor
Law – Obligations ex lege
Article 1158. Obligations derived from law are not presumed. Only those expressly
Natural Obligation (See Article 1423 above) determined in this Code or in special laws are demandable, and shall be regulated
> No right of action to compel performance But If voluntarily done, creditor has Right of by the precepts of the law which establishes them; and as to what has not been
retention foreseen, by the provisions of this Book .
> But if voluntarily fulfilled by the obligor, obligee can retain what has been delivered or > Not presumed, only those expressly determined by law are demandable
rendered by reason thereof Ex: Taxes (since no contract with government), Support (Parents, spouse
descendant)
Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive Case: Pelayo v Lauron – Doctor sued parents for payment of fees.
prescription, the obligor who voluntarily performs the contract cannot recover what Parents in law not fall in the enumeration. Thus parents in law not
he has delivered or the value of the service he has rendered.
obligated.
– Prescription

Article 1425. When without the knowledge or against the will of the debtor, a third
Case: Heung Ben v Bryant – Application of rules in gambling. Winner
person pays a debt which the obligor is not legally bound to pay because the action returns winnings with interest
thereon has prescribed, but the debtor later voluntarily reimburses the third person,
the obligor cannot recover what he has paid. Contracts – Obligations ex contractu
– Debt already prescribed but a third person performed the action. Article 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Article 1428. When, after an action to enforce a civil obligation has failed the > Meeting of Minds…
defendant voluntarily performs the obligation, he cannot demand the return of what > Jus Civili – can not rescind unilaterally; and
he has delivered or the payment of the value of the service he has rendered. > Jus Gentium – Compliance in good faith.
– Did not win a case, the defendant performs the obligation
Quasi Contracts – Obligations ex quasi contractu
Article 1429. When a testate or intestate heir voluntarily pays a debt of the decedent Article 1160. Obligations derived from quasi-contracts shall be subject to the
exceeding the value of the property which he received by will or by the law of provisions of Chapter 1, Title XVII, of this Book.
intestacy from the estate of the deceased, the payment is valid and cannot be > Chapter 1, Title XVIII of NCC
rescinded by the payer. > Lacks the element of consent
– Heirs can not be liable for debts of testator. Only up to the extent of > Negotiorum Gestio / Solutio Indebiti / Payment of Fees of doctor when
inheritance brought to the hospital.
Article 1430. When a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the intestate heirs, after
Delicts – Obligations ex maleficio / ex delicto
the settlement of the debts of the deceased, pays a legacy in compliance with a Article 1161. Civil obligations arising from criminal offenses shall be governed by the
penal laws, subject to the provisions of article 2177, and of the pertinent provisions
clause in the defective will, the payment is effective and irrevocable.
of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book,
– Void will. Estate will be distributed in intestate. But if heirs give the regulating damages.
legacy as stated in the will, can not recover > Penal laws, subject to Article 2177, Chapter 2, Preliminary Title on
Human Relations, & Title XVIII of the NCC
* To demand a determinative conduct and in case of breach may demand satisfaction > Except crimes where no private offended party like treason
Article 1156. An obligation is a juridical necessity to give, to do or not to do.

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 > Restitution (to return), Reparation (pay value) and Indemnification for (3) The civil fruits.
consequential damages (damages incurred) Kinds of Fruits
1) Natural Fruits – No human intervention
Quasi Delicts – Obligations ex delicto / ex quasi maleficio 2) Industrial Fruits -
Article 1162. Obligations derived from quasi-delicts shall be governed by the 3) Civil Fruits – from relationship
provisions of Chapter 2, Title XVII of this Book, and by special laws.
> Chapter 2, Title XVII of the NCC and special laws Article 1497. The thing sold shall be understood as delivered, when it
Landmark Case: Elcano v Hill – definition of quasi delict. is placed in the control and possession of the vendee.
Kinds of Delivery:
*** Can file each but can not collect twice Article 1496. The ownership of the thing sold is acquired
*** They are not mutually exclusive. Thus, you can file quasi delict despite presence of by the vendee from the moment it is delivered to him in
any of the ways specified in articles 1497 to 1501, or in
contract. any other manner signifying an agreement that the
*** Some say enumeration is exclusive by mere implicationCase: Sagrado Orden v possession is transferred from the vendor to the
Napoco vendee.
***But other source is Public Offer. Ex: Tansan in exchange of Coca Cola. Not - Actual Delivery / Tradition
recognized as source but recognized as source in German Civil Code. - Constructive Delivery
***Ultimately the source of obligation is Law.
Forms: Article1498 - 1501
How to know which source? Ans: Law if the law itself established the obligation. If the Article 1498. When the sale is made through a public instrument, the
law simply acknowledges the existence and obligation is generated by an act, then execution thereof shall be equivalent to the delivery of the thing which
any other. Also if the law merely enumerates, then the source may either be the last 4. is the object of the contract, if from the deed the contrary does not
(Manresa) as per written in the Book of Vitug. appear or cannot clearly be inferred.
With regard to movable property, its delivery may also
Ex: Driver hit a pedestrian. What causes of action arises: Contract, quasi delict and be made by the delivery of the keys of the place or depository where it
crime. is stored or kept.
> Subsidiary liability on the part of employer if the driver was convicted and the a) Execution of a public document / legal formalities
accused is insolvent. b) Symbolical tradition / tradition symbolica
> If based on crime, the employer is merely subsidiarily liable.
Article 1499. The delivery of movable property may likewise be made
Liability in Case of Death by the mere consent or agreement of the contracting parties, if the
Landmark Case: People v Bayotas – Liability in case of death. Death terminates thing sold cannot be transferred to the possession of the vendee at
criminal and civil liability. the time of the sale, or if the latter already had it in his possession for
Effect of Acquittal – If reasonable doubt, may still be held liable. If not author of the any other reason.
crime, not liable. c) tradition longa manu  Pointing
d) Traditio brevi manu  not the owner but becomes the
Reservation – Only when you are to file a civil action based on a crime. Other kind no owner
need for reservation
Article 1500. There may also be tradition constitutum possessorium .
Nature and Effect of Obligations e) tradition consitutum possessorium  owner but
Article 1156. An obligation is a juridical necessity to give, to do or not to do. becomes merely the possessor
Article 1501. With respect to incorporeal property, the provisions of the
first paragraph of article 1498 shall govern. In any other case wherein
Real Obligation  Obligation to give said provisions are not applicable, the placing of the titles of
***Depends on the object obligation ownership in the possession of the vendee or the use by the vendee
Specific Real Obligation / determinate real obligation: of his rights, with the vendor's consent, shall be understood as a
Article 1460. A thing is determinate when it is particularly designated delivery.
or physical segregated from all others of the same class. f) quasi delivery or quasi-traditio  for incorporeal rights,
The requisite that a thing be determinate is satisfied if at Deliver the title or evidence of ownership or allow the creditor
the time the contract is entered into, the thing is capable of being to exercise the right (Ex: Share of Stock Certificate)
made determinate without the necessity of a new or further agreement
between the parties.
Definition: particularly designated or physically segregated ***Must be coupled with intent to transfer
from all other of the same class
- The object is particularized Generic Real Obligation / indeterminate real obligation
Definition: __________________________
Primary Obligation: - Genus never perishes
Article 1246. When the obligation consists in the delivery of an
> Deliver the Thing indeterminate or generic thing, whose quality and circumstances have
> Deliver the Fruits not been stated, the creditor cannot demand a thing of superior
Article 1164. The creditor has a right to the fruits of the thing from the quality. Neither can the debtor deliver a thing of inferior quality. The
time the obligation to deliver it arises. However, he shall acquire no purpose of the obligation and other circumstances shall be taken into
real right over it until the same has been delivered to him. consideration.
> Creditor can not demand superior quality; Debtor can not
> Deliver the Accession and Accessories deliver inferior quality
Article 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may
not have been mentioned. Note: In Paras, which is wrong, pertaining to a harvest in a particular land
which he considered as specific, the correct answer herein is that it is still
> Preserving the Thing. General Rule: Diligence of a Good generic.
Father of a family / Bonus Pater Familias
Exception: Positive Personal Obligation  To do (required to do something)
- When the law requires another standard of care
- Stipulation of the parties requires another Negative Personal Obligation  Not to do (To Abstain)
standard of care. Ex: In SLU, prohibited to write in the walls.
Article 1163. Every person obliged to give something is Q: If you are the debtor in the above example can you change the
also obliged to take care of it with the proper diligence of obligation here? Ans: No. However if you read Paragraph 2 Article 1244:
a good father of a family, unless the law or the The debtor of a thing cannot compel the creditor to receive a different
stipulation of the parties requires another standard of one, although the latter may be of the same value as, or more
care. valuable than that which is due.
Article 441. To the owner belongs: In obligations to do or not to do, an act or forbearance
(1) The natural fruits; cannot be substituted by another act or forbearance against the
(2) The industrial fruits; obligee's will.

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 (Payment or performance – you can not change the obligation Remedy:
against the obligee’s will. (Creditor’s consent) Article 1167. If a person obliged to do something fails to do it, the same shall be
- You can not compel the creditor to accept. executed at his cost.
This same rule shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore, it may be decreed that what has been poorly
Effect of Loss: done be undone.
Article 1262. An obligation which consists in the delivery of a determinate thing shall
be extinguished if it should be lost or destroyed without the fault of the debtor, and > Equivalent Performance* Undo what is poorly done
before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous > If Negative Personal Obligation
events, the loss of the thing does not extinguish the obligation, and he shall be Article 1168. When the obligation consists in not doing, and the obligor does what has been
responsible for damages. The same rule applies when the nature of the obligation forbidden him, it shall also be undone at his expense.
requires the assumption of risk. – Can be undone at obligor’s expense.
– Extinguishes the Obligation Ex: Killed another. Can not undo. Only feasible thing to do is to pay
damages
RIGHTS
> Real Right / Jus in Re – against the whole world <Bar 1983> A bound himself to deliver to B a 21 inch 1983 model tv set, and the 13
> Personal Right / Jus ad rem – in a particular individual cubic feet white Westinghouse refrigerator, with motor no WERT-385 which B saw in
Ex: Father and Son. Father June 2009 said he will give the boarding house to son if A’s store and to repair B’s piano. A did none of these things. May the court compel A
graduate from school of law. In March 2013, Son graduated. Q: What can son demand to deliver the TV set and the refrigerator and repair the piano? Why? If not, what relief
from the father? Ans: Rentals can not yet claim from the time the obligation to deliver it may the court grant B? Why?
arise. Ans: The TV can not be subject to specific performance since generic
thing. The remedy is to ask for delivery of the TV. The repair of the piano can not also
Ex 2: On September 1, 2013, A obligated himself to deliver a dog to B On October 1, be compelled by specific performance since purely personal act. The refrigerator may
2013. Dog pregnant and gave birth on October 5, 2013. Dog was delivered on be compelled (Chavez v Gonzales 1970 as to typewriter)
November 5, 2013. Puppy was delivered to A’s Girlfriend.
Ans: Can not file action of recovery since can only file action delivery. See Art 1164 IRREGULARITY OF PERFORMANCE / BREACH OF OBLIGATION
below > For remedies, must determine the type of obligation
Article 1164. The creditor has a right to the fruits of the thing from the time the > Not cumulative. Once chosen the other choices are deemed abandoned.
obligation to deliver it arises. However, he shall acquire no real right over it until the
same has been delivered to him.
– Right of the creditor to the fruits Attributable to the Debtor:
Article 1170. Those who in the performance of their obligations are guilty of fraud,
2 Points of Time negligence, or delay, and those who in any manner contravene the tenor thereof, are
1) Obligation to Deliver Arises  Only a personal right liable for damages.
2) Delivery  If already delivered, a Real right is acquired.
In contract as a general rule, it depends on the perfection and stipulations. Can refer to Damages: Actual, Moral, Nominal, Temperate, Liquidated,
If suspensive condition / suspensive period Exemplary
1) Delay / Default / Mora – Failure to perform an obligation on time which
*** Delivery with intention of transferring ownership. It is the operative act. failure constitutes a breach of the obligation
> Either by judicial or extrajudicial demand
Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions Kinds:
and accessories, even though they may not have been mentioned. a) Mora Solvendi – Debtor
– Delivery of Accessions and Accessories even though they were not mentioned. Mora solvendi ex re – obligation to give
Accessions – Additions to or improvements upon a thing Mora solvendi ex persona – obligation to do
Accessories – Joined to or included with the principal thing for the latter’s
embellishment, better use, or completion. b) Mora Accipiendi – Creditor. If he refuses performance
***Take accessions herein as additions to thing. This is so since it will overlap with without justifiable reason.
fruits. > Debtor here is ready to perform the obligation

Remedies in case of non-performance of the obligation c) Compensatio Morae - No delay here. If both parties in
1) Specific Performance  Compel the debtor to perform the obligation delay, there is no delay
2) Substitute Performance  Another person will perform obligation at the expense of > Delay in both, they will cancel each other out.
the debtor. (Pays the agreed upon and the increase in the price)
3) Equivalent Performance  Simply means damages. Equivalent Value. > Commences from the time the obligor demands, judicially or extra-
judicially the fulfillment of the obligation of the obligee
> If Specific Real Obligation, the remedy is specific performance Case: Philippine Charter Insurance Corporation v Central
Remedy is: Colleges of the Philippines G.R. No. 180631-33 Feb 22 2012
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the
right granted him by article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied
Requisites necessary for a finding of default mora solvendi
with at the expense of the debtor. 1) Obligation is demandable and liquidated
If the obligor delays, or has promised to deliver the same thing to two or more 2) Debtor delays performance
persons who do not have the same interest, he shall be responsible for any fortuitous event until 3) Creditor judicially or extra-judicially requires the debtor’s
he has effected the delivery performance
OR Case: General Milling Corp v Ramos July 20, 2011
Rescission if there is a contract or claim for damages: ***Obligation is Demandable when there is already
Article 1170. Those who in the performance of their obligations are guilty ***Obligation is liquidated when the existence and
of fraud, negligence, or delay, and those who in any manner contravene Case: Raquel Santos v CA – undetermined the amount yet
the tenor thereof, are liable for damages. thus not yet liquidated.
***You can not have substituted performance
As a general Rule: The assertion of a legal or procedural right
> If Generic Real Obligation, specific Performance, substituted performance or Case: Philippine Charter Insurance Corporation v Central
equivalent performance Colleges of the Philippine G.R. No. 180631-33 Feb 22, 2012

> If Positive Personal Obligation (Acto Personalisimo) – you can not have specific When is demand not required:
performance here because it will be violative to constitutional right on Involuntary Article 1169. Those obliged to deliver or to do something incur in delay
servitude. You can not compel a person to do something against his will. from the time the obligee judicially or extrajudicially demands from
- Not all may be prohibited on specific performance. Only Purely personal them the fulfillment of their obligation.
Acts
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 However, the demand by the creditor shall not be enter into a contract which, without them, he would not have agreed
necessary in order that delay may exist: to.
(1) When the obligation or the law expressly so declare; or ***In 1338 and 1334, Fraud comes first before the contracts
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be 3) Negligence
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
> Consists in the omission of that diligence which is required by the nature
(3) When demand would be useless, as when the obligor has of the obligation and corresponds with the circumstances of the persons
rendered it beyond his power to perform. of the time and of the place (Ar. 1173)
In reciprocal obligations, neither party incurs in delay if Article 1173. The fault or negligence of the obligor consists in the
the other does not comply or is not ready to comply in a proper omission of that diligence which is required by the nature of the
manner with what is incumbent upon him. From the moment one of obligation and corresponds with the circumstances of the persons, of
the parties fulfills his obligation, delay by the other begins. the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.
1) When the law or obligation does not require If the law or contract does not state the diligence which
is to be observed in the performance, that which is expected of a good
Ex 1: Taxes father of a family shall be required.
Ex 2:Partnership’s contribution
Ex 3: Contract stated no need for demand. Omission to do something which a reasonable man, guided by those
2) Nature and circumstances of the obligation it appears that considerations which ordinarily regulate the conduct of human affairs,
the designation of the time when the thing is to be delivered would do, or the doing of something which a prudent and reasonable man
or the service is to be rendered was the controlling motive for would do. Case: Ilusorio v CA G.R. 139130 November 27, 2002
the establishment of the contract (Time is of the essence)
3) When demand would be useless Test for determining whether a person is negligent: In the form of a
question: Would a reasonable prudent man act like this in the
> In reciprocal obligation: Neither party incurs in delay if the circumstances. If done otherwise, would show negligence. Case: Picart v
other does not comply or is not ready to comply. Smith 37 Phil 809
Delay begins: From the moment one of the parties fulfills his
obligation. Ex 2: Case: Necesito v Paras – Crack on the steering knuckle.
Case: La Mallorca – Tire blow out
Ex: Promissory Note: Case: Telfast Communication v Castro – Mother died. A child
June 1, 2013 sent a telegram. Never came.
I Juan, of legal age, married, Filipino citizen and a resident of Case: Pasis v Morales – Gunstore. Kept gun in drawer.
Baguio City, promise to pay Maria the amount of sixty
thousand pesos (P60,000.00) on Nov 6, 2013 (Without need Diligence Required:
of demand / otherwise I will be in default) Sgd. Juan. Article 1173. The fault or negligence of the obligor consists in the omission of that
> Words of manifestation the intention that no need of diligence which is required by the nature of the obligation and corresponds with the
demand. circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
Ex 1: Wedding If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father of a family
shall be required.
Ex 2: Case: Barzaga v Court of Appeals – Wife died before
> If law or contract does not state diligence, ordinary diligence. See above
Christmas. Chinese needed to bury the dead before Xmas.
Asked hardware to deliver on a particular day. Hardware
For Banks: Extra-ordinary diligence. Why? Because of the fiduciary nature
failed.
of banking.
Case: MTBC v Centro 180974 June 13, 2012
Liability in case of delay. If the obligation is to pay an amount of money
Case: Canlas v CA – 2 individuals, holding certificates of titles, went to
then the indemnity for damages there being no stipulation to the contrary,
bank. Bank granted without inspection.
shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest Case: Bonrostro v Luna G.R. No. 172346
For Doctors:Case: Reyes v Sisters of Mercy Hospital G.R.130547 Oct 3,
July 24, 2013
2000. According to SC: No need to require them since being doctors are
highly qualified. Only needs reasonable diligence. Reasonable skill and
CB Circular # 799 Effective July 1, 2013 = 6% As legal interest.
competence that a physician in the same field is to observe.
2) Fraud
4) Contravention of the tenor of the obligation (Catch All provision)
> voluntary execution of a wrongful act, or a willful omission, knowing and
> Any illicit task which impairs the strict and faithful fulfillment of the
intending the effects which naturally and necessarily arise from such act
obligation, or every kind of defective performance
or omission.  FIX THIS
Case: Cathay Pacific v CA – (Reverse) Booked for business class but was
upgraded to first class. But they did not want. Airline insisted since filled
Case: International Corporate Bank v Gueco G.R. No. 141968 Feb 12,
out  Any kind of contravening.
2001
Not attributable to the Debtor:
Future Fraud can not be waived Article 1174. Except in cases expressly specified by the law, or when it is otherwise
Article 1171. Responsibility arising from fraud is demandable in all obligations. Any declared by stipulation, or when the nature of the obligation requires the assumption
waiver of an action for future fraud is void. of risk, no person shall be responsible for those events which could not be foreseen,
or which, though foreseen, were inevitable.
Article 1170. Those who in the performance of their obligations are guilty of fraud, 1) Fortuitous Event
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages. >Extraordinary events not foreseeable nor avoidable
 Get distinction Dolo Causante and Dolo Incidente
Ex: Jinky has an original Hermes. Sold. But upon delivery Jinky delivered Elements:
a Class A Hermes. (Fraudulent Transaction) a) Cause unforeseen and unexpected
b) Impossible to foresee
Dolo Causante – Jinky stated that it… (See Art 1338)Annulment of c) The occurrence must render it impossible to fulfill
Contract d) Free from any participation
Article 1334. Mutual error as to the legal effect of an agreement when ***If all are present, General Rule: Not Liable
the real purpose of the parties is frustrated, may vitiate consent. Exceptions: Law so provides

Article 1338. There is fraud when, through insidious words or Examples

machinations of one of the contracting parties, the other is induced to

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 Article 1165 par 3: x x x If the obligor delays, or has promised to 1) If he has money, the money first
deliver the same thing to two or more persons who do not have the 2) Can enforce against non-exempt properties of the debtor (Basis: Article
same interest, he shall be responsible for any fortuitous event until he 2236. The debtor is liable with all his property, present and future, for the fulfillment
has effected the delivery. of his obligations, subject to the exemptions provided by law.
> delay
Exempt Property:
Article 1263. In an obligation to deliver a generic thing, the loss or Rule 39, Section 13. Property exempt from execution. — Except as
destruction of anything of the same kind does not extinguish the otherwise expressly provided by law, the following property, and no
obligation. other, shall be exempt from execution:
> genus (a) The judgment obligor's family home as provided by law, or the
homestead in which he resides, and land necessarily used in
Article 1268. When the debt of a thing certain and determinate connection therewith;
proceeds from a criminal offense, the debtor shall not be exempted (b) Ordinary tools and implements personally used by him in his trade,
from the payment of its price, whatever may be the cause for the loss, employment, or livelihood;
unless the thing having been offered by him to the person who should (c) Three horses, or three cows, or three carabaos, or other beasts of
receive it, the latter refused without justification to accept it. burden, such as the judgment obligor may select necessarily used by
> arising from criminal offenses, him in his ordinary occupation;
(d) His necessary clothing and articles for ordinary personal use,
Article 1979. The depositary is liable for the loss of the thing through a excluding jewelry;
fortuitous event: (e) Household furniture and utensils necessary for housekeeping, and
(1) If it is so stipulated; used for that purpose by the judgment obligor and his family, such as
(2) If he uses the thing without the depositor's permission; the judgment obligor may select, of a value not exceeding one
(3) If he delays its return; hundred thousand pesos;
(4) If he allows others to use it, even though he himself may have (f) Provisions for individual or family use sufficient for four months;
been authorized to use the same. (g) The professional libraries and equipment of judges, lawyers,
> Obligation of depositary when he uses the thing deposited physicians, pharmacists, dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not exceeding three hundred
thousand pesos in value;
Article 1942. The bailee is liable for the loss of the thing, even if it (h) One fishing boat and accessories not exceeding the total value of
should be through a fortuitous event: one hundred thousand pesos owned by a fisherman and by the lawful
(1) If he devotes the thing to any purpose different from that for which use of which he earns his livelihood;
it has been loaned; (i) So much of the salaries, wages, or earnings of the judgment obligor
(2) If he keeps it longer than the period stipulated, or after the for his personal services within the four months preceding the levy as
accomplishment of the use for which the commodatum has been are necessary for the support of his family;
constituted; (j) Lettered gravestones;
(3) If the thing loaned has been delivered with appraisal of its value, (k) Monies, benefits, privileges, or annuities accruing or in any manner
unless there is a stipulation exempting the bailee from responsibility in growing out of any life insurance;
case of a fortuitous event; (l) The right to receive legal support, or money or property obtained as
(4) If he lends or leases the thing to a third person, who is not a such support, or any pension or gratuity from the Government;
member of his household; (m) Properties specially exempted by law.
(5) If, being able to save either the thing borrowed or his own thing, he But no article or species of property mentioned in this
chose to save the latter. section shall be exempt from execution issued upon a judgment
> Obligation of the bailee If the thing is lost and fails to return recovered for its price or upon a judgment of foreclosure of a mortgage
the thing on time. thereon.

2) Declared by stipulation 3) If no property, ACCION SUBROGATORIA. Except those purely

3) Nature of the obligation requires the assumption of risk personal rights
> Differentiate this with ACCION DIRECTA – an action which can be
Case: Sicam v Jorge G.R. No. 159617 Aug 8, 2007 – Negligent in not brought by a creditor against the debtor’s debtor
locking the vault.
4) ACCION PAULIANA  Rescission. Ground is that such is in fraud of
Example creditors.
Case: Philcomsat v Globe Telecom –Globe had contract with Philcomsat > Last Resort
because of American bases in the Phil. Senate did not concur with treaty
with US bases. Because of that globe has no business anymore. Transmissibility of Rights
Philcomsat sued them. SC held the non-concurrence of senate is Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if
fortuitous event. there has been no stipulation to the contrary .
General Rule: All rights acquired by virtue of an obligation are
Case: Phil Holdings v Ley construction – shortage in Philippines cement transmissible
thus failure to complete the building. Exception:
>Prohibited by law – Ex: Partnership
Not fortuitous events: >Prohibited by Stipulation
Case: Globus Megaworld – fluctuations in the stock exchange. SC held >Purely Personal
such happen everyday.
Article 1175. Usurious transactions shall be governed by special laws.
Case: Tanguilig v CA – Construction of windmill. Presumption is that the > No usurious transactions but it does not mean that a person may impose iniquitous,
wind must be strong. A strong wind destroyed the windmill. unconscionable.
> CB Circular 905 Series of 1982 Effective January 1, 1983 – Before there was a
Effect of Fortuitous event with obligation with a period: ceiling. It suspended the application of the usury law since the circular is inferior to a
Case: Victoria’s Planters Association v Victors Milling Co. G.R. L 6648 July 25, 1955 - law.
Period of 30 Years. 1919 to 1949. World war II came in. Was not able to deliver for 6 Jurisprudence: a 24% interest is not yet unconscionable.
years. ictoria millings said extend for 6 years since failed to deliver. SC held: Debtor is Effect of Usury Law – renders the interest agreed upon as void
excused in complying in the interim. It doesn’t mean that if with period, should extend. Case: Angel Jose Warehousing v Chelda – The obligation is divisible obligation. Thus,
it is only the interest which will be rendered void. If voided, apply the legal rate of
interest.
OTHER PROVISIONS:
Enforcement of creditor’s remedies Presumptions
Article 1177. The creditors, after having pursued the property in possession of the Article 1176. The receipt of the principal by the creditor without reservation with respect to the
debtor to satisfy their claims, may exercise all the rights and bring all the actions of interest, shall give rise to the presumption that said interest has been paid.
the latter for the same purpose, save those which are inherent in his person; they The receipt of a later installment of a debt without reservation as to prior
may also impugn the acts which the debtor may have done to defraud them. installments, shall likewise raise the presumption that such installments have been paid.
***Remedies here are successive. Must be in order

5
> Receipt of principal without reservations as to interest  Presumption is interest a) Debtor promises to pay as soon as he has the means to pay  Period
had been paid b) If debtor promises to pay when he like  Potestative
> Receipt of later installment without reservation as prior installment  Presumption: c) If the debtor promises to pay when he becomes a lawyer  Mixed
Prior installment has been paid. d) If debtor promises to pay if his son with cancer does not die within 1 year.
*These are disputable presumptions – they can be negated by competent evidence (Article 1185. The condition that some event will not happen at a determinate time
shall render the obligation effective from the moment the time indicated has elapsed,
KINDS OF OBLIGATIONS: or if it has become evident that the event cannot occur.
1) According to demandability If no time has been fixed, the condition shall be deemed fulfilled at
such time as may have probably been contemplated, bearing in mind the nature of
> Pure – One whose efectivity or extinguishment the obligation.
Case: HSBC v Roquesta – Negative Condition which must not happen in a certain period)
…Until Fully Paid. SC held that it is a pure obligation. Not one with a
period. Bar Question: 2 individuals came to you to ask obligation due 1)to pay “when I feel
like it” 2) to give “when I feel like it”
> Conditional In the 1st, there is a pre-existing obligation, time can therefore be fixed by the courts.
> With a Term or Period
Obligations with a Suspensive Condition
Condition vis-à-vis Period > Efficacy / Demandablity is suspended until the happening of the condition
Future event uncertain to happen Future Time Certain to Happen > Suspensive condition / Condition precedent / Condition antecedent
Ex: Contract to Sell  Anchored on the full payment of the consideration
Ex: Debtor will pay when means permit himself to do so. Period  Article 1180. When
the debtor binds himself to pay when his means permit him to do so, the obligation shall be Article 1184. The condition that some event happen at a determinate time shall extinguish the
deemed to be one with a period, subject to the provisions of article 1197. obligation as soon as the time expires or if it has become indubitable that the event will not take
Then go to place.
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can – Combination of condition and a period
be inferred that a period was intended, the courts may fix the duration thereof. Ex: Give ipad air if Jennifer Aniston gives birth within 2 years. If 2 years arrived,
The courts shall also fix the duration of the period when it depends upon the will of obligation will never happen.
the debtor. Ex: Likewise uterus was removed, even if period did not yet elapsed
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the courts, the Article 1185. The condition that some event will not happen at a determinate time shall render the
period cannot be changed by them. obligation effective from the moment the time indicated has elapsed, or if it has become evident
> Courts will fix the period then comply with the period set by the court that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as may
* Past events which are unknown to the parties. have probably been contemplated, bearing in mind the nature of the obligation.
Example: Ms. Universe Pageant. Creditor and debtor at that time was at Tacloban - (Reverse) Delivery upon not happening
(Typhoon Victim)  Knowledge of a party as to the event
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
Conditional Obligations fulfillment.
> One whose effectivity is subordinated to the fulfillment or non-fulfillment of a future  Doctrine of Constructive Compliance
obligation. Requisites:
As to Effect: - The condition is suspensive
-Suspensive, - The obligor actually prevents the fulfillment of the obligation
-Resolutory - He acts voluntarily
As to Cause / Origin: Case: Lim v DBP July 1, 2013
-Potestative  Depends on the debtor. Void since
lacks a juridical tie. Can not compel the debtor Case: Bontrostro v Luna July 24, 2013
-Casual  On chance or third person 1) Intent to prevent the fulfillment of the condition
Mixed  2) There must be actual prevention of compliance
As to Divisibility: 3) It must be the debtor who prevented the happening of the event
-Divisible
-Indivisible Recap
As to Mode: According to Demandability
-Positive -Pure,
-Negative -Conditional
As to Possibility: -With a term
-Possible
-Impossible (As not written) According to plurality of objects
(If positive impossible = Void) -Single
(If negative impossible=considered as not imposed -Alternative
Becomes pure obligation) -Facultative

2) According to the Plurality of Objects According to Plurality of subjects

-Single -Joint
-Alternative -Solidary
-Facultative  Debtor has the option to perform another obligation
-Conjunctive  Need to perform all According to performance
3) According to Plurality of Subjects -Divisible
-Joint  To each his own -Indivisible
-Solidary One for all and all for one According to Sanctions
4) According to Performance -Simple
-Divisible -With a penal Clause
-Indivisible
5) According to Sanctions Pure obligation = without a period or term.
-Simple Conditional Obligation – one whose consequences are subject to a condition
-With a penal Clause As to Effect:
-Suspensive,
Bar Question: Are the following obligations valid, why, and if they are valid, when is the -Resolutory
obligation demandable in each As to Cause / Origin:

6
 -Potestative  Depends on the debtor. Void since ***Article 1189 on loss, deterioration, or improvement will apply to whoever has the
lacks a juridical tie. Can not compel the debtor duty to return.
-Casual  On chance or third person ***The courts are given power to determine the retroactitivty of the fulfillment.
Mixed 
As to Divisibility: Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
-Divisible obligors should not comply with what is incumbent upon him.
-Indivisible The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission, even after he
As to Mode: has chosen fulfillment, if the latter should become impossible.
-Positive The court shall decree the rescission claimed, unless there be just cause authorizing
-Negative the fixing of a period.
As to Possibility: This is understood to be without prejudice to the rights of third persons who have
-Possible acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
-Impossible (As not written) > Reciprocal Obligations  Arise from the same cause. SImultaneous
(If positive impossible = Void) Ex: Contract of Sale.
(If negative impossible=considered as not imposed
Becomes pure obligation) Remedies in case of Breach:
a) Specific Performance + Damages
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its b) “Resolution” proper term (rescission) + Damages
fulfillment. > Once availed of one, can not choose the other. Except when the one chosen
Doctrine of Constructive Compliance becomes impossible.
Requisites:
- The condition is suspensive
- The obligor actually prevents the fulfillment of the obligation
Rescission vis-à-vis Resolution
- He acts voluntarily You can not avail of it if slight breach.
Case: Lim v DBP July 1, 2013 > It must be substantial breach
Remedy of Resolution:
Case: Bontrostro v Luna July 24, 2013 1) Right to resolve is in inherent in
1) Intent to prevent the fulfillment of the condition reciprocal obligation
2) There must be actual prevention of compliance 2) Proof of substantial breach is a pre-
3) It must be the debtor who prevented the happening of the event requisite for resolution
3) Mutual restitution results from
Suspensive Condition: resolution
Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions ***These may be availed of despite the
for the preservation of his right. absence of stipulation.
The debtor may recover what during the same time he has paid by mistake in case
of a suspensive condition > To rescind a contract, judicial resort is a must. The party can not take the law into his
Creditor: To bring (more proper word here is “take”) appropriate action to protect his own hands.
rights > If stipulated, mere notice of rescission is necessary (Provisional)
For Debtor: Debtor paid by mistake  Can recover what has been delivered (solutio
indebiti) Q: Can you avail of rescission when specific performance is available?
Ans: Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the
Article 1189. When the conditions have been imposed with the intention of suspending the efficacy party suffering damage has no other legal means to obtain reparation for the same.
of an obligation to give, the following rules shall be observed in case of the improvement, loss or  This provides that rescission is subsidiary (Last resort). Such is not
deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; applicable to Article 1191 (See Above). Thus, can avail of it. Article 1191
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is is Resolution
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such
a way that its existence is unknown or it cannot be recovered; 1381 and 1383 is Rescission.
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the Article 1381. The following contracts are rescissible:
creditor; (1) Those which are entered into by guardians whenever the wards whom they represent suffer
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission lesion by more than one-fourth of the value of the things which are the object thereof;
of the obligation and its fulfillment, with indemnity for damages in either case; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of preceding number;
the creditor; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to claims due them;
the usufructuary. (4) Those which refer to things under litigation if they have been entered into by the defendant
If to deliver A– Loss of the thing / improvement without the knowledge and approval of the litigants or of competent judicial authority;
> If no fault of the debtor, the obligation is extinguished (5) All other contracts specially declared by law to be subject to rescission.
> If fault, there is liability of damage. and
Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
Deterioration
> If no fault, borne by the creditor Article 1192. In case both parties have committed a breach of the obligation, the liability of the first
> If fault, rescission or performances infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties
first violated the contract, the same shall be deemed extinguished, and each shall bear his own
Improvement damages.
Expense of Creditor: Nature, time: inure to the creditor > First infractor can be determined Liability shall be equitably reduced
Expense of Debtor: Rights of the usufructuary > If can not be determined who  Obligation shall be deemed extinguished and they
> Right of reimbursement for necessary expenses will bear their own damages.

***Debtor entitled to the fruits until the happening of the suspensive condition. Obligation with a period:
> The effects of which will retroact to the time of perfection. > One whose consequences are subjected in one way or another to the arrival or
expiration of a period or term
Resolutory Condition: Article 1198. The debtor shall lose every right to make use of the period:
Effects of Fulfillment: (1) When after the obligation has been contracted, he becomes insolvent, unless he
-Obligation is extinguished gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he
-Mutual Restitution has promised;
Except: Intention is otherwise (3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;

7
 (4) When the debtor violates any undertaking, in consideration of which the creditor
agreed to the period; If substitution was made already,
After Substitution 
(5) When the debtor attempts to abscond. determine the cause, then you will know what rule
Suspensive ex die to apply.
Resolutory In diem Alternative Facultative
As to number of Compliance in 1 One but another may be
According to Source: Prestations substitute
Legal / As to Nullity Nullity of 1 will not Nullity of the principal will
Conventional / invalidate the obligation invalidate the obligation
Voluntary / Right to Choose Debtor / Creditor Debtor
Contractual / As to Effect of Loss Article 1203. If through the Article 1206. When only one
Judicial (ex: Construction contracts when a period of a party creditor's acts the debtor prestation has been agreed
is intended, period dependent on debtor) cannot make a choice upon, but the obligor may
according to the terms of the render another in substitution,
obligation, the latter may the obligation is called
According to definiteness rescind the contract with facultative.
-Definite damages. The loss or deterioration of
-Indefinite- Example:Death, “Until the War ends” the thing intended as a
substitute, through the
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable negligence of the obligor,
only when that day comes. does not render him liable.
Obligations with a resolutory period take effect at once, but terminate upon arrival of But once the substitution has
the day certain. been made, the obligor is
A day certain is understood to be that which must necessarily come, although it may liable for the loss of the
not be known when. substitute on account of his
If the uncertainty consists in whether the day will come or not, the obligation is delay, negligence or fraud.
conditional, and it shall be regulated by the rules of the preceding Section. Article 1204. The creditor
shall have a right to indemnity
Article 1196. Whenever in an obligation a period is designated, it is presumed to have been for damages when, through
established for the benefit of both the creditor and the debtor, unless from the tenor of the same or the fault of the debtor, all the
other circumstances it should appear that the period has been established in favor of one or of the things which are alternatively
other. the object of the obligation
> Obligations with a period …For the benefit of both parties have been lost, or the
compliance of the obligation
has become impossible.
OBLIGATIONS WITH A SUSPENSIVE TERM
The indemnity shall be fixed
Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day
taking as a basis the value of
certain, the rules in article 1189 shall be observed.
the last thing which
> Apply Article 1189 in case of loss, deterioration or improvement of the thing before disappeared, or that of the
the arrival of the term service which last became
impossible.
Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware Damages other than the
of the period or believing that the obligation has become due and demandable, may be recovered, value of the last thing or
with the fruits and interests. service may also be awarded.
> Advanced payment or Delivery / Mistaken. See Article1205 on the
> Premature Payment or Delivery left

ALTERNATIVE OBLIGATIONS: ACCORDING TO PLURALITY OF SUBJECTS:

Article1199. A person alternatively bound by different prestations shall completely perform one of Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding
them. article refers the contrary does not appear, the credit or debt shall be presumed to be divided into
The creditor cannot be compelled to receive part of one and part of the other as many shares as there are creditors or debtors, the credits or debts being considered distinct
undertaking. from one another, subject to the Rules of Court governing the multiplicity of suits.
> When chosen, the obligation becomes simple Joint Obligation – to be performed proportionately by debtors or demanded
Effect of Loss proportionately by creditors
Debtors Fault Perform others. If all lost, liable for the > One in which each of the debtors (Passive Joint) is liable only for a proportionate
last item part of the debt or each of the creditors(Active Joint) is entitled only to a proportionate
3rd person’s fault Perform others. If all lost, extinguished part of the credit.
> Each obligation is distinct and separate. Not liable for the infraction
Right to choose is w/ creditor: committed by the other
Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease
to be alternative from the day when the selection has been communicated to the debtor. Solidary Obligation
Until then the responsibility of the debtor shall be governed by the following rules: Each debtor can be compelled to do the entire obligation. Each Creditor can demand
(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by
delivering that which the creditor should choose from among the remainder, or that which remains the entire obligation
if only one subsists; > One in which each debtor (passive solidary) is liable for the entire obligation or each
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any creditor (active solidary) is entitled to demand the whole obligation.
of those subsisting, or the price of that which, through the fault of the former, has disappeared, with > Can not assign a right to a third person.
a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon Q: Is Passive Solidary the same as Suretyship? Ans: Different. Passive Solidary
the price of any one of them, also with indemnity for damages. paying your obligation and the obligation of others, whereas in suretyship, paying other
The same rules shall be applied to obligations to do or not to do in case one, some
or all of the prestations should become impossible. persons. Likewise, Passive solidary can claim only deducting your share, whereas
suretyship can recover the entire amount.
***Determine the who has the right to choose. Then how it was lost
(Fortuitous or By Fault) ***For Solidary Obligation, there must be an express statement that it is solidary. The
presumption is for Joint.
FACULTATIVE OBLIGATIONS: General Rule (Presumption): Joint
* Principal was lost(no fault) prior to substitution  The obligation is extinguished. Exception: Obligations are solidary when
* If lost was due to the fault of the debtor, damages may be claimed. 1) Obligation expressly so states (conventional solidarity)
>>>> Determine if substitution has been made. Words to identify: In solidum, solidarily….
2) Law requires (legal solidarity)
3) Nature of the obligation requires solidarity (real solidarity)

8
 Penal clause: Accessory undertaking to insure the performance of the
Ex 1: A, B, and C bound themselves to deliver a car to X. If C does not want to deliver, obligation and to assume greater liability in case of breach of the
may X compel? Ans: No. The law provides that if the thing is indivisible, all parties obligation.
must comply with his obligation. Creditor can enforce only by suing all of them. (Art.
1224). Obligation converted into one for damages. Proportionately as to amount but > Subsidiary / Alternative – Can collect it if breach. Can not collect if no
the one who refused may be held for damages. breach
> Exclusive – Refers to the fact that if collect the penalty, can not collect
Ex 2: X, Y, and Z bound themselves solidarily to pay P30,000 to A. None paid. A sued any fees anymore
X for payment. The latter filed a motion to dismiss due to failure to implead Y and Z. Exceptions
* The motion to dismiss must be denied. X is representing the others 1) When there is a stipulation
being solidary 2) Debtor claims for penalty
3) IF there has been fraud in the performance of the obligation
Q: What if X pays P10,000 only. Can he ask for reimbursement to Y and
Z? Ans: No he can not ask. Republic Glass v Qua 2004. SC held: A Ex: Obligation: Pay P100,000 on November 22, 2013 without need for demand.
debtor who paid can ask for reimbursement only if he paid in excess of his Penalty clause 10% per month. Can you demand penalty on November 21? Ans: No.
share. Can demand only if there is a breach in the obligation.Subsidiary and Alternative

Q: In what instance can you not ask for reimbursement Q: Can the obligor pay the penalty clause instead of the principal? Ans : As rule, can
Ans: Article 1218: 1) Obligation Prescribed, Obligation became Illegal not choose. Unless there is a stipulation to the contrary.
Q: If the creditor opt to claim for other damages. Ans: Article 1227. The debtor cannot
<ALWAYS ASKED IN BAR> Joey, Jovy and Jojo are solidary debtors under a loan exempt himself from the performance of the obligation by paying the penalty, save in the case
obligation of P300,000 which has fallen due. The creditor has, however, condoned where this right has been expressly reserved for him. Neither can the creditor demand the
Jojo’s entire share in the debt. Since Jovy has become insolvent the creditor makes a fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right
has been clearly granted him. However, if after the creditor has decided to require the fulfillment of
demand on Joey to pay the debt (1998) the obligation, the performance thereof should become impossible without his fault, the penalty
Q1: How much if any may joey compelled to pay  All may be may be enforced.
Q2: To what extent if at al can Jojo be compeled by joey to contribute to >Penalty is exclusive and can not collect other. Except if there is a stipulation to the
such payment. contrary
Ans: Article 1219. The remission made by the creditor of the share which affects one of the
solidary debtors does not release the latter from his responsibility towards the co-debtors, in case Power of the Courts:
the debt had been totally paid by anyone of them before the remission was effected.
> Temper the award if inequitous and unconscionable
-No effect since…
Substantial Performance
Q: X, Y and Z bound themselves solidarily to pay P300,000 to A, B, and C (Solidary
Creditors) Ans: May demand from any.
EXTINGUISHMENT OF OBLIGATIONS
Q: To whom will pay? Ans: To anyone unless when a demand has been made. In
Grounds:
which case, to the one who demanded. Article 1231. Obligations are extinguished:
(1) By payment or performance;
Q: If Z was able to obtain a remission of the entire obligation from C? (2) By the loss of the thing due;
Ans: ______________________________________ (3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
Q 1: A, B, and C bound themselves to deliver a car to X. Car was lost thru fortuitous (5) By compensation;
event. (6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
Ans: Obligation is extinguished resolutory condition, and prescription, are governed elsewhere in this Code.
> Not exclusive
Q: Thru the fault of C. Can X hold A and B liable? Ans: Yes. Since they are solidary
debtors. A and B will not be liable for consequential damages. C will be liable for 1) PAYMENT OR PERFORMANCE
consequential damages Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
OBLIGATIONS ACCORDING TO PERFORMANCE > Payments not only the delivery of money but also the performance in
Divisible Obligation – Obligation which the performance of which can be done any other manner of an obligation.  Not limited to delivery of money
separately. Susceptible of partial - It may be performance
1) Execution of a certain number of days of work
2) Accomplishment of work by metrical units Payment of debts in money:
3) Analogous things which by their nature are susceptible of partial Article 1249. The payment of debts in money shall be made in the currency
performance. stipulated, and if it is not possible to deliver such currency, then in the currency
Ex: Construction Project which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment only when they
Indivisible – Must be performed in one act have been cashed, or when through the fault of the creditor they have been
When: impaired.
1) When provided by Law In the meantime, the action derived from the original obligation shall
2) Stipulated by the parties be held in the abeyance.
3) Give a definite thing / obligation not susceptible of partial performance Rule as to currency:
Ex: Security Guard – Can not compress time > Follow first the stipulation
> If not possible to deliver in currency stipulated or if no stipulation, legal
Q: When is a thing divisible? Ans: physically divisible or the service not susceptible to tender in the Philippines.
partial performance. That when you divide it will render the thing still the same as R.A. 529 – prohibits payment
when delivered in one instance. R.A. 8183 –repealed R.A.529
> Delivery of promissory notes payable to order, or bills of exchange or
OBLIGATIONS WITH A PENAL CLAUSE other mercantile documents produce the effect of payment:
Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for > If cashed
damages and the payment of interests in case of noncompliance, if there is no stipulation to the Case: Vitarich v Locsin
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
Payment of debts in money
provisions of this Code. - Coins and bills.
-Simple If coins see Central Bank Act for coin limits
-Obligation with a penal clause R.A. 7653 and Circular No 537 Series of 2006
1,5,10 = legal tender up to 1000
9
 the debtor may effect the
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated payment of the former
should supervene, the value of the currency at the time of the establishment of the without waiting for the
obligation shall be the basis of payment, unless there is an agreement to the liquidation of the latter.
contrary. Exceptions: Article 1248. Unless there
** Used during the World War 2 1) Stipulation is an express stipulation to
2) Debt is in part that effect, the creditor
Q: When is it extinguished? Ans: Article 1232 (See Above) cannot be compelled
liquidated and in partially to receive the
part unliquidated prestations in which the
Requisites: 3) Divisible obligation consists. Neither
Obligation may the debtor be required
A. Prestation a) Identity > If generic Real Article 1246. When the
obligation consists in the 4) Joint Obligation to make partial payments.
obligation – deliver However, when the debt is
delivery of an indeterminate 5) Different
something from in part liquidated and in
or generic thing, whose prestations are
the genus quality and circumstances part unliquidated, the
subject to different creditor may demand and
have not been stated, the terms and
creditor cannot demand a the debtor may effect the
conditions payment of the former
thing of superior quality.
Neither can the debtor without waiting for the
deliver a thing of inferior liquidation of the latter.
quality. The purpose of the 6) Several Article 2065. Should there
obligation and other guarantors who be several guarantors of
circumstances shall be demand the right only one debtor and for the
taken into consideration. same debt, the obligation
of division to answer for the same is
> Specific Real Article 1244. The debtor of
a thing cannot compel the divided among all. The
Obligation creditor cannot claim from
creditor to receive a
different one, although the the guarantors except the
latter may be of the same shares which they are
value as, or more valuable respectively bound to pay,
than that which is due. unless solidarity has been
In obligations to do or expressly stipulated.
not to do, an act or The benefit of division
forbearance cannot be against the co-guarantors
substituted by another act ceases in the same cases
or forbearance against the and for the same reasons
obligee's will. as the benefit of excussion
See Article 1244 above against the principal
> Positive debtor.
Personal 7) Impossibility or
Obligation extreme difficulty
> Negative See Article 1244 above
of a single
Personal performance
Obligation B. Parties a) Payor / > Must have Article 1239. In obligations
Exception: Dacion en Pago and Novation Obligor / Debtor capacity to make to give, payment made by
b) Completeness / a debt shall not be Article 1233. A debt shall one who does not have the
payment
Integrity understood to not be understood to have free disposal of the thing
have been paid… been paid unless the thing due and capacity to
or service in which the alienate it shall not be
completely obligation consists has valid, without prejudice to
delivered or been completely delivered the provisions of article
rendered as the or rendered, as the case 1427 under the Title on
case may be. may be. "Natural Obligations."
Exceptions: Who may pay the obligation
Substantial Article 1234. If the a) Debtor himself
Compliance in obligation has been b) Debtor’s heirs, assigns, legal representative
good faith & substantially performed in c) Anyone interested in the fulfillment of the
good faith, the obligor may
Waiver recover as though there obligation
had been a strict and d) Third person –rule: You may not compel the
complete fulfillment, less creditor to accept.
damages suffered by the Except when there is a stipulation
obligee. >Know if with consent or without consent
Estoppel Article 1235. When the *If WITH knowledge and consent of debtor
obligee accepts the  subrogation. Steps into the shoes of the
performance, knowing its
creditor
incompleteness or
irregularity, and without Reimbursement
expressing any protest or
objection, the obligation is *If WITHOUT knowledge or consent of debtor
deemed fully complied  Beneficial Reimbursement. Recover the
with. amount which is beneficial
c) Indivisibility General Rule: Article 1248. Unless there
>Creditor cannot is an express stipulation to *If no intention to be reimbursed
be compelled that effect, the creditor
cannot be compelled ___________________________
partially to receive partially to receive the On November 1, 2013, X executed a romissory note promising to pay to Y P100,000 within three
the prestations prestations in which the weeks. The payment of the debt was guaranteed by Z. One week later, Y condoned one half of the
obligation consists. Neither obligation. Two days thereafter, A unaware of the partial remission of the indebtedness, paid, with
>Debtor cannot be may the debtor be required the knowledge and consent of X, the entire amount of P100,000 to Y, who accepted it. What are the
to make partial payments. respective rights and obligations of the parties?
required to make
However, when the debt is Ans: Since with consent, ½ of the amount may be subject of Subrogation and a right to the
partial payments. guarantee (If X can not reimburse, he can run against Z). The other half can not be claimed
in part liquidated and in
part unliquidated, the On November 1, 2013, X executed a romissory note promising to pay to Y P100,000 within three
creditor may demand and weeks. The payment of the debt was guranteed by Z. One week later, Y condoned one half of the

10
obligation. Two days thereafter, A unaware of the partial remission of the indebtedness, paid, obligation
without the knowledge and consent of X, the entire amount of P100,000 to Y, who accepted it. What
are the respective rights and obligations of the parties? 3rd: Any other:
Ans: A has only the right of beneficial reimbursement (P50K), A can run after Y for the excess Domicile of creditor
(solution indebiti). He can not run after Z since no right of subrogation.
b) Payee / Obligee Must be Special kinds of Payment
capacitated to 1) Dation in payment
administer his - Dacion en pago / datio in solutum / dationa en paiement
property - It is delivery and transmission of ownership of a thing by the debtor to the creditor as
Who may be the an accepted equivalent of the performance of an existing obligation
payee? (Note: Elements:
Must pay to the 1> Existence of a money obligation
proper payee 2> The alienation to the creditor of a property by the debtor with the consent of the
Cases: Republic v former
De Guzman 2011, 3> Satisfaction of the money obligation of the debtor
Dela Cruz v Case: Rockville Excel v Culla Oct 2, 2009
Concepcion
(2012) 2) Payment by Cession – There is plurality of creditors
1) Creditor Article 1243. Payment Article 1255. The debtor may cede or assign his property to his creditors in
When is it not made to the creditor by the payment of his debts. This cession, unless there is stipulation to the contrary,
valid? debtor after the latter has shall only release the debtor from responsibility for the net proceeds of the
been judicially ordered to thing assigned. The agreements which, on the effect of the cession, are
> Payment not retain the debt shall not be made between the debtor and his creditors shall be governed by special
valid. Ex: Order of valid. laws.
Garnishment. Do -contractual
not pay anymore Requisites
to the creditor. a) There are two or more creditors
The proper payee b) Debtor must be insolvent (Partially)
now is the sheriff. c) The cession must be accepted by the creditors
2) Creditor’s
successor in ***Distinguish Dation vis-à-vis Cession
interest
3) Any person 3) Application of payment / Imputacion
authorized to Requisites:
receive payment a) here must 1 debtor and 1 creditor
4) Any person in Article 1242. Payment b) There must be 2 or more debts
possession of the made in good faith to any c) The debts must be of the same kind
credit person in possession of the
credit shall release the
d) Debts must be due
>Not referring to debtor. Exceptions:
the document but -Parties stipulate See item C in example which is for
must represent the the benefit of the debtor.
right. -Made by the party whose benefit
5) Third person Article 1241. Payment to a
> Valid only person who is e) Payment made must not be sufficient.
insofar as it incapacitated to administer
his property shall be valid if
redounded to the he has kept the thing Ex: X owes Y the following debts:
benefit of the delivered, or insofar as the a) P10K payable on Nov 15, 2013
creditor. payment has been b) P10K payable on Nov 25, 2013
> Benefit to beneficial to him. c) P10K payable within a month from Nov 1, 2013
creditor is Payment made to a third d) P10K payable on Dec 5, 2013
presumed person shall also be valid Q: To whom will the payment be applied? Ans: either A or B only
a) If after the insofar as it has redounded
to the benefit of the
payment, the third creditor. Such benefit to the How made?
person acquires creditor need not be proved Article 1252. He who has various debts of the same kind in favor of one and
the creditor’s in the following cases: the same creditor, may declare at the time of making the payment, to which
rights (1) If after the payment, the of them the same must be applied. Unless the parties so stipulate, or when
third person acquires the the application of payment is made by the party for whose benefit the term
(Subrogation)
creditor's rights; has been constituted, application shall not be made as to debts which are not
b) If the creditor yet due.
ratifies the (2) If the creditor ratifies the
payment to the third If the debtor accepts from the creditor a receipt in which an application
payment to the person; of the payment is made, the former cannot complain of the same, unless
third person (3) If by the creditor's there is a cause for invalidating the contract.
c) If by the conduct, the debtor has -Debtor makes the application (Article 1252)
creditor’s conduct been led to believe that the -Creditor makes the application (Article 1252)
debtor has been third person had authority - Legal application of payment
led to belief to receive the payment. - Proportionate application
(Agency by
Estoppel) 4) Consignation  depositing the thing with the court
C. Time and Time: When the  act of depositing the thing due with the court or judicial authorities
Place of obligation is due whenever the creditor cannot accept or refuses without justifiable
Payment reason to accept payment
Place: 1st: Place agreed > Only real obligation can be subject here (to give)
upon, Differentiate with tender of payment – act of offering the creditor what is due him
together with a demand that … (See case below)
2nd: If no stipulation Case Cacayorin v AFPMB G.R. No. 171298 April 15, 2013 – Tender of Payment is a
and it is a specific
preparatory act for consignation.
real obligation where
the thing might be at
the moment the General Rule: Tender of payment must be paid first
Exceptions:
11
 1) Creditor is absent or unknown or does not appear at the place of be responsible for damages. The same rule applies when the nature of the
payment obligation requires the assumption of risk.
2) Creditor is incapacitated to receive the payment at the time it is due d) Generic thing
3) Creditor without just cause refuses to give receipt Article 1263. In an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation.
4) Two or more persons claim the same right to collect
e) When the obligation to deliver arises from a crime 1268
*Remedy here is Interpleader and consignation Article 1268. When the debt of a thing certain and determinate proceeds from
5) Title of the obligation has been lost a criminal offense, the debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless the thing having been
> Applicable only to Obligations (Real) is due offered by him to the person who should receive it, the latter refused without
Then > Valid tender of payment justification to accept it.
Exceptions: Article 1256. If the creditor to whom tender of payment has been made Exception here: Mora accipiendi
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases: Partial Loss
(1) When the creditor is absent or unknown, or does not appear at the place of Article 1264. The courts shall determine whether, under the circumstances, the
payment; partial loss of the object of the obligation is so important as to extinguish the
(2) When he is incapacitated to receive the payment at the time it is due; obligation.
(3) When, without just cause, he refuses to give a receipt; Ex: Car which tires were stolen  Can still be delivered
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.
Car which engine was stolen  Can not be delivered anymore since
substantial portion is lost. Thus, obligation is extinguished
Then > Notice of consignation
Article 1257. In order that the consignation of the thing due may release the obligor, Presumption:
it must first be announced to the persons interested in the fulfillment of the Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be
obligation. presumed that the loss was due to his fault, unless there is proof to the contrary, and
The consignation shall be ineffectual if it is not made strictly in without prejudice to the provisions of article 1165. This presumption does not apply
consonance with the provisions which regulate payment. in case of earthquake, flood, storm, or other natural calamity.
Thing loss due which is in possession of the debtor. It is presumed to be
Then > Consignation Proper his fault unless proof to the contrary.
Then > Notice of consignation
Article 1258. Consignation shall be made by depositing the things due at the Right of 3rd persons  relief is subrogration
disposal of judicial authority, before whom the tender of payment shall be proved, in Article 1269. The obligation having been extinguished by the loss of the thing, the
a proper case, and the announcement of the consignation in other cases. creditor shall have all the rights of action which the debtor may have against third
The consignation having been made, the interested parties shall also persons by reason of the loss.
be notified thereof.
Article 1266. The debtor in obligations to do shall also be released when the
Effect of withdrawal of consignation in court prestation becomes legally or physically impossible without the fault of the obligor.
Article 1261. If, the consignation having been made, the creditor should authorize the debtor to -When the obligation becomes legally or physically impossible
withdraw the same, he shall lose every preference which he may have over the thing. The co- > Impossibility of performing obligation
debtors, guarantors and sureties shall be released. > Either legal or physical impossibility
> Must be supervening impossibility
2) LOSS AND IMPOSSIBILITY OF PERFORMANCE > If impossible in beginning, void obligation
Loss:
Article 1189. When the conditions have been imposed with the intention of Extreme Difficulty
suspending the efficacy of an obligation to give, the following rules shall be observed Article 1267. When the service has become so difficult as to be manifestly beyond
in case of the improvement, loss or deterioration of the thing during the pendency of the contemplation of the parties, the obligor may also be released therefrom, in
the condition: whole or in part.
(1) If the thing is lost without the fault of the debtor, the obligation shall be * Doctrine of extreme difficulty and frustration of commercial object or
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
enterprise  “Rebus Sic Stantibus”
damages; it is understood that the thing is lost when it perishes, or goes out of Case: Naga Tel Com v CA – Electric posts not anticipated to have
commerce, or disappears in such a way that its existence is unknown or it cannot be voluminous subscribers
recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to 3) CONDONATION
be borne by the creditor; > Remission
(4) If it deteriorates through the fault of the debtor, the creditor may choose between > Act of liberality. Without equivalent compensation.
the rescission of the obligation and its fulfillment, with indemnity for damages in
either case;
> Creditor renounces to enforce
(5) If the thing is improved by its nature, or by time, the improvement shall inure to Requisites:
the benefit of the creditor; a) Debt is existing
(6) If it is improved at the expense of the debtor, he shall have no other right than b) Remission is gratuitous
that granted to the usufructuary. c) Acceptance by the debtor
d) Capacity of the parties
Impossibility of Performance: e) Must not be inofficious
Article 1266. The debtor in obligations to do shall also be released when the f) If made expressly, must comply with formalities of the donation
prestation becomes legally or physically impossible without the fault of the obligor. Article 748. The donation of a movable may be made orally or in
writing.
Lost when An oral donation requires the simultaneous delivery of
1) Physical Loss the thing or of the document representing the right donated.
2) Civil Loss If the value of the personal property donated exceeds
3) Legal Loss five thousand pesos, the donation and the acceptance shall be made
in writing. Otherwise, the donation shall be void.
– P5000 or less (Maybe orally)
General Rule: Loss of the thing extinguishes the obligation
P5001 – Private Instruments
Exceptions when not extinguished
a) When the stipulation so provides Article 749. In order that the donation of an immovable may be valid, it
b) Law so provides must be made in a public document, specifying therein the property
c) Nature of the obligation requires assumption of risk donated and the value of the charges which the donee must satisfy.
Article 1262. An obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the fault of The acceptance may be made in the same deed of
the debtor, and before he has incurred in delay. donation or in a separate public document, but it shall not take effect
When by law or stipulation, the obligor is liable even for fortuitous unless it is done during the lifetime of the donor.
events, the loss of the thing does not extinguish the obligation, and he shall

12
 If the acceptance is made in a separate instrument, the Article 1284. When one or both debts are rescissible or
donor shall be notified thereof in an authentic form, and this step shall voidable, they may be compensated against each other before
be noted in both instruments. they are judicially rescinded or avoided.
- Real Property (Public Instrument) Voidable, Rescissible Debts can still be subject to
legal compensation since rights arise from it.
Implied Condonation 5. That over neither of them there be any retention or
Article 1271. The delivery of a private document evidencing a credit, made controversy, commenced by third persons and
voluntarily by the creditor to the debtor, implies the renunciation of the action which communicated in due time to the debtor [No retention
the former had against the latter. or controversy(another person claims to be the creditor)
If in order to nullify this waiver it should be claimed to be inofficious,
the debtor and his heirs may uphold it by proving that the delivery of the document commenced by third persons and communicated in due
was made in virtue of payment of the debt. time to the debtor]
Article 1274. It is presumed that the accessory obligation of pledge has been 6. Compensation is not prohibited by law:
remitted when the thing pledged, after its delivery to the creditor, is found in the Article 1287. Compensation shall not be proper when one of
possession of the debtor, or of a third person who owns the thing. the debts arises from a depositum or from the obligations of a
1) Return of the private document evidencing the obligation. Presumption depositary or of a bailee in commodatum.
here is that creditor delivered voluntarily Neither can compensation be set up against a creditor
Article 1272. Whenever the private document in which the debt who has a claim for support due by gratuitous title, without
appears is found in the possession of the debtor, it shall be presumed prejudice to the provisions of paragraph 2 of article 301.
that the creditor delivered it voluntarily, unless the contrary is proved.
Article 1288. Neither shall there be compensation if one of the
debts consists in civil liability arising from a penal offense.
Accessory obligation of pledge. (See Art 1274 above)
> Pledge herein has been remitted when the thing pledged is found in the Article 1794. Every partner is responsible to the partnership for
possession of the debtor or a third person who owns the thing. damages suffered by it through his fault, and he cannot
> Presumption here is that the pledge has been condoned. compensate them with the profits and benefits which he may
have earned for the partnership by his industry. However, the
Article 1273. The renunciation of the principal debt shall extinguish the accessory courts may equitably lessen this responsibility if through the
obligations; but the waiver of the latter shall leave the former in force. partner's extraordinary efforts in other activities of the
The renunciation of the principal debt shall extinguish the accessory partnership, unusual profits have been realized.
obligation. But the accessory condoned does not carry with it the
Case: Francia v – There is no creditor/debtor relationship
extinguishment of the principal
between government and taxpayer.
> “Accessory follows the principal”
Case: Ruben Reyes v COA (2011) – Write off. SC held when creditor
Case: Chung v Ulanday Construction (2010) – Construction
writes off debt, it is not condonation since there is no acceptance or
company who built a structure. Owner liable to pay cost of
consent of the debtor.
construction. No payment yet saying that there are defects.
Paid the defects. SC held: There will be compensation.
4) CONFUSION
Amount paid for defect be deducted to the
> Merger of creditor and debtors rights
> Only 1 obligation
Effect of legal compensation: When all the requisites mentioned in
> It is absurd to demand payment from oneself
article 1279 are present:
Article 1279. In order that compensation may be proper, it is
Merger and Guarantee necessary:
Article 1276. Merger which takes place in the person of the principal debtor or (1) That each one of the obligors be bound principally, and that he be
creditor benefits the guarantors. Confusion which takes place in the person of any of at the same time a principal creditor of the other;
the latter does not extinguish the obligation. (2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
> Debtor and Principal Creditor vis-à-vis Guarantor and Debtor the latter has been stated;
Ex Red and Blue executed promissory note in favor of A & B – can be re- (3) That the two debts be due;
negotiated to C. Can negotiated back to Red. (it went back) (4) That they be liquidated and demandable;
> This is a joint obligation. Then there will be a partial (5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
extinguishment only. Red can collect the 50K from Blue debtor.
> If solidary obligation, extinguishes the entire compensation takes effect by operation of law, and extinguishes
both debts to the concurrent amount (Article 1290. When all the
5) COMPENSATION requisites mentioned in article 1279 are present, compensation takes effect
> They are their own creditor or debtor in their own right. by operation of law, and extinguishes both debts to the concurrent amount,
> Not applies to reciprocal obligation even though the creditors and debtors are not aware of the compensation.)
Ex: Blue owes Black; Black owes Blue. Case: Trinidad v Acapulco (2006) – No legal compensation in the
answer. Proven during trial. SC held: There must be extinguishment
Mode of extinguishing to the concurrent amount, the obligations of those of the obligation eventhough not alleged. Compensation will retroact
persons who in their own.. to the day of the obligation.

Partial Q <BAR 1998> X who has a savings deposit with Y Bank in the
Total sum of P1,000,000.00 incurs a loan obligation with the said Bank in
the sum of P800,000 which has become due. When X tries to
Kinds: withdraw his deposit, Y bank allows only P200,000 to be withdrawn,
As to Origin / Cause less service charges, claiming that compensation ahs extinguished
a) Legal its obligation under the savings account to the concurrent amount of
Requisites: X’s debt. X contends that compensation is improper when one of
1. That each one of the obligors be bound principally, and the debts, as here, arises from a contract of deposit. Assuming that
that he be at the same time a principal creditor of the the promissory note signed by X to evidence the loan does not
other; (Mutual Debtors and Creditors of Each Other) provide for compensation between said loan and his savings
2. That both debts consist in a sum of money, or if the deposit, who is correct? Ans: ___________________________
things due are consumable, they be of the same kind,
and also of the same quality if the latter has been b) Voluntary (Mere agreement)
stated; [Both Debts: Sum of money, or if consumable Example: Article 1282. The parties may agree upon the compensation of
(More proper term is fungible), Same Kind and Same debts which are not yet due.
Quality.] or Conventional
3. That the two debts be 1) due Case: Traders Royal Bank v Castanares Dec 6, 2011
4. That they be 2) liquidated and 3) demandable
13
 Compensation may be done even if the requirements for legal 4. Creation of a new valid obligation
compensation is not complete provided the following requirements Except:  IF the parties agrees otherwise
are met Article 1297. If the new obligation is void, the original one shall subsist,
1) Each of the parties can fully dispose of the credit he seeks to unless the parties intended that the former relation should be extinguished in
compensate; and any event.
2) That they agree to the extinguishment of their mutual credits
Article 1299. If the original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be under the same condition,
c) Judicial / Set-off unless it is otherwise stipulated.
Article 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to
said damages and the amount thereof.
Kinds of Novation
>If one of the parties to a suit over an obligation… As to origin
a) Legal
d) Facultative b) Conventional
Ex: A owes B P100,000 payable on Nov 30, 2013
B owes A P100,000 payable on or before Dec 10, 2013 As to how it is constituted
> B here can ask for compensation since he can choose to pay prior a) Express
to December 10, 2013. But after Dec 10, 2013 and not payment b) Implied (When both can not stand together. The new one subsists)
was made, A now can ask for compensation
As to extent or effect
e) Assignment a) Total or extinctive
Q: Is it different from subrogation? Ans: Yes. b) Partial or Modificatory

Assignee As to what is being changed

a) Object
Creditor / Assignor Debtor b) Subjective (Active or Passive)  Changing a party
- Passive Subjective Novation (Substitution)
Q: What is the effect of assignment? Ex: A (Debtor)  Creditor
Know if: B (becomes new Debtor)  Creditor
With consent: ***Needs creditors consent
> Cannot set up compensation (Correllate both articles below)
Article 1293. Novation which consists in substituting a new debtor in
Except: Reservation the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent
With knowledge but without consent of the creditor. Payment by the new debtor gives him the rights
> Compensation of debts previous to the cession mentioned in articles 1236 and 1237.

Without knowledge Article 1236. The creditor is not bound to accept payment or
> Compensation until knowledge performance by a third person who has no interest in the fulfillment of
the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what
Ex 1: Red (Debtor) P20,000 due on Nov 15  Blue he has paid, except that if he paid without the knowledge or against
Blue (Debtor) P8,000 due on Nov 10  Red the will of the debtor, he can recover only insofar as the payment has
Nov 12, Blue assigns credit right with consent of debtor to been beneficial to the debtor.
Violet
Ans: It will depend if there is reservation. If no reservation, no 2 kinds here:
compensation. If there is reservation, deduct 8K from 20K. 1) Expromision – Upon the initiative of a 3rd person. Maybe
Thus collect only 12K the debtor is unaware of the substitution.
> Effect of insolvency / non-fulfillment of new debtor: Original
Ex 2: Red (Debtor) P20K Due on Nov 15  Blue debtor not liable anymore
Nov 12, assigns credit right with notice but without consent of Article 1294. If the substitution is without the knowledge
debtor to Violet or against the will of the debtor, the new debtor's
Blue (Debtor) 8K Nov 1, P3K Nov 8, P5K Nov 14  Red insolvency or non-fulfillment of the obligations shall not
Ans: 11K only can be collected by give rise to any liability on the part of the original debtor.

2) Delegacion – Initiative of the debtor. Thus with consent and

Ex 3: Red (Debtor) 20K on Nov 25  Blue
> Effect of insolvency
Blue (Debtor) P8K Nov 1, 3K Nov 8, 5K Nov 14, 2K Nov 30
General Rule Original Debtor
Nov 12 assigns credit right without the knowledge of debtor to
Violet
Q <BAR 1975> A borrowed from B the sum of P3K. Three
Nov 16 learns of the assignment
days after, A in a letter authorized PNB to pay his ebt to B out
Ans: All of the debts before knowledge can be subject to
of whatever crop might be granted to him by said Bank. On
compensation.
the same day, the Bank agreed but the Bank paid B only
P2K. On the date of maturity, B sued the Bank and A for the
6) NOVATION
remaining P1K. Is the Bank liable to B? Ans: Novation can
– Extinguishment of an obligation by the substitution or change of the
never be presumed. Must be express or 2 incompatible
obligation by a subsequent one which extinguishes or modifies the first…
objects. The bank here did not assume the obligation.
Requisites for Extinctive Novation
- Active Subjective Novation – change of creditor
1. There must be a previous valid obligation
Article 1298. The novation is void if the original obligation was void, except a) Legal
when annulment may be claimed only by the debtor or when ratification General Rule: not presumed
validates acts which are voidable. Article 1300. Subrogation of a third person in the rights of the creditor
= voidable obligation there can be compensation if ratification etc. is either legal or conventional. The former is not presumed, except in
cases expressly mentioned in this Code; the latter must be clearly
2. Capacity and intention of the parties to extinguish the obligation established in order that it may take effect.
Article 1292. In order that an obligation may be extinguished by another
which substitute the same, it is imperative that it be so declared in Exception:
unequivocal terms, or that the old and the new obligations be on every point > Creditor pays another creditor who is preferred
incompatible with each other. > 3rd person not interested in the fulfillment of the obligation pays with
3. Extinguishment of the old obligation express / tacit approval of the debtor
> Third person interested in the fulfillment of the obligation pays.
14
 Preparatory – On the stage of negotiation (Offer/counteroffer)
b) Conventional > Also known as “Generation”
Rule: Perfection – Acceptance of the offer by both parties
> Must be clearly established in or order that it may take effect (See Art > Also known as “Birth”
1300 above) Consummation
> Requires the consent of the original parties of the… > Also known as “Death” or “Termination”

Article 1303. Subrogation transfers to the persons subrogated the credit with all the Some Needs Delivery or Compliance to Formal Requiisites
rights thereto appertaining, either against the debtor or against third person, be they
guarantors or possessors of mortgages, subject to stipulation in a conventional Basic Principles of Contracts
subrogation.
1) Consensuality (Article 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all
Effect of Partial Subrogation the consequences which, according to their nature, may be in keeping with good faith, usage and
Q: Debt 20K, Balance P10K Debtor has only 10K. Creditor or 3 rd Person. law.) – Meeting of the Minds
To whom will debtor pay? Ans: Article 1304. A creditor, to whom partial payment 2) Liberty / Freedom (Article 1306. The contracting parties may establish such stipulations,
has been made, may exercise his right for the remainder, and he shall be preferred clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
to the person who has been subrogated in his place in virtue of the partial payment morals, good customs, public order, or public policy.)
of the same credit. To original creditor (Preferred) > Must not be against:
- Law
-Annulment Ex: Pactum Commisorium – automatic ownership
-Rescission  rescissible contracts Pactum Leonina – Article 1799. A stipulation which
-Fulfillment of a resolutory condition excludes one or more partners from any share in the
-Prescription  extinctive prescription profits or losses is void.

Other modes of extinguishing: Pactum De Non Alienado – Mortgagor is

Impossibility of fulfillment prohibited to alienate the property
-Arrival of the Resolutory term - Morals
-Fortuitous event - Good Customs
-Compromise - Public Order
-Mutual Dissent - Public Policy  Wider in scope
-Death
-Change of Status 3) Mutuality (Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them .) – Binds both parties. Can not be made
CONTRACTS dependent upon the will of one party
> One of the source of obligation. Ex: As long as lessee pays rent  SC Held it lack mutuality
Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, Ex 2: Unbriddled right of the creditor to increase interest rate without
with respect to the other, to give something or to render some service. debtors consent
> Two persons. Can not enter a contract with oneself.
But in one book, can enter contract with yourself thru autocontracts. Or if Exceptions here is Article 1309. The determination of the performance may be left
representing 2 parties to a third person, whose decision shall not be binding until it has been made known
> You can have contracts where there are multiple parties. to both contracting parties.

Kinds: Correlated with Article 1310. The determination shall not be obligatory if it is
As to perfection / formation: evidently inequitable. In such case, the courts shall decide what is equitable under
1) Consensual (COC) the circumstances.
2) Real (COC + Delivery) Q: Do contracts of adhesion violate the principle of mutuality? Ans: Even if
3) Formal / Solemn COC+Formalities only one of the parties, SC held it is up to the party to accept or reject.
There is still the element of choice upon the party.
As to Importance / Dependence
1) Principal 4) Obligatory Force and Compliance in good faith
2) Accessory Article 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith
3) Preparatory – contracts defined as contracts not the end in themselves.
Obligations arising from contracts have the force of law (See Art 1159)
(Ex: Contract of Agency or Contract of Partnership)
Parties should comply in good faith (See Article 1159)
As to Parties Obligated
Fulfillment: Article 1315. Contracts are perfected by mere consent, and from that
1) Unilateral moment the parties are bound not only to the fulfillment of what has been expressly
2) Bilateral / Synallagmatic – Both parties stipulated but also to all the consequences which, according to their nature, may be
in keeping with good faith, usage and law.
As to Time of Fulfillment - Expressly stipulated
1) Executed – Already complied with obligation - All the consequences which, according to their
2) Executory nature may be in keeping with good faith
usage and law.
As to Cause / Equivalence of value of prestations Article 1356. Contracts shall be obligatory, in whatever form they may have been entered into,
a. Onerous provided all the essential requisites for their validity are present. However, when the law requires
b. Gratuitous that a contract be in some form in order that it may be valid or enforceable, or that a contract be
c. Remuneratory – contract where performing an obligation in exchange of proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of
the parties stated in the following article cannot be exercised.
benefit or services rendered in the past
5) Principle of Relativity / Privity
As to fulfillment of prestations or risk
1st concept: Parties are bound to the contract they themselves entered
1) Commutative – You know the details, when to pay, how much etc.
into.
2) Aleatory – not yet determined at the time of perfection of the contract. (Ex:
Exception: A third party may enter, when expressly
Insurance Contract)
authorized or ratify or when he has authority under the law
(like legal guardians)
Name / Designation
1) Nominate – Specifically named like (Sale, Lease, Deposit, Mortgage etc.) Article 1317. No one may contract in the name of another without
2) Innominate – Do ut des (Barter), do ut facias, facio ut des, facio ut facias being authorized by the latter, or unless he has by law a right to
represent him.
Stages:

15
 A contract entered into in the name of another by one Article 1319. Consent is manifested by the meeting of the offer and the acceptance
who has no authority or legal representation, or who has acted beyond upon the thing and the cause which are to constitute the contract. The offer must be
his powers, shall be unenforceable, unless it is ratified, expressly or certain and the acceptance absolute. A qualified acceptance constitutes a counter-
impliedly, by the person on whose behalf it has been executed, before offer.
it is revoked by the other contracting party. Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such a case, is
2nd concept: Contracts are binding not only between parties but also their presumed to have been entered into in the place where the offer was made.
assigns / transferees and heirs. Requisites of Consent [OandALIFSR]
Exception: When can these individuals be not bound: - Concurrence of the Offer and Acceptance
1) By the nature of obligation not transmissible (purely Article 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute
personal the contract. The offer must be certain and the acceptance absolute. A
2) By stipulation qualified acceptance constitutes a counter-offer.
3) By provision of law Acceptance made by letter or telegram does not bind
Article 1178. Subject to the laws, all rights acquired in virtue of an the offerer except from the time it came to his knowledge. The
obligation are transmissible, if there has been no stipulation to the contract, in such a case, is presumed to have been entered into in the
contrary. – talks about transmissibility of rights place where the offer was made.

3rd concept: A contract takes effect and binds only the parties, their Article 1320. An acceptance may be express or implied.
assigns / transferees and heirs, it can neither favor nor prejudice a third
Article 1321. The person making the offer may fix the time, place, and
per manner of acceptance, all of which must be complied with.
Res inter alios…
Article 1322. An offer made through an agent is accepted from the
Exception: time acceptance is communicated to him.
a) Stipulation Pour Autri
Article 1311. Contracts take effect only between the parties, Article 1323. An offer becomes ineffective upon the death, civil
their assigns and heirs, except in case where the rights and interdiction, insanity, or insolvency of either party before acceptance is
obligations arising from the contract are not transmissible by conveyed.
their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the Article 1324. When the offerer has allowed the offeree a certain period
decedent. to accept, the offer may be withdrawn at any time before acceptance
If a contract should contain some stipulation in favor of by communicating such withdrawal, except when the option is founded
a third person, he may demand its fulfillment provided he upon a consideration, as something paid or promised.
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is Article 1325. Unless it appears otherwise, business advertisements of
not sufficient. The contracting parties must have clearly and things for sale are not definite offers, but mere invitations to make an
deliberately conferred a favor upon a third person. offer.
Requisites: (Get requisites)
a) Part of the stipulation of the contract Article 1326. Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or
b) Must be clear lowest bidder, unless the contrary appears.
c) _____________________________
b) Contracts creating Real Rights -Contracting parties must possess the necessary Legal Capacity
Article 1312. In contracts creating real rights, third persons who Article 1327. The following cannot give consent to a contract:
come into possession of the object of the contract are bound (1) Unemancipated minors;
thereby, subject to the provisions of the Mortgage Law and the (2) Insane or demented persons, and deaf-mutes who do not know
Land Registration Laws. how to write.
c) Accion Pauliana – Actions in fraud of creditors
Article 1313. Creditors are protected in cases of contracts Article 1328. Contracts entered into during a lucid interval are valid.
intended to defraud them Contracts agreed to in a state of drunkenness or during a hypnotic
d) Principle of Inter Meddler / Tort interference spell are voidable.
Article 1314. Any third person who induces another to violate
his contract shall be liable for damages to the other contracting Article 1329. The incapacity declared in article 1327 is subject to the
party. modifications determined by law, and is understood to be without
Case: Go v Cordero – Valid contract. Third person prejudice to special disqualifications established in the laws.
induces another to violate. May sue the third person.
In this case, sale of boats. The Filipino exclusive -Consent must be Intelligent, Free, Spontaneous and Real
distributor was able to get a client. The client went to Article 1330. A contract where consent is given through mistake,
Australian company. violence, intimidation, undue influence, or fraud is voidable.
e) Accion directa – not exercising the right of the debtor Article 1331. In order that mistake may invalidate consent, it should
but exercising own right against debtor’s debtor. refer to the substance of the thing which is the object of the contract,
or to those conditions which have principally moved one or both
Bar <2002> There was an order agreement between Suplico and parties to enter into the contract.
Printado. The former supplies paper, the latter prints. Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or qualifications
Next: Printing contract: Printado to print textbooks to publico have been the principal cause of the contract.
A simple mistake of account shall give rise to its
Suplico failed to deliver, Printado failed to pay correction.
Ans: Not privy to the contract. Res inter alios acta
Article 1332. When one of the parties is unable to read, or if the
Elements Requisites of Contract contract is in a language not understood by him, and mistake or fraud
Essential: Article 1318. There is no contract unless the following requisites concur: is alleged, the person enforcing the contract must show that the terms
(1) Consent of the contracting parties; thereof have been fully explained to the former.
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. Article 1333. There is no mistake if the party alleging it knew the
For real contract: add: Delivery doubt, contingency or risk affecting the object of the contract.
Article 1316. Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation. Article 1334. Mutual error as to the legal effect of an agreement when
For Formal contract: add compliance with formalities. the real purpose of the parties is frustrated, may vitiate consent.

Article 1335. There is violence when in order to wrest consent, serious

Q: What kind of contract is a mutuum? Ans: _____________________ or irresistible force is employed.
There is intimidation when one of the contracting parties
Consent is compelled by a reasonable and well-grounded fear of an imminent

16
 and grave evil upon his person or property, or upon the person or > Express or Implied Rejection
property of his spouse, descendants or ascendants, to give his > Counter-offer
consent. > Death, civil interdiction, insanity, or insolvency of either party before
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
acceptance is conveyed (Article 1323. An offer becomes ineffective upon the
A threat to enforce one's claim through competent death, civil interdiction, insanity, or insolvency of either party before acceptance is
authority, if the claim is just or legal, does not vitiate consent. conveyed.)  Also applies to the other party.
> Failure to comply with time, place and manner of acceptance (Article
Article 1336. Violence or intimidation shall annul the obligation, 1321. The person making the offer may fix the time, place, and manner of
although it may have been employed by a third person who did not acceptance, all of which must be complied with .)
take part in the contract. > Subject matter becomes illegal or impossible before acceptance is
communicated (Subsequent impossibility)
Article 1337. There is undue influence when a person takes improper > Revocation of the offer before learning of the acceptance.
advantage of his power over the will of another, depriving the latter of
a reasonable freedom of choice. The following circumstances shall be
-- We follow theory of cognition
considered: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have been Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
unduly influenced was suffering from mental weakness, or was withdrawn at any time before acceptance by communicating such withdrawal, except when the
ignorant or in financial distress. option is founded upon a consideration, as something paid or promised.
Exception: When the option is founded upon a consideration, as something paid or
Article 1338. There is fraud when, through insidious words or promised (OPTION CONTRACT)
machinations of one of the contracting parties, the other is induced to Effect: You may be held liable for damages.
enter into a contract which, without them, he would not have agreed
to. <BAR 2005> Marvin offered to construct the house of carlos for a P900K 10 days
within to accept or not. On 5th days before carlos, marivin withdrew
Article 1339. Failure to disclose facts, when there is a duty to reveal
them, as when the parties are bound by confidential relations, Q: What is the effect of withdrawal? Ans: Apply General Rule
constitutes fraud. Q: What if carlos paid marvin P10K in consideration of the option Ans: Apply exception
which is option contract
Article 1340. The usual exaggerations in trade, when the other party Q: If there is acceptance before withdrawal is communicated discuss the
had an opportunity to know the facts, are not in themselves fraudulent. consequences. Ans: Contract will have to be perfected since accepted it before
withdrawal. Apply general rule
Article 1341. A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on the
former's special knowledge. Natural – presumed include
Warranty against eviction
Article 1342. Misrepresentation by a third person does not vitiate Warranty against hidden defects
consent, unless such misrepresentation has created substantial Warranty to transfer ownership
mistake and the same is mutual. Warranty to easement
Article 1343. Misrepresentation made in good faith is not fraudulent Accidental
but may constitute error.

Article 1344. In order that fraud may make a contract voidable, it ACCEPTANCE – Assent or consent to offer
should be serious and should not have been employed by both Requisite
contracting parties. 1) Absolute – identical to what has been offered
Incidental fraud only obliges the person employing it to 2) Unequivocal – clear your are accepting. Express or Impliedly
pay damages. 3) Communicated to the offeror and learned by him. – Theory of Cognition.
Must be made known to offeror. No effect yet until the offeror has
Article 1345. Simulation of a contract may be absolute or relative. The
former takes place when the parties do not intend to be bound at all; knowledge.
the latter, when the parties conceal their true agreement
Kinds of Acceptance
Article 1346. An absolutely simulated or fictitious contract is void. A 1) Express
relative simulation, when it does not prejudice a third person and is not 2) Implied
intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement. <Bar 1962> A, who resides in Manila, wrote to is friend B, who is residing in Cotabato
City, stating in the letter that he is donating to him one new car worth P25,000. Upon
OFFER – Proposal to make a contract. Statement of the terms and reiept of the letter, B called A by long distance telephone telling A that he is accepting
conditions the donation The same day B wrote and mailed a letter to A, accepting the donation.
Requisites: Immediately after mailing the letter B died of a heart failure.
1) Definite
2) Complete as to cause and object Who is entitled to the car now, A or the heirs of B? Reasons.
3) Intentional Ans: A is entitled.
Why? Apply the principle on donation: Article 748. The donation of a movable may be made
Q: Would advertisements be considered a valid offer? Ans: No, it is an orally or in writing.
invitation to make an offer. An oral donation requires the simultaneous delivery of the thing or of the document representing
the right donated.
Ex: Advertisement of things for sale If the value of the personal property donated exceeds five thousand pesos, the donation and the
acceptance shall be made in writing. Otherwise, the donation shall be void. – value exceeds 5K
Rules for Bids: must be in writing.
Bids – proposal also to make bids. Article 732. Donations which are to take effect inter vivos shall be governed by the general
<Bar 1980> K and Co published in the newspaper an invitation to bid provisions on contracts and obligations in all that is not determined in this Title. – Donations inter
inviting proposals to supply labor and materials for a construction project. vivos governed by laws on oblicon. Donor has no knowledge yet of THAT WRITTEN
L M and N submitted bids. When the bids were opened it appeared that L INSTRUMENT.
submitted the lowest bid. However the contract was awarded to N the Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency
highest bidder on the ground that he was the most experienced. L brought of either party before acceptance is conveyed . – rendered the donation ineffective.
an action against K and C to compel the award of the contract to him and
to recover damages. Is L’s position meritorious. Ans: Seller Not bound to Legal Capacity of Contracting Parties
accept highest or lowest bid unless there is a stipulation in the publication Those who can not give consent to a contract:
Article 1327. The following cannot give consent to a contract:
that it will be accepting such. (1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Offer becomes ineffective: [RCDcFIR]

17
 1) Minors (See Art 1327) - Fraud as deceit that comes before the contract (Dolo
–R.A. 6809 no more emancipated minors causante)
When can they contract? - Fraud as concealment
a) Necessaries
2) Insane or demented persons (See Art 1327) Requisites:
Except: Lucid Interval Article 1344. In order that fraud may make a contract voidable, it
Article 1328. Contracts entered into during a lucid interval are valid. should be serious and should not have been employed by both
Contracts agreed to in a state of drunkenness or during a hypnotic contracting parties.
spell are voidable. Incidental fraud only obliges the person employing it to
When can they contract: pay damages.
a) Thru guardian, parents… a) Fraud must be material and serious (See Art1344)
3) Deaf-mutes who do not know how to write (See Art 1327)
4) Drunkenness (See Art 1328) – considered temporary state of insanity b) Must be employed by only one of the parties (See Art
5) Hypnotic spell (See Art 1328) 1344)
> If both parties employed, contract is
Special disqualification provided for by law ( Article 1329. The incapacity declared in article valid)
1327 is subject to the modifications determined by law, and is understood to be without prejudice Employed by the party (Article 1342.
to special disqualifications established in the laws .) Misrepresentation by a third person does not
Absolute incapacity vitiate consent, unless such misrepresentation
has created substantial mistake and the same is
Relative Incapacity
mutual.)
Ex: Husband and Wife to donation
c) Deliberate intent to deceive or to induce ( Article 1343.
Exception: Moderate Gifts Misrepresentation made in good faith is not fraudulent but may
Ex Husband and Wife sell to each other constitute error.)
Exception: Judicial Settlement of Property d) Other party must have relied on the untrue statement
> If sold with consent of the other,(If ACP or CPG, needs written consent and must himself.
or listening) valid.
> If sold without consent, the entire contract is void. However, it will Usual exaggeration in trade / dolus bonus – can not sue this. Ex
constitute a continuing offer Expression of an opinion (Article 1341. A mere expression of an opinion does
> For partnership, not signify fraud, unless made by an expert and the other party has relied on the
former's special knowledge.)
Certain individuals 38 and 39
Article 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality 2) Affect the will
and civil interdiction are mere restrictions on capacity to act, and do not exempt the Force / Violence – Any amount of force as long as it is serious. Physical
incapacitated person from certain obligations, as when the latter arise from his acts compulsion
or from property relations, such as easements.
Intimidation – Mental compulsion
Article 39. The following circumstances, among others, modify or limit capacity to
Requisites for intimidation to vitiate consent:
act: age, insanity, imbecility, the state of being a deaf-mute, penalty, prodigality, a) Reasonable and well-grounded fear.
family relations, alienage, absence, insolvency and trusteeship. The consequences b) Fear of an imminent or grave evil
of these circumstances are governed in this Code, other codes, the Rules of Court, c) Upon his person property, or upon the person or property of his
and in special laws. Capacity to act is not limited on account of religious belief or spouse, descendants or ascendants
political opinion. d) Threat is real and serious
A married woman, twenty-one years of age or over, is qualified for all e) Threatened act is unjust and unlawful
acts of civil life, except in cases specified by law.
f) Reason why consent was given
1) Foreigners
2) Those suffering from interdiction
Undue Influence
> Can not dispose of thru donation
> Not use physical or moral compulsion. Article 1337. There is undue influence
when a person takes improper advantage of his power over the will of another,
Vices of Consent: depriving the latter of a reasonable freedom of choice. The following circumstances
> Consent must be given freely shall be considered: the confidential, family, spiritual and other relations between the
- Gave consent but there is defect in the element f parties, or the fact that the person alleged to have been unduly influenced was
2 Types: suffering from mental weakness, or was ignorant or in financial distress. – A person
1) Affect the intellect takes improper advantage
> Mistake – False notion about something Circumstances to be considered
Req’t - Confidential, family spur
1) Substance of the thing which is the object of the contract - Kapit sa patalim
2) Conditions which have principally moved one or both parties to
enter into the contract OBJECT
3) Identity or qualifications of one of the parties have been the Object to be valid:
principal cause of the contract Requisites:
For mistake as to the qualification of one of the parties to vitiate consent 1) Within the commerce of men, transmissible
two requisites under the case of Case: Roman Catholic Church v Pante -Case: PNB v Cacayorin – Public plaza. Not subject
G.R. 174118 April 11, 2012 2) Licit
Can not use the mistake -Must not be against good morals, etc.
Article 1333. There is no mistake if the party alleging it knew the doubt, contingency 3) Actual / Existing, Future
or risk affecting the object of the contract. -Existing now or possible in the future
-Future inheritance can not be stipulated upon.
Article 1334. Mutual error as to the legal effect of an agreement when the real 4) Possible
purpose of the parties is frustrated, may vitiate consent.
5) Determinate as to its kind or determinable without need to enter into a new contract
– Both parties suffered mistake or error.
- Determinate as to its genus,
Article 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person CAUSE: - direct or immediate or justification which justifies why you enter into the
enforcing the contract must show that the terms thereof have been fully explained to contract
the former. Requisites:
1) Must exist
> Fraud – Refers to false representation of the contracting party in order 2) True
to obtain consent of the contracting party. 3) Licit
* so long as there is deceit employed by the other person

18
Who has the burden of proving that no cause? Ans: it is the party stand to benefited 2) Juan verbally sold his land to Maria – Can not compel. Unenforceable contract.
Case: Cojuancgo Jr. v Republic of the Philippines G.R. 180705 Nov 27, 2012 there must be some written memorandum. Article 1356 in re 1406
Article 1356. Contracts shall be obligatory, in whatever form they may have been
Onerous – prestation or promise of a thing or service by the other entered into, provided all the essential requisites for their validity are present.
Remuneratory – Service or benefit which is remunerated However, when the law requires that a contract be in some form in order that it may
be valid or enforceable, or that a contract be proved in a certain way, that
Gratuitous – liberality of the benefactor requirement is absolute and indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised.
Cause v Motive
Essential Requisite Personal Reason Article 1406. When a contract is enforceable under the Statute of Frauds, and a
Always known May be unknown to the other public document is necessary for its registration in the Registry of Deeds, the parties
Illegality: contract is void Illegality: Not affect the validity of the may avail themselves of the right under Article 1357.
contract
Exception: When cause & motive merged 3) Juan sold a parcel of land
Ex: woman buying a gun with intention of killing herself. Article 1357. If the law requires a document or other special form, as in the acts and
Motive is different from cause. Here it will not affect the validity of the contract contracts enumerated in the following article, the contracting parties may compel
each other to observe that form, once the contract has been perfected. This right
Absence of Cause – Void (Article 1352. Contracts without cause, or with unlawful cause, may be exercised simultaneously with the action upon the contract.
produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, Required for validity  Can not invoke (See Art 1357)
public order or public policy.) Required for enforceability  Can not be invoked (See Art 1357)
Required for convenience  enforce contracting parties may
Illegality of Cause – Void (See Article 1352 above)
Reformation of Instruments
Falsity of the cause – Void except founded upon another cause whi is true and lawful Remedy in equity by means of which a written instrument is made or construed so as
(Article 1353. The statement of a false cause in contracts shall render them void, if it should not be to express or conform to the real intention of the parties when some
proved that they were founded upon another cause which is true and lawful.)
Instances when you can have reformation
Inadequacy – not invalidate a contract except fraud mistake undue influence mistake Mistake (Article 1361. When a mutual mistake of the parties causes the failure of the instrument
to disclose their real agreement, said instrument may be reformed.)
Simulation of Contracts:
> Making it appear there is a contract but in fact Fraud
none Accident (Article 1364. When through the ignorance, lack of skill, negligence or bad faith on the
Absolute Relative part of the person drafting the instrument or of the clerk or typist, the instrument does not express
Parties do not intend to be bound at all Hiding the true agreement the true intention of the parties, the courts may order that the instrument be reformed .)
Void Parties are bound to their true agreement
Except: when third party involved Inequitable Conduct

Case: Formaran v Ong – circumstances will show that it is a simulated contract

1) Buyer did not take possession
2) Did not pay taxes Article 1366. There shall be no reformation in the following cases:
3) Did not transfer property in his name (1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
Case: Heirs of Intac v CA – There was a contract of sale sufficiently proven that When can you not have reformation
executed the buyer to use it as collateral to obtain a loan. No intention to be bound at 1) Donation inter vivos
all. 2) Wills
3) Real agreement is void
Case: Villaceran v De Guzman G.R. 169055 Feb 22, 2012 – Differentiate absolute and 4) Estoppel (Article 1367. When one of the parties has brought an action to
relative simulation. enforce the instrument, he cannot subsequently ask for its reformation.)

FORM OF CONTRACTS Who can ask for reformation?

> As a general rule, contracts are obligatory in whatever form they may have Mutual Mistake – both parties
Exception: IF law requires for 1) Validity – formal or solemn contracts Other instances – the injured party.
2) Enforceability - unenforceability
Interpretation of Contracts:
Article 1358. The following must appear in a public document:
Similar to Statutory Construction
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest > Construing the contract.
therein are governed by articles 1403, No. 2, and 1405; If you present a contract, you are bound by what is written
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains; Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
(3) The power to administer property, or any other power which has for its object an act appearing contracting parties, the literal meaning of its stipulations shall control.
or which should appear in a public document, or should prejudice a third person; If the words appear to be contrary to the evident intention of the parties, the latter
(4) The cession of actions or rights proceeding from an act appearing in a public document. shall prevail over the former.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, - No need for interpretation
even a private one. But sales of goods, chattels or things in action are governed by articles, 1403,
No. 2 and 1405. Principle of Primacy of Intention –
– Required for the purpose of convenience or ob binding third persons.
Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and
Article 1357. If the law requires a document or other special form, as in the acts and contracts subsequent acts shall be principally considered.
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the Article 1372. However general the terms of a contract may be, they shall not be understood to
action upon the contract. comprehend things that are distinct and cases that are different from those upon which the parties
– Right to compel the other party to observe the form intended to agree.
1) Juan donated a parcel of land to Maria in a private document. Maria accepted the
same in a private document. – Can not compel. There must be a perfected contract Article 1373. If some stipulation of any contract should admit of several meanings, it shall be
before understood as bearing that import which is most adequate to render it effectual.

Article 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.

19
- Complementary contracts interpreted together. Accessory contract together with the object thereof. – Not rescissible also since agent can not
Principal dispose unless with court order. It is unenforceable. (Absentee)

Article 1375. Words which may have different significations shall be understood in that which is #1 and #2 contemplates acts of administration
most in keeping with the nature and object of the contract. Others specifically named by law as rescissible
Article 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. Requisites:
a) Contract must be valid (Article 1380. Contracts validly agreed upon may be
Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the rescinded in the cases established by law.)
party who caused the obscurity. b) Lesion or pecuniary prejudice to one of the parties or to 3rd
c) Contract must be rescissible (See Art 1381 above)
Article 1378. When it is absolutely impossible to settle doubts by the rules established in the d) No other legal remedy to obtain reparation for damage (remedy of last
preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the resort) Article 1383. The action for rescission is subsidiary; it cannot be instituted
least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be except when the party suffering damage has no other legal means to obtain
settled in favor of the greatest reciprocity of interests.
reparation for the same.)
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 > Only to the extent necessary to cover damage (Article 1384. Rescission
and void. shall be only to the extent necessary to cover the damages caused .)
e) Party asking for reparation must be able to return what he is obliged to
Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise restore by reason of the contract
be observed in the construction of contracts. Article 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
DEFECTIVE CONTRACTS (arranged as to gravity) price with its interest; consequently, it can be carried out only when he
1) Void – No legal effect at all. Lack an essential requisite who demands rescission can return whatever he may be obliged to
- contrary to law, morals restore.
Neither shall rescission take place when the things
-absolute simulated which are the object of the contract are legally in the possession of
- outside the commerce of man third persons who did not act in bad faith.
-impossible service In this case, indemnity for damages may be demanded
-Indeterminable intention from the person causing the loss.
-inexistent cause or object > Object is not in the possession of a 3rd person who acted in good faith.
- By law f) Must be filed within the prescriptive period 4 Years
If act of guardian / representative – 4 years from attaining obtaining
2) Unenforceable – If both parties are incapacitated, lack of authority capacity.
- Under the name of another Absentee = from reappearance
-Statute of Frauds: Article 1389. The action to claim rescission must be commenced
a) 1 year performance within four years.
b) Debt, default or Miscarriage For persons under guardianship and for absentees, the
period of four years shall not begin until the termination of the former's
c) Consideration for Marriage incapacity, or until the domicile of the latter is known.
d) 500 up sale of goods
e) Lease of 1 year Rescission v Resolution Rescission Resolution
f) credit representation
Party who may institute Party; 3rd person Party
g) Mutual Incapacity
Cause Lesion, fraud Failure to comply
3) Voidable - Contracts Any; Unilateral Reciprocal Reciprocal
Incapacity & FUMVI When available Subsidiary Principal

4) Rescissible 3) Undertaken in fraud of creditors when the latter cannot in any other
Guardian manner collect the claims due them (Accion pauliana)  Accion
Absentee pauliana is last resort
Fraud of Creditor Case: MBTC v IEBank G.R. No. 176008 Aug 10, 2011
Things under Litigation
Others Requisites:
1) The plaintiff asking for rescission has a credit prior to the
> Valid since it contains all requisites but there is LESION alienation, although demandable later;
Lesion economic damage to a party and also to a third party 2) The debtor has made a subsequent contract conveying a
> As a consequence of which it may be rescinded by means of a proper action for patrimonial benefit to a third person;
rescission. 3) The creditor ..
Article 1381. The following contracts are rescissible: Case: Siguan v Lim G.R. No 134685 November 19, 1999
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are Presumed Fraudulent
the object thereof; Article 1387. All contracts by virtue of which the debtor alienates
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion property by gratuitous title are presumed to have been entered into in
stated in the preceding number; fraud of creditors, when the donor did not reserve sufficient property to
(3) Those undertaken in fraud of creditors when the latter cannot in any other pay all debts contracted before the donation.
manner collect the claims due them; Alienations by onerous title are also presumed fraudulent when
(4) Those which refer to things under litigation if they have been entered into by the made by persons against whom some judgment has been rendered in
defendant without the knowledge and approval of the litigants or of competent any instance or some writ of attachment has been issued. The
judicial authority; decision or attachment need not refer to the property alienated, and
(5) All other contracts specially declared by law to be subject to rescission. need not have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud
1) Lesion by more than one fourth of the value of the things which are creditors may be proved in any other manner recognized by the law of
the object (1403 Paragraph 3) (Ward / Guardian) evidence.
Ex: 1M sold ¼ Gratuitous alienation – the donor did not reserve sufficient property
Not rescissible (Article 1386. Rescission referred to in Nos. 1 and 2 to pay all debts contracted before the donation
of article 1381 shall not take place with respect to contracts approved
by the courts.) – as long as approval by the court, not Onerous alienation – made by persons against whom some
rescissible judgment has been issued
2) Agreed upon in representation of an absentee and absentee suffers
lesion by more than one fourth of the value of the things which are Case: Lee v Bangkok Public Co G.R.173349 February 9, 2011
- Alienation  “Absolute conveyance. Thus, can not apply (See Art 1387)
20
 - Judgment acquired must be annotated on the title. rescission of the contract and indemnification for damages, or only the latter,
- Presumption applies only to debtor not to the 3rd person. allowing the contract to remain in force.

Badges of Fraud (Oria v McMicking 21 Phil 243) VOIDABLE CONTRACT

a. The fact that the cause or consideration of the conveyance > Have all the essential requisites but lack consent either by lack of capacity, mistake
b. … violence intimidation, undue influence or fraud.
Q: What is ratification?
Liabili Q: What is annulment?
4 year period
4) Things under litigation
Except if third person is in good faith ( Article 1385. Rescission creates the Mutual Restitution
obligation to return the things which were the object of the contract, together with Q: If the object has been lost, can you still file for annulment. Yes you can still file
their fruits, and the price with its interest; consequently, it can be carried out only whether executory or executed.
when he who demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the Characteristic:
object of the contract are legally in the possession of third persons who did not act in Article 1390. The following contracts are voidable or annullable, even though there may have been
bad faith. no damage to the contracting parties:
In this case, indemnity for damages may be demanded from the (1) Those where one of the parties is incapable of giving consent to a contract;
person causing the loss.) (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
Case: Luz v Baylon, G.R. 182435 Aug 13, 2012 – in order to secure the efficacy of an These contracts are binding, unless they are annulled by a proper action in court.
impending judgment They are susceptible of ratification
> Not a condition sine qua non 1) Valid and effective until set aside (See Art 1390)
2) May be assailed or attacked in an action for annulment
5) All other contracts specially declared by law to be subject to rescission 3) Can be assailed only by the party whose consent was defective or his
Article 1382. Payments made in a state of insolvency for obligations to whose heirs or assigns
fulfillment the debtor could not be compelled at the time they were effected, 4) Can be confirmed / ratified (See Article 1390)
are also rescissible.
Voidable Contracts are:
Article 1098. A partition, judicial or extra-judicial, may also be rescinded on 1) One of the parties is incapable of giving consent
account of lesion, when any one of the co-heirs received things whose value
is less, by at least one-fourth, than the share to which he is entitled,
2) If the consent is vitiated
considering the value of the things at the time they were adjudicated.
RATIFICATION
Article 1189. When the conditions have been imposed with the intention of How? By express or implied
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during
the pendency of the condition: Who can ratify?
(1) If the thing is lost without the fault of the debtor, the obligation shall be If Minor – Guardian
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
If age of majority attained, itself
damages; it is understood that the thing is lost when it perishes, or goes out If insane, guardian
of commerce, or disappears in such a way that its existence is unknown or it If vitiated consent, that whose consent was vitiated.
cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment Effect:
is to be borne by the creditor; Article 1396. Ratification cleanses the contract from all its defects from the moment it was
(4) If it deteriorates through the fault of the debtor, the creditor may choose constituted.
between the rescission of the obligation and its fulfillment, with indemnity for
damages in either case; ANNULMENT
(5) If the thing is improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor;
> Remedy provided by law for reason of public interest, for the declaration of the
(6) If it is improved at the expense of the debtor, he shall have no other right inefficacy of a contract based on a defect or vice of consent of one of the contracting
than that granted to the usufructuary. parties in order to restore them….

Article 1526. Subject to the provisions of this Title, notwithstanding that the (1971)X, of age, entered into a contract with Y, a minor. X knew and the contract
ownership in the goods may have passed to the buyer, the unpaid seller of specifically stated the age of Y. May X successfully demand annulment of the
goods, as such, has: contract? Reasons
(1) A lien on the goods or right to retain them for the price while he is in Ans: Who can cause annulment? The law provides that the capacitated person can
possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in
not assail the incapacity of the other person.
transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title; Annulment Who When?
(4) A right to rescind the sale as likewise limited by this Title. Party who lacks capacity Within 4 years from Time
Where the ownership in the goods has not passed to the buyer, the Guardianship 4 years from discovery
unpaid seller has, in addition to his other remedies a right of withholding 4 years from cessation of
Innocent Party
delivery similar to and coextensive with his rights of lien and stoppage in
transitu where the ownership has passed to the buyer. Article 1397. The action for vices of consent
the annulment of contracts
may be instituted by all who
Article 1542. In the sale of real estate, made for a lump sum and not at the are thereby obliged
rate of a certain sum for a unit of measure or number, there shall be no
principally or subsidiarily.
increase or decrease of the price, although there be a greater or less area or However, persons who are
number than that stated in the contract.
capable cannot allege the
The same rule shall be applied when two or more immovables as sold incapacity of those with
for a single price; but if, besides mentioning the boundaries, which is
whom they contracted; nor
indispensable in every conveyance of real estate, its area or number should can those who exerted
be designated in the contract, the vendor shall be bound to deliver all that is
intimidation, violence, or
included within said boundaries, even when it exceeds the area or number undue influence, or employed
specified in the contract; and, should he not be able to do so, he shall suffer a
fraud, or caused mistake
reduction in the price, in proportion to what is lacking in the area or number, base their action upon these
unless the contract is rescinded because the vendee does not accede to the
flaws of the contract.
failure to deliver what has been stipulated.
-any party, subsidiary
Article 1659. If the lessor or the lessee should not comply with the obligations bound can file for
set forth in articles 1654 and 1657, the aggrieved party may ask for the annulment

21
Effect of annulment (d) An agreement for the sale of goods, chattels or things in action, at a price not
Mutual Restitution 1398 and 1402 less than five hundred pesos, unless the buyer accept and receive part of such
Article 1398. An obligation having been annulled, the contracting parties shall goods and chattels, or the evidences, or some of them, of such things in action or
restore to each other the things which have been the subject matter of the contract, pay at the time some part of the purchase money; but when a sale is made by
with their fruits, and the price with its interest, except in cases provided by law. auction and entry is made by the auctioneer in his sales book, at the time of the sale,
of the amount and kind of property sold, terms of sale, price, names of the
Article 1402. As long as one of the contracting parties does not restore what in virtue purchasers and person on whose account the sale is made, it is a sufficient
of the decree of annulment he is bound to return, the other cannot be compelled to memorandum; See Auction Sale
comply with what is incumbent upon him. (e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
 In obligations to render service, the value thereof shall be the basis (f) A representation as to the credit of a third person.
for damages. (3) Those where both parties are incapable of giving consent to a contract.

Subject matter Thing With fruits 1) Without authority / Without legal representation
Article 1391. The action for Price With interest 2) Both parties incapable of giving consent
annulment shall be brought 3) Do not compel with the statute of frauds.
within four years.
This period shall begin: > Prevents parole evidence to be presented.
In cases of intimidation, “ In order to avoid frauds”
violence or undue influence, Requirements
from the time the defect of  Provides the method by which the contracts enumerated therein
the consent ceases. may be proved
In case of mistake or fraud,  Required that the contract or some not or memorandum thereof be
from the time of the discovery in writing
of the same.
And when the action refers to
contracts entered into by Article 1406. When a contract is enforceable under the Statute of Frauds, and a public document is
minors or other incapacitated necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right
persons, from the time the under Article 1357 - Addition to right to compel
guardianship ceases.
Article 1397. The action for Service: damages How do you ratify?
the annulment of contracts Acceptance of benefit under the contract
may be instituted by all who Failure to object to the presentation of oral evidence to prove the contract  Must
are thereby obliged object to the presentation!!!!
principally or subsidiarily.
However, persons who are
capable cannot allege the Effect:
incapacity of those with One party ratified  Voidable
whom they contracted; nor Both  Validated
can those who exerted
intimidation, violence, or VOID CONTRACTS – do not exist in fact and law
undue influence, or employed  Not provide legal effect
fraud, or caused mistake
 Not ratified1409
base their action upon these
flaws of the contract.  Can not give rise to valid contract ( Article 1422. A contract which is the direct result of
Party lack capacity > Return insofar as has a previous illegal contract, is also void and inexistent. )
Article 1399. When the defect been benefited by the  Non waivable
of the contract consists in the Article 1409. The following contracts are inexistent and void from the beginning:
thing or price received by
incapacity of one of the (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
him order or public policy;
parties, the incapacitated
person is not obliged to make (2) Those which are absolutely simulated or fictitious;
any restitution except insofar (3) Those whose cause or object did not exist at the time of the transaction;
as he has been benefited by (4) Those whose object is outside the commerce of men;
the thing or price received by (5) Those which contemplate an impossible service;
him. (6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
Effect of Loss: These contracts cannot be ratified. Neither can the right to set up the defense of
Article 1400. Whenever the person obliged by the decree of annulment to return the thing can not illegality be waived.
do so because it has been lost through his fault, he shall return the fruits received and the value of
the thing at the time of the loss, with interest from the same date.
 Prescribe (Article 1410. The action or defense for the declaration of the inexistence of a
Defendant  Fault  Value at the time of loss, fruits received, interest from the time contract does not prescribe. )
of loss  Article 1421. The defense of illegality of contract is not available to third persons whose
interests are not directly affected.
If not at fault, no interest
 Restitution / restoration
Except:
Plaintiff  Fault  Action is extinguished Article 1411. When the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes a criminal offense, both parties being in pari
Plaintiff lacks capacity  No fault / fraud  Action survives delicto, they shall have no action against each other, and both shall be prosecuted.
Fault / fraud  Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.
UNENFORCEABLE CONTRACTS This rule shall be applicable when only one of the parties is guilty; but
the innocent one may claim what he has given, and shall not be bound to comply
> Can not be enforced by court action unless ratified
with his promise.
and
Article 1403. The following contracts are unenforceable, unless they are ratified:
Article 1412. If the act in which the unlawful or forbidden cause consists does not
(1) Those entered into in the name of another person by one who has been given no authority or
constitute a criminal offense, the following rules shall be observed:
legal representation, or who has acted beyond his powers;
(1) When the fault is on the part of both contracting parties, neither may recover
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
what he has given by virtue of the contract, or demand the performance of the
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some
other's undertaking;
note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent;
(2) When only one of the contracting parties is at fault, he cannot recover what he
evidence, therefore, of the agreement cannot be received without the writing, or a secondary
has given by reason of the contract, or ask for the fulfillment of what has been
evidence of its contents:
promised him. The other, who is not at fault, may demand the return of what he has
(a) An agreement that by its terms is not to be performed within a year from the
given without any obligation to comply his promise.
making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to Article 1409. The following contracts are inexistent and void from the beginning:
marry;
22
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or Ex 3: Owner made it appear that A is the owner. A obtains a loan from C and pledges
public policy; the vehicle. C gave proceeds to Owner. B can not raise the defense that B was not the
(2) Those which are absolutely simulated or fictitious; one who made the pledge.
(3) Those whose cause or object did not exist at the time of the transaction; Article 1438. One who has allowed another to assume apparent ownership of
(4) Those whose object is outside the commerce of men; personal property for the purpose of making any transfer of it, cannot, if he received
(5) Those which contemplate an impossible service; the sum for which a pledge has been constituted, set up his own title to defeat the
(6) Those where the intention of the parties relative to the principal object of the contract cannot be pledge of the property, made by the other to a pledgee who received the same in
ascertained; good faith and for value.
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived. Article 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
#6 of Article 1409  “Void for vagueness is precluded from asserting his legal title or interest therein, provided all these requisites are
#3 of Article 1409  Means the thing will never come into existence present:
(1) There must be fraudulent representation or wrongful concealment of facts known to the party
Cause or Object is illegal Constitutes Criminal Offense estopped;
Parties in pari delicto No action against the other No action against (2) The party precluded must intend that the other should act upon the facts as misrepresented;
No restitution No restitution (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.
Parties shall be prosecuted Confiscated Requisites:
1) There must be a fraudulent representation or wrongful concealment of
Only one party No action for specific performance facts known to the party
2) Party precluded that the other act upon the fact
Exception In pari delicto 3) Party misled
Contract is repudiated – before purpose is accomplished, One party is incapacitated 4) Other party would be prejudiced if the guilty party is allowed to deny facts
Agreement is not illegal per se: prohibited for protection first represented by him
Ex: sale of land awarded by homestead.
Article 1433. Estoppel may be in pais or by deed.
Article 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by 2 Kinds
the debtor, with interest thereon from the date of the payment.
Estoppel by Deed – precluded from asserting, the truth brought about by deed
Estoppel in Pais / Equitable  Estoppel by Conduct, Actions, By Silence
Article 1417. When the price of any article or commodity is determined by statute, or by authority of
law, any person paying any amount in excess of the maximum price allowed may recover such Requisites: (Party Estopped)
excess. 1) Party commits a conduct amounting to false rep
2) Intent or at least expectation
Article 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, 3) Knowledge, actual or constructive
and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus
fixed, he may demand additional compensation for service rendered beyond the time limit . Party claiming estoppels
1) Party has no knowledge
Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a 2) Relied on Good faith
contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover 3) Acted based on the representations made by the other to his injury.
the deficiency.
> By Representation
***In all of these provisions allow Recovery > By admission
> By Promise / Promissory Estoppel
Article 1420. In case of a divisible contract, if the illegal terms can be separated from the legal
Promissory Estoppel
ones, the latter may be enforced.
Divisible contract, only those affected can be declared void.
Case: Terminal Facilities v PPA G.R. 135639 Feb 27, 2002
Case: Yamamoto v Mishino Leather 2008 -
ESTOPPEL
> By Silence / Inaction
> According to scholars, it gives answers to those which legislation can not provide.
“…You can not make a statement then retract it.”
Case: Delos Santos v Bibar – Signed as witness but noded her head
when she was designated as guarantor above her name.
> By acquiescence – When received benefits
A condition or state by virtue of which an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against
the person relying thereon.
Case: Chung v Ulanday Construction G.R. 156038 Oct 11, 2010 – The
real office of the equitable norm of estoppels is limited to supplying
deficiency in the law, but it should not supplant positive law. – No
Estoppel When Available: Article 1432. The principles of estoppel are hereby adopted
insofar as they are not in conflict with the provisions of this Code, the Code of estoppels thereof in Pais in the case.
Commerce, the Rules of Court and special laws.
- when not in conflict with law Estoppel by Laches
> Neglects by an unreasonable length of the time to exercise what should have been
Who can avail and against whom: Parties, successors in interest exercised earlier
> Delay in filing an action for an unreasonable and unexplained length of time.
Examples: Article 1436. A lessee or a bailee is estopped from asserting title to the thing leased or > Negligence in asserting a right within a reasonable time
received, as against the lessor or bailor. – A lessee or a bailee is stopped from asserting > a.k.a Doctrine of Stale Demand (Laches)
title to the thing leased or received, as against the lessor or bailor
- By entering into lease, lessee recognizes the ownership of the lessor Requisites: (4 Items)
1) Conduct on the part of defendant
Case: Megasugar v CA – Counsel who appeared before. Now denying that the 2) Delay on part of complainant
counsel is their representative – Corporation is precluded. 3) Lack of knowledge on the part of the defendant that complainant
would assert the right on which he bases his suit
Ex: B owns a red car. A who is not the owner sells the vehicle to C. A was able to 4) Injury damage if suit is allowed
obtain title over this vehicle after the sale. Effect: The title will be transferred to C. A Case: Arroyo v Bocago 2012
can not raise the defense that he is not the owner at the time of the sale. Factors:
Article 1434. When a person who is not the owner of a thing sells or alienates and 1) If related to one another, estoppel not applied strictly
delivers it, and later the seller or grantor acquires title thereto, such title passes by 2)
operation of law to the buyer or grantee.
Ex 2: A acting as agent. Same. Because he represented that he is acting for and in Case: Tijam v Sibonhanoy – Due to adverse judgment,
behalf of a principal Case: Calimlim

23
 Case: Figueroa – General Rule jurisdiction not acquired by waiver or Void contracts Imprescriptible
appeal Trust contracts 
Exception: Case: Tijam (Then strictly construed) – Only in Probate of a will  Imprescriptible
cases with the same set of facts.
How about those crimes under special law? Under codal check this
Estoppel by Record
> Parties and privies precluded from denying matters set forth in a record, TRUST
whether judicial or legislative, > A fiduciary relationship concerning property which obliges a person holding it to deal
with the property for the benefit of another (Beneficiary).
Specie of the above is: Estoppel by Judgment How do guardians / representatives?
> This is a kind of technical estoppels > Trustee has legal title. He has a responsibility of managing but not to dispose of the
> Parties precluded from denying facts adjudicated by court of competent property
jurisdiction.
> It is in other words, conclusiveness of judgment Characteristics
1) Fiduciary Relationship
Laches Prescription 2) Created by law or agreement
Effect of Delay Fact of Delay 3) Legal title is held by one, equitable beneficial title is held by another.
Question of Inequity Question of time
Not Statutory Statutory Parties:
Not based on a fixed time Based on a fixed time Trustor or Settler
Trustee  Has legal title
Article 1106. By prescription, one acquires ownership and other real rights through the lapse of Cestui Que Trust or Beneficiary  Has Equitable Title
time in the manner and under the conditions laid down by law.
In the same way, rights and conditions are lost by prescription. Sometimes you can have only 2
Trustor / Settler and Cestui Que Trust / Beneficiary
Runs against: Trustee
1) Minors and incapacitated person as long as with representative
2) Absentees who have administrators Kinds of Trust
3) Persons living abroad, who have managers or admin 1) Express – Direct trust. Voluntary Agreement by the party.
4) Juridical persons except the state and its subdivisions. 2) Implied – By operation of law
a. Constructive – No statement but in order to prevent fraud the
EXTINCTIVE PRESCRIPTION law imposes.
Article 1139. Actions prescribe by the mere lapse of time fixed by law . b. Resulting – not stated by the written instruments. Law
*** Count from the time the right accrues presumes there is

Computation of Period: Q BAR <2007>: Explain the following concept of trust de son tort
Article 1150. The time for prescription for all kinds of actions, when there is no special provision Ans: Constructive Trusts: Trust ex maleficio, trusts ex delicto trusts de son tort
which ordains otherwise, shall be counted from the day they may be brought. Resulting Trust: Enforcing trusts
Article 1151. The time for the prescription of actions which have for their object the enforcement of
obligations to pay principal with interest or annuity runs from the last payment of the annuity or of Difference Express Implied
the interest. Created by intention of the parties By operation of law only
Created by direct and positive acts of the
Article 1152. The period for prescription of actions to demand the fulfillment of obligation declared parties
by a judgment commences from the time the judgment became final. Deducible from the nature of the
transaction  Resulting Trust
Article 1153. The period for prescription of actions to demand accounting runs from the day the
persons who should render the same cease in their functions. or which are super induced on the
The period for the action arising from the result of the accounting runs from the date transaction  Constructive Trust
when said result was recognized by agreement of the interested parties. Can be proved by parol evidence
Immovable or any interest therein; May be barred by prescription
Instances which can interrupt running: existence can not be proved by
Article 1154. The period during which the obligee was prevented by a fortuitous event from Prescription do not constitute a bar
enforcing his right is not reckoned against him. without repudiation
and
Article 1155. The prescription of actions is interrupted when they are filed before the court, when
there is a written extrajudicial demand by the creditors, and when there is any written Express Trust
acknowledgment of the debt by the debtor. Q: How is it established? Ans: Intention to create trust ( Article 1444. No particular words
1) Filing action in court are required for the creation of an express trust, it being sufficient that a trust is clearly intended.)
2) Extrajudicial demand in written form  Before agreement of the parties. Either epressed orally or in writing. No particular
3) Written acknowledgement of the debtor as to his debt. words are required.
4) Happening of the fortuitous event
Article 1443. No express trusts concerning an immovable or any interest therein may
Statute of Limitations (Prescription) be proved by parol evidence. Written document not for validity but for
Action to recover movables  8 Years enforceability.
 Note: Robber can not acquire ownership by prescription
Q: How proven? Ans: Depends on what kind of property: If immovable or any interest
Real actions over immovables  30 Years
therein  The written document only. If personal property, written document or parole
Mortgage action  10 year
evidence
Action upon a written contract 10 years
Action upon an obligation created by law  10 years
Action upon a judgment  10 years
Trustee Accept  Trust
Action upon an oral contract  6 years
If not agree  Not fail (Article 1445. No trust shall fail because the trustee appointed declines
Quasi contract 6 years
the designation, unless the contrary should appear in the instrument constituting the trust. )
Injury to the rights of the plaintiff 4 years
Failed See Art 1445
Quasi delict  4 years
Forcible entry  1 years
Article 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no
All other actions  5 years onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to
Nuisance  Imprescriptible the contrary.
Right of way  Imprescriptible
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How to terminate trust Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of
-Mutual agreement of all parties law, considered a trustee of an implied trust for the benefit of the person from whom the property
-Expiration comes.
-Fulfillment of Resolutory Condition BAR: Ans: Express Trust. Not prescriptible except when there is repudiation
-Rescission or annulment BAR 1998 Co-ownership over 2 parcels of land. A co-owner sold one entire parcel of
-Loss of the subject matter land.
-Order from the court BAR
-Merger of rights
Article 1457. An implied trust may be proved by oral evidence.
-Accomplishment of the purpose of the trust

Q: Can it be acquired by prescription? Ans: _____________________________

GENERAL RULE: Express Trust Does Not Prescribe
Except: Repudiation
Requisites:
a) Act of repudiation
b) Act of repudiation is brought to the knowledge of beneficiary
c) Evidence thereon is clear and convincing

Implied Trust:
How proven: Oral Evidence

Q: Can it be barred by prescription? Ans:____________________________

> Acquisitive Prescription
> Extinctive Prescription
Resulting Trust, prescriptive period is 10 years
Constructive Trust, Fraud or Mistake = depends on what kind
of filing, if for annulment, 4 years.
Declaration of nullity, imprescriptible

Article 1447. The enumeration of the following cases of implied trust does not exclude others
established by the general law of trust, but the limitation laid down in article 1442 shall be
applicable.
Article 1442. The principles of the general law of trusts, insofar as they are not in
conflict with this Code, the Code of Commerce, the Rules of Court and special laws
are hereby adopted.
1) Purchase Money Resulting Trust  Named to another:
Article 1448. There is an implied trust when property is sold, and the legal estate is
granted to one party but the price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by
law, it being disputably presumed that there is a gift in favor of the child.
Except: Legitimate / Illegitimate Child  Presumed as a gift

2) Donee does not get full ownership of benefits ( Article 1449. There is also an implied
trust when a donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial interest or only a
part thereof.)

3) Conveyance of property so that it may serve as security ( Article 1450. If the price of
a sale of property is loaned or paid by one person for the benefit of another and the
conveyance is made to the lender or payor to secure the payment of the debt, a trust arises
by operation of law in favor of the person to whom the money is loaned or for whom its is
paid. The latter may redeem the property and compel a conveyance thereof to him. )

4) Title to inherited land is not in owner’s name ( Article 1451. When land passes by
succession to any person and he causes the legal title to be put in the name of another, a
trust is established by implication of law for the benefit of the true owner. )

5) Property in the name of only one of the co-buyers

6) Person declares his intent to hold property for someone else ( Article 1453. When
property is conveyed to a person in reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied trust in favor of the person whose
benefit is contemplated. )

7) Absolute conveyance for security purpose ( Article 1454. If an absolute conveyance of

property is made in order to secure the performance of an obligation of the grantor toward
the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is
offered by the grantor when it becomes due, he may demand the reconveyance of the
property to him. )

8) Use of trust funds to purchase property ( Article 1455. When any trustee, guardian or
other person holding a fiduciary relationship uses trust funds for the purchase of property
and causes the conveyance to be made to him or to a third person, a trust is established by
operation of law in favor of the person to whom the funds belong. )
Applies also to guardians or any with fiduciary relationship

Example of Constructive Trust

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