OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta.

Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

PRESCRIPTION GENERAL PROVISIONS Art. 1106. By prescription, one acquires ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law. In the same way, rights and conditions are lost by prescription. PRESCRIPTION  An acquisition of a right by a lapse of time; a limitation which refers to the time within which an action must be brought after the right of action has accrued.  A statute of repose whose object is to suppress fraudulent and stale claims from springing up at great distances of time  Negligence as basis of prescription—Both kinds of prescription are essentially based on negligence of the owner of the right.  Retroactive—Acquisition of rights through prescription is retroactive. One is deemed to have acquired the right at the moment the prescription began to run, once the period is completed.  Prescription v. laches—Laches is based on grounds of public policy which requires, for the peace of society, the discouragement of stale claims PRESCRIPTION  Fact of delay  Fixed time  Question of time  Statutory  Basis: law LACHES  Effect of delay  Not time-bound  Question of equity in permitting the enforcement of a claim  Not statutory  Basis: equity

Requisites of laches  Conduct on the part of defendant, which gives rise to a claim  Delay in asserting complainant’s rights, the complainant having the knowledge & opportunity to file suit  Lack of knowledge or notice of the part of the defendant that the complainant would assert a right  Injury or prejudice to the defendant in the event relief is accorded to the complainant TYPES OF PRESCRIPTION a. Acquisitive—acquisition of a right; adverse possession; usurpation. Refers to the possessor as the actor, as a claimant in possession. Vests property. Basis: assertion of the usurper of an adverse right, uncontested by the true owner of the right, and gives rise to the presumption that the latter has given up the right to the former.  Effect of acquisitive prescription? Two sides. - One side says the right to return the thing is extinguished upon prescription. - Another (Tolentino’s) says that a natural obligation to return the thing subsists, for two reasons: the law considers an obligation barred by prescription as a natural one1, and the voluntary return of the thing can be considered as a renunciation of prescription.2
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Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles. Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered.
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Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future.

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OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

b. Extinctive—loss of the right; limitation of actions. Refers to the neglect of the owner, who is out of possession. Bars the right of action. Basis: probability that alleged right never existed or has already been extinguished, or if it exists, the inconvenience caused by the prescription should be borne by the negligent party. Art. 1107. Persons who are capable of acquiring property or rights by the other legal modes may acquire the same by means of prescription. Minors and other incapacitated persons may acquire property or rights by prescription, either personally or through their parents, guardians or legal representatives. CAPACITY FOR PRESCRIPTION  General rule: Capacity to acquire property or rights by other legal modes is required for prescription.  Exception: Minors and other incapacitated persons with discernment can acquire through prescription, but this acquisition will be voidable or annullable, and can be ratified when the minor comes of age or when the incapacitated becomes capacitated. When discernment is absent, these persons can acquire through their legal representatives. This acquisition is completely valid. Discernment requires animus rem sibi habiendi (an intent to appropriate the thing as one’s own), an essential element of possession. VALID ACQUISITION  Majority age  Minority age or incapacitated, as long as through legal representatives  VOIDABLE ACQUISITION  Minority age or incapacitated without the assistance of parents, guardians, or legal representatives

If the property requires just title: the same capacity required for the possession of title is required. If by donation, capacity for donees is required, etc. In other cases where title is unnecessary, capacity for possession is required—it is an element common to all kinds of acquisitive prescription.

Art. 1108. Prescription, both acquisitive and extinctive, runs against: (1) Minors and other incapacitated persons who have parents, guardians or other legal representatives; (2) Absentees who have administrators, either appointed by them before their disappearance, or appointed by the courts; (3) Persons living abroad, who have managers or administrators; (4) Juridical persons, except the State and its subdivisions. Persons who are disqualified from administering their property have a right to claim damages from their legal representatives whose negligence has been the cause of prescription. Art. 1109. Prescription does not run between husband and wife, even though there be a separation of property agreed upon in the marriage settlements or by judicial decree. Neither does prescription run between parents and children, during the minority or insanity of the latter, and between guardian and ward during the continuance of the guardianship. PERSONS AFFECTED BY PRESCRIPTION SUBJECTED TO PRESCRIPTION NOT SUBJECTED TO PRESCRIPTION

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OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

Minors and incapacitated persons who have parents, guardians, and legal representatives Absentees who have administrators appointed by them or the courts Persons abroad who left managers or administrators Juridical persons Will run against the State’s political subdivisions that act in their proprietary capacity (engaged in business, like a normal corporation). Husband and wife, in specific cases provided by the law, such as legal separation, or objections to decisions made by the husband over the administration of common property. Parents and children during the age of majority of the latter, or when the children are in the age of majority and are sane --

When such minors do not have parents, guardians, or legal representatives When such absentee did not leave an administrator and there is no way that the absentee could return When such person abroad did not leave a manager/administrator and there is no way that the absentee could return to the domicile It does not run against the State and its political subdivisions acting in their sovereign capacity.

Husband and wife for all other cases, even though there be a separation of property agreed upon in the marriage settlememts or by judicial decree Parents and children during minority and/or insanity of the latter

Guardian and ward during the time of the guardianship

Art. 1110. Prescription, acquisitive and extinctive, runs in favor of, or against a married woman.  A useless article, honestly.

Art. 1111. Prescription obtained by a co-proprietor or a co-owner shall benefit the others. CO-OWNERSHIP; HOW PRESCRIPTION APPLIES  General rule: Actual possession of the other parties in the co-ownership is not a requisite for the acquisition to favor the others. There is also no need for ratification of other co-owners in order that a prescription obtained by a party may benefit the others. Exception: When the prescription has no/distant relation with the properties owned in common, ratification is needed. Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future. RENUNCIATION OF PRESCRIPTION  Bars the remedy, but does not bar the debt.  Usually happens when there is a pending debt and the prescriptive time has elapsed, but the debtor acknowledges the debt and promises to pay it outside of the prescriptive period. The debtor effectively waives the right to the benefits of prescription, one of which is the inability of the creditor to collect the debt that has prescribed. Renunciation enables to creditor to recover the original contract.

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properties of public dominion include the following: 1. Mel Sta. but not against the State and its subdivisions. canals. SY 2010-2011 Based on Melencio Sta.This interpretation is based on statutory construction to reconcile a conflict between Art 1113 and Art 1108. according to Art. Maria By Anna Bueno. All things which are within the commerce of men are susceptible of prescription. Art. 1113. the provisions do not exclude each other from being availed of by the parties. or are intended for some public service or for the development of national wealth. Art.Movables possessed through a crime4 . Tacit—requires 1) acknowledgement of a debt and 2) the promise to pay it outside of the period and benefits of prescription Renunciation not valid when—1) Made in advance: an agreement that obligations arising from a contract shall not be subject to prescription is not binding. Creditors and all other persons interested in making the prescription effective may avail themselves thereof notwithstanding the express or tacit renunciation by the debtor or proprietor. ports and bridges constructed by the State.   In case of a conflict between other Civil Code provisions: The more specific provision will prevail. rivers. **According to Article 240 of the Civil Code. 1115. can be acquired by prescription. This plea does not extend to other creditors. unless otherwise provided. The provisions of the present Title are understood to be without prejudice to what in this Code or in special laws is established with respect to specific cases of prescription. a creditor can still plead the prescription.3 NOT OBJECTS OF PRESCRIPTION  Common things (air.OBLIGATIONS AND CONTRACTS: Reviewer. IA 2014    Unilateral—does not require the approval of the person benefited by it. roadsteads. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 5 Art 1126. 421 of the Civil Code. In case of conflict between the Civil Code and other statutes: If there are different prescriptive periods and different types of causes of action. Those intended for public use.  Saving clause for creditors: Even if a person bound by the obligation renounces the prescription. shores. OBJECTS OF PRESCRIPTION  Everything within the commerce of man. and can be appropriated. such as roads. 4 4 . Property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription. 2) Made by representatives: only persons with capacity to alienate property may renounce the prescription already obtained. and others of similar character 2.Patrimonial property* is an exclusion from the properties of public dominion that cannot be acquired by prescription . torrents. banks. 3 Art 1108 says prescription runs against juridical persons. .Lands registered under the Torrens system5 * Patrimonial property is private government property that is no longer intended for public use or service. thereby resisting payment. the following cannot be acquired by prescription: . Art. 1114. Those which belong to the State without being for public use. high seas)  Properties of public dominion**  Intransmissible rights  “Unless otherwise provided”—though within the commerce of man. Art 1133.

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. exclusive. 3. 1117. Capacity to acquire by prescription 2. A thing capable of acquisition by prescription 3. Prescription already running before the effectivity of this Code shall be governed by laws previously in force. Maria By Anna Bueno.   Present Civil Code took effect on August 30. REQUISITES OF ACQUISITIVE PRESCRIPTION / TYPES 1. If the prescriptive period under the old Civil Code had already elapsed before the effectivity of the new Civil Code. 2. IA 2014 Art. the new Civil Code will apply if the new Civil Code provides for a shorter time for the prescription. the present Code shall be applicable. If the prescriptive period under the old civil Code has not elapsed upon the effectivity of the new Civil Code. and uninterrupted ownership Movable / personal property – 4 years6 Immovable property – 10 years7    Bad faith In the concept of an owner Open. Possession of the thing under certain conditions ORDINARY PRESCRIPTION EXTRAORDINARY PRESCRIPTION See Art 1107 See Art 1113 See Art 1107 See Art 1113    Good faith and with just title In the concept of an owner Open. SY 2010-2011 Based on Melencio Sta. Three rules: 1. 1116. Mel Sta. the old prescriptive period applies. Lapse of time provided by law     Movable property – 8 years8 Immovable property – 30 years9 CONVERSION OF PRESCRIPTION  What if a possessor’s good faith transforms to bad faith?: Three possible solutions10. the old Civil Code will apply if the new Civil Code provides for a longer time for the prescription. but the most acceptable solution is that the prescription will be extraordinary but the possession in good 6 7 Art 1132 Art 1134 8 Art 1132 9 Art 1137 5 . If the prescriptive period under the old civil Code has not elapsed upon the effectivity of the new Civil Code. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.OBLIGATIONS AND CONTRACTS: Reviewer. but if since the time this Code took effect the entire period herein required for prescription should elapse. 1950. PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS Art. even though by the former laws a longer period might be required. Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law. This article is a transitory provision. and uninterrupted ownership 4. exclusive.

1120. TO BE VALID. the time elapsed shall be counted in favor of the prescription. That which subsists by mere tolerance or is in virtue of a license. Possession has to be in the concept of an owner. 1124. lessee. and puts value to the possession in good faith. 1122. Art. MUST BE: 1. Possession is naturally interrupted when through any cause it should cease for more than one year. Peaceful—for the period of years required by law for the acquisitive prescription to apply. and 2) the period of extraordinary prescription will run from the time the possession began (gives identical effect to both kinds of acquisitive prescriptions). Art. 1123. Acts of possessory character executed in virtue of license or by mere tolerance of the owner shall not be available for the purposes of possession. and thus constitute a recognition by the possessor that somebody else owns the property c. but cannot exercise ownership in the meantime 2. If the natural interruption is for only one year or less. public. POSSESSION. and the time of extraordinary prescription will run from the time of possession in bad faith (this puts the possessor in a worse place than one who started in bad faith).OBLIGATIONS AND CONTRACTS: Reviewer. This reflects the difference between the two kinds of acquisitive prescription. peaceful and uninterrupted. payment of real estate taxes Not in the concept of an owner: a. The old possession is not revived if a new possession should be exercised by the same adverse claimant. Merely transient. 6 . Art. Maria By Anna Bueno. Possession is interrupted for the purposes of prescription. there must be no valid interference from others claiming or asserting their rights to the property 4. Civil interruption is produced by judicial summons to the possessor. such as being a trustee. CA) continuous possession. 1118. pledge b. because both of these imply consent on the part of the owner. Uninterrupted—see following notes. agent. Judicial summons shall be deemed not to have been issued and shall not give rise to interruption: (1) If it should be void for lack of legal solemnities. 1121. must be en concepto dueño. Art. Art. usufructuary. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1119. an adverse possession Acts pertaining to the concept of an owner: (Ramos v. 10 The other two are: 1) the bad faith erases the good faith. IA 2014 faith shall be computed in proportion to the period of extraordinary prescription. Art. Mel Sta. Art. SY 2010-2011 Based on Melencio Sta. in which case the owner is not divested of the title. Public—a notorious holding of the property known to the community 3. naturally or civilly. Mere possession with a juridical title (unless such title is repudiated).    In the concept of an owner The possessor asserts dominion on the property to the exclusion of all others.

In all these cases.OBLIGATIONS AND CONTRACTS: Reviewer. prescription will begin to run from the recording of such title. When a third person declares non-ownership by the possessor Art. Natural—any cause except civil b. the period of the interruption shall be counted for the prescription. ordinary prescription of ownership or real rights shall not take place to the prejudice of a third person.  11 Art 12 1109. prescription runs only after the expiration of the redemption period. 2)acquisition is from someone who. A third person is considered one who has acquired a right subsequently by relying on the record on the registry. Art. 3) that the acquisition is registered.. it will be a new one. When the possessor him/herself declares or recognizes nonownership  E. 2) If the plaintiff pursues the complaint to its end. Any express or tacit recognition which the possessor may make of the owner's right also interrupts possession. and not the date of filing of a complaint c. 1126. and the time shall begin to run from the recording of the latter.g. 2) If the plaintiff desists and proceedings elapse. It shall not be considered an interruption: 1) If the judicial summons is void. Maria By Anna Bueno. It is in suspension where past periods may be included in the computation (e. SY 2010-2011 Based on Melencio Sta. INTERRUPTIONS TO PRESCRIPTION  Once interrupted. Express or tacit recognition by possessor of owner’s right—one cannot recognize the right of another and at the same time claim adverse possession which can ripen into ownership. (3) If the possessor should be absolved from the complaint. INTERRUPTED For a period more than one year. 7 . and 3) Upon a final decision against the possessor. suspension because of insanity of a child or during guardianship11) NATURE OF INTERRUPTION a.12 However. the Torrens title can be challenged by a claim of laches. NOT INTERRUPTED If the time elapsed is one year or less. Against a title recorded in the Registry of Property. 1125. if applicable. all the benefits already accrued in prescription cease. and 4) that such person has no knowledge of the prescription. Civil—comes in the form of judicial summons to the possessor —interruption occurs upon receipt of the judicial summons. when the prescription runs again. Exception: When another title is also recorded. according to the registry. can transmit such title.. except in virtue of another title also recorded. It shall be considered an interruption: 1) If the judicial summons is valid. IA 2014 (2) If the plaintiff should desist from the complaint or should allow the proceedings to lapse. and 3) Upon a final decision absolving the possessor.g. where the sale is subject to the owner’s right of redemption. The third person has to acquire under the following conditions: 1) under onerous title. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.  General rule: A Torrens title recorded in the Registry of Property is never a subject of prescription to the prejudice of a third person. Mel Sta.

Art 526 Examples: succession. 1129. but the grantor was not the owner or could not transmit any right. and could transmit his ownership. and the burden of proof lies in one the party alleging bad faith  Does not lose its character until the moment when facts show that the possessor is aware of that he or she possesses the thing wrongfully  Cannot be invoked in the following examples: knowingly using a forged document to establish one’s possession by acquisitive prescription. Art. Art. With regard to the right of the owner to recover personal property lost or of which he has been illegally deprived. Art. 528. there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law14 for the acquisition of ownership or other real rights. reimbursement shall be required. GOOD FAITH  Its essence lies in the honest belief in the validity of one’s right. The ownership of movables prescribes through uninterrupted possession for four years in good faith. The ownership of personal property also prescribes through uninterrupted possession for eight years.OBLIGATIONS AND CONTRACTS: Reviewer. The conditions of good faith required for possession in Articles 526. or receiving constructive notice of the legal and valid rights of the possession of another during the prescriptive period Art. For the purposes of prescription. Mel Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1130. or market. fair.  3rd paragraph: An owner who has lost or has been unlawfully deprived of property can recover the thing from the person in possession of the same. 1128. although there was a mode of transferring ownership. 527. just title must be proved. IA 2014 Art. and the absence of intention to overreach another  When the possessor is not aware of any flaw that exists in the title or mode of acquisition13  Mistake upon a doubtful or difficult question of law  Always presumed. as well as with respect to movables acquired in a public sale. donation 13 14 8 . CA) Art.  Thus. still something is wrong because the grantor is not the owner (Solis v. 1132. inheritance. without need of any other condition. just title in prescription is understood in the sense of a titulo colorado—such title where. If the possessor of the property lost or unlawfully deprived from its owner acquired the thing at a public sale. ignorance of a superior claim. 1131. The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof. and which would have actually transferred ownership if the grantor had been the owner. it is never presumed. or from a merchant's store the provisions of Articles 559 and 1505 of this Code shall be observed. For the purposes of prescription. Maria By Anna Bueno. JUST TITLE  An act which has for its purpose the transmission of ownership. 1127. The title for prescription must be true and valid. SY 2010-2011 Based on Melencio Sta. and 529 of this Code are likewise necessary for the determination of good faith in the prescription of ownership and other real rights.

has continued to be in possession during the intervening time. In case the adverse claimant possesses by mistake an area greater. Art. Actions to recover movables shall prescribe eight years from the time the possession thereof is lost. 1505. (2) It is presumed that the present possessor who was also the possessor at a previous time. prescription shall be based on the possession. 1133. Movables possessed through a crime can never be acquired through prescription by the offender.  Basis shall always be the possession. shall not be counted in favor of the adverse claimant. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Ownership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years. Actions prescribe by the mere lapse of time fixed by law. However. Art. unless there is proof to the contrary. Possession in wartime.OBLIGATIONS AND CONTRACTS: Reviewer. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years. Art. IA 2014 Art. 1135. and without prejudice to the provisions of Articles 559. Maria By Anna Bueno. 9 . Art.  1st rule contemplates a transfer of property from one person to another in a manner provided by law. (3) The first day shall be excluded and the last day included. In the computation of time necessary for prescription the following rules shall be observed: (1) The present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor or predecessor in interest. regardless of what is indicated in the title. 1140. if the civil courts are open during wartime. according to Articles 1132. or less than that expressed in his title. 2nd rule: A presumption arises that a person has occupied a property during the intervening time if there are facts showing possession on two different times. unless the possessor has acquired the ownership by prescription for a less period. 1134. Art. prescription shall be counted. when the civil courts are not open. 1138. without need of title or of good faith.  PRESCRIPTION OF ACTIONS Art.  However. 1139. It is allowed only when there is a privity of contract or relationship between the previous and the present possessors. and 1133. 1137. SY 2010-2011 Based on Melencio Sta. this presumption can be destroyed by evidence to the contrary. 1136.  But prescription will run if the movables are acquired subsequently by another who is not an offender in a crime. Art. Mel Sta.

Art. no action to recover may be filed. even though there may still be several years remaining in the prescribed 8 years. (2) Upon a quasi-delict. regulated in Article 649. The action to file a claim for the deficiency is a mortgage action. the creditor can still go against the debtor. Mel Sta. Art. (2) Upon a quasi-contract. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract. voluntary and unilateral acts to the end that no one should be unjustly enriched at the expense of the other. If there is any deficiency. A mortgage action prescribes after ten years. 1143.  A quasi-delict is a contractual relation where whoever by act or omission causes damage to another. The following actions must be commenced within six years: (1) Upon an oral contract. among others specified elsewhere in this Code. is obliged to pay for the damage done Art. The limitations of action mentioned in Articles 1140 to 1142. 1147. in the Code of Commerce. 1145. The following actions must be instituted within four years: (1) Upon an injury to the rights of the plaintiff. there being fault or negligence. and in special laws.OBLIGATIONS AND CONTRACTS: Reviewer. Art. and 1144 to 1147 are without prejudice to those specified in other parts of this Code. 1144. Real actions over immovables prescribe after thirty years. are not extinguished by prescription: (1) To demand a right of way. constituted to serve a debt so if the debtor fails to pay the principal obligation. IA 2014  Without prejudice here means that if a possessor has acquired ownership. 1142. Maria By Anna Bueno. Art.  A quasi-contract is a juridical relation characterized by certain lawful.  A mortgage is an accessory contract. 1148. SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. The following actions must be filed within one year: (1) For forcible entry and detainer. The following rights. 1146. (3) Upon a judgment.  Without prejudice means that in proper cases. This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. (2) For defamation. the creditor can foreclose on the mortgage by selling the same in a public sale and using the proceeds to pay off the debt and interest.  The cause of action for a written contract occurs when there is a breach of such contract. 1141. the prescriptive period in this chapter may be availed of notwithstanding other provisions in other laws 10 . (2) Upon an obligation created by law. (2) To bring an action to abate a public or private nuisance. Art. Art. Art.

The prescription of actions is interrupted when they are filed before the court. Mel Sta. 1149. (4)Acts or omissions punished by law. It is not a mere suspension. Art. 1151. Art. Subject-persons—the parties involved in an obligation.  General rule: Art. Object—the prestation or conduct required. 1157.  The interruption renews or starts a new period of prescription. The time for prescription for all kinds of actions. Obligations arise from: (1)Law. which in this case is to give. to do. Includes both natural and juridical persons. and 11 . The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions. Juridical tie or vinculum juris—efficient cause established by the sources of obligations (Art. and 1153. which consist of the active (obligee. Maria By Anna Bueno. Art. OBLIGATIONS AND CONTRACTS OBLIGATIONS GENERAL PROVISIONS Art. to do. 1155. 1150. 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 the interest. and when there is any written acknowledgment of the debt by the debtor. or not to do 3. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. creditor) and the passive (obligor. The period for the action arising from the result of the accounting runs from the date when said result was recognized by agreement of the interested parties. Art. debtor). The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him. 1152. (2)Contracts. 1153. All other actions whose periods are not fixed in this Code or in other laws must be brought within five years from the time the right of action accrues. Art. when there is a written extrajudicial demand by the creditors. (3)Quasi-contracts. SY 2010-2011 Based on Melencio Sta. IA 2014 Art. Art. 1152. shall be counted from the day they may be brought. Exceptions: Art. ESSENTIAL ELEMENTS OF AN OBLIGATION 1.OBLIGATIONS AND CONTRACTS: Reviewer. The period for prescription of actions to demand the fulfillment of obligation declared by a judgment commences from the time the judgment became final. Art. 1151. 1150. or not to do. 1154. 1157) 2. 1156. when there is no special provision which ordains otherwise. An obligation is a juridical necessity to give.

since this is imposed by the State and generally imbued with public policy considerations Significance: Existing law enters into and forms part of a valid contract without need for the parties expressly making reference thereto. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. QUASI-CONTRACT A quasi-contract is a juridical relation involving certain lawful.  Art. LAW Not presumed Does not depend upon the will of the parties.When the Court fixes a period when a debtor binds himself to pay when his/her means permit him/her to do so . 2. 1158. FELONIES 12 . on the part of the other or others Whatever stipulations.    Art.OBLIGATIONS AND CONTRACTS: Reviewer. CONTRACTS A contract involves two or more persons whereby a right is acquired by at least one of them to an act or acts.When the Court equitably reduces the penalty when the principal obligation has been partially fulfilled by a debtor. No other sources of obligations are provided by the law. Obligations derived from law are not presumed. and shall be regulated by the precepts of the law which establishes them. terms. and conditions are included in the contract. 1159. 4. and as to what has not been foreseen. Civil obligations arising from criminal offenses shall be governed by the penal laws.When the Court releases the obligor from an obligation that has become so difficult to be manifestly beyond the contemplation of the parties    Art. IA 2014 (5)Quasi-delicts. or to forbearance. The Court may interfere with a contract in the following cases: . SY 2010-2011 Based on Melencio Sta. good customs. These sources are further discussed below. Mel Sta. subject to the provisions of Article 2177. regulating damages. Only those expressly determined in this Code or in special laws are demandable. Preliminary Title. voluntary. 1161. Art. 3. Title XVII. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1.When the Court fixes a period upon a suspensive potestative condition imposed upon the fulfilment of the obligation . 1160. morals. and of the pertinent provisions of Chapter 2. and of Title XVIII of this Book. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1. such contract is the law between the two parties. on Human Relations. of this Book. Maria By Anna Bueno. by the provisions of this Book. or when the penalty is iniquitous or unconscionable . as long as they are not contrary to law. SOURCES OF OBLIGATIONS  This enumeration is exclusive. and public policy or public order. and unilateral acts which prevent unjust enrichment at the expense of another.

Example of another standard of care: “extraordinary diligence” exercised by common carriers. IA 2014  Basis: Civil liability attaches to any person who may be found to be criminally liable.. 2177 17 Art. Mel Sta.15 This source of obligations is guided by the following rules: a. and no criminal proceedings are instituted yet during the pendency of the civil case. firms. fraud. an apple with Atty. Maria By Anna Bueno. is obliged to pay for the damage done. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family.20  NATURE AND EFFECT OF OBLIGATIONS I. or when any constitutional right under Art.g.17 c.16 b.19 Art. even though the negligence may constitute an entirely different cause of action.OBLIGATIONS AND CONTRACTS: Reviewer. or when a member of a city or municipal police force fails to render aid or protection to any person in case of danger to life or property. in case of a contrary stipulation by the parties. known. In cases of defamation. Mel’s autograph) 2. there being no fault or negligence.18 d. 33. 29 18 Art. 1163. The plaintiff shall not be entitled to recover damages twice for the same act or omission of the defendant. 34. 1162. 5. and by special laws. Indeterminate or generic—any object belonging to the same kind (e. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2. . whoever by act or omission causes damage to another. physical injuries. requiring only a preponderance of evidence. the civil action shall proceed independently of the criminal action. TWO KINDS OF THINGS 1. unless the law or the stipulation of the parties requires another standard of care. and has already been decided and particularly specified as the matter to be given among the same things belonging to the same kind (e. STANDARD OF CARE REQUIRED FOR THINGS TO BE GIVEN  General rule: The standard of care required of the person who has the duty to give a determinate object is that of the “proper diligence of a good father of a family. or associations engaged in the business of transporting passengers or goods or both.g. corporations. However. if there is no existing pre-contractual relation between the parties. Determinate—an object definite. Common carriers are persons. such stipulation should not contemplate a relinquishment or waiver of the most ordinary diligence. When a separate civil action is brought to demand civil liability arising from a criminal offense. QUASI-DELICT A juridical relation where. a preponderance of evidence is sufficient to prove the act complained of.”  Exception: Unless the law or stipulation of the parties requires another standard of care. 30 19 Art. a civil action of damages for the same act or omission may be instituted. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. requiring only a preponderance of evidence. 32 is violated. SY 2010-2011 Based on Melencio Sta. TO GIVE Art.. Title XVII of this Book. 2176 Art. 32 20 Art. 2176 16 13 . any normal apple) 15 Art.

or not to do . However. Action of “specific performance”—an action to compel the debtor to make the delivery 2. Or will be bound to replace the lost object if the obligee agrees 14 . or has promised to deliver the same thing to two or more persons who do not have the same interest. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. RIGHTS BEFORE & UPON DELIVERY OF THE THING BEFORE DELIVERY  Creditor has a personal right over the thing.Such right which is enforceable only upon the debtor who is under an obligation to give UPON DELIVERY  Creditor has a real right over the thing. in addition to the right granted him by Article 1170.  Exceptions: a. If the obligor delays. he shall acquire no real right over it until the same has been delivered to him. without a passive subject individually determined. If the thing is indeterminate or generic. & damages. to do. Mel Sta.A personal right is the power of one person to demand of another. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. When what is to be delivered is a determinate thing. 1164. the creditor. Maria By Anna Bueno. the creditor has the right to have somebody else to perform the obligation and the right to charge the expenses thereof to the debtor. SY 2010-2011 Based on Melencio Sta.OBLIGATIONS AND CONTRACTS: Reviewer. If the debtor delays b. IA 2014 Art. he may ask that the obligation be complied with at the expense of the debtor. as a definite passive subject. the fulfillment of the protestation to give. charging all expenses of such fulfillment to the debtor Thus. . The creditor may have it done or delivered in any reasonable way. 1165.Such right which is enforceable against the whole world and will prejudice anybody claiming the same object of protestation  If an innocent third party is prejudiced by the acquisition of the creditor. If the debtor has promised to deliver the same thing to two or more persons who do not have the same interest Thus: 1.A real right is the power belonging to one person over a specific thing. may compel the debtor to make the delivery. the innocent third party can go against the debtor for damages  If the creditor is prejudiced by the acquisition of an innocent third party. if the non-delivery is accompanied by the debtor’s fraud. negligence. NON-DELIVERY OF THE THING DETERMINATE THING 1. against whom such right may be personally exercised . the creditor can go against the debtor for damages Art. *IN CASE OF FORTUITOUS EVENT  General rule: Debtor is excused if non-delivery of determinate thing was due to a fortuitous event. The obligor may be liable for damages 2. or breach of contract INDETERMINATE THING REMEDIES 1. he shall be responsible for any fortuitous event until he has effected the delivery. . delay.

II. delay by the other begins. and the obligor does what has been forbidden him. 15 . (1099a) NON-ACCOMPLISHMENT OF THE ACT  In a prestation to do. neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. When the obligation consists in not doing. If a person obliged to do something fails to do it. When the debtor poorly fulfils the obligation 4. the time defaulted is compensated for by interest. When the debtor does what is forbidden  “At his cost” in the article both means 1) the right to have somebody else perform the obligation and 2) the right to charge the expenses thereof to the debtor. DEMAND  A demand makes an obligation become due. it shall also be undone at his expense. as when the obligor has rendered it beyond his power to perform. In the payment of money. 1167. The obligation to give a determinate thing includes that of delivering all its accessions and accessories. TO DO & NOT TO DO Art. However. From the moment one of the parties fulfills his obligation.OBLIGATIONS AND CONTRACTS: Reviewer. the debtor shall always be liable for the cost in the following instances: 1. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Maria By Anna Bueno. 1168. When the debtor contravenes the tenor of the obligation 3. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Furthermore. In reciprocal obligations. IA 2014 Art. SY 2010-2011 Based on Melencio Sta.  In short. 1166. or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract. III. the same shall be executed at his cost. TO DO & NOT TO DO Art. This same rule shall be observed if he does it in contravention of the tenor of the obligation. 1169. TO GIVE. obligor is mandated by law to deliver the whole thing. When the debtor fails to do it 2. the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare. Art. or (3) When demand would be useless. Demand is needed only when the obligation is to do something other than the payment of money. it may be decreed that what has been poorly done be undone. even though they may not have been mentioned. Mel Sta.

aggravates such causes). Mel Sta. 2) negligence. When the obligation or the law expressly declares. If it is delay by mere inadvertence. Reciprocal obligations “Substantial compliance”: The performance of one is conditioned upon the simultaneous fulfillment of another. the other party has two choices: 1) to ask for specific performance and damages. the obligor will not be held liable under Article 1169.g. but such liability may be regulated by the courts. Filing of a suit as a demand General rule: For a party to be able to file a suit to compel the other party to perform an obligation. indication in contract. or delay. Art. that extra-judicial demand must be made first on such other party prior to the filing of the suit. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 3) contravention of the tenor of the obligation.) Art. 1171. Need for demand and delay is irrelevant here. and those who in any manner contravene the tenor thereof. E. means delay with fault or negligence.g. but from the time of the demand DELAY When a party defaults. Those who in the performance of their obligations are guilty of fraud. 16 .) b. donation of a collateral to a third party Other cases a. IA 2014  Two kinds of demand: extra-judicial and judicial. E. demand is not needed for the ff: a. the obligor cannot be excused from being liable on the obligation. A commencement of a suit is a sufficient (judicial) demand. (Rationale: Fair notice must be given to the debtors in these cases. Extra-judicial demand should be made prior to the filing of a civil suit in ejectment or consignment cases. If a fortuitous event occurs after any of the causes above (and in effect. Responsibility arising from negligence in the performance of every kind of obligation is also demandable. as a prerequisite. It is a judicial demand. E. The obligation of one is a resolutory condition of the obligation of the other. (Rationale: The filing of the suit is the demand itself.. SY 2010-2011 Based on Melencio Sta. 1172. WHEN NEEDED Exceptions: Two cases.g. as contemplated in this article.OBLIGATIONS AND CONTRACTS: Reviewer. and 4) delay. according to the circumstances.     Rationale for Art. delivery of wedding car c. 1170. There are four causes provided by law which bring forth a suit for damages: 1) fraud. 1170: The compliance with an obligation must always be done in good faith. Maria By Anna Bueno. taxes b. Art. DELAY  Delay. are liable for damages. or 2) to ask for the rescission of the contract and damages EFFECTS WHEN NOT NEEDED Generally. Any waiver of an action for future fraud is void. DEMAND One becomes liable for damages for the delay not from the time the object of prestation is to be delivered. When the obligor has rendered the obligation beyond his or her power to perform. negligence. the non-fulfillment of which entitles the other party to rescind the contract. Responsibility arising from fraud is demandable in all obligations. the law does not make. When time is of the essence for a particular contract. or default.

but a design to mislead another Negligence  Contravention of tenor of obligations Delay See Art. of the time and of the place. or which. The event must either be unforeseeable or unavoidable 3.OBLIGATIONS AND CONTRACTS: Reviewer. 1166 to 1168 See Art. because its very nature involves the assumption of risk) Requisites: 1. negligence. Mel Sta. or the aggravation of the injury 17 . 1173. or when the nature of the obligation requires the assumption of risk. The cause of breach of obligation must be independent of the will of the debtor 2. When there is an assumption of risk in the nature of the obligation 3. reasonably to have been expected. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. that which is expected of a good father of a family shall be required.  Any waiver for an action of future fraud is void. paragraph 2. the creditor can simply ask for another copy of the thing  Does not serve to extend the contract  General rule: fortuitous event excuses an obligor. The debtor must be free from any participation in. Other instances provided by law (insurance contract. Except in cases expressly specified by the law. nature. or breach of contract 2. though foreseen. delay. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons. an accident due directly and exclusively to natural causes without human intervention. Not equated with a honest mistake. If the law or contract does not state the diligence which is to be observed in the performance. When the contract provides that a fortuitous event will not excuse the obligor 4. no person shall be responsible for those events which could not be foreseen. or when it is otherwise declared by stipulation. When negligence shows bad faith. Bad faith is a state of mind affirmatively operating with furtive design and some motive of ill will. CAUSE Fraud HOW COMMITTED This implies fraud committed after two parties agree to a contract. Maria By Anna Bueno. the provisions of Articles 1171 and 2201. When there is fraud. shall apply.  An omission of diligence which is required by the nature of the obligation Subjective: limited by the circumstances of time. 1169 Art. which by no amount of foresight. FORTUITOUS EVENT  An act of God. In case of fortuitous event on generic things. SY 2010-2011 Based on Melencio Sta. IA 2014 Art.   Presumption of diligence is that expected of a good father If committed with bad faith. provisions of Art. 1174. 1171 and 2201 (2) apply. and place—liability is judged by these circumstances OTHER CHARACTERISTICS  It is demandable in all obligations. were inevitable. pains or care. and not one which occurs to deceive a party into agreeing for a contract. Exceptions are the ff: 1. The event must be such to render it impossible for the debtor to fulfill his or her obligation in a normal manner 4. could have been prevented  Applicable only to determinate things in case of obligations to give.

Art. Receipt of last instalment: presumption that all previous instalments have been paid. 1178. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Real rights are usually transmissible. Usurious transactions shall be governed by special laws. while personal rights are not. PRESUMPTIONS OF PAYMENT  These presumptions are overturned by strong proof to the contrary. 1. Mel Sta. Every obligation which contains a resolutory condition shall also be demandable. shall likewise raise the presumption that such installments have been paid. save those which are inherent in his person. or upon a past event unknown to the parties. DIFFERENT KINDS OF OBLIGATIONS I. Maria By Anna Bueno. except as such exempt by law from execution 2. without prejudice to the effects of the happening of the event. 1177. all rights acquired in virtue of an obligation are transmissible.OBLIGATIONS AND CONTRACTS: Reviewer. 1179. is demandable at once. shall give rise to the presumption that said interest has been paid. 1175. 1176. SY 2010-2011 Based on Melencio Sta. after having pursued the property in possession of the debtor to satisfy their claims. TRANSMISSIBLE RIGHTS  General rule: Rights acquired in the virtue of an obligation are automatically transmissible.  Exceptions: 1) If there is a law or a stipulation in the contract to the contrary. PURE OBLIGATION 18 . may exercise all the rights and bring all the actions of the latter for the same purpose. Seek the rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana) Art. OTHER REMEDIES FOR THE CREDITOR  The following successive measures must be taken by a creditor before he or she may bring an action for rescission of an allegedly fraudulent sale: 1. Receipt of principal payment: presumption that interest has been paid. PURE AND CONDITIONAL OBLIGATIONS Art. save those which are personal to him (accion subrogatoria) 3. Subject to the laws. and 2) the owner of the right cannot transfer rights greater than what he or she possesses to the transferee. if there has been no stipulation to the contrary. 2. Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor. Exercise all the rights and actions of the debtor. IA 2014 Art. The receipt of the last instalment should refer to the specific date of the last instalment. they may also impugn the acts which the debtor may have done to defraud them. The receipt of the principal by the creditor without reservation with respect to the interest. Every obligation whose performance does not depend upon a future or uncertain event. The receipt of a later installment of a debt without reservation as to prior installments. The creditors. Art.

SUSPENSIVE POTESTATIVE CONDITION  A condition whose fulfilment depends upon the sole will of the debtor  Absolute rule: A suspensive potestative condition is always void. Art. as well as the extinguishment or loss of those already acquired. the acquisition of rights.OBLIGATIONS AND CONTRACTS: Reviewer. the obligation shall be deemed to be one with a period. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. When the fulfillment of the condition depends upon the sole will of the debtor. It is the obligation accompanying the condition which may be: . In this case. or upon a past event unknown to the parties. SY 2010-2011 Based on Melencio Sta. subject to the provisions of Article 1197. and its efficacy or obligatory force is subordinated by the happening of the future and uncertain event. the conditional obligation shall be void.Void.g.  See table at Art. 1182. 1179.  This is one of the cases when the Court assigns a period within which the payment is to be made. RESOLUTORY CONDITION  Extinguishes the obligation once the future and uncertain event happens  Demandable at once  A condition subsequent E. shall depend upon the happening of the event which constitutes the condition. IA 2014  An unqualified obligation which is demandable immediately. 19 . other than a lapse of time. Its performance does not depend upon a future and uncertain event. If it depends upon chance or upon the will of a third person. unless the condition is excused. When the debtor binds himself to pay when his means permit him to do so. Maria By Anna Bueno. in reciprocal obligations.Valid.g. if the suspensive potestative condition is imposed merely on the fulfilment of the obligation. the parties must go to court to have the period fixed. especially when the period depends upon the will of the debtor (“when his means permit him to do so” in this article). CONDITION  A condition is an act or event. 1181. Mel Sta. the obligation shall take effect in conformity with the provisions of this Code. In conditional obligations. which. must occur before a duty to perform a promise in the agreement arises or which discharges a duty of performance that has already arisen. CONDITIONAL OBLIGATION  The reverse of a pure obligation. This is now called a suspensive condition facultative as to the debtor . contract to sell (sale upon completion of payment) and contract of sale (perfection of sale upon completion of payment) Art. Art. 1180. Its performance depends upon a future and uncertain event or upon a past event unknown to the parties. if the suspensive potestative condition is imposed on the birth of the obligation. the obligation of one is a resolutory condition of the obligation of the other SUSPENSIVE CONDITION  Gives rise to the obligation upon the happening of a future and unknown event or a past event unknown to the parties  Demandable only at the time the event happens  A condition precedent E.

the law states that the obligation shall be fulfilled. shall retroact to the day of the constitution of the obligation. The condition not to do an impossible thing shall be considered as not having been agreed upon. the condition shall be deemed fulfilled at such time as may have probably been contemplated. Will extinguish the obligation as soon as the time expires. 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. unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. CONSTRUCTIVE FULFILMENT  If the obligor voluntarily prevents the fulfilment of a condition in an obligation. Art. In addition. bearing in mind the nature of the obligation. the part thereof not affected by the impossible condition is still valid. 1187. If the obligation is divisible. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. IMPOSSIBLE CONDITIONS  General rule: An obligation with an impossible condition is void. Shall render the obligation effective from the moment the time indicated has elapsed 2. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1185. Art. 1183. the time as may have been probably contemplated will be considered Art. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. 20 . If the obligation is unilateral. IA 2014 Art. or if it has become evident that the event cannot occur. If no time has been fixed. CONDITION THAT AN EVENT WILL HAPPEN AT A DETERMINATE TIME  Two effects: 1. Also called the doctrine of prevention. Art. Will extinguish the obligation if it has become unquestionable that the event will not happen CONDITION THAT AN EVENT WILL NOT HAPPEN AT A DETERMINATE TIME  Two effects: 1.  Basis: good faith in both of the parties should not impede. that part thereof which is not affected by the impossible or unlawful condition shall be valid. Maria By Anna Bueno. and is thus not part of the contract. the debtor shall appropriate the fruits and interests received. Nevertheless. when the obligation imposes reciprocal prestations upon the parties. hinder. SY 2010-2011 Based on Melencio Sta. or obstruct or prevent the fulfilment of the obligation. 1184. or 2. the condition to do an impossible thing is deemed not agreed upon. once the condition has been fulfilled. the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. Impossible conditions.OBLIGATIONS AND CONTRACTS: Reviewer. those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them.  Exception: If the obligation is divisible. Shall render the obligation effective if it has become evident that the event will not occur  If no time has been fixed. Mel Sta. The effects of a conditional obligation to give.

the obligation shall be extinguished.g. SCENARIOS DURING THE PENDENCY OF AN OBLIGATION  This article applies to those obligations with suspensive conditions. PROTECTIVE MEASURES BEFORE THE FULFILLMENT OF AN OBLIGATION  For the creditor: bring appropriate actions. EVENT LOSS* DETERIORATION W/O DEBTOR’S FAULT Obligation is extinguished Impairment is borne by creditor W/ DEBTOR’S FAULT Debtor to pay damages 1. the courts shall determine. he shall be obliged to pay damages. (2) If the thing is lost through the fault of the debtor.. the following rules shall be observed in case of the improvement. or disappears in such a way that its existence is unknown or it cannot be recovered. bring the appropriate actions for the preservation of his right. but the day of the constitution of the obligation. Maria By Anna Bueno. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. the impairment is to be borne by the creditor. to protect his/her right  For the debtor: recover what he or she has paid by mistake before the fulfillment of a condition in an obligation Art.Rescission of obligation damages + 21 . IA 2014 In obligations to do and not to do. In reciprocal obligations: the fruits and interests of the object during the pendency of the condition cancel each other out. Only applicable to obligations with suspensive conditions. The creditor may.  Choice of remedy always belongs to the creditor. 2. (6) If it is improved at the expense of the debtor. SY 2010-2011 Based on Melencio Sta. e. Mel Sta. before the fulfillment of the condition. 1188. an injunction suit to stop the debtor from alienating a property which is the object of an obligation. the improvement shall inure to the benefit of the creditor. loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor. the creditor may choose between the rescission of the obligation and its fulfillment. RETROACTIVE APPLICATION OF OBLIGATIONS  General rule: An obligation is deemed to have been fulfilled not on the day of its fulfilment. unless the circumstances or the intention of the person constituting the obligation says otherwise Art.OBLIGATIONS AND CONTRACTS: Reviewer. In unilateral obligations: the fruits and interests of the object during the pendency of the obligation belong to the obligor. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give. (4) If it deteriorates through the fault of the debtor. the retroactive effect of the condition that has been complied with. with indemnity for damages in either case. in each case. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.  Application: 1. he shall have no other right than that granted to the usufructuary. (3) When the thing deteriorates without the fault of the debtor. 1189. or goes out of commerce. (5) If the thing is improved by its nature. or by time. it is understood that the thing is lost when it perishes.

Mel Sta.  This article applies to obligations with resolutory conditions. unless there be just cause authorizing the fixing of a period. SY 2010-2011 Based on Melencio Sta. it means to abrogate the contract from the beginning and restore the parties to their original positions as if no contract has been made. termination. even after he has chosen fulfillment. 3) disappears in such a way that its existence is unknown or it cannot be recovered **A usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance unless the title constituting it or the law provides.  Requires a substantial breach of an obligation: substantial as to defeat the object of the parties in entering into an agreement. Court shall fix a period. the provisions which. 1190. When the conditions have for their purpose the extinguishment of an obligation to give. are laid down in the preceding article shall be applied to the party who is bound to return. The court shall decree the rescission claimed. In case of the loss. Maria By Anna Bueno. with respect to the debtor. but more importantly. Art. 2) goes out of commerce. Same scenarios as in Art. The injured party may choose between the fulfillment and the rescission of the obligation. RESCISSION ENFORCEMENT IMPLIED RECISSION Court action EXPRESS RECISSION Stipulation in the contract that the violation of its terms shall cause the cancellation. 1191. shall return to each other what they have received. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. if the latter should become impossible. upon the fulfillment of said conditions. or rescission thereof w/o court intervention To judge whether the rescission is proper. He may also seek rescission. with the payment of damages in either case.OBLIGATIONS AND CONTRACTS: Reviewer. the parties. The power to rescind obligations is implied in reciprocal ones. 22 . if there is a just cause. deterioration or improvement of the thing. 1198. in accordance with Articles 1385 and 1388 and the Mortgage Law. This is understood to be without prejudice to the rights of third persons who have acquired the thing. IA 2014 IMPROVEMENT (By nature or time) Shall inure to the benefit of creditor 2. in case one of the obligors should not comply with what is incumbent upon him. Final judgment of court shall only confirm such recission Notice to the defaulter of such recission PURPOSE OF COURT ACTION To enforce recission REVOCATORY ACT Final judgment of the court. POWER TO RESCIND  To rescind does not merely mean to terminate a contract and release the parties from further obligations to each other. Art. however.Fulfilment of obligation + damages (At the expense of debtor) Debtor shall only be a usufruct** *A thing is deemed lost when it 1) perishes.

Fulfillment of obligation + damages 2. the rules in Article 1189 shall be observed.  If the debtor and creditor have full knowledge of the period: no problems. and each shall bear his own damages. Anything paid or delivered before the arrival of the period. the obligation is conditional. but terminate upon arrival of the day certain. Suspensive period—gives rise to the effectivity of the obligation 2. 1193. IN PARI DELICTO  If first violator is determined: Such first violator is liable. In case both parties have committed a breach of the obligation. and each shall bear his/her own damages II. Maria By Anna Bueno. deterioration or improvement of the thing before the arrival of the day certain. although it may not be known when. 1. PAYMENT BEFORE PERIOD COMES  If the debtor is unaware of the period: . A day certain is understood to be that which must necessarily come. Obligations for whose fulfillment a day certain has been fixed. 1192. the same shall be deemed extinguished. with the fruits and interests.He or she may recover the thing with fruits and interests only during the time he or she was not obligated to give the thing. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. but his liability will be tempered because the other party is also at fault  If first violator cannot be determined: Obligation shall be deemed extinguished. may be recovered. Obligation is fulfilled. although it may not be known when. PERIOD  Designates a particular time which is certain to happen as the moment when the obligation will either be effective or be extinguished. Resolutory period—extinguishes the obligation Art. If it cannot be determined which of the parties first violated the contract. it is a condition. shall be demandable only when that day comes. SY 2010-2011 Based on Melencio Sta. If the uncertainty consists in whether the day will come or not. the obligor being unaware of the period or believing that the obligation has become due and demandable.OBLIGATIONS AND CONTRACTS: Reviewer. Mel Sta. OBLIGATIONS WITH A PERIOD Art. if fulfillment should become impossible + damages Art. Rescission of obligation + damages 3. the liability of the first infractor shall be equitably tempered by the courts. and it shall be regulated by the rules of the preceding Section. even after the injured party has chosen fulfillment. 1194. IA 2014 Injured party who suffers a substantial breach has the following choices: 1. Art. In case of loss. When the day may not necessarily come. Rescission. Why does the law use “fruits and interests”?  The preceding term is “paid or delivered. 1195. A day certain is understood to be that which must necessarily come.” Fruits refer to “delivered” and interests refer to “paid. Obligations with a resolutory period take effect at once.” Why does the law include fruits and interests in a case for damages? 23 .

in consideration of which the creditor agreed to the period. If the obligation does not fix a period.g. Maria By Anna Bueno. so the law compensates for that. unless he gives a guaranty or security for the debt. Ltd. (2) When he does not furnish to the creditor the guaranties or securities which he has promised. unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. BENEFIT OF THE PERIOD  General rule: The period is always deemed to be established for the benefit of both the creditor and debtor. 1198.21 This period determined by the court is final and cannot be changed by anyone again. he becomes insolvent. Once fixed by courts. Court must determine the period contemplated by the parties. 2.OBLIGATIONS AND CONTRACTS: Reviewer. The Court cannot fix a period based on its opinion. Whenever in an obligation a period is designated. LOSS OF THE RIGHT TO A PERIOD  Article 1198 applies to both reciprocal and unilateral obligations and those where the period is for the benefit of both parties or one party. In reciprocal obligations. Court must determine whether the obligation does not fix the period (e. the courts shall determine such period as may under circumstances have been probably contemplated by the parties. Sugar Estates Development Co. (3) When by his own acts he has impaired said guaranties or securities after their establishment. but from its nature and circumstances it can be inferred that a period was intended. Phil. Mel Sta. (4) When the debtor violates any undertaking. a period was intended by the parties. 24 . Art. either party does not incur in delay unless the other starts the fulfilment of his part during the period stipulated. v. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted.  Exception: The benefit of the period may be waived (expressly or impliedly) by the party in whose favor it was constituted. The courts shall also fix the duration of the period when it depends upon will of the debtor. 21 Gregorio Araneta Inc. 1197. Designations of “creditor” and “obligor” are irrelevant. 1196. Art. (5) When the debtor attempts to abscond. for example. the period cannot be changed by them. it is presumed to have been established for the benefit of both the creditor and the debtor. unless he immediately gives new ones equally satisfactory. In every case. the courts may fix duration thereof. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. SY 2010-2011 Based on Melencio Sta. and when through a fortuitous event they disappear. depends on the will of the debtor). Art. the the the the the WHEN COURTS SHALL FIX THE PERIOD  Two –step process: 1. IA 2014  The obligor has lost the opportunity to make productive use of the money.. and from the circumstances and nature of the obligation.

Insolvency is defined as the inability to pay.To abscond means to physically flee. upon insolvency . the obligation is not immediately demandable in case of insolvency. any violation of the consideration results to the loss of the right to the period. .  “Different prestations” (to give. the creditor may never collect. 2. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. and not to do) as contemplated in this article refers to both the loose and strict sense of the protestation. A resolutory condition extinguishes the obligation. unless the creditor accepts partial performance.General rule: 1) If by his/her own acts.Exception: In both cases. and not merely a failure to respond to the creditor’s demands. ATTEMPT TO ABSCOND . (But to be less confused. ALTERNATIVE OBLIGATIONS Art. A person alternatively bound by different prestations shall completely perform one of them. FAILURE TO FURNISH SECURITIES / GUARANTEES . and the obligation becomes immediately demandable. IMPAIRMENT / LOSS OF GUARANTEES . the right to a period is lost too. III. the party impairs the guarantee. treat each object of the prestation individually. .If the guarantor has committed him/herself solidarily to the obligation. The consideration here hastens the extinguishment of the obligation.OBLIGATIONS AND CONTRACTS: Reviewer. to do. Since the law gives an option for the party to furnish guarantees. . but merely a diminishing of the guarantee. 1199. 2) If through a fortuitous event.Impairment does not mean destruction. and not necessarily the loss of property.  25 . 5. because if the party succeeds in absconding. Mel Sta. INSOLVENCY .In this case.Exception: If the party can give securities or guarantees. . the period is restored. SY 2010-2011 Based on Melencio Sta.Securities can take the form of mortgages or real-estate pledges.Mere attempt make the obligation immediately demandable. . 4. . VIOLATION OF ANY CONSIDERATION TO A PERIOD . as distinguished from the first case.Need not be judicially declared. as a rule. The creditor cannot be compelled to receive part of one and part of the other undertaking. the guarantee is impaired.If all but one of the alternatives shall become impossible. but the obligation does not become demandable. the obligation is immediately demandable. 3. . IA 2014 1. the period will be restored if the party gives new guarantees equally satisfactory. he/she loses the right to a period. the creditor can opt to go against the guarantor immediately without even going to the principal. . the obligation ceases to be alternative. Maria By Anna Bueno. .General rule: Period is lost.Because the consideration is the reason why the period was agreed upon.The consideration is not a resolutory condition.Complete performance of one of the alternatives.) Rules in alternative obligations: .

Practicable means ‘capable of being done. RIGHT OF CHOICE OF THE DEBTOR  Presumed by law. he shall perform the obligation by delivering that which the creditor should choose from among the remainder. 1201. or . 1200. The debtor cannot choose such prestations. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.’ or feasible.  This right of choice implies that the prestations are not impossible.If nothing in the prestations is possible because of the fault of the creditor. unless it has been expressly granted to the creditor.OBLIGATIONS AND CONTRACTS: Reviewer. the debtor can still choose among the other alternatives if the creditor still wants to pursue the contract  Debtor’s fault: Damages based on the last thing lost or the service which became impossible. Art. plus other damages. 1204. the debtor can rescind the contract plus damages. Art. it must be communicated to the creditor. Mel Sta. 26 . Art. only one is practicable. SY 2010-2011 Based on Melencio Sta. or that which remains if only one subsists. 1205. or those which could not have been the object of the obligation.  To have effect. unlawful or which could not have been the object of the obligation. Damages other than the value of the last thing or service may also be awarded. unlawful. Maria By Anna Bueno.Provided that there are still viable alternatives left. The choice shall produce no effect except from the time it has been communicated. 1202. The right of choice implies that the debtor can freely destroy the other choices.  In addition. The creditor shall have a right to indemnity for damages when. the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. IA 2014 Art. LOSS OF ALTERNATIVES  Creditor’s fault: . through the fault of the debtor. the latter may rescind the contract with damages. Art. The right of choice belongs to the debtor. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared. 1203. Art. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound. all the things which are alternatively the object of the obligation have been lost. or the compliance of the obligation has become impossible. Creditor cannot complain. or that of the service which last became impossible. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event. The debtor shall have no right to choose those prestations which are impossible. When the choice has been expressly given to the creditor. as long as one still remains. Mode of communication may vary. the right of choice is lost when only one prestation is practicable.

entire compliance with the prestation. But once the substitution has been made. FACULTATIVE-ALTERNATIVE OBLIGATION  Involves a principal obligation and a substitute obligation  General rule: That the substitute must be given in case the principal obligation is not fulfilled is not mandatory. However. if one is left 2. The same rules shall be applied to obligations to do or not to do in case one. or the price of that which. through the fault of the former. SOLIDARY OBLIGATIONS: NATURE  Implies a situation where there are debts or obligations incurred by two or more debtors in favor of two or more creditors. through the negligence of the obligor. IA 2014 (2) If the loss of one of the things occurs through the fault of the debtor. however accepts the principal object.Can perform the obligation by delivering that which the creditor chooses . the obligor is liable for the loss of the substitute on account of his delay. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.OBLIGATIONS AND CONTRACTS: Reviewer. and giving anyone. If the debtor loses one of the choices through fortuitous event. negligence or fraud. the creditor: .May claim any of the subsisting alternatives Or the price of that alternative which disappeared because of the debtor. Mel Sta. the creditor: . also with indemnity for damages. and there was fraud involved with the substitute object . if the debtor does give the substitute in place of the principal.Becomes valid if the creditor. plus damages Art. The contract is cured of the fraud involving the substitute. plus damages 3.Or delivering the remaining choice. There is a solidary liability only when the obligation expressly so states. the creditor may claim any of those subsisting. or that each one of the latter is bound to render.Can claim the price of any of the things lost. some or all of the creditors the right to demand from 27 . but the obligor may render another in substitution. does not render him liable.Is voidable when the substitute is a consideration crucial to the agreement of one of the parties to the obligation. WHEN THE CHOICE IS EXPRESSLY GIVEN TO THE CREDITOR  Obligation shall cease to be alternative. the choice by the creditor shall fall upon the price of any one of them. The loss or deterioration of the thing intended as a substitute. JOINT & SOLIDARY OBLIGATIONS Art. If the debtor loses one of the choices through his/her own fault. Maria By Anna Bueno. (3) If all the things are lost through the fault of the debtor. or when the law or the nature of the obligation requires solidarity. the following rules will govern the obligation while the selection of the creditor has not been communicated: 1.  A facultative-alternative obligation— . with a right to damages. SY 2010-2011 Based on Melencio Sta. Moreover. some or all of the prestations should become impossible. If the debtor loses all of the choices through his/her own fault. the obligation is called facultative.  Exception: However. When only one prestation has been agreed upon. has disappeared. 1206. the creditor cannot decline. the debtor: . there is nothing stopping the parties from stipulating such in the contract. 1207. IV. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand.

1208. or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear. subject to the Rules of Court governing the multiplicity of suits. When the law requires solidarity . 1209. Art.. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Family Code: Spouses are solidarily liable with their separate properties for liabilities of the APC or CPG if such APC or CPG is insufficient to cover for the unpaid balance 3. A solidary obligation exists only when: 1. the creditors can be prejudiced only by their collective acts. (If a name or some names are identified. Creditors must act collectively when enforcing the debt.“Distinctly” . Expressly stated in the contract .  Rules: 1. The debtors must also perform the obligation collectively. if a judicial decision supersedes the contract and declares that the obligation is merely joint. 28 . When the nature of the obligation requires solidarity . because a specific person is liable. 19-22 of the Civil Code. the right of the creditors may be prejudiced only by their collective acts. If from the law.However. when violated by two or more persons. If one of the latter should be insolvent.“Jointly and severally guaranteed” . Mel Sta. Maria By Anna Bueno. then it must be enforced in a joint manner 2.“Collectively” . has been deemed to give rise to a solidary obligation. JOINT INDIVISIBLE OBLIGATIONS  An indivisible obligation is one whose payment cannot be divided.g. the others shall not be liable for his share. obviously it is not a solidary obligation.Those who were willing to perform the obligation shall only be liable for their corresponding portion in the price of the thing.“Separately” .Art. If one of the debtors fails to perform.OBLIGATIONS AND CONTRACTS: Reviewer. and not the debtors as a whole. the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors. the credits or debts being considered distinct from one another. 2.) Art. Indivisibility refers to the object of the prestation. If the division is impossible.“Respectively” . some.“I promise.E. JOINT OBLIGATIONS: NATURE  Presumption of the law is that an obligation is always joint.” or “I hereby bind myself” but only if the names were not identified in the body of the contract itself. IA 2014  anyone. according to Tolentino WHEN AN OBLIGATION IS SOLIDARY  Use of the following terms: “Individually and jointly liable” .“Severally” . In the same way. and the debt can be enforced only by proceeding against all the debtors. or all of the debtors the satisfaction of the total obligation and not merely the share of each debtor in the debts or obligations Not presumed by law.  The joint debtors are obliged to pay only their share in the indebtedness while the creditors can claim their share in the credit. SY 2010-2011 Based on Melencio Sta. indemnity for damages arises. .

Maria thinks the strict interpretation of this provision should be abandoned. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others. Each one of the solidary creditors may do whatever may be useful to the others. has been made by one of them. Receipt of payment. Art. SY 2010-2011 Based on Melencio Sta. - Art. A transfer of rights may prejudice the other creditors. payment should be made to him/her. 1216. shall extinguish the obligation. Novation. but if any demand. Maria By Anna Bueno. 1213. A solidary creditor cannot assign his rights without the consent of the others. The indivisibility of an obligation does not necessarily give rise to solidarity. b. Exception: When a specific solidary creditor makes a judicial or extra-judicial demand. he/she may be liable for the others’ share in the indebtedness. Art. Art. When an obligation is extinguished: The obligation shall be extinguished whenever any of the solidary creditors (with the solidary debtors) shall make any of the following actions: a. Transfer or rights: No one among the creditors can transfer his/her rights.OBLIGATIONS AND CONTRACTS: Reviewer. 1214. plus additional damages. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions.) If such creditor acts prejudicially to the others. payment should be made to him. debtors. 3. The proper interpretation should be that the creditor who makes the demand is simply given preference without necessarily curtailing the rights of the other creditors to collect. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.  Solidarity refers to the nature of the obligation. considering Art. 3. Art. so long as the debt has not been fully collected. the others shall not be responsible for the share of the insolvent debtor. general rule: Anyone among the creditors can receive payment. Art. IA 2014 Those who refused to perform the obligations shall be liable for their corresponding portion. Sta. as well as he who collects the debt. The creditor who may have executed any of these acts. while indivisibility of the obligation refers to the nature of the object of prestation. 2. judicial or extrajudicial. Collective actions: Creditors can act individually when such acts are beneficial to the others.g. 4. in their own rights. are creditors and debtors of each other 29 . 1210. shall be liable to the others for the share in the obligation corresponding to them. (E. but not anything which may be prejudicial to the latter. Novation—change of the creditors. SOLIDARY OBLIGATIONS: ACTIONS OF CREDITORS 1. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1212. without prejudice to the provisions of Article 1219. Compensation—two persons. 1212. Mel Sta. 1211. made by any of the solidary creditors or with any of the solidary debtors. confusion or remission of the debt. Nor does solidarity of itself imply indivisibility. one solidary creditor can sue the debtors without the other creditors joining the suit. Art. The debtor may pay any one of the solidary creditors. 1215. In case of insolvency of one of the debtors.. compensation. or the principal obligation of the contract. plus damages.

as well as he/she who collects the debt. in case the debt had been totally paid by anyone of them before the remission was effected. the creditor who may have executed any of these acts. the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor. 1221. obtained by one of the solidary debtors. If two or more solidary debtors offer to pay. SOLIDARY OBLIGATIONS: ACTIONS OF OBLIGORS 1. Art. Art. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. in proportion to the debt of each. the provisions of the preceding paragraph shall apply. such share shall be borne by all his co-debtors. Mel Sta. reimburse his share to the debtor paying the obligation. in actions filed by the creditor. In other words. Art. With respect to those which personally belong to the others. 1219. Payment: 30 . without prejudice to their action against the guilty or negligent debtor. for the price and the payment of damages and interest. If there was fault on the part of any one of them. Confusion—merger of the characters of debtor and creditor in the same person d. 1218. with the interest for the payment already made. he/she can accept partial payment from one of the debtors as such acceptance does not bar the creditor from collecting from the others. Remission—condonation of the obligation *To prevent prejudice against the others.OBLIGATIONS AND CONTRACTS: Reviewer. avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him. The remission of the whole obligation. Art. as long as the debt is not yet paid. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. the creditor may choose which offer to accept. When one of the solidary debtors cannot. Art. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors. 1220. If through a fortuitous event. 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. no interest for the intervening period may be demanded. Maria By Anna Bueno. A solidary debtor may. he may avail himself thereof only as regards that part of the debt for which the latter are responsible. 1222. He who made the payment may claim from his co-debtors only the share which corresponds to each. because of his insolvency. the obligation shall be extinguished. Art. 1217. IA 2014 c. all shall be responsible to the creditor. Demand of payment: A creditor can proceed against any one or all of the debtors simultaneously. or pertain to his own share. A demand against one is not a bar against a demand against others. even though a creditor has a right not to accept partial payment. shall be liable to the others for the share in the obligation corresponding to them. Payment made by one of the solidary debtors extinguishes the obligation. does not entitle him to reimbursement from his co-debtors. SY 2010-2011 Based on Melencio Sta. If the payment is made before the debt is due. 5.

With fault of any of the debtors: all shall be liable for damages plus interest. DIVISIBLE & INDIVISIBLE OBLIGATIONS Art. 1224. However. Art. 1223. the accomplishment of work by metrical units. A solidary debtor is entitled to reimbursement when a co-debtor obtains the remission after such solidary debtor has paid the debt on the date due. For the purposes of the preceding articles.  In a joint indivisible obligation. 31 . The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. b.  Simply put: number of creditors or debtors do not affect the nature of the object of the prestation. If one of the co-debtors is insolvent. c. 1219 is concerned. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. a. A solidary debtor cannot demand from the other co-debtors if he or she made payment after the obligation has prescribed or become illegal. Mel Sta. The non-cooperating co-debtor will be liable for his or her share in the obligation plus the sum of all damages. Also. the obligation shall be converted to a claim for damages. or analogous things which by their nature are susceptible of partial performance. a. if applicable. SY 2010-2011 Based on Melencio Sta. b. A solidary debtor is not entitled to reimbursement when a co-debtor obtained the remission before such solidary debtor has paid the debt on the date due. such share shall be borne by the co-debtors. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. V. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. the creditor will be liable for the share the other creditors should receive plus damages. the joint co-debtors must cooperate to fulfil the object of the prestation. in proportion to the debt of each. obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. it shall be divisible. b. In case one of the co-debtors does not cooperate and the obligation is not fulfilled because of his/her non-cooperation. c. Without fault of any of the debtors: obligation is extinguished. 1225. Art. b. this is applicable only when there is one creditor. even though the object or service may be physically divisible. The debtor who paid can claim from his co-debtors only their individual shares. IA 2014 Any of the solidary debtors can pay. If there are many creditors and one creditor individually made a remission. Maria By Anna Bueno. without prejudice to the innocent debtors’ actions against the guilty or negligent debtor. Loss of the thing or if prestation becomes impossible: a. 1212. 3. but: a. plus interest only if the payment was made after the debt is due. as far as Art. d. an obligation is indivisible if so provided by law or intended by the parties. The creditor may choose from whom among the debtors he will receive payment. If the remission is done. The cooperating co-debtors will only be liable for their share in the obligation. the remission is an act prejudicial to the others according to Art. When the obligation has for its object the execution of a certain number of days of work. Fortuitous event with delay: apply choice b. Remission: Depends on the time the remission was made. 2.OBLIGATIONS AND CONTRACTS: Reviewer.

the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance. Art. Nevertheless.22 Its purpose is to do away with the necessity of proving damages in case of non-fulfillment. SY 2010-2011 Based on Melencio Sta.  General rule: The penalty clause is enforced only when it is demandable in accordance with the provisions of this Code. OBLIGATIONS WITH A PENAL CLAUSE Art. IN JOINT OBLIGATIONS TO GIVE DIVISIBLE OBLIGATIONS INDIVISIBLE OBLIGATIONS  Object of obligation is any of the following:  Obligations to give definite things . However.Execution of a certain number of  Obligations which are not susceptible of partial days of work performance . damages shall be paid. the performance thereof should become impossible without his fault. unless this right has been clearly granted him. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. 1226.OBLIGATIONS AND CONTRACTS: Reviewer. Art. damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1227. In obligations with a penal clause. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. if there is no stipulation to the contrary. Mel Sta. PENAL PROVISIONS  A penal provision is an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing upon the debtor a special prestation in case the obligation is not fulfilled or is inadequately or irregularly fulfilled. the penalty may be enforced. IA 2014 In obligations not to do.Analogous things which by their material to show the character of the prestation nature are susceptible of partial in each case performance IN JOINT OBLIGATIONS NOT TO DO  Divisibility of the obligation shall be determined by the character of the prestation in each particular case VI.  General rule: A penal provision substitutes the indemnity for damages and the interests in case of non-compliance. Exception: If the obligor a) refuses to pay the penalty or is b) guilty of fraud in the fulfilment of the obligation. if after the creditor has decided to require the fulfilment of the obligation. Page 118 32 . 1228. metrical units Here. Neither can the creditor demand the fulfilment of the obligation and the satisfaction of the penalty at the same time. divisibility or indivisibility shall be determined by the character of the prestation in each particular case. 22 3 Castan. Maria By Anna Bueno. Eighth Edition. Exception: Unless the stipulation of the parties or the nature of the contracts (time is of the essence) otherwise demands. The debtor cannot exempt himself from the performance of the obligation by paying the penalty.Accomplishment ofwork by  If so provided by law or intended by the parties. the wording of the contract will be very . save in the case where this right has been expressly reserved for him.

. Exception: It extinguishes the obligation if such obligation is personal in nature or intransmissible.  The nullity of the principal obligation also nullifies the penalty clause. such as annulment. however. 1230. the penalty may be imposed. the creditor can demand the obligation and the penalty simultaneously if this right has been granted. the courts may temper. the extinction of the latter by death ipso facto extinguishes the former. Art. Payment means not only the delivery of money but also the performance. 1231. PAYMENT OR PERFORMANCE Art. I. delete it. SY 2010-2011 Based on Melencio Sta. reduce. 33 . EXTINGUISHMENT OF OBLIGATIONS  Re: death . b) Also. 1229. Obligations are extinguished: (1) By payment or performance: (2) By the loss of the thing due: (3) By the condonation or remission of the debt. (5) By compensation. Maria By Anna Bueno. and prescription. the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Mel Sta. and performance thereof becomes impossible without his or her fault. The nullity of the principal obligation carries with it that of the penal clause. Art. of an obligation. Exceptions: The debtor can pay the penalty if this right has been expressly reserved for him or her. Other causes of extinguishment of obligations. (4) By the confusion or merger of the rights of creditor and debtor.OBLIGATIONS AND CONTRACTS: Reviewer. 1232. are governed elsewhere in this Code. in any other manner. the civil liability shall persist despite the extinction of the criminal liability. the nullity of the penalty clause does not extinguish the principal obligation. (6) By novation. IA 2014 PENALTY AS AN ACCESSORY OBLIGATION  General rules: a) Debtor cannot pay the penalty instead of fulfilling the obligation. INTERVENTION OF THE COURTS IN PENALTY CLAUSES  This is one exception to the rule that a contract is the law between the parties. EXTINGUISHMENT OF OBLIGATIONS GENERAL PROVISIONS Art.General rule: Death does not extinguish an obligation. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance. If the penalty is unconscionable.  Special rule: If the creditor requires the obligation to be fulfilled.General rule: Where civil liability does not exist independently of the criminal responsibility. The nullity of the penal clause does not carry with it that of the principal obligation. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. rescission. provided that death supervenes before final judgment. b) Also. the creditor cannot demand the fulfilment of the obligation and the penalty at the same time. fulfillment of a resolutory condition. Exception: If the civil liability neither solely nor originally springs from the crime. or in some cases.

Anything less than a complete performance may be considered a breach in obligation. The law expressly declares that in obligations to give. The debtor can pay less damages suffered by the obligee. Waiver of obligee of incomplete or irregular performance: by not expressing any protest or objection. including the delivery of all the accessories of a determinate thing in an obligation to give. Whoever pays for another may demand from the debtor what he has paid. Mel Sta. 1238.) Art. If the third party pays— 34 . Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. There are two exceptions to this rule: 1. Art. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered. 1235. or penalty. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter. guaranty. 1237. SY 2010-2011 Based on Melencio Sta. 1233. knowing its incompleteness or irregularity. the part unperformed must not destroy the value or purpose of the contract. he can recover only insofar as the payment has been beneficial to the debtor. The breach in obligation is not a material one enough to compel the obligor to rescind the obligation. check. less damages suffered by the obligee. as the case may be. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation. Art. 1234. If the obligation has been substantially performed in good faith. what is required is the delivery of money—and not cash. Five situations may arise. When the obligee accepts the performance. FULFILMENT OF PAYMENT  An obligation is deemed fulfilled when he obligation has been completely delivered or rendered. etc. But the payment is in any case valid as to the creditor who has accepted it. the law does not require such to be made in any particular manner or time. 2. Substantial compliance in good faith: for this to apply. Art. Payment is done both by the creditor and debtor in reciprocal obligations.OBLIGATIONS AND CONTRACTS: Reviewer. IA 2014    There are two prestations involved in payment: 1) to give (delivery of money) and 2) to do (performance of an obligation). Art. Maria By Anna Bueno. the obligation is deemed fully complied with. such as those arising from a mortgage. (If there is a protest. and without expressing any protest or objection. except that if he paid without the knowledge or against the will of the debtor. the obligee accepts the performance of the obligation as fully complied with despite his or her knowledge of such irregularity or incompleteness. PAYMENT BY THIRD PARTY DEBTOR  Whether or not one who paid completely acquires the rights of the creditor depends on whether or not the payment has been made without the knowledge or against the will of the debtor. cannot compel the creditor to subrogate him in his rights. Art. the obligor may recover as though there had been a strict and complete fulfillment. unless there is a stipulation to the contrary. which requires the debtor's consent.

4. or insofar as the payment has been beneficial to him. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered. (2) If the creditor ratifies the payment to the third person.A person has “free disposal” of a thing when he/she owns it or has been given authority by the owner to use the property as payment . 1241. payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid. Art. IA 2014 1. With the knowledge and consent of the debtor: there is legal subrogation which transfers to the person subrogated the credit with all the rights thereto appertaining. Art. or any person authorized to receive it. Without the intention to be reimbursed by the debtor: obligation is extinguished whether or not the consent of the debtor is obtained. the third person acquires the creditor's rights. SY 2010-2011 Based on Melencio Sta. 1240. VALIDITY OF PAYMENTS VALID PAYMENTS  Payment made to: a. Art. 5. as well as compel the creditor to transfer to him or her any mortgage. Maria By Anna Bueno.Any contract entered into by a minor with respect to the alienation of something is annullable 35 . 1243. In obligations to give.Such person must be authorized by the creditor and the law *Payment made by the debtor to a third person. Payment shall be made to the person in whose favor the obligation has been constituted. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. (3) If by the creditor's conduct. 1239.OBLIGATIONS AND CONTRACTS: Reviewer. With the knowledge but against the will of the debtor: same as 1. The person in whose favour the obligation has been constituted b." Art. or his successor in interest. Third person can recover from the debtor the amount paid to the creditor. Art. Mel Sta. . Because it is allowed in contract: same as 3. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment. and the extent is to be decided by law). Any person authorized to receive it . 1242. The beneficial effects must be determined at the time the payment was made. Payment made in good faith to any person in possession of the credit shall release the debtor. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations. 3. 2. shall not release the debtor from the obligation and will not INVALID PAYMENTS  Payment made by a person without free disposal of a thing. guarantee or penalty. The payment will be treated as a donation. The successors-in-interest c. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. the debtor has been led to believe that the third person had authority to receive the payment. even though in error and good faith. Without the knowledge or against the will of the debtor: third person who paid can recover only to the extent the debtor has benefited (this is to be invoked by the debtor.

even though in error and in good faith. Maria By Anna Bueno. such benefit needs to be proven. because the capacitated person party cannot annul the contract on the basis of the incapacity of the other person. an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. Art. Or. except only to the extent the latter has been benefited. if: a. In obligations to do or not to do.OBLIGATIONS AND CONTRACTS: Reviewer. If the third person acquires the creditor’s rights after payment b. Dation in payment. The incapable person has kept the thing delivered b. 1245. or more valuable than that which is due. or accidentally allowed a third person to possess the credit is immaterial as far as the debtor who paid in good faith is concerned Art. whereby property is alienated to the creditor in satisfaction of a debt in money.Whether the creditor negligently. SY 2010-2011 Based on Melencio Sta. Exception: Such benefit does not need to be proven: a.  Payment made in good faith to the person in possession of the credit . when no benefit redounded to the creditor Payment made after the debtor has been judicially ordered to retain the debt . insofar as the payment has been beneficial to him/her  Payment to a third person. Mel Sta. whose quality and circumstances have not been stated. If the contract is annulled. IA 2014 deprive the creditor the right to demand payment. If the creditor ratifies the payment c. If the creditor’s conduct has led the debtor to believe that the third person had authority to receive payment  Payment made to a person incapacitated to administer his/her property. the capacitated person cannot compel the incapacitated person to make a restitution. Art. except if the payment redounded to the benefit of the creditor General rule: If the payment redounded to the benefit of the creditor. intentionally. 1246. 1244. shall be governed by the law of sales. the creditor 36 .Usually this order is made to protect other creditors  *Payment to the incapacitated is often disadvantageous for the capacitated party. The debtor of a thing cannot compel the creditor to receive a different one. When the obligation consists in the delivery of an indeterminate or generic thing. although the latter may be of the same value as. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.

Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Neither can the debtor deliver a thing of inferior quality. and if it is not possible to deliver such currency. the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. The payment of debts in money shall be made in the currency stipulated. The purpose of the obligation and other circumstances shall be taken into consideration. or a difference between the prestation and what is given in substitution c. the value of the currency at the time of the establishment of the obligation shall be the basis of payment. Agreement may be express or implied. the mortgaged or pledged property of the 37 . MODES OF PAYMENT  General rule: The debtor has no choice in the payment of the obligation other than what has been agreed upon by the parties. IA 2014 cannot demand a thing of superior quality. It is important that both parties consider the substitite thing as equivalent to the obligation . the extrajudicial expenses required by the payment shall be for the account of the debtor. An agreement between the creditor and the debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. unless there is an agreement to the contrary. Art. Aliud pro alio. In case an extraordinary inflation or deflation of the currency stipulated should supervene.  Exception: Unless the prestation is subject to a facultative or alternative condition DATION IN PAYMENT  Also dacion en pago. With regard to judicial costs. that in the event the debtor fails to pay. Art. the Rules of Court shall govern. 1247. 1250. Art. or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed. or a credit against the third person b. Unless it is otherwise stipulated. or when through the fault of the creditor they have been impaired. or the performance of the prestation in lieu of payment which may consist in the delivery of the corporeal thing. when the debt is in part liquidated and in part unliquidated. Neither may the debtor be required to make partial payments. the action derived from the original obligation shall be held in the abeyance. Maria By Anna Bueno. or even silent. Art. In the meantime. the creditor cannot be compelled partially to receive the prestations in which the obligation consists. The delivery of promissory notes payable to order. However. Unless there is an express stipulation to that effect. 1249. 1248.OBLIGATIONS AND CONTRACTS: Reviewer. SY 2010-2011 Based on Melencio Sta. DACION EN PAGO  Before the creditor becomes the owner of the collateral property. generally in one single contract. real right. Mel Sta.How does one judge the intention of the parties to agree in a dacion en pago? Their contemporaneous and subsequent acts shall be considered. then in the currency which is legal tender in the Philippines. Animo solvendi. This is the delivery and transmission of ownership of a thing by the debtor or creditor as an accepted equivalent of the performance of an obligation. an intervening agreement subsequent and independent from the original PACTUM COMMISORIUM  The parties agree. Requisites: a.

If the creditor delays. signed by the person giving it. IA 2014 contract is entered into by the creditor and the debtor to have the property collaterized as payment. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. When the debt is part liquidated and part unliquidated.. financial). IN CASE OF EXTRAORDINARY INFLATION OR DEFLATION OF CURRENCY 38 . as compared to a pactum commisorium  debtor shall be automatically appropriated or owned by the debtor Void. or when through the fault of the creditor they have been impaired.OBLIGATIONS AND CONTRACTS: Reviewer. such oblige shall be stopped from denouncing the efficacy of such tender of payment . The quality shall be determined instead through the purpose of the obligation and other circumstances (e. It is only when the creditor does not present the check for payment and thereafter the bank collapses that it cannot meet the demands for payment. because as a rule. Check—a bill of exchange drawn on a bank payable on demand . a. Mel Sta. Note how the drawer will only be discharged from a certain amount of liability. only payment in cash will extinguish the obligation. properties mortaged should be subject to a foreclosure sale first if the properties shall be used to satisfy a debt PAYMENT OF AN INDETERMINATE THING  If the quality has not been stated. Maria By Anna Bueno. requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum of money to the bearer c. Unless there is an express stipulation to that effect b. PAYMENT OF DEBTS IN OTHER FORMS  Promissory notes payable to order.. the creditor may demand and the debtor may effect the payment without waiting for the liquidation of the unliquidated part of the debt c. the drawer of the check shall be discharged from liability to the extent of the loss caused by delay. and if it is not possible. Bill of exchange—an unconditional order in writing addressed by one person to the other. PAYMENT OF DEBTS IN MONEY  Shall be made in the currency stipulated. because the appropriation of the property is not automatic.  Exceptions: a.In Far East Bank and Trust Company v. nor the debtor required to make partial payments.Delays in check encashment: Normally a check has to be deposited six months from the date indicated.g. if the creditor accepts the partial payment and benefits from it. the drawer’s obligation is not extinguished by mere delay of the creditor. or other mercantile documents shall be produce the effect of payment only when encashed. Diaz Realty Inc. Promissory note—a document where an unconditional promise to pay on a fixed or determinable future time is made by the debtor to the creditor b. Even if there is no express stipulation. bills of exchange. that the drawer of the check shall be discharged. the Court said that if payment by way of a fully-funded check were offered or tendered and the obligee accepts the payment after the obligor’s manifestation that it had been given to settle an obligation. SY 2010-2011 Based on Melencio Sta. PARTIAL PAYMENTS  General rule: Creditor cannot be compelled to receive partial payments. the delivery of the indeterminate thing shall neither be of superior or inferior quality. thereby extinguishing the obligation  Valid. the currency which is legal tender in the Philippines  In the fulfilment of an obligation by payment by money.

may declare at the time of making the payment. the payment shall be made wherever the thing might be at the moment the obligation was constituted. and not those arising from law EXTRA-JUDICIAL EXPENSES FOR PERFORMANCE OF PAYMENT  General rule: These expenses hall be shouldered by the debtor. 1254. . the additional expenses shall be borne by him. or after he/she has incurred in delay.Effects of such inflation should be officially declared by competent authorities. Maria By Anna Bueno. VENUE OF PAYMENT  General rule: Payment shall be made in the place designated in the obligation. application shall not be made as to debts which are not yet due. In any other case the place of payment shall be the domicile of the debtor. Unless the parties so stipulate. When the payment cannot be applied in accordance with the preceding rules.Only applies to obligations arising from contracts. and if the thing is determinate. Art. Art.  Exception: If there is no express stipulation. These provisions are without prejudice to venue under the Rules of Court. additional expenses shall be borne by the debtor. shall be deemed to have been satisfied. A. Mel Sta. 1253. the debt which is most onerous to the debtor.OBLIGATIONS AND CONTRACTS: Reviewer. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. There being no express stipulation and if the undertaking is to deliver a determinate thing. or when the application of payment is made by the party for whose benefit the term has been constituted. unless there is a cause for invalidating the contract. payment shall be made at the domicile of the debtor. IA 2014    General rule: The value of the currency at the time of the establishment of the obligation shall be the basis of payment Exception: Unless there is a stipulation to the contrary Extraordinary inflation exists when there is an increase or decrease in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency. SY 2010-2011 Based on Melencio Sta. If the debtor accepts from the creditor a receipt in which an application of the payment is made. to which of them the same must be applied. payment of the principal shall not be deemed to have been made until the interests have been covered. If the debtor changes his domicile in bad faith or after he has incurred in delay. (Regarding judicial costs.)  Exception: Unless there is a stipulation to the contrary. among those due. such as the Bangko Sentral or the Department of Finance. 1252. Payment shall be made in the place designated in the obligation.If the debtor changes domicile in bad faith. payment shall be made wherever the thing might be when the obligation was established. He who has various debts of the same kind in favor of one and the same creditor. Application of payments Art. or if application cannot be inferred from other circumstances. In all other cases. If the debt produces interest. the Rules of Court shall govern. Art. . the former cannot complain of the same. and such decrease or increase could not have been reasonably foreseen. 1251. 39 . .

the rule is if the interests have not been covered yet. Cession under this article presupposes financial difficulties on the part of the debtor. or if the application cannot be inferred from other circumstances. Unless the parties so stipulate b. The agreements which. C. the debtor cannot complain. unless there is stipulation to the contrary.  General rule: Application shall not be made to debts which are not yet due. B.  However. then the debt which is most onerous to the debtor shall be deemed to have been satisfied. but property that is not exempted from being alienated. the principal has not been paid as well. shall only release the debtor from responsibility for the net proceeds of the thing assigned. the payment shall be applied to all of them proportionately. If the creditor to whom tender of payment has been made refuses without just cause to accept it. Maria By Anna Bueno. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown. 1256. like fraud or intimidation. The debtor may cede or assign his property to his creditors in payment of his debts. or does not appear at the place of payment.  40 . DEBTS WITH INTEREST  The presumption is that the payment of the principal. Mel Sta. on the effect of the cession. if the payments cannot be applied in accordance with Art 1252 and 1253. 1255. . but accept it.  Exceptions: Unless there is a cause for invalidating the contract.OBLIGATIONS AND CONTRACTS: Reviewer. The debtor must not merely receive the receipt. are made between the debtor and his creditors shall be governed by special laws. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Tender of payment and consignation Art. the debtor shall be released from responsibility by the consignation of the thing or sum due. If the debts are all of the same nature. then the payment shall be applied to them proportionately. The general rules of payment already discussed (Art 1232 – 1251) still apply here. Thus. and is rebuttable with sufficient evidence. Or when the application for payment is made by the party for whose benefit the term has been constituted  General rule: If the debtor accepts a receipt in which an application of payment is made. Payment by cession Art. Valid only if the creditors agree to the cession. Basis: doctrine of estoppel. the right to apply payment first to the interest can also be waived by the creditor. These are causes for annulling the contract. IA 2014 If the debts due are of the same nature and burden. and refers to a situation where the debtor owes two or more creditors.  Payment by cession is another mode of extinguishing a debt. This cession. SY 2010-2011 Based on Melencio Sta. (2) When he is incapacitated to receive the payment at the time it is due.The most onerous debt is the debt which exacts the heaviest burden from among many.  As such. notwithstanding any remaining interest. However this is merely directory. PAYMENT OF MULTIPLE DEBTS  A debtor with multiple debts may declare at the time of making one payment to which debt must such payment apply. supposes that such interest has been paid.  Exceptions: a. It refers not only to the cession of a debtor of his/her property.

the debtor may withdraw the thing or the sum deposited. without just cause. ability. IN CASE OF CREDITOR’S UNREASONABLE REFUSAL TO ACCEPT PAYMENT  General rule: The debtor has to make a tender of payment. That the creditor is incapacitated to receive payment at the time it is due c. and the announcement of the consignation in other cases. Two or more persons claim the same right to collect e. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Before the creditor has accepted the consignation. The creditor is absent or unknown. The expenses of consignation. (5) When the title of the obligation has been lost. In order that the consignation of the thing due may release the obligor. he refuses to give a receipt. Art. the debtor may ask the judge to order the cancellation of the obligation. Maria By Anna Bueno. which prior tender of payment. because it is the creditor’s failure to accept payment which led to the consignation TENDER OF PAYMENT CONSIGNATION Both apply in any contract where there is an obligation to pay  Tender of payment is an offer of payment  Consignation is the act of depositing the thing antecedent to the consignation. allowing the obligation to remain in force.OBLIGATIONS AND CONTRACTS: Reviewer. the creditor should authorize the debtor to withdraw the same. 1259. it must first be announced to the persons interested in the fulfillment of the obligation. It may be due with the court or judicial authorities extra-judicial. Art. guarantors and sureties shall be released. That without just cause. or before a judicial declaration that the consignation has been properly made. The title of the obligation has been lost  Expenses of a proper consignation shall be charged to the creditor. must be absolute and must cover the amount due b. the consignation having been made. Consignation shall be made by depositing the things due at the disposal of judicial authority. and then consign the thing to the judicial authorities. when properly made. before whom the tender of payment shall be proved. That the tender be made in lawful currency 41 . SY 2010-2011 Based on Melencio Sta. The consignation having been made. (4) When two or more persons claim the same right to collect. the interested parties shall also be notified thereof. It is necessary that whenever the creditor cannot accept or refuses a. 1257. Art. in a proper case. If. IA 2014 (3) When. The co-debtors. 1261. and to accept payment and it generally requires a capability to make good such offer. the creditor refuses to give a receipt d. or does not appear at the place of payment b. Once the consignation has been duly made.  Exceptions—consignation alone is enough when: a. he shall lose every preference which he may have over the thing. 1260. There be a fusion of intent. 1258. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. Mel Sta. shall be charged against the creditor. Art. Art.

1262. under the circumstances. The courts shall determine whether. such that the payment is deemed to have been made at the time of the deposit of the money in court. Maria By Anna Bueno. 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.OBLIGATIONS AND CONTRACTS: Reviewer. 1263. II. the obligor is liable even for fortuitous events.  Before creditor has accepted the consignation or before the judicial declaration of consignation has been made. Art.  If the creditor authorizes the debtor to withdraw the amount after consignation. it shall be presumed that the loss was due to his fault.The circumstances of the case and the order of the court granting the motion can be considered substantial compliance with the requirement of notice to the creditor EFFECTS OF CONSIGNATION  Once consignation has been made. That there was a debt due 2. and before he has incurred in delay. Art. After the consignation is made. The same rule applies when the nature of the obligation requires the assumption of risk. unless there is proof to the contrary. the debtor can still withdraw the thing or the sum deposited. LOSS OF THE THING DUE Art. 42 . however. or because several persons claimed to be entitled to receive the amount due 3. . Mel Sta. Whenever the thing is lost in the possession of the debtor. In an obligation to deliver a generic thing. The previous notice of the consignation has been given to the person interested in the performance of the obligation 4. The consignation is retroactive. When by law or stipulation. SY 2010-2011 Based on Melencio Sta. since the creditor cannot revive the obligation without their consent. but the creditor shall lose preference to the thing previously deposited to pay his/her debt. This means that any other person who has an interest in the payment can go after it. allowing the obligation to remain in force. or when it was placed in the disposal of the judicial authorities. Art. the person interested was notified thereof. the loss of the thing does not extinguish the obligation. The consignation of the obligation had been made because the creditor to whom tender of payment has been made refused to accept it. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.  Prior to the withdrawal of the debtor of the amount.The purpose of the notice is to give the creditor the opportunity to reconsider his/her unjustified refusal and accept payment thereby avoiding consignation and subsequent litigation . 1264. 1265. the creditor may accept the amount consigned either conditionally or with reservation. or was incapacitated or absent. the partial loss of the object of the obligation is so important as to extinguish the obligation. the obligation is revived. The amount has been placed in the disposal of the court 5. and he shall be responsible for damages. Solidary creditors also lose the preference. IA 2014 Requisites for a consignation to be effectual: 1. the debtor may ask the judge to order the cancellation of the obligation. the loss or destruction of anything of the same kind does not extinguish the obligation.

Art. 1266.)  In obligations to do. and without prejudice to the provisions of Art 1165 . unless there is proof to the contrary. the debtor shall not be exempted from the payment of its price. This is one case where the court can enter into the contract. Mel Sta. and extinguish the obligation. Art. 1267. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. And the service has become manifestly beyond the contemplation of the parties  43 . the obligor may also be released therefrom. (I. the debtor shall not be exempted whatever the cause of the loss may be. 1268. in whole or in part. whatever may be the cause for the loss. This presumption does not apply in case of earthquake.OBLIGATIONS AND CONTRACTS: Reviewer. The prestation has become so difficult to render 2.The court may consider the partial loss complete. . or if the obligor promises the same thing to two or more obliges who do not have the same interest. the latter refused without justification to accept it. unless the creditor refuses without just cause to accept it  COURTS WILL DECIDE  Partial loss of an object: courts will judge based on the circumstances and whether the obligation is so important as to extinguish the obligation. or where the parties stipulate in the light of certain prevailing conditions. when the prestation becomes legally or physically without the fault of the debtor OBLIGATION IS NOT EXTINGUISHED  If the thing is determinate. the obligor is liable even for fortuitous events b. Thing lost through fortuitous event will still be compensated for if the obligor delays.Only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor Requisites: 1. the contract also ceases to exist. unless the thing having been offered by him to the person who should receive it. SY 2010-2011 Based on Melencio Sta. and once these conditions cease to exist. IA 2014 and without prejudice to the provisions of article 1165. by judging from the intention of the parties whether the obligation should be extinguished .e. the obligation is not extinguished: a. When the service has become so difficult as to be manifestly beyond the contemplation of the parties. When is loss presumed to be the fault of the debtor? When the thing lost was in possession of the debtor. flood. If it is complete. When the nature of the obligation requires the assumption of risk  If the thing is generic. or other natural calamity. the rules under Art 1262 and 1263 must apply In obligations to do. the loss or destruction of the same kind does not extinguish the obligation If the debt of the thing certain and determinate proceeds from a criminal offense. OBLIGATION IS EXTINGUISHED  If the thing is determinate and it is lost or destroyed without the fault of the debtor and before the debtor has incurred in delay. When the debt of a thing certain and determinate proceeds from a criminal offense.. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. storm. Maria By Anna Bueno.Based on the doctrine of rebus sic stantibus. When by law or stipulation. Art. and it is lost. when the service has become difficult as to be beyond the contemplation of the parties .

furthermore.To nullify this waiver. after its delivery to the creditor.  A provision for the protection of the creditor. Maria By Anna Bueno. the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. It is governed by the rules on inofficious donations. the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss.OBLIGATIONS AND CONTRACTS: Reviewer. One and the other kind shall be subject to the rules which govern inofficious donations. The delivery of the private document evidencing a credit (usually a promissory note). Art. 44 . this is a refutable presumption. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged. Condonation or remission is essentially gratuitous. it shall be presumed that the creditor delivered it voluntarily. 1274. The obligation having been extinguished by the loss of the thing. it shall be presumed the creditor delivered it voluntarily. III. made voluntarily by the creditor to the debtor. A donation is inofficious if it turns out that the amount donated (remitted or condoned) encroaches or infringes upon the legitime or successional rights of the heirs of the condoning creditor. likewise. but the waiver of the latter shall leave the former in force. 1271. It may be made expressly or impliedly. CONDONATION OR REMISSION OF THE DEBT Art. 1273. a condonation is a donation of the obligee’s credit in favour of the debtor. 1270. comply with the forms of donation. Art. is found in the possession of the debtor. However. unless the contrary is proved. and the debtor and his/her heirs may do this by proving that the delivery of the document was made in virtue of payment of a debt 2. IA 2014 - But difficulty alone does not excuse the debtor from fulfilling the prestation. Art. Whenever the private document in which the debt appears is found in the possession of the debtor. implies the renunciation of the action which the former had against the latter. or of a third person who owns the thing. Express condonation shall. Mel Sta. This has been referred to as a “subjective impossibility. 1269. SY 2010-2011 Based on Melencio Sta. implies the renunciation of the debt .  In effect. Whenever the private document in which the debt appears is found in possession of the debtor. “Third persons” may be insurance companies or guarantors.” where a promissor’s duty is never discharged by the mere fact that the supervening events deprive him/her of the ability of the ability to perform. Art. PRESUMPTIONS IN CONDONATION 1. The delivery of a private document evidencing a credit. The renunciation of the principal debt shall extinguish the accessory obligations. if they are not such to deprive other persons. 1272. of the ability to render such performance Art. and requires the acceptance by the obligor. it should be claimed to be inofficious. If in order to nullify this waiver it should be claimed to be inofficious. made voluntarily by the creditor to the debtor.

It is an accessory contract. 1278. The necessary obligation has been remitted when the thing pledged. they be of the same kind. b. and that he be at the same time a principal creditor of the other. IV. 45 . IA 2014 3. commenced by third persons and communicated in due time to the debtor. CONFUSION OR MERGER OF RIGHTS Art. to secure the fulfilment of a principal obligation and such contract is perfected only upon the delivery of the thing pledged to the creditor. the guarantor may set up compensation as regards what the creditor may owe the principal debtor. 1280. Compensation shall take place when two persons. and also of the same quality if the latter has been stated. it is necessary: (1) That each one of the obligors be bound principally. Does not extinguish the obligation for the following: a.OBLIGATIONS AND CONTRACTS: Reviewer.A pledge involves a movable property constituted by the owner of such property who has free disposal of it. Art. 1277. or if the things due are consumable. this is a refutable presumption. 1279. Notwithstanding the provisions of the preceding article. (2) That both debts consist in a sum of money. Renunciation of the principal debt shall extinguish the accessory obligations (but not vice versa) 4. Extinguishes the obligation for the following: Confusion between the principal debtor and creditor benefits the guarantors. in their own right. Maria By Anna Bueno. after its delivery to the creditor. is found in the possession of the debtor or any third person who owns the thing (usually a guarantor). Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. 1276. (5) That over neither of them there be any retention or controversy. SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. COMPENSATION Art. only the accessory obligation. Art. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Art. Art. are creditors and debtors of each other. (4) That they be liquidated and demandable. However. Confusion between a guarantor and a creditor/debtor does not extinguish the principal obligation. In order that compensation may be proper. (3) That the two debts be due. . 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. Mel Sta.    Basis of confusion: a person cannot collect a debt from him/herself. Confusion in a joint obligation except the share corresponding to the creditor or debtor in which the two characters concur V. Confusion which takes place in the person of any of the latter does not extinguish the obligation.

OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. Art. 1282. The parties may agree upon the compensation of debts which are not yet due.  Compensation is a mode of extinguishing an obligation whereby parties are mutually debtors and creditors of each other. Compensation is effected whereby parties are mutually debtors and creditors of each other. May be total or partial. Compensation is effected by operation of law as long as the requisites are present and even though the debts are payable at different places. In partial compensation, however, indemnities may exist for the expenses of exchange or transportation to places of payment

REQUISITES OF COMPENSATION 1. Each of the obligors be bound principally and that each of them be at the same time the principal creditor of the other - Exception: Compensation can be set up by the guarantor, even if the creditor and guarantor are not mutual creditors and debtors of each other. The obligation of the guarantor can be extinguished by invoking compensation as far as the principal debtor is concerned - Taxes are not debts for purposes of legal compensation 2. Both debts consist in an amount of money, or if the things due are consumable, that they be of the same kind, and also the same quality of the latter has been stated - “Consumable” as used in this law means fungible, or capable of substitution - There can be compensation involving things which are determined, such as any computer, but not specific determinate things like a computer with the serial number 777 3. That two debts are due - However, they do not need to be incurred at the same time - General rule: A debt cannot be demanded if it is not yet due. Exception: The parties can agree that the compensation can be made even as to the debts which are not yet due. This is called a contractual compensation. 4. That the debts be liquidated and demandable - Debt must be determined and certain. Compensation cannot take place where one of the debts is not yet liquidated (e.g., there’s a running interest) 5. Neither of the debts have any retention or controversy, commenced by third persons and communicated in due time to the debtor - “Due time” should be meant the period before legal compensation was supposed to take place, considering that legal compensation operates so long as the requisites occur, even without any conscious intent on the part of the parties Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof.  Voidable contracts are valid until annulled. Thus, compensation may take place as long as the contract is valid.

JUDICIAL SET-OFF  For this to apply, the amount of damages or the claim sought to be compensated must be duly proven

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OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. ASSIGNMENT OF CREDIT IN COMPENSATION Case 1  Creditor assigns his/her rights in favor of a third person: - If the debtor consents to the assignment and reserves his/her right to compensation, and notifies the creditor of such reservation, compensation can set it up against the third person as well - If the debtor consents to the assignment but does not notify the debtor that he/she reserved the right to compensation, it cannot be set up against the third person Case 2  Debtor did not consent to the assignment of rights even if he/she was notified of it - The debtor may set up the compensation of dents previous to the cession (assignment of rights), but not of subsequent ones Case 3  Debtor did not have any knowledge at all of the assignment of rights - The debtor may set up compensation of all the credits prior to the same and also later ones until he/she had knowledge of the assignment Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. WHEN COMPENSATION IS IMPROPER  Basically compensation is improper in these cases because the persons are not mutual creditors and debtors of each other

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OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

1.

Debts arising for a depositum or from the obligations of depository. A deposit is constituted from the moment a person receives the thing belonging to another with the obligation of safely keeping it and returning the same 2. Obligation of a bailee in commodatum—the bailee acquires the use of the thing loaned but not its fruits. The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it may be by reason of expenses 3. Debts arising from duty to support. 4. Debts consisting of a civil liability arising from a penal offense Art. 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. VI. NOVATION  Novation here refers to extinctive obligation and not modificatory novation. Extinctive novation presupposes that an obligation’s terms are still existing before change is introduced upon it. The change must refer to the principal obligation; there is no novation regarding the accessory obligation. Novation is never presumed. No specific form of words or writing is necessary to give effect to a novation.

REQUISITES OF NOVATION 1. A previous valid obligation 2. The agreement of all the parties to a new contract 3. The extinguishment of the old contract 4. Validity of the new one  There can be no novation unless two distinct and successive binding contracts take place, with the later one designed to replace the preceding convention. Also, if a subsequent contract is designed to novate a previous contract and not all parties to the original contract consented to or are made parties to the original contract, there can be no novation.  A new contract which merely supplements the old one (by modifying the terms of payment and adding other obligations compatible with the old one) is not novation. Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.

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a person interested in the fulfillment of the obligation pays. Art. Art. except in cases expressly mentioned in this Code. even without the debtor's knowledge. The former is not presumed. 1300. without prejudice to the effects of confusion as to the latter's share. 49 . SY 2010-2011 Based on Melencio Sta. even without the knowledge of the debtor. unless it is otherwise stipulated. the new obligation shall be under the same condition. Art. (3) When. A creditor. subject to stipulation in a conventional subrogation. when the delegated his debt. 1295. 1301. or known to the debtor. 1303. except when said insolvency was already existing and of public knowledge. shall not revive the action of the latter against the original obligor. Art. the original one shall subsist. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1302. 1296. the latter must be clearly established in order that it may take effect. 1297. Art. 1304. not interested in the obligation. If the original obligation was subject to a suspensive or resolutory condition. Art. (2) When a third person. either against the debtor or against third person. Art. the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original debtor. accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. 1298. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining. Art. Conventional subrogation of a third person requires the consent of the original parties and of the third person. may exercise his right for the remainder. When the principal obligation is extinguished in consequence of a novation. Art. If the new obligation is void. Art. Maria By Anna Bueno. If the substitution is without the knowledge or against the will of the debtor.OBLIGATIONS AND CONTRACTS: Reviewer. unless the parties intended that the former relation should be extinguished in any event. The insolvency of the new debtor. be they guarantors or possessors of mortgages. who has been proposed by the original debtor and accepted by the creditor. 1294. and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. Mel Sta. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred. to whom partial payment has been made. IA 2014 Art. The novation is void if the original obligation was void. except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. Subrogation of a third person in the rights of the creditor is either legal or conventional. pays with the express or tacit approval of the debtor. 1299.

The novation is void if the original obligation was void. Mel Sta. The test of incompatibility is whether ot not the two obligations can stand together.) . In a conventional subrogation. Express: it is imperative that the new obligation expressly declare in unequivocal terms that the old obligation is extinguished b. a dacion en pago) To effect change in the obligation. Corollarily. the insolvency of the new debtor produces the following effects: o If it is an expromission. and the third person or new debtor assumes his/her place in the relation. the new obligation shall be under the same condition unless it is otherwise expressly stipulated 50 .Conventional subrogation must be clearly be established in unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations in every point. IA 2014 TYPES OF NOVATION 1. 2) or was already known to the debtor when he/she delegated the debt b.g. Maria By Anna Bueno. If the new obligation is void. It has two forms: . On the other hand.Delegacion: Old debtor suggests to the creditor that he/she be substituted by a new debtor of his/her choice and the creditor agrees —In both cases. IN A NEW OBLIGATION 1. It is presumed there is legal subrogation when: o A preferred creditor is paid by another creditor without the debtor’s knowledge o A third person not interested in the obligation pays with the express or tacit approval of the debtor o A third person interested in the fulfilment of the obligation (guarantor or solidary debtor) pays without the consent of the debtor. the parties. If they cannot. the accessory obligations may subsist insofar as to benefit such third persons 2. The law which forms the basis of the subrogation must be clearly identified and invoked to enforce the rights pertinent thereto. payment by the new debtor gives him/her the rights in Art 1236 and 1237. the new debtor’s insolvency shall not revive the action against the old debtor except when the said insolvency was 1) already existing and public knowledge. (E. Implied: the new obligation is on every point incompatible with the new one. Change in the creditor is called subrogation. (It must be noted that it is necessary for any of these two to exist that the old debtor be released expressly from the obligation. the changes must be essential and not merely accidental. can stipulate the extent of the subrogation. Change in the debtor may be in the form of any of the following. the new creditor shall possess all the rights thereto appertaining. but with consent of the creditor . If third persons did not give their consent to the novation. If the original obligation was subject to a suspensive or resolutory condition. a. unless it is clear that the subsequent one can stand on itself without any reference to the old one 4. provided these are not contrary to law or public policy. without prejudice to the effects of confusion as to the third person’s share . It requires the consent of the third parties and the third person —In both cases. each one having its own independent existence. the former one will subsist unless the parties agree that in any event the old one will be extinguished 3.Expromission: Old debtor is substituted without the knowledge of the debtor. there are incompatible and the latter obligation novates the first. the new debtor’s insolvency or non-fulfillment of the obligation shall not make the old debtor liable o If it is a delegacion. Subjective novation—there is a change of either the person of the debtor. 2. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.Legal subrogation takes effect by the mandate of the law and does not proceed from the agreement of the parties. Objective novation—a change in the object or principal conditions of an existing obligation. such change must be: a. however.. SY 2010-2011 Based on Melencio Sta.OBLIGATIONS AND CONTRACTS: Reviewer. or of the creditor of an existing obligation.

AUTONOMY General rule: Persons are free to stipulate anything in their contracts. to do. clauses. good customs. and public policy. either in rem or in personam. to the fulfilment of the prestation to give. (1254a) WHAT IS A CONTRACT?  Since its is a source of obligation. or the concurrence of offer and acceptance . A contract is a meeting of minds between two persons whereby one binds himself.This rule also forbids anyone from coercing or intimidating another to enter into a contract Cases: .A real contract requires the above-mentioned plus the delivery of the object of the agreement (as in a bailee in commodatum) . or forbearance  However. agreements under the Statute for Frauds) STAGES OF A CONTRACT 1. public order. there are some cases where there is a “meeting of the minds” in a contract but it cannot be legally enforced because it lacks some of the formal requirements for enforceability (e. Court of Appeals: While there is a rule limiting stipulations in contracts to those consistent with public policy. in relation to some person. SY 2010-2011 Based on Melencio Sta. 1307. . Art. thing. Negotiation—covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected) 2.Azcuna Jr. good customs. resulting in the extinguishment thereof Art. The contracting parties may establish such stipulations. cannot turn his or her back on his word with the plea that he or she was inflicted a penalty so   23 Jardine Davis v. to give something or to render some service. and by the customs of the place. ATTRIBUTES OF CONTRACTS 1. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Perfection—takes place upon the concurrence of the essential elements thereof . with respect to the other. by the rules governing the most analogous nominate contracts. 1305.g. act. or public policy. by the provisions of Titles I and II of this Book. terms and conditions as they may deem convenient.A contract consensual in perfection is so established upon the mere meeting of the minds. a person.A solemn contract requires compliance in certain formalities prescribed by law (such as in a donation) to be perfected 3. Innominate contracts shall be regulated by the stipulations of the parties. Consummation—begins when the parties perform their respective undertakings under the contract. or reciprocally. it can be defined as a legally enforceable agreement  A juridical convention manifested in legal form. morals. 1306.. IA 2014 CONTRACTS GENERAL PROVISIONS Art. morals. CA 51 . by virtue of which two or more persons bind themselves in favor of another or others. it is an agreement whereby at least one of the parties acquires a right. Mel Sta. Maria By Anna Bueno. provided they are not contrary to law. Proviso: Such stipulations must not be contrary to law. after entering into an agreement. or not to do23  In its broadest sense. V.OBLIGATIONS AND CONTRACTS: Reviewer.

The determination shall not be obligatory if it is evidently inequitable.A mixed prestation: one party gives something and the other party does something (do ut facias. a court.A prestation to mutually render a service (facio ut facias) . these are still contracts which are sources of obligations. lease. Art. General rule: The contract is the law between the parties. A custom is a rule of conduct formed by repetition of oral acts uniformly observed as a social rule. in order of priority: a. 2. Matters of public policy are deemed written into the contract.: There must be mutuality between the two contracting parties based on their essential equality [because it is] repugnant to have one party bound by the contract leaving the  52 . is against the public good. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Rita Legarda Inc. Stipulation of the parties. its validity or compliance cannot be left to the will of one of them. The determination of the performance may be left to a third person. whose decision shall not be binding until it has been made known to both contracting parties. exchange. People’s Homesite and Housing Corporation: In the absence of express legislation or constitutional prohibition. aleatory contracts. legally binding and obligatory and must be proved as fact. etc. IA 2014 - shocking to the conscience and impressed with inequity as to call for relief sought on the part of the judicial tribunal Pakistan International Airlines v.Ortigas v. barter. must find that such contract has a tendency to injure the public. . public order. Provisions regarding obligations and contracts under Title I and II of the Civil Code. Teves v. Mel Sta. but which likewise involve the fulfilment or accomplishment of some prestations: . In such case. SY 2010-2011 Based on Melencio Sta. morals. Statutes promulgated in the exercise of valid police power are considered written into the contract.A prestation where the parties mutually give each other a certain thing (do ut des) . or public policy b. CA: The construction of a buyer of a commercial edifice in consonance with a zoning ordinance does not impair the contract of sale which says that only residential buildings may be built in the piece of land. Customs. Rules governing the most analogous nominate contracts (sale. MUTUALITY Garcia v. d. agency loan.    Art. *INNOMINATE CONTRACTS  Contracts which are not specifically governed by any provision in the Civil Code. 1310. the courts shall decide what is equitable under the circumstances. Art. 3. good customs. deposit. Maria By Anna Bueno. in order to declare a contract void as against public policy. The contract must bind both contracting parties. or contravenes some established interest of society. Exception: Unless the contract specifically intended that it should have a retroactive effect. NON-IMPAIRMENT General rule: Only laws existing at the time of the execution of the contract are applicable thereto. Ople: Contractual stipulations contravening provisions of the law designed to protect laborers and employees were not valid. 1309. Exception: This rule yields to the superior and legitimate exercise of police power by the State to promote the general welfare of the people. and hence. facias ut des)  These contracts are governed by the following. 1308. they should follow the general rule on obligations and contracts c. or is inconsistent with sound policy and good morals.OBLIGATIONS AND CONTRACTS: Reviewer. partnership. Though innominate. as long as there are not contrary to law.

and thus non-transmissible. and cannot favour or prejudice a third person. The determination must not destroy the mutuality of contracts. except in three circumstances: a. Art. 2. 1312. it is personal in nature.A stipulation in the lease contract which says that the contract may be renewed for a like term at the option of the lessee No mutuality: . The determination must not be evidently inequitable. Mel Sta.OBLIGATIONS AND CONTRACTS: Reviewer. Art. prepares the stipulations in a contract while the other party merely affixes his or her signature or adhesion thereto. third persons who come into possession of the object of the contract are bound thereby. except in case where the rights and obligations arising from the contract are not transmissible by their nature. even if such person is aware of the contract and have acted with knowledge thereof. 1311. The decision to let a third person determine the performance of a contract must be communicated to all the parties. This relativity of contracts extends to the parties’ assigns and heirs—and thus the transfer of action from one person to another is effected by operation of law.Usually where acts stipulated in a contract require the special knowledge. If a contract should contain some stipulation in favor of a third person. experience. and there must be a showing that it is highly inequitable for such contract to be invalidated. RELATIVITY Generally. their assigns and heirs. In contracts creating real rights. The contracting parties must have clearly and deliberately conferred a favor upon a third person. or  53 . Creditors are protected in cases of contracts intended to defraud them. 4. IA 2014   other free therefrom. under certain conditions. otherwise the court will decide what is equitable. SY 2010-2011 Based on Melencio Sta. The heir is not liable beyond the value of the property he received from the decedent. or by stipulation or by provision of law.When one of the parties can increase the interest of a loan agreement at will *CONTRACTS OF ADHESION  A type of contract wherein a party. A mere incidental benefit or interest of a person is not sufficient. genius. subject to the provisions of the Mortgage Law and the Land Registration Laws. usually a corporation. 3. Contracts take effect only between the parties. contracts take effect only between the immediate parties.The parties’ assigns and heirs are always parties to a contract. discretion. skill. 1313.When the vendor has the right to declare a contract cancelled in case of default of one the vendee . Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Maria By Anna Bueno. The purpose of this article is to render void a contract containing a condition which makes fulfilment dependent exclusively upon the will of one of the contracting parties There is mutuality in the following cases: . . Art. integrity or other personal qualification of one or both parties. ability. *DETERMINATION OF PERFORMANCE: THIRD PERSON  Requisites to be binding: 1. These are binding as ordinary contracts  Generally these are valid. When the nature of the contract makes its obligations non-transmissible . judgment. taste. he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation.

are not perfected until the delivery of the object. it is a malicious act. The assent of the beneficiary shall be presumed. as a general rule. 54 . .Requires malice. Real contracts. When there is a stipulation that the obligations are non-transmissible c.A deposit is constituted the moment a person receives a thing belonging to another with the obligation of safely keeping it and of returning the same. or benefiting the defendant at the expense of the plaintiff. usage and law. may be in keeping with good faith. for the third party to make a formal acceptance prior to the bringing of the suit. PERFECTION OF CONTRACTS  General rule: Contracts are perfected by consent. and the commencement of an action to enforce a promise is sufficient as an acceptance. a lease. as well as a deposit. pledge. Even if the creditor is not a party to the contract. according to their nature. 1316. such as deposit. are not perfected until the delivery of the object of the obligation. the depositary cannot deposit the thing to a third person unless there is a stipulation to the contrary) Exceptions to the relativity rule:  STIPULATIONS POUR ATRUI .OBLIGATIONS AND CONTRACTS: Reviewer. and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which. 1315. If persuasion be used for the indirect purpose of injuring the plaintiff. The favoured party must have communicated his or her acceptance of the stipulation to the obligor before the revocation—it is not necessary. the lessee cannot assign the lease without the consent of the lessor. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. A stipulation in favour of a third person—it is unnecessary that such person be named in the contract b. Contracts are perfected by mere consent. SY 2010-2011 Based on Melencio Sta.A third party may enforce a contract which has been made for his or her benefit although he or she is not a party to such contract. The contracting parties must have clearly and deliberately conferred a favour upon the third person. Neither of the contracting parties bears the legal representation of the third party e. and commodatum. in a contract of voluntary deposit. for example. lease of real estate binds a subsequent buyer Creditors—a contract shall be rescissible if it is undertaken in fraud of creditors and the latter cannot in any other manner collect the claim due them. and not a mere incidental benefit or interest d. Malice must be shown to exist . .  A person who came into a possession of a contract involving real rights—for example. IA 2014 When the contract is of such character that it may not be performed well by the promissor’s personal representative (then the obligation is discharged by the death of the promissory) b. Exceptions: Real contracts. Such stipulation is only a part of the contract c.However no liability exists where the third party was acting in the lawful exercise of some right -   Art. Mel Sta.g. Art. which in the law is a wrongful act and from which an actionable act of injury may issue. When the law provides for non-transmission (e. Maria By Anna Bueno. Requisites: a.A pledge is constituted by the owner of the object to be pledged to secure a loan. he or she is given legal personality in law to terminate the contract A third person who induces another to violate a contract . pledge and Commodatum.

with the intention of making the other party understand that his or her assent to the bargain is invited. Offer . should be distinguished from a void. 1318. (2) Object certain which is the subject matter of the contract. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Art. delivery of the thing is essential here.The withdrawal of an offer is effective by constructive notice. but not its fruits. being void. with the consent or the authority of the other. in such a case.OBLIGATIONS AND CONTRACTS: Reviewer. An example is an imperfect promise (policitacion) which is merely an offer . The offer must be certain and the acceptance absolute. Art. SY 2010-2011 Based on Melencio Sta. is presumed to have been entered into in the place where the offer was made. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. (3) Cause of the obligation which is established. No one may contract in the name of another without being authorized by the latter. 1317. such as by its mailing and not necessarily when the offeree 55 .General rule: Principal of the agent must comply with all the obligations which the agent may have contracted within the scope of authority. There is no contract unless the following requisites concur: (1) Consent of the contracting parties. or who has acted beyond his powers. IA 2014 - A bailee in commodatum acquires the use of the thing. and where pari delicto applies. before it is revoked by the other contracting party. Maria By Anna Bueno. . except when the agent has exceeded his or her power. An acceptance may be express or implied. . or unless he has by law a right to represent him. Consent has two essential elements: a. by the person on whose behalf it has been executed. the principal is solidarily liable with the agent if the former allowed the latter to act as though the agent had full powers. A contract entered into in the name of another by one who has no authority or legal representation. before it is revoked by the other contracting party. ostensible contract where the requisites may be present but violative of the law.Even if the agent exceeded authority.Formally initiates a negotiation. Mel Sta. In this case however the principal may ratify the obligation whether expressly or tacitly. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. and will conclude such bargain . expressly or impliedly.A manifestation of willingness to enter into a bargain. shall be unenforceable. 1320. A qualified acceptance constitutes a counter-offer. ESSENTIAL REQUISITES OF CONTRACTS Art. CONTRACTS OF AGENCY  A person binds himself or herself to render some service to do something in representation or in behalf of the other. FIRST REQUISITE: CONSENT  Concurrence of the wills of the offeror and the acceptor as to the thing and cause which constitutes the contract. unless it is ratified. An inexistent contract. Art. 1319.  Absence of any one of these requisites creates an inexistent contract. The contract. where the rule on pari delicto cannot apply.

and manner of acceptance. become insane. and the advertiser is not bound to accept the highest or lowest bidder. such as transmissible rights. Art. while conditions merely imposed on the performance of the obligation merely gives the other party options or remedies to protect interests. Art. An offer made through an agent is accepted from the time acceptance is communicated to him. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. the offer may be withdrawn at any time before acceptance by communicating such withdrawal. the acceptance may be made in an informal manner .Must be unconditional and identical to the terms of the offer.The option money in an option contract is different from earnest money which is considered as part of the price in a contract of sale and can be proof of the perfection of the contract Rules: 1. An offer becomes ineffective upon the death. SY 2010-2011 Based on Melencio Sta. 1325. Art. The person making the offer may fix the time. IA 2014 b. unless the contrary appears. 1326. If the period is founded upon a consideration. Maria By Anna Bueno. Advertisements for bidders are simply invitations to make proposals. If the period is not founded upon a consideration. all of which must be complied with.Perfects a contract through a concurrence of will on the part of both of the parties . 1323. A condition imposed on a perfection of a contract results to a failure of the contract. or insolvency of either party before acceptance is conveyed. Art. Acceptance . except when the option is founded upon a consideration. 1322. although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror. the offeror can still withdraw the offer before it is accepted. business advertisements of things for sale are not definite offers. Art. The consideration in an option contract may be anything of value. civil interdiction. but mere invitations to make an offer.  An offer accepted before either party has died. as something paid or promised. with concrete terms and conditions OFFERS AS OPTION CONTRACTS: WHEN IS A WITHDRAWAL VALID? OPTION—a contract granting a privilege to buy or sell at a determined price within an agreed time. or subjected to civil However such offer which fails to comply may interdiction. 1321. If it is not. 1324. place. It exists as a privilege only on the part of the buyer. insolvent. and the offeror would be liable for damages 56 .Except where a formal acceptance is so required. . before such acceptance is made known to the offeree 2. Mel Sta. EFFECTIVE OFFER INEFFECTIVE / NOT AN OFFER  An offer which complies with the time. Art. place. it would be a breach of contract to withdraw the offer during the agreed period. insanity. When the offerer has allowed the offeree a certain period to accept. or if acceptance has been made. “Accepted” means that the offer still be ratified by the offeree has come to the actual knowledge of the offeror  Offer communicated to an agent who acts with  Business advertisements with incomplete terms the consent or authority of the principal  Advertisements to bidders  Business advertisements of an object certain. it is merely a counter-offer. and manner of acceptance made by the offerer.OBLIGATIONS AND CONTRACTS: Reviewer. Unless it appears otherwise.

Art. sex and condition of the person shall be borne in mind. 1337. A threat to enforce one's claim through competent authority. or if the contract is in a language not understood by him. Art. To determine the degree of intimidation. the age. or fraud is voidable. SY 2010-2011 Based on Melencio Sta. to give his consent. violence. 1328. Art. and deaf-mutes who do not know how to write. When one of the parties is unable to read. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated. the person enforcing the contract must show that the terms thereof have been fully explained to the former. 1329. 1330. Violence or intimidation shall annul the obligation. Contracts entered into during a lucid interval are valid. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property. Art. or upon the person or property of his spouse. 1334. serious or irresistible force is employed. Mel Sta. and is understood to be without prejudice to special disqualifications established in the laws. A simple mistake of account shall give rise to its correction. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. (2) Insane or demented persons. 1331. Art. depriving the latter of a reasonable freedom of 57 . There is no mistake if the party alleging it knew the doubt. and mistake or fraud is alleged. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Art. Art. A contract where consent is given through mistake. it should refer to the substance of the thing which is the object of the contract. In order that mistake may invalidate consent. There is violence when in order to wrest consent. intimidation. There is undue influence when a person takes improper advantage of his power over the will of another. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. Maria By Anna Bueno. does not vitiate consent. Art. 1335. IA 2014 Art. contingency or risk affecting the object of the contract.OBLIGATIONS AND CONTRACTS: Reviewer. descendants or ascendants. if the claim is just or legal. Art. 1332. The incapacity declared in Article 1327 is subject to the modifications determined by law. although it may have been employed by a third person who did not take part in the contract. or to those conditions which have principally moved one or both parties to enter into the contract. 1327. Art. The following cannot give consent to a contract: (1) Unemancipated minors. undue influence. may vitiate consent. 1333. 1336.

Art. An absolutely simulated or fictitious contract is void. as when the parties are bound by confidential relations. through insidious words or machinations of one of the contracting parties. 1343. policy 2. morals. family. he would not have agreed to. or the fact that the person alleged to have been unduly influenced was suffering from mental weakness. the latter. or was ignorant or in financial distress. the other is induced to enter into a contract which. 1342. Incidental fraud only obliges the person employing it to pay damages. unless made by an expert and the other party has relied on the former's special knowledge. SY 2010-2011 Based on Melencio Sta. Art. Lirag where an undue influence which agreement obtained through the influence of executive public is contrary to public officials was deemed as a null and void contract. 1341. Art. NATURE OF CONTRACTS ACCORDING TO DEFECTIVE CONSENT DEFECTIVE CONSENT / VOID & INEXISTENT CONTRACTS 1. In order that fraud may make a contract voidable. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1339. 1340. and the contract is not intended to either produce legal effects or in any way alter the juridical position of the parties DEFECTIVE CONSENT/ VOIDABLE CONTRACTS  Any contract entered by a minor below 21 is annullable but only at 58 . Mel Sta. Art. A mere expression of an opinion does not signify fraud. without them. constitutes fraud. when the other party had an opportunity to know the facts. spiritual and other relations between the parties. Consent given through  Illustrative case is Marubeni Corporation v. 1338. public order or public policy binds the parties to their real agreement. when the parties conceal their true agreement. Art. Absolute simulated  An absolute simulated contract “exists” when the parties do not contracts intend to be bound at all. Art. unless such misrepresentation has created substantial mistake and the same is mutual. are not in themselves fraudulent. There is fraud when. Art. The former takes place when the parties do not intend to be bound at all. it should be serious and should not have been employed by both contracting parties. 1346. Simulation of a contract may be absolute or relative. good customs. when there is a duty to reveal them. 1345. Art. Art. A relative simulation. when it does not prejudice a third person and is not intended for any purpose contrary to law.OBLIGATIONS AND CONTRACTS: Reviewer. Misrepresentation made in good faith is not fraudulent but may constitute error. IA 2014 choice. Misrepresentation by a third person does not vitiate consent. Maria By Anna Bueno. The usual exaggerations in trade. Failure to disclose facts. 1344. The following circumstances shall be considered: the confidential.

to the extent the then-minor was benefited.Mistakes of identity only when the identity is the principal cause of the contract . d) undue influence. When a fraudulent advantage has been taken of it c.   Mere drunkenness is not enough. Similarly . Intimidation refers to a reasonable or well-grounded fear of an imminent and grave evil on the person or property of the party or his/her spouse.The intimidation produces a well-grounded (i. serious—there is a disproportion between the evil and the resistance people can offer .Threatened act is unjust or unlawful . When such contract has been annulled by the minor when he/she comes of age. Consent given by unemancipated minors and insane or demented persons who also do not know how to read or write  Atty. Mel Sta.Threat is real.e.  3. any contract with the consent of an insane person is annullable also at the instance of the insane party. the other party must prove that the contract was explained according to the true intentions of the parties b. Mel says the law here contemplates “passive misrepresentation” on the part of the minors. When it appears the drunkenness has been brought about by the opposite party b.OBLIGATIONS AND CONTRACTS: Reviewer. or e) fraud.. Intoxication must be of such a character as to perpetuate an undue advantage over the drunken person: a.Intimidation must be the determining cause of the contract or must have caused the consent to be given . Maria By Anna Bueno. Violence refers to serious or irrestible force employed. Consent given in a state of drunkenness or during a hypnotic spell  the instance of the minor. Requisites: . and 2) alleges fraud or mistake on the other party. or descendants. Consent given through a) mistake. c) intimidation. tangible.A mutual error which refers to the legal effect of an agreement where the real purpose of the parties is frustrated There is no mistake if the party alleging it harboured doubts about the object but still risked consenting to the contract When a person 1) is unable to read or consents to a contract in a language he/she does not understand. the other capacitated party can be restituted. and not active commitment of fraud.The substance of the thing which is the object of the contract . IA 2014 1. The mistake must refer to the following: . ascendants.Conditions which have principally moved one or both of the parties to enter into the contract . Any contract entered during a lucid interval of the sane person is also valid. It is essential to prove the insanity of the party at the time of contract perfection. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. however. direct. Such insanity must have a direct bearing on the agreement. The drunkenness was so complete to deprive the other person of his reason of an agreeing in mind a. not a general or imaginary) fear from the fact that the person from whom it comes from has the necessary means or 59 . which can be a basis for damages 2. c. SY 2010-2011 Based on Melencio Sta. b) violence.

A relative simulation of contract may exist to conceal the parties’ true agreement. Maria By Anna Bueno. It can be determined by looking at the confidential. . ignorance. Fraud is committed through insidious words or machinations designed to make a false representation of a material fact in order to induce another to act thereon to his or her injury. public policy. including future things. The object of every contract must be determinate as to its kind. with whom he has confidential relations . It binds the parties to their real agreement only when the simulation does not prejudice a third person and when it is not intended for any purpose contrary to law. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel said that the minimum requirement for an object is that it be determinable and generic 60 . and public order.Solicitation. without the need of a new contract between the parties. spiritual. morals. 1349. No contract may be entered into upon future inheritance except in cases expressly authorized by law. public order or public policy may likewise be the object of a contract.When the expression of opinion of an expert has been relied on by one of the parties .OBLIGATIONS AND CONTRACTS: Reviewer. All rights which are not intransmissible may also be the object of contracts. or financial distress. Fraud exists when: . morals. 1347. Relative simulation of contract  Art. Art. may be the object of a contract. good customs. It must be serious and should not have been contracted by both of the parties. IA 2014   ability to inflict the injury Mere threat to bring a good faith or lawful action does not amount to duress. and persuasion are due influence and do not vitiate consent e. argument. All services which are not contrary to law.A party who has a duty to disclose facts fails to reveal them to the other contracting party. d. importunity. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract. Undue influence occurs when a person takes improper advantage of his power over the will of the other. All things which are not outside the commerce of men. SECOND REQUISITE: OBJECT OF CONTRACTS  Atty. provided it is possible to determine the same. 1348. good custom. SY 2010-2011 Based on Melencio Sta.  4. or familial relations between the parties. Impossible things or services cannot be the object of contracts. or one of the parties’ mental weakness.A misrepresentation by a third person has created substantial mistake and the same is mutual between the two parties. Third parties who may use violence or intimidation can also bring forth a case for annulment of the contract. Art. Mel Sta.

The motive of a party does not affect the validity of the party. that a person may in the future acquire by succession  Impossible things or services  Indeterminable things or services as to their kind Art.. an expectation or profits. provided that that the expectancy is deemed subject to the condition that such thing will come to existence  Transmissible rights  Services which are not contrary to law. but involves only the generosity of the benefactor.  General rule: the motivation of the parties is independent from the cause of the contract. Mel Sta. morals. in a contract of sale. Motive is the particular reason for a contracting party which does not affect the other party and which does not preclude the existence of a different consideration.E. CAUSE VERSUS MOTIVE  Cause is the essential reason for a contract. public order or public policy. Exception: When the realization of such motive has been made a condition (often an implied condition) upon which the contract is made to depend. In onerous contracts the cause is understood to be. for each contracting party. IA 2014 CAN BE AN OBJECT  Things that are included in the commerce of humans. public order or public policy  Determinate objects whose quantity can be determined without the need of a new contract CANNOT BE AN OBJECT  Future inheritance (except in cases expressly provided by law) . Art. In reciprocal contracts the obligation or promise of each party is the consideration for that of the other 2. It may or may not be tangible. things of potential existence may be the object. Renumeratory contract: the cause is the service or benefit which is renumerated (paid for with money) 3. The cause is unlawful if it is contrary to law. It does not involve any material thing. THIRD REQUISITE: CAUSE OF CONTRACTS  The cause of a contract is the essential or more proximate purpose which the contracting parties have in view at the time of entering the contract. Onerous contract: for each contracting party. or with unlawful cause. in remuneratory ones. Art. if it should not be proved that they were founded upon another cause which is true and lawful.g. the mere liberality of the benefactor. a giving of a sum of money. and can take different forms—a prestation. The statement of a false cause in contracts shall render them void. Contracts without cause. Art.Future inheritance is any property or right not in existence or incapable of determination at the time of the contract. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. produce no effect whatever. good customs. KINDS OF CONTRACTS ACCORDING TO CAUSE 1. SY 2010-2011 Based on Melencio Sta.OBLIGATIONS AND CONTRACTS: Reviewer. the cause is a prestation or promise of a thing or service by the other. 1352. Maria By Anna Bueno. good customs. including future things . Contracts of pure beneficence: mere liberality of the donor is the cause of the contract. 61 . when the motive predetermines the purpose of the contract. 1353. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. morals. the prestation or promise of a thing or service by the other. 1350. the service or benefit which is remunerated. and in contracts of pure beneficence.

in whatever form they may have been entered into. repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains. Art. This right may be exercised simultaneously with the action upon the contract. 1356. 1357. Although the cause is not stated in the contract. or that a contract be proved in a certain way. 2. sales of real property or of an interest therein a governed by Articles 1403. or should prejudice a third person. 1354. However. Statement of a false cause 3. SY 2010-2011 Based on Melencio Sta. morals. A valuable consideration. public order. NATURE OF CONTRACTS ACCORDING TO DEFECTIVE CAUSE VOID 1. or undue influence If it should be proved that the false cause is founded upon another cause which is true and lawful. is sufficient (Penaco v. Proviso to render VALID None Contracts without cause. The following must appear in a public document: (1) Acts and contracts which have for their object the creation. it is presumed that it exists and is lawful. lesion or inadequacy of cause shall not invalidate a contract. modification or extinguishment of real rights over immovable property. Mel Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 62 . if it is a relatively simulated contract Mere inadequacy of cause shall not invalidate a contract. the right of the parties stated in the following article cannot be exercised. or public policy . Contracts shall be obligatory.Although a cause is not stated in the contracts. 1355. (3) The power to administer property. Art. No.OBLIGATIONS AND CONTRACTS: Reviewer. if given or stipulated in good faith. provided all the essential requisites for their validity are present. unless there has been fraud. If the law requires a document or other special form. unless the debtor proves the contrary. once the contract has been perfected. the presumption is that it exists and is lawful. when the law requires that a contract be in some form in order that it may be valid or enforceable. A lesion or inadequacy of cause that is a) specified in law or b) concurs with fraud. Rava) FORMS OF CONTRACTS Art. Except in cases specified by law. in the absence of fraud. or any other power which has for its object an act appearing or which should appear in a public document. IA 2014 Art. Art. mistake. that requirement is absolute and indispensable. In such cases. as in the acts and contracts enumerated in the following article. (2) The cession. transmission. the contracting parties may compel each other to observe that form. and 1405. mistake or undue influence. unless the debtor proves the contrary 2. or with unlawful cause—contrary to law. however small or nominal. 1358. good customs. Maria By Anna Bueno.

 Presupposes a meeting of the minds. their true intention is not expressed in the instrument purporting to embody the agreement. . as in those covered by the Statute of Frauds c. 2 and 1405. The actions outlined therein are still enforceable by action or suit even though they are not in a public instrument. IA 2014 (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing. but tries to make the instrument express their real agreement. REFORMATION  Connotes a valid written contract.OBLIGATIONS AND CONTRACTS: Reviewer. the remedy is annulment of the contract.Parties in contracts which require this form have a specific right exclusive to them: they may compel each other to observe that form once the contract has been perfected.Interest payments b. there having been a meeting of the minds of the parties to a contract. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. When the law requires that the contract be in some form for greater efficacy or to bind third persons . SY 2010-2011 Based on Melencio Sta. inequitable conduct. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code. the proper remedy is not reformation of the instrument but annulment of the contract. a contract binds the parties no matter what form they may have been entered. chattels or things in action are governed by Articles. 63 . or accident prevented a meeting of the minds.  Basis of reformation is equity. When the law requires that the contract be in some form to be valid . 1359. not reformation  Thus. fraud. If mistake. Exceptions: a. It must be shown that the instrument embodying the contract does not reveal the true intention of the parties b. and this is a right which may be exercised simultaneously with the action upon the contract REFORMATION OF INSTRUMENTS Art. because a contract not written cannot be reformed. Article 1358 is merely directory. When. the determination whether a contract may be reformed is a two-step process: a. fraud. 1360. But sales of goods. Art. . The existence of a real and an actual contract must be shown. The courts by reformation do not attempt to make a new contract for the parties. fraud. The failure to put in a public or private document these transactions will not render the agreement invalid. In this sense. 1403.Donations of immovable property . by reason of mistake. or accident. The rationale for such doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect the parties’ meeting of the minds. WHEN IS FORM ESSENTIAL IN A CONTRACT?  General rule: As long as the essential requisites in a contract are present. inequitable conduct.However. Mel Sta. or accident has prevented a meeting of the minds of the parties. Maria By Anna Bueno. one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.That the contact be proved by some writing. No. inequitable conduct or accident. When the law requires that the contract be in some form to be enforceable . mistake.Contracts which require a public instrument (see Article 1358). only that the instrument does not refer to the true intention of the parties by reason of mistake. if such fraud. inequitable conduct. even a private one.

but the instrument states that the property is sold absolutely or with a right of repurchase. Art.) The cause of action accrues upon: . 1364.from the date of the execution of the instrument embodying the contract if the causes for reformation were already known at the time of the execution of the contract The action for reformation is called a special civil action for declaratory relief under the Rules of Court. IA 2014    Burden of proof is upon the party who insists the party should be reformed based on some legal ground. There is a mutual mistake of the parties which involves factual matters (generally). There shall be no reformation in the following cases: (1) Simple donations inter vivos wherein no condition is imposed. Prescriptive period is within ten years from the time the cause of action accrues. the former may ask for the reformation of the instrument. more than a mere preponderance of evidence is required. he cannot subsequently ask for its reformation. THERE IS A MISTAKE. It is also a right in personam. (2) Wills. 1361. One party is mistaken. Art. (3) When the real agreement is void.OBLIGATIONS AND CONTRACTS: Reviewer. and the other acted fraudulently or inequitably in such a way to conceal the parties’ true intention 64 . Maria By Anna Bueno. said instrument may be reformed. 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement. Art.To prove that the mistake was mutual and involved factual matters which caused the failure of the expression of the parties’ true intent. reformation of the instrument is proper. 1365. 1367. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. lack of skill. (The action may also be barred by laches. If two parties agree upon the mortgage or pledge of real or personal property. . but concealed that fact from the former.the knowledge of the ground for reformation. negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist. the instrument does not express the true intention of the parties. When through the ignorance. . the instrument may be reformed. When one of the parties has brought an action to enforce the instrument. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement. or . Mel Sta. Art. SY 2010-2011 Based on Melencio Sta. 1362. a. Art. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention. Atilano) b.There may be no need for reformation even though there was mistake when the parties executed the contract according to their true intent without need of court intervention (Atilano v. Art. and its purpose is to secure an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof Art. WHEN IS REFORMATION PROPER? PROPER 1. the courts may order that the instrument be reformed. 1366.

upon petition of the injured party. and subsequent acts of the parties b. otherwise. INTERPRETATION  The act of making intelligible what was before not understood. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 2. the literal meaning of its stipulations shall control. The prior. Examine the text. and the other knew or believed that the instrument did not state their real agreement d. or bad faith IT IS A MORTAGE OF REAL OR PERSONAL PROPERTY. typist. ignorance.. 1368. the latter shall prevail over the former. Examining the nature of the contract 65 . 1369. and therefore the literal stipulations shall control. WHO MAY ORDER REFORMATION? 1. contemporaneous. or his heirs and assigns. and do not involve any meeting of the minds (there is no negotiation or agreement) Wills . If the words appear to be contrary to the evident intention of the parties.These donations are acts of liberality. or person drafting the instrument commits an error through negligence. apply the rules in statutory construction and those outlined in this chapter. In mutual mistake: either party or their successors in interest 2. but the instrument says it is an absolute sale with a right of repurchase. 2.. IMPROPER 1. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties.Similar to simple donations When the real agreement is void When the party seeking reformation has already brought an action to enforce the instrument . If it is unclear.OBLIGATIONS AND CONTRACTS: Reviewer. Reformation may be ordered at the instance of either party or his successors in interest. ambiguous or not obvious  The determination of the meaning attached to the words written or spoken which make the contract  REFORMATION  A remedy in equity where a written instrument is made or construed as to express or conform to the real intention of the parties  General rule: The intention of the parties is reflected from the wordings of the contract. 2. SY 2010-2011 Based on Melencio Sta. Not mutual mistake: upon petition of the injured party. Applying ejusdem generis and noscitur a sociis c. Simple donations inter vivos where no condition is imposed . Exception: When the wording is ambiguous. lack of skill. in order of applicability: 1. The clerk. his/her heirs or assigns Art. 3. Consider the context. 1370. One party is mistaken. INTERPRETATION OF CONTRACTS Art. if the mistake was mutual.Such party is stopped already Art. Maria By Anna Bueno. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court. Context can be ascertained from the following: a. Mel Sta. Sir Mel’s summary of rules—how to discern intention. 4. IA 2014 c.

The Court observed that the respondent accepted the payments petitioner religiously made for four years without objection. Art.OBLIGATIONS AND CONTRACTS: Reviewer. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. should not be limited to the words in the contract. Rapanut v. the Court allows the parties reasonable leeway on the terms of their agreement. who occupied and took such possession.. and rental reasonable at that time” is that the plaintiff cannot renew the lease by a unilateral act of exercising his option. Contra proferentem f. the vendor delivered actual and constructive possession of the property to the vendee. In contractual relations. 1371.Fernandez v. v. the object and the consequences that would follow it from construing it one way or the other. Customs and usage (but only to fill omissions) e. Javier v. determining its meaning and ascertaining the mutual intention of the parties at the time of contracting. NOSCITUUR A SOCIIS  General and unlimited terms are restrained and limited by particular terms that follow. SY 2010-2011 Based on Melencio Sta. These are demonstrative acts that the vendor recognized the vendee as the absolute owner of the property sold. Previsora Filipina: The import of a word ultimatedly depends upon the consideration of the entire provision. Gonzales v.Santi v. they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. CA: Analysis and construction. Pingol v. . and not a contract to sell. The reasonableness of the result obtained should also be considered. the word “may” be construed as “shall. Thus if a provision demands a mandatory application. Applying the gratuitous and onerous rule Relevant cases: . 66 . 1372. conditions. their contemporaneous and subsequent acts shall be principally considered. and a court has no right to interpret the agreement as meaning something different from what the parties intended to be expressed by the language they saw fit to employ. National Labor Relations Commission: The interpretation or construction of a contract does not include its modification or the creation of a new one. Mel Sta.payable in monthly instalments of P500 with an interest of 10% per annum on the remaining balance until the full amount is paid” means that the 10% interest on the balance is added to whatever remains of the principal whenever an instalment is paid (petitioner’s interpretation). and not that the 10% interest must be paid every year (respondent’s interpretation). It must be construed and enforced according to the terms employed. CA: The stipulation “said period of the lease being extendable for another period of twenty years” means clearly that the lessor’s intention is not to automatically extend the lease contract but to give her time to ponder and think whether to extend the lease. among others. constructed a building thereon. by looking at the contemporaneous and subsequent acts of the vendee.” - - - - Art. Pursuant to the deed of sale. its nature. Carceller v. CA: The Court decided that the phrase “. and that contracts should not be interpreted in a harsh and inequituous way. however. CA: Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance. IA 2014  d. CA: The Court deemed a contract as one of absolute sale. Maria By Anna Bueno. In order to judge the intention of the contracting parties. CA: The Court said that the interpretation of the phrase “renewable for another ten years at the option of both parties under such terms. .. such construction may be considered by the court in construing the contract.Universal Textile Mills Inc. However general the terms of a contract may be.

according to the Court. attributing to the doubtful ones that sense which may result from all of them taken jointly. and there would have been no need to qualify the statement of said amount with the clause “as of June 1980 plus any applicable charges on the overdue account. and not just a particular word or two.Fernandez v. . Notwithstanding the foregoing. Lao Lim v. . Caltex v. this loan shall not run for more than five years” is not self-conflicting. - - Art. of the same genus. or forfeiture of a right. If it were the intention of the parties to limit the respondent’s obligation to P4M they should have stated so. Art. conservation and preservation.China Banking Corp v. CA: Mortgages given to secure future advancements or loans are valid and legal contracts. any foreclosure of a mortgage is not premature. 1374. Each provision must be related to each other in order to clearly now the total import and application of the law. not waiver.OBLIGATIONS AND CONTRACTS: Reviewer. 1373. Art. CA: Construction in terms of a contract which would amount to impairment or loss of right is not favoured. as the specific one. The compromise agreement should be understood as bearing that import which is most adequate to render it effectual. Pasay City Government v. and that failure to pay two successive amortizations would render the entire loan due and payable. the loan should be paid anyway in five years. in violation of Article 1308 of the Civil Code. if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. and amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security. if there is default committed for twelve months. 1375.” among others. and words in context and not words standing alone. because a contrary interpretation will result in a situation where the continuation and the effectivity of the contract will depend only upon the will of the lessee. and so that a harmonious whole can be attained. Maria By Anna Bueno. CA: The Court interpreted a contract to mean that there is a renewal of the lease every three years and that a 20% increase of rentals will only take effect if the parties decide to renew the lease. abandonment.  The various provisions of a contract must be read as a whole and not in isolation. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. is the rule. Intermediate Appellate Court: Provisions in a contract must be given a construction as will give effect to them. it shall be understood as bearing that import which is most adequate to render it effectual. If some stipulation of any contract should admit of several meanings. 67 . Sheriff of Manila: The clause “failure to pay two successive monthly amortizations will cause the loan to be automatically die and payable in its entirety.Ruiz v. IA 2014 EJUSDEM GENERIS  A general term joined with a specific one will be deemed to include only things that are like. Court of First Instance of Manila: The Court interpreted the words “in proportion” to mean that the parties to a compromise contemplated a divisible obligation. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. CA: The important task in contract interpretation is always the ascertainment of the intention of the parties through looking to the words they used to project the intention of their contract—all the words. Ridjo Tape and Chemical Corporation v. Mel Sta. It means that while monthly amortizations could be as little as P300. SY 2010-2011 Based on Melencio Sta. . The various stipulations of a contract shall be interpreted together. Thus.

varied. or contradicted by usage or custom. and give effect to the meaning more favourable to the other party  Based on the maxim verba accipiuntur fortius contra proferentem: a contract is interpreted against the person who wrote it. 1983 up to June 30. the contract shall be null and void. the doubt shall be settled in favor of the greatest reciprocity of interests. 1376. When a contract is onerous in nature. Art. 1378. .” If there is an ambiguity in a document and all the other methods of construction have failed to resolve so that there are two alternative meanings to certain words. or whether during the same period. 12% per annum plus 1% penalty charge a month was payable on the remaining diminishing balance. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. CONTRA PROFERENTEM  Means “against the proferrer. with only its maturity date postponed or deferred. the Court ruled for the revocation of the donation. because such donor did not seek the enforcement of the condition for a long time anyway. the Court may construe the words against the party who put forward the document. Maria By Anna Bueno.Central Philippine University v. . Mel Sta. only 12% interest was payable while the 1% per month penalty charge would begin to accrue on any balance remaining unpaid—the Court chose the latter. than if such obligation was viewed as non-binding until the ore was sold. 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. 1983. Art. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. An express contract embodying in clear and positive terms the intention of the parties cannot be varied nor contradicted by evidence of usage or custom.Castelo v. SY 2010-2011 Based on Melencio Sta. and not a suspensive condition. Fonacier: The Court ruled that a provision in a contract transferring Gaite’s rights to Fonacier in exchange for an amount of money. When it is absolutely impossible to settle doubts by the rules established in the preceding articles.  It is important to note that usage or custom will only be admissible if a contract’s provisions are doubtful.  When a contract is gratuitous in nature. IA 2014 Art. and the doubts refer to incidental circumstances of a gratuitous contract. the least transmission of rights should prevail. A written and express contract cannot be controlled. and where the remaining balance of the money will be paid “from and out the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore” should be interpreted as providing for a suspensive period. The Court ruled that a greater reciprocity of interests obtains if the buyer’s obligation is deemed to be actually existing. If the contract is onerous.Gaite v. and shall fill the omission of stipulations which are ordinarily established. the least transmission of rights and interests shall prevail. doubt shall be settled in favour of the greatest reciprocity of interests. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract. CA: Between two interpretations of a stipulation in a contract—whether during the period of January 1. . If the parties intended the former they would have stated a 24% interest (1% per month = 12% per year).OBLIGATIONS AND CONTRACTS: Reviewer. 1377. CA: Where a donee seeks the execution of a donation even though such done did not fulfil a condition sought by the donor.  68 .

SY 2010-2011 Based on Melencio Sta. but if evidence can be shown that they have a local. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof. 1382. then they must be construed as such accordingly  Written words control printed  Experts and interpreters can be presented in court in case the contract cannot be deciphered and such persons are proved to be skilled in deciphering the characters  Of two constructions. are also rescissible. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. RESCISSIBLE CONTRACTS  Valid contracts that can be terminated on legal grounds  Rescission is principally based on some economic damage (lesion) as a result of the inequitable conduct by one party TYPES OF RESCISSIBLE CONTRACTS 69 . if the latter suffer the lesion stated in the preceding number. that sense is to prevail against either party in which he supposed the other understood it. Mel Sta. or that view which is more favourable to the party in whose favour the provision was made  Construction in favour of a natural right  Interpretation according to usage RESCISSIBLE CONTRACTS Art. Art. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. (2) Those agreed upon in representation of absentees. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected. the contract is null and void. Art. 1380. OTHER PRINCIPLES OF INTERPRETATION  Interpretation according to legal meaning. Art. technical.OBLIGATIONS AND CONTRACTS: Reviewer. (5) All other contracts specially declared by law to be subject to rescission. or otherwise peculiar signification. unless the parties intended otherwise  Construction that will give effect to all provisions is favoured  Particular intent will control a general one that is inconsistent with it  Interpretation according to the circumstances  The terms in a contract are presumed to be used in their general acceptation. (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them. Maria By Anna Bueno. 1379. Contracts validly agreed upon may be rescinded in the cases established by law. IA 2014  When the contract’s principal object is expressed in such a way that the intention of the parties cannot be known. 1381.

Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.Bobis v.Rescission cannot take place however when the contract has been judicially approved Those undertaken in fraud of creditors. The action for rescission is subsidiary.Air France v.OBLIGATIONS AND CONTRACTS: Reviewer. SY 2010-2011 Based on Melencio Sta. but in an independent civil action and only after a full-blown trial Art. unless it has been entered with the knowledge or approval of the litigants.)  A cause for action in a rescission can only be made in a proper and direct action filed for that purpose. and the price with its interest.. Maria By Anna Bueno. and not on a mere motion incidental to another case . c) the failure of the sheriff to enforce and satisfy the judgment of the court.Rescission cannot take place however when the contract has been judicially approved Entered by representatives of absentees. and which has the ff. wherein the absentee suffers lesion by more than ¼ of the value of the property . b) the issuance of a trial court of a writ of execution for the satisfaction of the judgment. 4. 3. through a motion. Court of Appeals: Rescission is a relief which the law grants on the premise that the contract is valid and for the protection of one of the contracting parties and third persons from all injury and damage the contract may cause. IA 2014 1. for which the debtor cannot be compelled to pay at the time the obligation was effected . wherein the ward suffers lesion by more than ¼ of the value of the property . Rescission shall be only to the extent necessary to cover the damages caused. indemnity for damages may be demanded from the person causing the loss. 1383. Rescission creates the obligation to return the things which were the object of the contract. 5. Art. or to protect some incompatible and preferential right created by the contract. 1385. Mel Sta. and that the latter are deprived by the transactions of all means by which they may effect collection of their claims Those which refer to things under litigation. and which makes collection of the creditors’ claim impossible .For example.A state of insolvency occurs when a debtor’s liabilities exceed his/her assets and can barely pay off his/her debts All others declared by law to be rescissible . an action to rescind contracts made in favour of creditors. but must be proved by clear preponderance of evidence. a contract of sale entered in violation of the right to first refusal is rescissible Art. an accion pauliana. SUBSIDIARY NATURE  Must be the last remedy. of last resort (e. 1384. Provincial Sheriff of Camarines Norte: The fraud is never presumed. it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. It is essential that it be shown that both contracting parties have acted maliciously and with fraud for the purpose of prejudicing said creditors. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. An action for rescission may not be raised or set up in a summary proceeding. Entered by guardians. together with their fruits. 70 . requisites: a) a judgment. In this case. or of competent judicial authority Payments made in state of insolvency. 6. 2.g. consequently. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. RESTITUTION IN RESCISSION  In restitution, the parties shall be placed in the same position where they were before they entered the said contract. - Possible: When the one who demands rescission can return whatever he/she may be obliged to restore - Not possible: a) When the objects cannot be restored, or b)when the objects of the contract are legally in the possession of a third person who did not act in bad faith. Damages may be demanded from the person causing the loss, however, in this case. A person in good faith is one who buys the property of another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the purchase or before he/she has notice of the claim or interest of some other person in the property Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission. In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. REBUTTABLE PRESUMPTIONS OF FRAUD RE: RESCISSION Requisites:  Alienation by gratuitous title 1. Debts are contracted prior to the donation or alienation by onerous title. Maturity of debts is not a requirement 2. There is no reservation of sufficient property to pay all debts contracted before the donation or alienation  Alienation by onerous title 1. The alienation made during the pendency of a suit presupposes a judgment, or a writ of attachment 2. The attachment need not refer to the property alienated 3. The attachment need not to have been obtained by the party seeking rescission Provincial Sheriff v. Court of Appeals: Art. 1387 does not apply in a case where there has been no transfer or alienation of property. The Court found in this case that the transfer of the “Modern Furniture Store” from one person to another referred merely to its business name and style , and not the store itself or its contents—because the old store has been razed in a fire, and the new store was built from the capital of the new owner.

Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them.

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OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

If there are two or more alienations, the first acquirer shall be liable first, and so on successively. THIRD PARTY IN BAD FAITH; MORE THAN ONE  Liability of third party buyer who knew an alienation was made in fraud of creditors: 1. Restitution, if possible 2. If not, damages Art. 1389. The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. PRESCRIPTIVE PERIOD; WHEN IT BEGINS TO RUN  The action to rescind prescribes in four years  The period begins to run after the aggrieved party has unsuccessfully exhausted all possible legal remedies to enforce the obligation or recover losses, and from the time— 1. The incapacity of persons under guardianship terminates, in cases of persons under guardianship 2. The absentee learns of the contract, in cases of absentees 3. The fraud is discovered, for contracts entered in fraud of creditors 4. Of the knowledge of the transaction, for contracts entered with respect to things under litigation without approval VOIDABLE CONTRACTS Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. Art. 1391. The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. VOIDABLE CONTRACTS  Damage need not exist  Valid until annulled, unless any defect (enumerated in the grounds below) is cured by ratification, which can be claimed within four years GROUND 1. Incapacitated in giving consent 2. Vitiated consent (by mistake, violence, PERIOD BEGINS TO RUN: From the time guardianship ceases  For intimidation, violence or undue influence, from the time such defects cease

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OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria By Anna Bueno, IA 2014

intimidation, influence, or fraud

undue

For mistake of fraud, upon discovery of the same

Art. 1392. Ratification extinguishes the action to annul a voidable contract. Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Art. 1394. Ratification may be effected by the guardian of the incapacitated person. Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. RATIFICATION  May be expressly or tacitly given. Express, e.g.: A writes a letter continuing a lease of contract even though A’ s consent was vitiated by B. Tacit, e.g.: Instead of a letter, A willingly and continuously pays the rentals for the subject’s leased premises.  A unilateral act generally done by the injured party and not by the party causing the injury. The consent of the injuring party is thus not required  Can be given by the guardian of an incapacitated person, especially if it will redound to the benefit of the ward  The curing effect retroacts to the day when the contract was entered Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. WHO CAN FILE AN ACTION FOR ANNULMENT?  General rule: Only the aggrieved parties (those obliged principally and subsidiarily, such as heirs) can file. - The right to annul and other actions and obligations must have been transmitted to the heir, or the latter cannot bring an action to annul a contract in representation of the contracting party who made it  Exception: When a third person can prove prejudice against him/her, that person may file an action for annulment. The person must show the detriment which positively would result to him or her from the contract in which he or she had no intervention. (Ibañez v. Hongkong and Shanghai Bank, etc.) Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law. In obligations to render service, the value thereof shall be the basis for damages.

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the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. When the defect of the contract consists in the incapacity of one of the parties. the parties must restore to each other the things (or services) that are the subject matter of the contract. thereof. When the incapacitated party causes the loss of the object. 1402. Mel Sta. the loss of the thing shall not be an obstacle to the success of the action. and subscribed by the party charged. or by his agent. SY 2010-2011 Based on Melencio Sta. If the right of action is based upon the incapacity of any one of the contracting parties. An incapacitated minor is obliged to make restitution only in so far as he/she has been benefited 2. he shall return the fruits received and the value of the thing at the time of the loss. plus interest Art. Loss of the thing per se. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault. Art. be in writing. and the value of the thing at the time of the loss. unless the same. of the agreement cannot be received without the writing. 1400. In the following cases an agreement hereafter made shall be unenforceable by action. EXTINGUISHMENT OF ACTION FOR ANNULMENT 1.  Exception to this rule applies to incapacitated minors. IA 2014 Art. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings. unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation. Maria By Anna Bueno. the other cannot be compelled to comply with what is incumbent upon him. he/she shall return the fruits received. (2) Those that do not comply with the Statute of Frauds as set forth in this number. therefore. is not a ground for extinguishment of the action to annul Art. who may only restitute in so far as they have been benefited UNENFORCEABLE CONTRACTS Art. The following contracts are unenforceable. unless said loss took place through the fraud or fault of the plaintiff. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. plus their fruits and interest except in cases provided by law  Exceptions: 1. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return. with interest from the same date. or a secondary evidence of its contents: 74 . 1403. 1401. however. evidence. or some note or memorandum.OBLIGATIONS AND CONTRACTS: Reviewer. When the injured party loses the object of the obligation through his/her own fault or fraud 2. RESTITUTION  General rule: After the obligation has been annulled. When the object has been lost through the fault of one of the parties. or who has acted beyond his powers. 1399.

but when a sale is made by auction and entry is made by the auctioneer in his sales book.Exceptions: 1) Babao v. (e) An agreement of the leasing for a longer period than one year. a) an agreement or some note or memorandum in writing and b) the signature of the party charged or his/her agent in such writings are needed. (c) An agreement made in consideration of marriage. Perez set down the rule that if there is complete performance within a year by one of the contracting parties. of the amount and kind of property sold. An agreement whose terms dictate that there will be no performance within year of the making thereof . This statute mandates that for certain executor contracts to be enforceable in a court of law. and need not be contained in a single document . 1405. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. of such things in action or pay at the time some part of the purchase money. and the credit was transferred to him/her c. or miscarriage of another.Within statute: collateral obligation. Why? To prevent perjury. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book. or who acted in excess of authority 2. It may be informal or formal. (f) A representation as to the credit of a third person.The list of contracts that must comply with the statute is exclusive . or the evidences. or for the sale of real property or of an interest therein. unless the buyer accept and receive part of such goods and chattels. the third party is primary liable for the payment of the debt. Guarantor: a special promise to answer for the debt. or miscarriage of another . it is a sufficient memorandum. at the time of the sale. although it has been reset to another date so it can be finished beyond one year b. other than a mutual promise to marry. 1404.Nature of the memo: In Berg v. Art. terms of sale. referred to in No. 2 of Article 1403. (d) An agreement for the sale of goods. a third party and a defendant are liable in the same way.Outside statute: original obligation. or by the acceptance of benefit under them. one as principal and the other as surety . Those which do not comply with the Statute of Frauds. (b) A special promise to answer for the debt. or some of them. at a price not less than five hundred pesos. Those entered into in the name of one person by another with no authority therefor.In the following cases. (3) Those where both parties are incapable of giving consent to a contract. are ratified by the failure to object to the presentation of oral evidence to prove the same. the contract is taken out of the statute 2) If the contract stipulates that it shall be executed immediately. Maria By Anna Bueno. and to do the same thing. Contracts infringing the Statute of Frauds. the only evidence that can prove such is a written proof of the agreement like some notes or memoranda.OBLIGATIONS AND CONTRACTS: Reviewer. chattels or things in action. SY 2010-2011 Based on Melencio Sta. UNENFORCEABLE CONTRACTS 1. Art. Magdalena. default. price. names of the purchasers and person on whose account the sale is made. IA 2014 (a) An agreement that by its terms is not to be performed within a year from the making thereof. Mel Sta. . the Court said no particular form of language or instrument is necessary to constitute a memo. default. a. Agreement made in consideration of marriage 75 .

. Art.Need not be notarized. 1407. as the case may be. . SY 2010-2011 Based on Melencio Sta. possession. clear. of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated. express or implied ratification by the parent.Breach of promise to marry is not actionable d. Lease agreement for a period more than a year. the parties may avail themselves of the right under Article 1357. for notarization only binds third persons f. Specific performance 2. . etc. anyway. Unenforceable contracts cannot be assailed by third persons. . Representation to the credit of a third person .OBLIGATIONS AND CONTRACTS: Reviewer. 1406. 1408.  The contract cannot be executed. Violation of contracts 3. or guardian. Failure to object to the presentation of oral evidence proving the contract 2. or for the sale of real property or an interest therein . as the case may be. can be a source of damages The Statute of Frauds is not applicable when:  The contract has been consummated or there has been partial performance. as well fair. In a contract where both parties are incapable of giving consent. it must be proven that the agreement relied on is definite. as well as acts indicating partial performance (payment of taxes. an auction sale recorded in the sales book is a sufficient memo e.Oral testimony is admissible. Mel Sta. of both contracting parties.If made in bad faith.Mandatory . If ratification is made by the parents or guardians. reasonable. IA 2014 . VOID AND INEXISTENT CONTRACTS 76 . An agreement for the sake of goods.Effect of ratification of both parents of both parties: the contract is validated from inception Art. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. When a contract is enforceable under the Statute of Frauds. Those where both parties are incapable of giving consent . and just. at a price higher than P500.Effect of ratification by a parent or guardian of one contracting party: the contract is now voidable. the contract shall be validated from the inception. unless the buyer accept and receive part of the goods or pay some part of the purchase money. and a public document is necessary for its registration in the Registry of Deeds. Maria By Anna Bueno. Acceptance of benefits under the contract When may the Statute of Frauds be invoked? 1. improvements)  The contract has been ratified through any of the following: 1.  The registration of the property and an action upon a contract can be exercised simultaneously.To enforce the rest of the contract (which is presumably made orally). Art. unambiguous and unequivocal.

Neither can the right to set up the defense of illegality be waived. but the innocent one may claim what he has given. or ask for the fulfillment of what has been promised him. neither may recover what he has given by virtue of the contract. Where one of the parties to an illegal contract is incapable of giving consent. (4) Those whose object is outside the commerce of men. Art. (7) Those expressly prohibited or declared void by law. who is not at fault. 1409. Art. with interest thereon from the date of the payment. (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained. IA 2014 Art. Art. allow the party repudiating the contract to recover the money or property. public order or public policy.OBLIGATIONS AND CONTRACTS: Reviewer. Maria By Anna Bueno. the contract may be repudiated by one of the parties before the purpose has been accomplished. The action or defense for the declaration of the inexistence of a contract does not prescribe. This rule shall be applicable when only one of the parties is guilty. Mel Sta. Moreover. The other. or before any damage has been caused to a third person. and both shall be prosecuted. good customs. Art. he cannot recover what he has given by reason of the contract. they shall have no action against each other. the courts may. The following contracts are inexistent and void from the beginning: (1) Those whose cause. 1413. both parties being in pari delicto. 77 . 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. Art. or demand the performance of the other's undertaking. and the act constitutes a criminal offense. 1410. 1415. Art. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1414. the courts may. (2) Those which are absolutely simulated or fictitious. When the nullity proceeds from the illegality of the cause or object of the contract. 1411. (5) Those which contemplate an impossible service. if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person. morals. SY 2010-2011 Based on Melencio Sta. 1412. In such case. (2) When only one of the contracting parties is at fault. When money is paid or property delivered for an illegal purpose. the following rules shall be observed: (1) When the fault is on the part of both contracting parties. and shall not be bound to comply with his promise. These contracts cannot be ratified. may demand the return of what he has given without any obligation to comply his promise. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense. object or purpose is contrary to law. if the public interest will thus be subserved. (3) Those whose cause or object did not exist at the time of the transaction.

8. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. such may claim what he/she has given.was declared contrary to law and public policy   Elements are complete. good customs. Only those which violate mandatory or prohibitory provisions (Art. object. subject to exceptions Examples:  Maharlika Publishing Corporation v. and the nullity of an obligation proceeds from a contract. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained VOID AND OSTENSIBLE CONTRACTS 1. Guilty party is not entitled to anything. IA 2014 Art. if public policy is thereby enhanced. he may. was declared void  De Leon v. and both parties are in pari delicto If one party is innocent. Those whose cause. Those whose cause or object did not exist at the time of the transaction 3. but both parties are at fault If only one is at fault. Those expressly prohibited or declared void by law However. or public policy 2. and the prohibition by the law is designated for the protection of the plaintiff. Maria By Anna Bueno.Court of Appeals: A stipulation in a contract which has for its consideration the termination of a marriage . Mel Sta. 1491 of the Civil Code prohibiting public officers and employees from purchasing property under their administration in an auction sale  Cui v.  When the act is not a criminal offense. and shall not be bound to comply with his/her promise. When the agreement is not illegal per se but is merely prohibited. SY 2010-2011 Based on Melencio Sta. but was actually intended to merely protect a party to a joint venture for the cash advances he was to make for a realty subdivision the parties wanted to put up. the innocent party may demand the 78 . but the purpose of the contract is ostensible Pari delicto applies. Arellano University: A waiver of the right to transfer to other schools and a demand for refund if ever a scholar transfers is declared void for being against public policy Pari delicto applies:  When the act is a criminal offense. object) in a contract Pari delicto does not apply Examples:  Gardner v. cause. not all contracts which violate the law are void. Court of Appeals: A simulated contract purporting to be a sale of land. Those which are simulated of fictitious 2. Civil Code) are void   Absence of an essential element (consent. or purpose is contrary to law. VOID CONTRACTS  Produces no legal effects at all  Action to declare the contract void is imprescriptible. morals. the restoration of what was given by each of them is in order VOID AND INEXISTENT CONTRACTS 1. public order. Even the doctrine of laches cannot apply to resist an imprescriptible legal right  Restitution generally applies—if both parties have no fault or are not guilty. Those which contemplate an impossible service 5. recover what he has paid or delivered.OBLIGATIONS AND CONTRACTS: Reviewer. Those whose object is outside the commerce of men 4.Tagle: The bidding and contract of sale given to a wife of a GSIS official is declared void for violating Art. 1416.

When the law sets. if the illegal terms can be separated from the legal ones. which is void Art. Exceptions. he may demand additional compensation for service rendered beyond the time limit. If the agreement is not illegal per se but merely prohibited. 1418 and 1419 are examples of ostensible contracts where only one of the parties is at fault. or by authority of law. any person paying any amount in excess of the maximum price allowed may recover such excess. when the interest of justice or public interest demands: 1. he shall be entitled to recover the deficiency. 1417. SY 2010-2011 Based on Melencio Sta. Maria By Anna Bueno.OBLIGATIONS AND CONTRACTS: Reviewer. and a contract is agreed upon by which a laborer accepts a lower wage.  Arts. When the price of any article or commodity is determined by statute. The defense of illegality of contract is not available to third persons whose interests are not directly affected. Guilty party is not entitled to anything. or authorizes the setting of a minimum wage for laborers. where pari delicto may not apply: The Court may allow a party to recover money or property in the following cases.  A possible exception to the rule that a void contract is void in its whole—if the contract is divisible and the legal terms can be separated from the illegal ones. Art. If an agreement has been repudiated before it has accomplished its purpose or before it causes damage to a third person 2. If the party who gave consent is proven to be incapacitated 3. 1421. When the law fixes. even if such a person is not a party Art. IA 2014 return of what has been given and is not bound to comply with his/her promise. the latter may be enforced. 1420. NATURAL OBLIGATIONS 79 . Mel Sta. A contract which is the direct result of a previous illegal contract. 1418. and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed. In case of a divisible contract. and the prohibition is designed for the protection of the plaintiff Art. the former may be enforced. 1419. For example. 1422. WHO CAN ALLEGE THE ILLEGALITY OF A CONTRACT  Parties to the contract  Any third party who is directly prejudiced. a contract of loan is valid even though the collateral is in the nature of a pactum commissorium. and thus the innocent party has the right to demand what he/she is entitled to receive. Art. is also void and inexistent. or authorizes the fixing of the maximum number of hours of labor. Art. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty.

he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. Civil obligations give a right of action to compel their performance. but the debtor later voluntarily reimburses the third person. the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. Some natural obligations are set forth in the following articles. When a will is declared void because it has not been executed in accordance with the formalities required by law.  Minor in the present law is below eighteen years old. SY 2010-2011 Based on Melencio Sta. 1427. When a right to sue upon a civil obligation has lapsed by extinctive prescription. not being based on positive law but on equity and natural law. voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation. Art. Mel Sta. 1426. Art. after the annulment of the contract voluntarily returns the whole thing or price received. When a minor between eighteen and twenty-one years of age. 1424. after the settlement of the debts of the deceased. 1423. Art. do not grant a right of action to enforce their performance. Natural obligations.OBLIGATIONS AND CONTRACTS: Reviewer. 1430. the obligor cannot recover what he has paid. after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation. there is no right to demand the thing or price thus returned. IA 2014 Art. Art. but one of the intestate heirs. Maria By Anna Bueno. When. a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed. Art. 80 . When without the knowledge or against the will of the debtor. Art. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian. 1429. they authorize the retention of what has been delivered or rendered by reason thereof. there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. the payment is valid and cannot be rescinded by the payer. Obligations are civil or natural. the payment is effective and irrevocable. notwithstanding the fact the he has not been benefited thereby. but after voluntary fulfillment by the obligor. Art. 1425. who has entered into a contract without the consent of the parent or guardian. pays a legacy in compliance with a clause in the defective will. 1428.

SY 2010-2011 Based on Melencio Sta. and cannot be denied or disproved as against the person relying thereon. Knowledge. and later the seller or grantor acquires title thereto. or misrepresentation of party sought to be estopped is due to ignorance founded on an innocent mistake. or expectation that this conduct shall be acted upom c. 1434. Mel Sta. of the real facts ESTOPPEL BY DEED  A bar which precludes one party to a deed (written agreement) and his privies from asserting as against the other party and his privies any right or title in derogation of the deed. actual or constructive. Art.  Active estoppels. the Code of Commerce.Kalalo v. A lessee or a bailee is estopped from asserting title to the thing leased or received. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. IA 2014 ESTOPPEL Art. 1433. If law and public policy will be violated. Exceptions: 1. The principles of estoppel are hereby adopted insofar as they are not in conflict with the provisions of this Code.It follows that the government cannot be estopped by the mistake and errors of its officers 2. Maria By Anna Bueno. 1436. Art. estoppels will not arise Art. Estoppel may be in pais or by deed. The party is denied the right to plead or prove an otherwise important fact. 1431. If a person in representation of another sells or alienates a thing. there is no estoppel 3. Conduct amounting to false representation or concealment of material facts. When a person who is not the owner of a thing sells or alienates and delivers it. or at least false representation to convey the impression that the facts are otherwise and inconsistent with those which the party subsequently attempts to assert b.OBLIGATIONS AND CONTRACTS: Reviewer. as it applies only to questions of fact . Estoppel does not apply to questions of law. 1432. conduct. 1431. or from denying the truth of any of the material facts asserted in it  Passive estoppel Art. the Court said it is necessary that there be a concurrence of the ff requisites: a. ESTOPPEL IN PAIS  A bar which occurs when one. because of something which he has done or omitted to do. 1435. 81 . Through estoppel an admission or representation is rendered conclusive upon the person making it. equitable estoppels In Manacling v. Art. Luz: If the act. Bun. Intent. the Rules of Court and special laws. as against the lessor or bailor. Estoppel is not applicable against the government suing in its capacity as sovereign or asserting governmental rights .   General rule is the one in Art. such title passes by operation of law to the buyer or grantee. the former cannot subsequently set up his own title as against the buyer or grantee.

Art.This means the seller cannot invoke that he/she is now the owner The seller tries to set up his/her own title against the buyer or grantee . provided all these requisites are present: (1) There must be fraudulent representation or wrongful concealment of facts known to the party estopped. ESTOPPED WHEN Later the seller. if he received the sum for which a pledge has been constituted. A person misled another person with respect to the ownership of real right over real estate. provided the ff requisites are present: a.As an agent. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. The innocent party acted in accordance with the misrepresentation The person tries to set up his/her own title to the property. 1437. When in a contract between third persons concerning immovable property. such title passes by operation of law to the buyer or grantee . and (4) The party defrauded must have acted in accordance with the misrepresentation. even though not the owner. Maria By Anna Bueno. One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it. the seller does not have the title to the thing The bailee or or lessee asserts title to the thing leased or received . the latter is precluded from asserting his legal title or interest therein. even after a) such property has been constituted as a pledge and b) the person has received the sum for which a pledge has been 82 A person who is not the owner of the thing sells or alienates and delivers it 2. A person is a bailee or a lessee 4. acquires title to the thing. 1438. set up his own title to defeat the pledge of the property. Guilty party’s intention that the innocent party will act upon the fraudulent facts c.A bailee in commodatum or a lessee do not own the property but merely acquires the use of the thing/ possesses the property The person tries to assert his or her rights. SY 2010-2011 Based on Melencio Sta. for the purpose of making a transfer of such a property . A person who is an agent of another sells or alienates a thing 3. (3) The party misled must have been unaware of the true facts. Innocent party’s unawareness of the real facts d. one of them is misled by a person with respect to the ownership or real right over the real estate. A person allowed another to assume apparent ownership of the property.OBLIGATIONS AND CONTRACTS: Reviewer. made by the other to a pledgee who received the same in good faith and for value. IA 2014 Art. cannot. ESTOPPEL IN THE LAW ACT 1. (2) The party precluded must intend that the other should act upon the facts as misrepresented. in a contract between third persons concerning immovable property 5. Mel Sta. Fraudulent representation or wrongful concealment of facts known to the person estopped b.

some writing or deed or will or words evidencing the intention to create a trust . Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 1439. the Rules of Court and special laws are hereby adopted. Maria By Anna Bueno.Intent is presumed to be always have been contemplated by the EXPRESS  Intention is expressly present. this kind of trust works by operation of law (constructive trust)  May be barred by laches  May be proved by oral evidence 1. Art. the intent is created by the direct and positive acts of the parties. WHO ARE AFFECTED BY ESTOPPEL? 1. you cannot later say the property is yours (and not the other perspn’s) and thus cannot be pledged. to the beneficial enjoyment of property. Trusts are either express or implied. the legal title of which is vested in another IMPLIED  Intention is not expressly present. The principles of the general law of trusts. Resulting trust . and the person for whose benefit the trust has been created is referred to as the beneficiary. Express trusts are created by the intention of the trustor or of the parties.  A trust is defined as a right enforceable solely in equity. insofar as they are not in conflict with this Code. 1440. 1441. A person who establishes a trust is called the trustor. the Code of Commerce. Estoppel is effective only as between the parties thereto or their successors in interest. Mel Sta. IA 2014 constituted This means that if you authorize another to possess your property and even to pledge it for a loan.OBLIGATIONS AND CONTRACTS: Reviewer. Art. This applies moreso if you have received the benefits arising from the loan contracted by the person you authorized to possess/ pledge the property Art.No particular form is required for the words  Trusts over immovable property cannot be proved by oral evidence Prescription  General rule: the trustee cannot acquire the 83 . the law may also induce the intent in the transaction and thus. Successors-in-interest TRUSTS Art. but it is deducible from the nature of the transaction (resulting trust). Implied trusts come into being by operation of law. SY 2010-2011 Based on Melencio Sta. 1442. one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee. Contracting parties 2.

 By the beneficiary: It is necessary. Acceptance by the beneficiary is necessary. legitimate or illegitimate. unless the contrary should appear in the instrument constituting the trust. 1447. Nevertheless. Mel Sta. IMPLIED TRUSTS Art.Substantially an appropriate remedy against unjust enrichment Examples of implied trusts in the provisions below are not exclusive Also.OBLIGATIONS AND CONTRACTS: Reviewer. The enumeration of the following cases of implied trust does not exclude others established by the general law of trust. However. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Exception: Acquisitive prescription may bar the action of a beneficiary where: a. but the limitation laid down in Article 1442 shall be applicable. of the one paying the price of the sale. if the person to whom the title is conveyed is a child. as long as the trustee has not repudiated the trust 2. There is an implied trust when property is sold. No particular words are required for the creation of an express trust. if there is no proof to the contrary. Such acceptance will be presumed in cases where the trust imposes no onerous condition to the beneficiary. Art. deed. 1443. but there is a will. no trust is implied by law. SY 2010-2011 Based on Melencio Sta. Art. No trust shall fail because the trustee appointed declines the designation. unless the appointment of such trustee is material and is provided in the instrument constituting the trust. Constructive trust . Such acts were made known to the beneficiary (cestui que trust) c. Maria By Anna Bueno. writing. if the trust imposes no onerous condition upon the beneficiary. while the latter is the beneficiary. The trustee has performed unequivocal acts of repudiation b. it being sufficient that a trust is clearly intended. the Court will appoint a trustee. his acceptance shall be presumed. however. The evidence thereon is clear and conclusive   Acceptance of the trust  By the trustee: not necessary. if a trust takes the form of any of the provisions under implied trusts. In case the trustee refuses to accept. it being disputably presumed that there is a gift in favor of the child. EXPRESS TRUSTS parties Imprescriptible. 1448. 1446. 84 . The former is the trustee. 1444. it is an express trust - Art. Art. 1445. but is a mere construction of equity .Prescription may supervene . IA 2014  thing in trust by prescription. Art.No intention presumed from any of the acts of the parties. 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. or there are words evidencing the same. No express trusts concerning an immovable or any interest therein may be proved by parol evidence.

1452. 1453. IA 2014 Art. Art. 1456. EXTRA-CONTRACTUAL OBLIGATIONS QUASI-CONTRACTS Art. Mel Sta. 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. An implied trust may be proved by oral evidence. 1450. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. there is an implied trust in favor of the person whose benefit is contemplated. 2143. When property is conveyed to a person in reliance upon his declared intention to hold it for. 1451.  A quasi-contract is not an implied contract. a trust is established by favor of the person to whom the funds belong. or transfer it to another or the grantor. Art. When land passes by succession to any person and he causes the legal title to be put in the name of another. by force of law. 1454. 1449. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee. Art. Art. Art. 85 . he nevertheless is either to have no beneficial interest or only a part thereof. Art. 1457. 2142. SY 2010-2011 Based on Melencio Sta. If the fulfillment of the obligation is offered by the grantor when it becomes due. 1455. a trust is established by implication of law for the benefit of the true owner. voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all. a trust is created by force of law in favor of the others in proportion to the interest of each. Art. 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. Art. The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article. guardian or other person holding a fiduciary trust funds for the purchase of property and causes the made to him or to a third person. because there is no meeting of the minds between the parties. a trust by virtue of law is established. Art. Maria By Anna Bueno. the person obtaining it is. considered a trustee of an implied trust for the benefit of the person from whom the property comes. If property is acquired through mistake or fraud. When relationship uses conveyance to be operation of law in any trustee. he may demand the reconveyance of the property to him. Certain lawful.OBLIGATIONS AND CONTRACTS: Reviewer. The latter may redeem the property and compel a conveyance thereof to him.

and that there be no administrator or representative of the owner charged with the management thereof b. The property or business is neglected or abandoned  Circumstances where a negotiorum gestio may arise. SY 2010-2011 Based on Melencio Sta. There is no authorization on the part of the person who takes charge of the agency or management of the business b. The actor is inspired by the beneficent idea of averting losses and damages to the owner or to the interested party Art. The officious manager shall perform his duties with all the diligence of a good father of a family. The courts may. Mel Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. NEGOTORIUM GESTIO Art. and 1404 regarding unauthorized contracts shall govern. The idea of express or tacit mandate on the part of the owner is foreign to all. 1403. Whoever voluntarily takes charge of the agency or management of the business or property of another. because very often the management of a third person is without the owner’s knowledge c. This is without prejudice to the direct obligation of the delegate toward the owner of the business. 2145. he shall be liable for the acts of the delegate.  General rule: An officious manager is responsible for all the acts of the delegate. if the owner is in a position to do so. and their responsibility shall be solidary. No. This juridical relation does not arise in either of these instances: (1) When the property or business is not neglected or abandoned. solutio indebiti) is not exclusive. and pay the damages which through his fault or negligence may be suffered by the owner of the property or business under management. 1. according to Sison and Azarraga v. In the second case. Maria By Anna Bueno. without any power from the latter. however. 86 . the provisions of Articles 1317. Art. In the first case. without prejudice to the direct obligation of the latter toward the owner of the business. unless the management was assumed to save the thing or business from imminent danger. is obliged to continue the same until the termination of the affair and its incidents. or to require the person concerned to substitute him.OBLIGATIONS AND CONTRACTS: Reviewer. 2146. The business matter relates to determined things or affairs. The responsibility of two or more officious managers shall be solidary. 2144. If the officious manager delegates to another person all or some of his duties. NATURE OF A NEGOTORIUM GESTIO  It is not undertaken for profit  Requisites: a. IA 2014  The listing of quasi-contracts here (negotorium gestio. (2) If in fact the manager has been tacitly authorized by the owner. the rules on agency in Title X of this Book shall be applicable. increase or moderate the indemnity according to the circumstances of each case. Balgos: a.  Thus. the officious manager cannot say that he is not an authorized manager in order to escape liability for any damage arising through his/her fault.

even though he/she acted in the name of the third persons . 2149. (2) If he has preferred his own interest to that of the owner. LIABILITIES OF OFFICIOUS MANAGER AND OWNER Officious manager is liable:  For contracts which he/she has entered into with third persons. Art. although no benefit may have been derived. Art. 2152. Art. the owner is liable as under the first paragraph of the preceding article. 2147. the officious manager shall be liable for fortuitous events: (1) If he is manifestly unfit to carry on the management. even if the business may not have been successful. even though he acted in the name of the owner. (3) If he fails to return the property or business after demand by the owner. the owner of the property or business who enjoys the advantages of the same shall be liable for obligations incurred in his interest. Art. Even though the owner did not derive any benefit and there has been no imminent and manifest danger to the property or business. (2) If by his intervention he prevented a more competent person from taking up the management. ready to be returned to the owner. 2151. 2148. or (2) When the contract refers to things pertaining to the owner of the business. The officious manager is personally liable for contracts which he has entered into with third persons. Except when the management was assumed to save property or business from imminent danger. Although the officious management may not have been expressly ratified. Mel Sta.Unless the owner a) ratifies the Owner is liable: 1. SY 2010-2011 Based on Melencio Sta. (4) If he assumed the management in bad faith. These provisions shall not apply: (1) If the owner has expressly or tacitly ratified the management. even though he/she has not ratified it . and there shall be no right of action between the owner and third persons. Maria By Anna Bueno. When the owner enjoys the advantages of the business. The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations which the owner was not accustomed to embark upon. Art. Art. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. The ratification of the management by the owner of the business produces the effects of an express agency. and (2) The property or business is intact. IA 2014  Exception: The responsibility shall not be solidary if the management was assumed to save the thing or business from imminent danger. 2150. provided: (1) The officious manager has acted in good faith.OBLIGATIONS AND CONTRACTS: Reviewer. and shall reimburse the officious manager for the necessary and useful expenses and for the damages which the latter may have suffered in the performance of his duties. The same obligation shall be incumbent upon him when the management had for its purpose the prevention of an imminent and manifest loss.There is a duty to reimburse the officious manager for the damages 87 .

Art. SY 2010-2011 Based on Melencio Sta. Board of Administrators: The Court said the authority of the Board of Administrators created to manage Broadcast City. (3) By the death. However the officious manager must require the person concerned or the owner to substitute him/her. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. unless the management was assumed to save the property from imminent danger: e. When the management has been undertaken by the officious manager to prevent an imminent loss. or insolvency of the officious manager SOLUTIO INDEBITI Art. The management is extinguished: (1) When the owner repudiates it or puts an end thereto. regardless of benefit or imminent danger 4. Mel Sta. ceased when a reorganized Board of Directors demanded that Broadcast City be returned to them. Owner repudiates it . Officious manager repudiates it. Death. insanity or insolvency of the owner or the officious manager. 3. When the officious manager acted in good faith. subject to the provisions of Article 2144.Benedicto v. If something is received when there is no right to demand it. civil interdiction. 88 . If the officious manager fails to return the property or the business after the owner’s demand d. If the officious manager is manifestly unfit to carry on the management f.OBLIGATIONS AND CONTRACTS: Reviewer. When the property is intact and ready to be returned to the owner. too. although there has been no benefit 3. 2155. and it was unduly delivered through mistake. and— a. If the officious manager undertakes risky operations the owner did not usually take b. Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may come within the scope of the preceding article. the obligation to return it arises. civil interdiction. He/She cannot withdraw from the business and not leave a substitute. 2153. Maria By Anna Bueno. If the officious manager preferred his own interest over the owner’s c. EXTINGUISHMENT OF NEGOTORIUM GESTIO 1. (2) When the officious manager withdraws from the management. IA 2014  management or b) the contract refers to things pertaining to the owner of the business In case of fortuitous event. insanity. If the officious management was assumed in bad faith The following also make the officious manager liable. regardless of benefit or imminent danger Art. If because of the officious manager’s intervention he/she prevented a more competent person to take up the management the latter has suffered by reason of necessary expenses 2. 2. 2154. which was abandoned after the EDSA revolution.

Art. unless the person who recovers the possession exercises the option under paragraph 2 of the preceding article.Exception: A mistake in law may also come under solution indebiti if the mistake is brought by a doubtful or difficult question of law Art. If he has alienated it. 547. Nevertheless. in spite of such information. Art. does not claim it within the period of one month. Art. until it is recovered. is solidary. 548. When the property delivered or money paid belongs to a third person. and if his successor in the possession does not prefer to refund the amount expended. 2156. If the useful improvements can be removed without damage to the principal thing. Art. If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor. or shall be liable for fruits received or which should have been received if the thing produces fruits. shall pay legal interest if a sum of money is involved. Mel Sta. he shall return the price or assign the action to collect the sum. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention. 89 . As regards the reimbursement for improvements and expenses incurred by him who unduly received the thing. but only the possessor in good faith may retain the thing until he has been reimbursed therefor. the former may return the same. Art. the possessor in good faith may remove them. If the payer was in doubt whether the debt was due. Art. He who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for the impairment or loss of the same or its accessories and accessions insofar as he has thereby been benefited. Art. 2157.OBLIGATIONS AND CONTRACTS: Reviewer. he may recover if he proves that it was not due. Art. 2159. and for damages to the person who delivered the thing. the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. He shall furthermore be answerable for any loss or impairment of the thing from any cause. There is no right to collect these excess sums 2. when there has been payment of what is not due. The amounts have been paid by mistake (of fact) . SY 2010-2011 Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith. he must advise the latter of the deposit. the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor. but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby. Necessary expenses shall be refunded to every possessor. The depositary cannot demand that the depositor prove his ownership of the thing deposited. The responsibility of two or more payees. 546. the payee shall comply with the provisions of article 1984. IA 2014  Two requisites: 1. the provisions of Title V of Book II shall govern. Art. 2161. 1984. 2158. Maria By Anna Bueno. Whoever in bad faith accepts an undue payment. should he discover that the thing has been stolen and who its true owner is. 2160. If the owner.

When funeral expenses are borne by a third person. He shall be exempt from the obligation to restore who. after the judicial summons. Art. Art. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered. without the knowledge of those relatives who were obliged to give support to the deceased. destroyed the document. Redfern: . the latter shall have a right to claim the same from the former. 1984. it is given by a stranger. Art. He who paid unduly may proceed only against the true debtor or the guarantors with regard to whom the action is still effective. 90 . except in cases in which it is proved that he has acted with fraudulent intent or negligence. 2165. and shall have a right only to the expenses mentioned in paragraph 1 of Article 546 and in Article 443. or allowed the action to prescribe. even if caused by a fortuitous event. 550. One who recovers possession shall not be obliged to pay for improvements which have ceased to exist at the time he takes possession of the thing. 552. The expenses incurred in improvements for pure luxury or mere pleasure shall not be refunded to the possessor in bad faith. believing in good faith that the payment was being made of a legitimate and subsisting claim. Art. The possessor in bad faith shall reimburse the fruits received and those which the legitimate possessor could have received. Mel Sta. The costs of litigation over the property shall be borne by every possessor. which was Article 1984 of the Old Civil Code. SY 2010-2011 Based on Melencio Sta. the following must be alleged and proved: 1) That the support has been furnished a dependent of one bound to give support but who fails to do so. When. 549. should the latter claim reimbursement.OBLIGATIONS AND CONTRACTS: Reviewer. without the knowledge of the person obliged to give support. Maria By Anna Bueno. in De Marcaida v. but he may remove the objects for which such expenses have been incurred. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. A possessor in bad faith shall be liable for deterioration or loss in every case. 553. OTHER QUASI-CONTRACTS Art. Improvements caused by nature or time shall always insure to the benefit of the person who has succeeded in recovering possession. provided that the thing suffers no injury thereby. or cancelled the guaranties for his right. IA 2014 Art. Art. 2164. A possessor in good faith shall not be liable for the deterioration or loss of the thing possessed. but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause. Art. 551.  The Court discussed the precursor of this article. said relatives shall reimburse the third person.For one to recover under the provisions of Art. unless it appears that he gave it out of piety and without intention of being repaid. 2162. 2163. and that the lawful possessor does not prefer to retain them by paying the value they may have at the time he enters into possession. 2) The support was supplied by a stranger. or gave up the pledges. and 3) The support was given without the knowledge of the person charged Art.

Art. or its value. 91 . the thing found. which is not treasure. 546. The finder and the owner shall be obliged. When by accident or other fortuitous event. with right of reimbursement from the person obliged to give support. movables separately pertaining to two or more persons are commingled or confused. even over his objection. 2168. undertakes to do the necessary work. the rules on coownership shall be applicable. upon the failure of any person to comply with health or safety regulations concerning property. property is saved from destruction by another person without the knowledge of the owner. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Art. any third person may furnish support to the needy individual. onetenth of the sum or of the price of the thing found. Six months from the publication having elapsed without the owner having appeared. but only the possessor in good faith may retain the thing until he has been reimbursed therefor.OBLIGATIONS AND CONTRACTS: Reviewer. or other calamity. flood. as a reward to the finder. shall be awarded to the finder. 2172. When the government. he shall be obliged to pay. Art. the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. or without expenses which considerably diminish its value. Whoever finds a movable. Art. as the case may be. it shall be sold at public auction eight days after the publication. When the person obliged to support an orphan. 2166. 2171. The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him. The finding shall be publicly announced by the mayor for two consecutive weeks in the way he deems best. or an insane or other indigent person unjustly refuses to give support to the latter. 2167. If the owner should appear in time. to reimburse the expenses. 719. unless the service has been rendered out of pure generosity. Mel Sta. Maria By Anna Bueno. 2170. If the movable cannot be kept without deterioration. IA 2014 Art. the finder shall immediately deposit it with the mayor of the city or municipality where the finding has taken place. 2169. When during a fire. The rights and obligations of the finder of lost personal property shall be governed by Articles 719 and 720. he shall be liable to pay the expenses. he shall be liable to pay for the services of the physician or other person aiding him. 720. If the latter is unknown. The right of every possessor in good faith to reimbursement for necessary and useful expenses is governed by Article 546. Necessary expenses shall be refunded to every possessor. SY 2010-2011 Based on Melencio Sta. the latter is bound to pay the former just compensation. Art. Art. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention. When through an accident or other cause a person is injured or becomes seriously ill. Art. and he is treated or helped while he is not in a condition to give consent to a contract. must return it to its previous possessor. Art. storm. Art.

storm or other calamity. pays the debt. 2174. Mel Sta. any one who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses. When in a small community a nationality of the inhabitants of age decide upon a measure for protection against lawlessness.OBLIGATIONS AND CONTRACTS: Reviewer. 2175. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. 2173. flood. fire. 92 . When a third person. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter. without the knowledge of the debtor. Maria By Anna Bueno. Art. Art. IA 2014 Art. SY 2010-2011 Based on Melencio Sta. the rights of the former are governed by Articles 1236 and 1237.

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