Notes On Prescription Obligations and Contracts

BOOK III
TITLE V. PRESCRIPTION
CHAPTER 1
GENERAL PROVISIONS
WHAT
IS PRESCRIPTION?
Prescription is a mode of acquiring (or losing) ownership and

other real rights thru the lapse of time in the manner and under the
conditions laid down by law (Article 1106).
WHAT
ARE THE DIFFERENT CONCEPTS OF PRESCRIPTION?
Prescription is a legal term used to refer to

a.
b.
Acquisitive prescription -- the acquisition of right by the lapse

of time under the conditions laid down by law (Article 1106,
par. 1), which may be ordinary or extra-ordinary.
Extinctive prescription (or statute of limitation or limitation of
actions)whereby rights and actions are lost by the lapse of
time (Articles 1106, par. 2 and 1139). This refers to the time
frame within which an action should be filed in court from the
time the cause of action has accrued, failing in which, the
action is deemed barred by the lapse of the prescribed time.
WHAT
IS THE DIFFERENCE BETWEEN THE TWO CONCEPTS?
a. Acquisitive prescription is a mode of acquiring ownership while

extinctive prescription is a way of extinguishing a cause of action
for failure to file it within the required period.
b. In acquisitive prescription, a party becomes the owner of a
property by prescription while the previous owner loses the
property. In extinctive prescription, if a party is barred to file an
action because of prescription, the opposite party, on the other
hand, is liberated from the obligation or liability.
c. Acquisitive prescription applies to civil cases while extinctive
prescription is applicable to all kinds of action whether civil or
criminal. There are, however, exceptions wherein the action, by
mandate of the law, does not prescribe like an action to demand
a right of way (Article 1143); action to abate nuisance (Article
1143); action to declare the invalidity of a void contract (Article
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Notes on Prescription, Obligations and Contracts
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1410). [Vide Morales vs. Court of First Instance of Misamis

Occidental, G.R. No. L-52278, May 29, 1980, 97 SCRA 872.]
WHAT IS LACHES?
Laches is unreasonable delay in the bringing of a cause of action
before the courts of justice.
It is failure or neglect, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or
should have been done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a presumption that the
party entitled thereto either has abandoned it or declined to assert it.
The principle of laches is a creation of equity. It is applied, not
really to penalize neglect or sleeping upon ones right, but rather to
avoid recognizing a right when to do so would result in a clearly
inequitable situation.
WHAT
ARE THE REQUISITES OF LACHES?
The following are the requisites of laches:

a. Conduct on the part of the defendant, or of one under whom he
claims, giving rise to the situation of which complaint is made
and for which the complaint seeks a remedy;
b. Delay in asserting the complainants rights, the complainant
having had knowledge or notice of the defendants conduct and
having been afforded an opportunity to institute a suit;
c. Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right which he bases his suit; and
d. Injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held barred
(Abraham vs. Recto-Kasten, G.R. No. L-16741, January 1962).
HOW
IS PRESCRIPTION DISTINGUISHED FROM LACHES?
a. Prescription is concerned with the fact of delay while laches is

concerned with the effect of delay;
b. Prescription is a matter of time while laches is principally a
question of the inequity of permitting a claim to be enforced, this
inequity being founded on some change in the condition of the
property or the relations of the parties.
c. Prescription is statutory; laches is not.
d. Laches applies in equity, whereas prescription applies at law.
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e. Prescription is based on a fixed time; laches is not (Nielson &

Co., Inc. vs. Lepanto Mining Co., G.R. No. L-21601, December 17,
1966, 18 SCRA 1040).
WHAT ARE THE BASIC REQUIREMENTS OF PRESCRIPTION AS A MODE OF
ACQUISITION?
As a mode of acquisition, prescription requires the following
essential elements:
a. There must be actual possession of a property, which is
susceptible of prescription;
b. Possession must be in the concept of an owner and not that of a
mere holder (Article 1118);
c. Possession must be public or open (Article 1118);
d. Possession must be peaceful (Article 1118);
e. Possession must be continuous and not interrupted (Article
1118);
f. Possession must be averse, that is, exclusive and not merely
tolerated; and
g. Possession must satisfy the full period required by law (Articles
1132; 1134; 1137).
WHO
ARE THE PERSONS CAPACITATED TO ACQUIRE PROPERTY BY PRESCRIPTION?
Under Article 1107, the following may acquire property by

prescription:
a. Persons who can acquire property rights through the other
modes of acquiring ownership.
When a person is capable of becoming an owner under
Article 712, generally such a person has full civil capacity and
does not suffer from disqualification.
b. Minors or other incapacitated persons, either personally or
through their parents, guardians or legal representatives.
Minors and incapacitated persons may acquire property by
prescription personally if they have discernment. This means the
presence of an intention to appropriate the property to become
their own. This intention is an essential ingredient of possession
the principal element of prescription.
However, if the minor or incapacitated person has no
discernment, he can become an owner by prescription only
through representatives.
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WHO
ARE THE PERSONS AGAINST WHOM PRESCRIPTION MAY RUN?
Acquisitive and extinctive prescriptions run against certain

persons:
(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
(Article 1108).
(5) Prescription, acquisitive and extinctive, runs in favor of, or
against a married woman (Article 1110). This presupposes
a situation where the parties involved are a married
woman and another person not her husband. Prescription
may be in favor of or against the married woman.
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.
MAY
PRESCRIPTION RUN BETWEEN HUSBAND AND WIFE OR BETWEEN PARENTS AND
CHILDREN OR BETWEEN GUARDIAN AND WARD?
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 (Article 1109).
Note that the prescription contemplated here is acquisitive and
not extinctive. Thus, in the filing of actions against each other,
extinctive prescription is applicable.
EXAMPLES:
Legal separation must be filed within five (5) years from the
occurrence of the ground for legal separation (Article 57, FC);
Generally, action for annulment of marriage by a spouse against the
other must be filed within five (5) years (Article 47, FC);
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Alienation made by the husband without the wifes consent

provided that the marriage was celebrated under the Civil Code
(Article 173, CC).
WHAT
OWNER?
IS THE EFFECT OF PRESCRIPTION OBTAINED BY A CO-PROPRIETOR OR A CO-
Prescription obtained by a co-proprietor or a co-owner shall

benefit the others (Article 1111). Thus, if a co-owner obtained a
property by prescription which property incidentally must be related to
the property held in common, the prescription benefits them all.
MAY
PRESCRIPTION RUN AGAINST CO-OWNERS?
Prescription does not run against co-owners except when a coowner made a definite repudiation of the co-ownership disclosed to the
other co-owners (Article 494).
WHO
CAN RENOUNCE PRESCRIPTION ALREADY OBTAINED?
Persons with capacity to alienate property may renounce

prescription already obtained, but not the right to prescribe in the
future (Article 1112, par. 1). The renouncing must not prejudice the
rights of others (Article 6).
WHEN
IS THERE TACIT RENUNCIATION?
Prescription is deemed to have been tacitly renounced when the

renunciation results from acts which imply the abandonment of the
right acquired (Article 1112, par. 2).
WHAT
THINGS MAY BE SUBJECT OF PRESCRIPTION?
All things which are within the commerce of men are susceptible
of prescription, unless otherwise provided. Property of the State or any
of its subdivisions not patrimonial in character shall not be the object
of prescription (Article 1113).
EXAMPLES
OF EXCEPTION:
a. Movables possessed through a crime can never be acquired by

prescription by the offender (Article 1133);
b. Lands covered by Torrens Title;
c. Those outside the commerce of men (Article 1133);
d. Properties of spouses, parents and children, wards and
guardians, under the restrictions imposed by law (Article 1109).
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WHAT
ARE THE RIGHTS OF CREDITORS AND ALL OTHER PERSONS INTERESTED IN
MAKING THE PRESCRIPTION EFFECTIVE?
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 (Article
1114).
Thus, where a current creditor of a corporation which had
obtained prescription of its debts, may interpose and plead
prescription to stop the corporation from paying prescribed debts to
the prejudice of the said creditor. This complements Article 6 of the
Civil Code.
WHAT
IS
THE
RULE
IN
CASE
OF
CONFLICT
PRESCRIPTION AND SPECIFIC PROVISIONS IN THE SAME
BETWEEN
CODE,
THE
PROVISIONS
ON
OR IN SPECIFIC LAWS?
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 (Article 1115).
Thus, specific provisions on prescription separately found in the
Code and in special laws shall prevail over the general provisions on
prescription provided under Title V of the Code.
WHAT
ARE THE TRANSITIONAL RULES FOR PRESCRIPTION?
Prescription already running before the effectivity of this Code

shall be governed by laws previously in force; but if since the time this
Code took effect the entire period herein required for prescription
should elapse, the present Code shall be applicable, even though by
the former laws a longer period might be required (Article 1116).
Thus:
a. If the period for prescription began and ended under the old
laws, said old laws govern.
b. If the period for prescription began under the new Civil Code, the
new Civil Code governs.
c. If the period began under the old law, and continues under the
new Civil Code, the old law applies.
EXCEPTION:
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In this third rule, it is the new Civil Code that will apply, provided
two conditions are present:
a. The new Civil Code requires a shorter period; and
b. This shorter period has already elapsed since August 30, 1950.
NOTE: It is more than fifty years since the new Civil Code became
effective. The transitional rules may no longer find application today,
although the same were applied before in several cases.
PRESCRIPTION
WHAT
OF
CHAPTER 2
OWNERSHIP AND OTHER REAL RIGHTS
ARE THE KINDS OF ACQUISITIVE PRESCRIPTION?
Acquisitive prescription of dominion and other real rights may be

ordinary or extraordinary (Article 1117).
WHAT
ARE ORDINARY AND EXTRA-ORDINARY PRESCRIPTIONS?
Prescription where there is good faith is called ordinary

prescription; whereas prescription where there is bad faith is called
extra-ordinary prescription.
Prescription may arise even if the possessor is in bad faith.
However, when the possessor is in bad faith, the period required for
the actual possession is much longer to the case of a possessor in good
faith.
WHAT
ARE THE ADDITIONAL REQUISITES IN ORDINARY PRESCRIPTION?
Aside from the basic requirements of acquisitive prescription

already stated, if prescription is ordinary, the additional requisites are:
a. Good faith (Article 1128), and
b. Just title (Article 1129)
Note that the title for prescription must be true and valid (Article
1130); and for the purposes of prescription, just title must be proved; it
is never presumed (Article 1131).
WHEN IS A POSSESSOR CONSIDERED IN GOOD FAITH?
A possessor is considered in good faith, if he is not aware of the
existence of any flaw or defect in his title or mode of acquisition which
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invalidates it (Article 526 in relation to Article 1128). Good faith

consists in the reasonable belief that the person from whom he
received the thing was the owner thereof, and could transmit his
ownership (Article 1127).
The related Articles which must be considered in the
determination of good faith in prescription of ownership are the
following:
a. Article 526 -- He is deemed a possessor in good faith who is not
aware that there exists in his title or mode of acquisition any flaw
which invalidates it.
He is deemed a possessor in bad faith who possesses in
any case contrary to the foregoing.
Mistake upon a doubtful or difficult question of law may be
the basis of good faith.
b. Article 527 -- Good faith is always presumed, and upon him who
alleges bad faith on the part of a possessor rests the burden of
proof.
c. Article 528 -- Possession acquired in good faith does not lose this
character except in the case and from the moment facts exist
which show that the possessor is not unaware that he possesses
the thing improperly or wrongfully.
d. Article 529 -- It is presumed that possession continues to be
enjoyed in the same character in which it was acquired, until the
contrary is proved.
WHAT
IS MEANT BY
JUST
TITLE?
Just title means that the possessor obtained the possession of

the property through one of the modes recognized by law for acquiring
ownership (as enumerated under Article 712) but the transferor or
grantor was not the owner of the property or he has no power to
transmit the right (Article 1129). The just title is intended to transmit
ownership and could have actually transmitted ownership had the
transferor or grantor been the true owner of the property. This kind of
possession arising from a just title can ripen into ownership if the other
elements of prescription are present.
WHAT
ARE THE CHARACTERISTICS OF POSSESSION NEEDED FOR PRESCRIPTION?
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Possession has to be in the concept of an owner, public, peaceful

and uninterrupted (Article 1118).
a. Possession in the CONCEPT OF AN OWNER means the possessor is
exercising the attributes of ownership over the property. He does
not recognize any ownership over the property except his own.
b. Possession of a property is considered PUBLIC when the
employment thereof is visible to all, especially to the very person
against whom possession is being asserted. The possession must
be publicly known to the community.
c. Possession is PEACEFUL when it is acquired without force or
intimidation, and such character is maintained all throughout the
period fixed by law.
d. Possession is UNINTERRUPTED OR CONTINUOUS when the possessor has not
stopped exercising the rights of an owner over the property
during the time fixed by law. However, if the right is exercisable
at intervals, and the right is so exercised, there is still continuity
in the possession of the property. Example: Harvesting of
seasonal fruits from fruit bearing trees.
e. The possession must be ADVERSE. Thus, mere possession with
juridical title, such as by a lessee, mortgagee, usufructuary,
trustee, or agent does not hold the proper adversely and in the
concept of an owner, unless the juridical relationship is first
expressly repudiated and such repudiation has been
communicated to the other party.
f. The acts of possessory character must not be executed in virtue
of LICENSE OR BY MERE TOLERANCE of the owner because the acts shall
not be available for the purposes of possession (Article 1119).
HOW
IS POSSESSION INTERRUPTED FOR PURPOSES OF PRESCRIPTION?
Possession is interrupted for the purposes of prescription,

naturally or civilly (Article 1120).
WHEN
a.
b.
IS POSSESSION INTERRUPTED?
Possession is naturally interrupted when through any

cause it should cease for more than one year (Article
1121, par. 1).
Civil interruption is produced by judicial summons to
the possessor (Article 1123), except:
a) If it should be void for lack of legal
solemnities;
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b) If the plaintiff should desist from the

complaint
or
should
allow
the
proceedings to lapse;
c) If the possessor should be absolved from
the complaint (Article 1124).
Any express or tacit recognition which the possessor
may make of the owner's right also interrupts
possession (Article 1125).
c.
WHAT
ARE THE CONSEQUENCES OF INTERRUPTION?
a. The old possession is not revived if a new possession should be

exercised by the same adverse claimant (Article 1121, par. 2).
b. If the natural interruption is for only one year or less, the time
elapsed shall be counted in favor of the prescription (Article
1122).
AGAINST
A TITLE RECORDED IN THE
REGISTRY
OF
PROPERTY,
MAY ORDINARY
PRESCRIPTION OF OWNERSHIP OR REAL RIGHTS TAKE PLACE TO THE PREJUDICE OF A THIRD

PERSON?
Against a title recorded in the Registry of Property, ordinary

prescription of ownership or real rights shall not take place to the
prejudice of a third person, except in virtue of another title also
recorded; and the time shall begin to run from the recording of the
latter.
As to lands registered under the Land Registration Act, the
provisions of that special law shall govern (Article 1126).
WHAT
IS THE PERIOD OF PRESCRIPTION OF MOVABLES?
a. The ownership of movables prescribes through

uninterrupted possession for FOUR YEARS IN GOOD FAITH.
b. The ownership of personal property also prescribes
through uninterrupted possession for EIGHT YEARS,
WITHOUT NEED OF ANY OTHER CONDITION.
c. With regard to the right of the owner to recover
personal property lost or of which he has been
illegally deprived, as well as with respect to
movables acquired in a public sale, fair, or market,
or from a merchant's store the provisions of Articles
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559 1 and 1505 2 of this Code shall be observed

(Article 1132).
d. Movables possessed through a crime can never be
acquired through prescription by the offender
(Article 1133).
WHAT
IS THE PRESCRIPTIVE PERIOD FOR IMMOVABLE?
a. Ownership and other real rights over immovable property are

acquired by ordinary prescription through possession of TEN YEARS
(Article 1134).
b. Ownership and other real rights over immovables also prescribe
through uninterrupted adverse possession thereof for THIRTY YEARS,
without need of title or of good faith (Article 1137).
WHAT
IS THE RULE WHEN THERE IS DISCREPANCY IN THE AREA POSSESSED AND IN
THE AREA EXPRESSED IN THE TITLE?
In case the adverse claimant possesses by mistake an area

greater, or less, than that expressed in his title, prescription shall be
based on the possession (Article 1135).
WHAT
IS THE EFFECT OF POSSESSION IN WAR TIME ON PRESCRIPTION?
Possession in wartime, when the civil courts are not open, shall
not be counted in favor of the adverse claimant (Article 1136).
WHAT
ARE
THE
RULES
IN
THE
COMPUTATION
OF
TIME
NECESSARY
FOR
PRESCRIPTION?
Article 559. The possession of movable property acquired in good faith

is equivalent to a title. Nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the person in possession of the
same. If the possessor of a movable lost or which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.
1
ARTICLE 1505. Subject to the provisions of this Title, where goods are sold by a person who is
not the owner thereof, and who does not sell them under authority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his
conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1)
The provisions of any factors' acts, recording laws, or any other provision of law enabling the
apparent owner of goods to dispose of them as if he were the true owner thereof;
(2)
The validity of any contract of sale under statutory power of sale or under the order of a court of
competent jurisdiction;
(3)
Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of
Commerce and special laws. (n) casia
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In the computation of time necessary for prescription the

following rules shall be observed:
(1)
When the possession of the present possessor is just a
continuation of the possession of the predecessor in interest - The
present possessor may complete the period necessary for prescription
by tacking his possession to that of his grantor or predecessor in
interest;
(2)
When the character of the possession of the possessor has
changed from good faith to bad faith - It is presumed that the present
possessor who was also the possessor at a previous time, has
continued to be in possession during the intervening time, unless there
is proof to the contrary;
(3)
The first day shall be excluded and the last day included (Article
1138).
WHAT
IS MEANT BY TACKING OF POSSESSIONS OF TWO OR MORE POSSESSORS?
Tacking of possession is the linking of the possession of the

present possessor to the possession of the immediate past possessor
of an identical property for the purpose of completing the period
needed for the prescription.
The condition for the tacking of possession is that privity must
exist between the present possessor and the predecessor in interest.
In brief, the present possessor got his possession from the predecessor
in interest. Consequently, a mere usurper cannot invoke the
possession of the previous possessor.
There is no privity of interest where the present possessor came
into possession of the disputed land by virtue of a void and fictitious
sale (Ruiz vs. CA, 79 SCRA 525).
Tacking is not allowed if the predecessor in interest has not
satisfied the requirements of prescription. Otherwise, there can be no
continuity in the nature of the possession.
WHAT
IS THE RULE TO FOLLOW WHEN THE CHARACTER OF THE POSSESSION OF
THE PREDECESSOR IS DIFFERENT FROM THAT OF THE PRESENT POSSESSOR?
The law does not provide any solution to such kind of

contingency. Thus, sound judgment must be resorted to, thus:
a. If the predecessor was in good faith but the successor is in bad
faith, should there be any tacking of possession?
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There are different views. Some writers say there must be no

tacking. Others say, the good faith of the predecessor should not be
set at naught. The second is the better view. The computation of the
periods to be tacked should be proportionate, that is, in the proportion
of what the period of possession in good faith bears to the period of
extraordinary prescription. So it is in the proportion of 2:1 as regards
movables and 3:1 for immovables.
b. If the possession of the predecessor was in bad faith and the
possession of the successor is in good faith, should there be
tacking of possession?
Possession of the predecessor in bad faith cannot be counted
and added to that of the present possessor. Here, the possession of
the predecessor cannot be considered ordinary prescription because
such requires good faith all throughout the period fixed by law.
However, for purposes of extraordinary prescription, the
possession in bad faith of the predecessor can be tacked to the
possession in bad faith of the successor. There is no prohibition to this.
CHAPTER 3
PRESCRIPTION OF ACTIONS
HOW
DO ACTIONS PRESCRIBE?
Actions prescribe by the mere lapse of time fixed by law (Article

1139).
WHEN
DO ACTIONS PRESCRIBE?
1. ACTIONS
TO
RECOVER MOVABLES:
Actions to recover movables shall prescribe EIGHT YEARS from

the time the possession thereof is lost, unless the possessor has
acquired the ownership by prescription for a less period,
according to Articles 1132, and without prejudice to the
provisions of articles 559, 1505, and 1133 (Article 1140), thus:
The
ownership
of
movables
prescribes
through
uninterrupted possession for FOUR YEARS IN GOOD FAITH.
2. The ownership of personal property also prescribes through
uninterrupted possession for EIGHT YEARS, WITHOUT NEED OF ANY
OTHER CONDITION.
1.
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With regard to the right of the owner to recover personal

property lost or of which he has been illegally deprived, as
well as with respect to movables acquired in a public sale,
fair, or market, or from a merchant's store the provisions of
Articles 559 and 1505 of this Code shall be observed
(Article 1132).
4. Movables possessed through a crime can never be
acquired through prescription by the offender (Article
1133).
3.
2. REAL ACTIONS
OVER IMMOVABLES:
Real actions over immovables prescribe after THIRTY YEARS.

This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription
(Article 1141).
3. MORTGAGE ACTION:
A mortgage action prescribes after
4. ACTIONS UPON
A JUDGMENT:
WRITTEN CONTRACT; UPON
AN
TEN YEARS
(Article 1142).
OBLIGATION CREATED BY LAW; UPON
They must be brought within TEN

right of action accrues (Article 1144).
YEARS
from the time the
5. ACTIONS UPON AN ORAL CONTRACT; ACTIONS UPON A QUASI-CONTRACT :

They must be commenced within SIX YEARS (Article 1145).
6. ACTIONS UPON
DELICT:
AN
INJURY
TO THE
RIGHTS
OF THE
They must be instituted within
PLAINTIFF; ACTIONS UPON
QUASI-
FOUR YEARS.
However, when the action arises from or out of any act,

activity, or conduct of any public officer involving the exercise of
powers or authority arising from Martial Law including the arrest,
detention and/or trial of the plaintiff, the same must be brought
within ONE (1) YEAR. (Article 1146 as amended by PD No. 1755,
Dec. 24, 1980.)
7. FORCIBLE ENTRY
AND
DETAINER; FOR DEFAMATION:
They must be filed within
ONE YEAR
(Article 1147).
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NOTE: The limitations of action mentioned in Articles 1140 to

1142, and 1144 to 1147 are without prejudice to those specified in
other parts of this Code, in the Code of Commerce, and in special laws
(Article 1148).
The phrase without prejudice means that, in proper cases, the
prescriptive period in this chapter may be availed of notwithstanding
other special provisions in other parts of the Civil Code, in the Code of
Commerce and in special laws. Thus, even though the claim falls under
the prescriptive period provided for in the Labor Code because of
illegal and unlawful dismissal, the case may still fall within the ambit of
injury to the rights of the plaintiff (Virgilio Callanta vs. Carnation Phi.,
Inc., G.R. No. L-70615, October 28, 1986, 145 SCRA 286).
WHAT RIGHTS ARE NOT EXTINGUISHED BY PRESCRIPTION?
The following rights, among others specified elsewhere in this
Code, are not extinguished by prescription:
(1)
To demand a right of way, regulated in Article 649;
(2)
To bring an action to abate a public or private nuisance (Article
1143).
OTHERS:
(1)An action to declare a contract null and void;
(2)An action to quite title initiated by the person having possession
of the property;
(3)An action to partition a property among co-heirs;
(4)When the trust is merely an implied one, unless expressly
repudiated by the trustee.
WHAT
IS THE PRESCRIPTIVE PERIOD FOR FILING ACTIONS WHOSE PERIODS ARE
NOT FIXED BY THE
CIVIL CODE
AND OTHER LAWS?
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 (Article1149).
EXAMPLES:
a. Action to impugn the recognition of a natural child (Article 296
Civil Code);
b. Action to impugn the legitimation of a child (Article 275, Civil
Code);
c. Action to reduce inofficious donations (to be counted from the
death of the donor) (Vide Article 772, Civil Code).
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FROM
a.
b.
c.
d.
e.
f.
WHEN
WHAT TIME SHALL THE PERIOD OF PRESCRIPTION BE COUNTED?
The time for prescription for all kinds of actions, when

there is no special provision which ordains otherwise,
shall be counted from the day they may be brought
(Article 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 (Article
1151).
The period for prescription of actions to demand the
fulfillment of obligation declared by a judgment
commences from the time the judgment became final
(Article 1152).
The period for prescription of actions to demand
accounting runs from the day the persons who should
render the same cease in their functions (Article
1153).
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
(Article 1153, 2nd par.).
The period during which the obligee was prevented
by a fortuitous event from enforcing his right is not
reckoned against him (Article 1154).
IS PRESCRIPTION OF ACTIONS INTERRUPTED UNDER THE
CIVIL CODE?
The prescription of actions is interrupted when:

a. They are filed before the court; or
b. When there is a written extrajudicial demand by the creditors,
and when there is any written acknowledgment of the debt by
the debtor (Article 1155).
BOOK IV
OBLIGATIONS AND CONTRACTS
TITLE I
OBLIGATIONS
OVERVIEW OF LAW
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I.
SOURCES
A.
B.
C.
D.
E.
OF
LAW
Constitution
Legislative Enactment
Executive Issuance
International Law
Supreme Court Decisions
ARTICLE 8. Judicial decisions applying or interpreting
the laws or the Constitution shall form part of the legal
system of the Philippines.
II.
EFFECTIVITY
A.
AND
INTERPRETATION
OF
LAWS
EFFECTIVITY
ARTICLE 2. Laws shall take effect after fifteen days
following the completion of their publication in the Official
Gazette, unless it is otherwise provided.
While law may provide for the date of its effectivity,
the requirement of publication may not be dispensed with.
(Tanada vs. Tuvera)
ARTICLE 3. Ignorance of the law excuses no one from
compliance therewith.
ARTICLE 4. Laws shall have no retroactive effect, unless
the contrary is provided.
ARTICLE 5. Acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when
the law itself authorizes their validity.
ARTICLE 7. Laws are repealed only by subsequent ones,
and their violation or non-observance shall not be excused
by disuse, or custom or practice to the contrary.
ARTICLE 14. Penal laws and those of public security and
safety shall be obligatory upon all who live or sojourn in
Philippine territory, subject to the principles of international
law and treaty stipulations.
ARTICLE 16. Real property as well as personal property
is subject to the law of the country where it is situated.
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B.
INTERPRETATION
ARTICLE 10. In case of doubt in the interpretation or
application of laws, it is presumed that the lawmaking body
intended right and justice to prevail.
ARTICLE 7. When the courts declare a law to be
inconsistent with the Constitution, the former shall be void
and the latter shall govern.
Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary
to the laws or the Constitution.
III.
KINDS
OF
LAWS
A.
PENAL
Those which prescribe imprisonment as a penalty in
case of violation.
B.
Civil
Those which govern relations between persons.
C.
COMMERCIAL
Those which deal with transactions entered into by
persons.
D.
REMEDIAL
Those which prescribe the procedure to be followed
in order to seek remedies in law.
IV.
CONCEPT
A.
OF
PERSONS
NATURAL PERSONS
ARTICLE 40. Birth determines personality; but the
conceived child shall be considered born for all purposes
that are favorable to it, provided it be born later with the
conditions specified in the following articles.
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ARTICLE 41. For all civil purposes, the foetus is

considered born if it is alive at the time it is completely
delivered from the mothers womb. However, if the foetus
had an intra-uterine life of less than seven months, it is not
deemed born if it dies within twenty-four hours after its
complete delivery from the maternal womb.
B.
ARTICLE 42. Civil personality is extinguished by death.

JURIDICAL PERSONS
ARTICLE 44. The following are juridical persons:
(1)
(2)
(3)
The State and its political subdivisions;

Other corporations, institutions and entities for public
interest or purpose, created by law; their personality
begins as soon as they have been constituted
according to law;
Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each
share-holder, partner or member.
ARTICLE 46. Juridical persons may acquire and possess

property of all kinds as well as incur obligations and bring
civil or criminal actions, in conformity with the laws and
regulations of their organization.
ARTICLE 47. Upon the dissolution of corporations,
institutions and other entities for public interest or purpose
mentioned in No. 2 of Article 44, their property and other
assets shall be disposed of in pursuance of law or the
charter creating them. If nothing has been specified on this
point, the property and other assets shall be applied to
similar purposes for the benefit of the region, province, city
or municipality which during the existence of the institution
benefits from the same.
V.
CAPACITY
A.
JURIDICAL
CAPACITY
ARTICLE 37. Juridical capacity, which is the fitness to be

the subject of legal relations, is inherent in every natural
person and is lost only through death.
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B.
CAPACITY
TO ACT
ARTICLE 37. Capacity to act, which is the power to do

acts with legal effect, is acquired and may be lost.
ARTICLE 38. Minority, insanity, or imbecility, the state
of being a deaf-mute, prodigality and civil interdiction are
mere restrictions on capacity to act, and do not exempt the
incapacitated person from certain obligations, as when the
latter arise from his acts or from property relations, such as
easements.
ARTICLE 39. The following circumstances, among
others, modify or limit capacity to act: age, insanity,
imbecility, the state of being a deaf-mute, penalty,
prodigality, family relations, alienage, absence, insolvency
and trusteeship.
VI.
HUMAN RELATIONS
ARTICLE 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good
faith.
ARTICLE 20. Every person who, contrary to law, willfully
or negligently causes damage to another, shall indemnify
the latter for the same.
ARTICLE 21. Any person who willfully causes loss or
injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter
for the damage.
ARTICLE 22. Every person who through an act of
performance by another, or any other means, acquires or
comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to
him.
ARTICLE 23. Even when an act or event causing
damage to anothers property was not due to the fault or
negligence of the defendant, the latter shall be liable for
indemnity if through the act or event he was benefited.
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ARTICLE 26. Every person shall respect the dignity,

personality, privacy and peace of mind of his neighbors
and other persons.
ARTICLE 27. Any person suffering material or moral loss
because a public servant or employee refuses or neglects,
without just cause, to perform his official duty may file an
action for damages and other relief against the latter,
without prejudice to any disciplinary administrative action
that may be taken.
ARTICLE 28. Unfair competition in agricultural,
commercial or industrial enterprises or in labor through the
use of force, intimidation, deceit, machination or any other
unjust, oppressive or highhanded method shall give rise to
a right of action by the person who thereby suffers
damage.
ARTICLE 29. When the accused in a criminal
prosecution is acquitted on the ground that his guilt has
not been proved beyond reasonable doubt, a civil action
for damages for the same act or omission may be
instituted. Such action requires only a preponderance of
evidence.
ARTICLE 30. When a separate civil action is brought to
demand civil liability arising from a criminal offense, and
no criminal proceedings are instituted during the pendency
of the civil case, a preponderance of evidence shall
likewise be sufficient to prove the act complained of.
ARTICLE 31. When the civil action is based on an
obligation not arising from the act or omission complained
of as a felony, such civil action may proceed independently
of the criminal proceedings and regardless of the result of
the latter.
CHAPTER 1
GENERAL PROVISIONS
WHAT
IS AN OBLIGATION?
An obligation is a juridical necessity to give, to do or not to do

(Article 1156).
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WHAT
a.
b.
c.
d.
ARE THE ELEMENTS OF AN OBLIGATION?
An active subject known as the obligee or creditor he is

the possessor of a right in whose favor the obligation is
constituted and who can demand the fulfillment of the
obligation;
A passive subject known as the obligor or the creditor
from whom the obligation is juridically demanded he
who has the duty of giving, doing or not doing;
The fact, prestation or service which constitutes the
object or subject matter of the obligation and may
consist of giving a thing, doing or not doing a certain act.
The law speaks of an obligation as a juridical necessity to
comply with a prestation. There is juridical necessity
for non-compliance can result in juridical or legal
sanction.
The efficient cause or the vinculum or juridical tie which
binds the parties to the obligation, and which may arise
either from bilateral or unilateral acts of persons this is
the reason why the obligation exists.
Example: A promises to paint Bs picture as a result of an

agreement. Here A is the obligor; B is the obligee; the painting of Bs
picture is the object or prestation; and the agreement is contract which
is the efficient cause.
WHAT
ARE THE SOURCES OF OBLIGATIONS?
Obligations arise from:

(1)
(2)
(3)
(4)
(5)
Law (obligations lex lege);

Contracts (obligations ex contractu);
Quasi-contracts (obligations ex-quasi contractu);
Acts or omissions punished by law (obligations ex delicto); and
Quasi-delicts (obligations ex quasi delicto) (Article 1157).
RULES :
Obligations derived from law are not presumed. Only those

expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has not been foreseen,
by the provisions of this Book (Article 1158).
Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith
(Article 1159).
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Obligations derived from quasi-contracts shall be subject to the

provisions of Chapter 1, Title XVII, of this Book (Article 1160).
Civil obligations arising from criminal offenses shall be governed
by the penal laws, subject to the provisions of article 2177, and
of the pertinent provisions of Chapter 2, Preliminary Title, on
Human Relations, and of Title XVIII of this Book, regulating
damages (Article 1161).
Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this Book, and by special
laws (Article 1162).
NATURE
WHAT
IS
THE
CHAPTER 2
AND EFFECT OF OBLIGATIONS
DEGREE
OF
DILIGENCE
REQUIRED
OF
PERSON
IN
THE
PERFORMANCE OF AN OBLIGATION?
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, unless
the law or the stipulation of the parties requires another standard of
care (Article 1163).
Notes:
This article involves the prestation to give.

The word something connotes a determinate object which is
definite, known, and has already been distinctly decided and
particularly specified as the matter to be given from among the
same things belonging to the same kind. Example: If the object is
a computer, it does not involve any kind of computer but a very
particular computer such as the computer with serial number
7777.
In case of a contrary stipulation of the parties, such stipulation
should not be one contemplating a relinquishment or waiver of
the most ordinary diligence.
An example where the law requires another standard of care is
that which involves common carriers. Article 1733 provides that
common carries are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the
passengers. Article 1755 provides that common carriers is bound
to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all circumstances.
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WHAT
IS THE DILIGENCE NEEDED IN THE PERFORMANCE OF ONES OBLIGATION?
The diligence needed is that which is required by the nature of

the obligation and corresponds with the circumstances of the persons,
of the time and of the place. This is diligence of a good father of a
family. If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father
of a family shall be required (Article 1173).
However, if the law or contract provides for a different standard
of care, said law or stipulation must prevail (Article 1163) provided that
it should not be one contemplating a relinquishment or waiver of the
most ordinary diligence
IN
OBLIGATIONS TO GIVE, WHEN DOES THE CREDITOR ACQUIRE A RIGHT TO THE
THING WHICH CONSTITUTES THE OBJECT OF THE OBLIGATIONS AS WELL AS TO THE FRUITS
THEREOF?
The creditor has a right to the fruits of the thing from the time
the obligation to deliver it arises. However, he shall acquire no real
right over it until the same has been delivered to him (Article 1164).
Thus, we must distinguish between the time when the creditor
acquires a personal right to the thing and the fruits thereof, and the
time when he acquires a real right thereto.
After the right to deliver the object of the prestation has arisen in
favor of the creditor but prior to the delivery of the same, there is no
real right enforceable or binding against the whole world over the
object and its fruits in favor of the person to whom the same should be
given. The acquisition of a real right means that such right can be
enforceable against the whole world and will prejudice anybody
claiming the same object of the prestation. The real right only occurs
when the thing or object of the prestation is delivered to the creditor.
In obligations arising from contracts, the obligation to deliver
arises from the moment of the perfection of the contract, unless there
is a stipulation to the contrary. From this it is clear that before the
delivery of the thing and the fruits thereof, the creditor has merely a
personal right against the debtor a right to ask for the delivery of the
thing and the fruits. Once the thing and the fruits are delivered, then
he acquires a real right over them, a right which is enforceable against
the whole world.
EXAMPLE:
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On February 1, 2005, A buys a mango orchard from X to be

delivered on March 1, 2005. On the latter date, A shall have the right
to the fruits of the mango orchard. If the property is delivered only on
April 1, 2005, A can nevertheless ask that the fruits accruing since
March 1, 2005 be likewise delivered to him. X cannot resist by saying
that he is entitle to the fruits before the actual delivery on April 1,
2005.
If, however, X sells the fruits on March 20, 2005 to B who does
not know the previous sale to A and who immediately takes possession
of the fruits, B shall have a better right over the said fruits. Considering
that there is no delivery of the property to A on March 20, 2005, A has
no real right over the said property at that time binding upon the
whole world. As remedy is to seek damages from X in connection with
the fruits.
If however, the mango orchard has already been delivered, A has
a real right binding upon the whole world. If X sells to B the fruits after
the delivery to A, A can recover from B who in turn can seek damages
from X.
WHEN
DOES THE OBLIGATION TO DELIVER ARISE?
It depends - If there is no term or condition, then from the

perfection of the contract. If there is a term or condition, then from the
moment the term arrives or the condition happens.
IN
OBLIGATIONS
TO
GIVE,
WHAT
ARE
THE
DIFFERENT
RIGHTS
WHICH
ARE
AVAILABLE TO THE CREDITOR?
We must distinguish between the rights which are available to

the creditor when the obligation is determinate and those which are
available to him when the obligation is indeterminate or generic.
1. When what is to be delivered is a determinate thing (in the sense
that the object thereof is particularly designated or physically
segregated from all others of the same class), the rights of the
creditor are:
a. The creditor may compel specific performance (compel the
debtor to make the delivery (Article 1165); and
b. To recover damages in case of breach of the obligation
(Article 1170).
2. If the thing is indeterminate or generic, the rights of the creditor
are:
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a. To ask for performance of the obligation (Article 1246);

b. To ask that the obligation be complied with at the expense
of the debtor (Article 1165, par. 2); and
c. To recover damages in case of breach of the obligation
(Article 1170).
WHAT
IS THE EFFECT OF FORTUITOUS EVENT IF THE OBLIGOR DELAYS, OR HAS
PROMISED TO DELIVER THE SAME THING TO TWO OR MORE PERSONS WHO DO NOT HAVE
THE SAME INTEREST?
If the obligor delays, or has promised to deliver the same thing to

two or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery
(Article 1165).
IN
OBLIGATION TO GIVE, WHAT ARE THE DIFFERENT DUTIES OR OBLIGATIONS
WHICH ARE IMPOSED UPON THE DEBTOR OR OBLIGOR?
a. If the obligation is determinate, the duties which are imposed

upon the debtor are the following:
a. To deliver the thing which he has obligated himself to
give;
b. To take care of the thing with the proper diligence of a
good father of a family (Article 1163);
c. To deliver all its accessions and accessories, even
though they may not have been mentioned. (Article
1166).
d. To pay damages in case of breach of the obligation
(Article 1170).
b. If the obligation is indeterminate or generic, the duties which are
imposed are:
a.
To deliver a thing that which must be neither of superior
nor inferior quality (Article 1246);
b.
To pay damages in case of breach of the obligation
(Article 1170).
IN
OBLIGATIONS TO DO OR NOT TO DO, WHAT ARE THE DIFFERENT RIGHTS WHICH
ARE AVAILABLE TO THE CREDITOR?
1. In obligations to do:
a) If a person obliged to do something fails to do it, the same shall be
executed at his cost.
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b) This same rule shall be observed if he does it in contravention of the

tenor of the obligation.
c) Furthermore, it may be decreed that what has been poorly done be
undone (Article 1167).
2. In obligations not to do:
a. When the obligation consists in not doing, and the obligor does
what has been forbidden him, it shall also be undone at his
expense (Article 1168).
IN
OBLIGATIONS TO GIVE OR TO DO, WHEN DOES THE OBLIGOR DEEMED TO HAVE
INCURRED IN DELAY?
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
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1)
When the obligation or the law expressly so declare; or
(2)
When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3)
When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins (Article 1169 par. 1).
WHAT
IS MORA SOLVENDI; MORA ACCIPIENDI; MORA MORAE?
Delay or default committed by the debtor is known as

mora solvendi.
The delay is called mora solvendi ex re when the obligation
is an obligation to give and mora solvendi ex persona when the
obligation is an obligation to do.
Delay or default committed by the creditor to accept the
delivery of the thing which is the object of the obligation is known as
mora accipiendi.
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Compensation morae occurs when in a reciprocal

obligation, both parties are in default (here, it is as if neither is in
default).
Note:
Delay in the performance of the obligation must
either be malicious or negligent. Hence, if the delay was only due to
inadvertence without any malice or negligence, the obligor will not be
held liable under Article 1170.
WHAT
ARE THE REQUISITES FOR MORA SOLOVENDI?
a) The obligation must be due, enforceable, and already liquidated or

determinate in amount;
b) There must be non-performance;
c) There must be demand, unless the demand is not required; and
d) The demand must be for the obligation that is due.
Note: There is no mora solvendi in negative obligations (one
cannot be late in not doing or giving). There is no mora also in natural
obligations.
WHAT
ARE THE EFFECTS OF MORA SOLVENDI?
1. If the debtor is in default, he may be liable for interest or

damages;
2. He may have to bear the risk of loss;
3. He is liable for a fortuitous event (although damages may be
mitigated if he can prove that even if he had not been in default,
loss would have occulted just the same [Article 2215])
WHEN
IS THE OBLIGOR DEEMED TO BE IN DEFAULT?
For an obligation to become due, there must generally be a

demand. Default generally begins from the moment the creditor
demand the performance of the obligation. Without such demand,
judicial or extra-judicial, the effects of default will not arise.
Commencement of a suit is a sufficient demand. Consequently, an
obligor is liable for damages for the delay not from the time the object
of the prestation is to be delivered but from the time of extra-judicial or
judicial demand.
Note that Article 1169 is applicable only when the obligation is to
do something other than the payment of money. In obligations for the
payment of money, Article 2209 shall apply which provides that:
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If the obligation consists in the payment of a sum of

money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per
cent per annum.
Hence, in obligation for the payment of sum of money, the
interest replaces the damages.
WHAT
ARE THE GROUNDS FOR LIABILITY IN THE PERFORMANCE OF OBLIGATIONS?
Those who in the performance of their obligations are guilty of

fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages (Article 1170).
Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void (Article 1171).
Responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability may be
regulated by the courts, according to the circumstances (Article 1172).
WHAT
DOES THE PHRASE
OBLIGATION AS STATED UNDER
IN
ANY MANNER CONTRAVENE THE TENOR OF THE
ARTICLE 1170
COVER?
It includes any illicit act or omission which impairs the strict and
faithful fulfillment of the obligation and every kind of defective
performance (Arrieta vs. National Rice and Corn Corp., 10 SCRA 79;
Magat vs. Medialdea, L-37120, April 20, 1983)).
WHAT
IS MEANT BY FRAUD OR DOLO?
Fraud or dolo consists in the conscious and intentional

proposition to evade the normal fulfillment of an obligation. It is bad
faith in the performance of an obligation oftentimes referred as malice.
In contracts it is deceit which if substantial (dolo causante) may result
in annulment of contract.
WHAT
ARE THE KINDS OF FRAUD?
1. Fraud in obtaining consent (may be casual or merely incidental);

2. Fraud in performing a contract, which may either be:
A. Casual fraud or dolo causante Fraud in the performance
of a pre-existing obligation;
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B. Incidental fraud or dolo incidente Fraud in the perfection

of contract.
WHAT
ARE DISTINCTIONS BETWEEN INCIDIENTAL FRAUD AND CAUSAL FRAUD?
1. The first is present only during the performance of a pre-existing

obligation, whereas the second is present only at the time of the
birth of the obligation;
2. The first is employed for the purpose of evading the normal
fulfillment of an obligation, whereas the second is employed for
the purpose of securing the consent of the other party to enter
into the contract;
3. The first results in the non-fulfillment or breach of the obligation,
whereas the second, if it is the reason for the other party upon
whom it is employed for entering into the contract, results in the
vitiation of his consent;
4. Dolo causante or causal fraud in Article 1338 are those
deceptions or misrepresentations of a serious character
employed by one party and without which the other party would
not have entered into the contract. Dolo incidente or incidental
fraud in Article 1344 are those which are not serious in character
and without which the other party would still have entered into
the contract;
5. Dolo causante determines or is the essential cause of the
consent; while dolo incidente refers only to some particular or
accident of the obligation;
6. The effects of dolo causante are the nullity of the contract and
the indemnification of damages; dolo incidente obliges the
person employing it to pay damages.
7. The first gives rise to a right of the creditor or obligee to recover
damages from the debtor or obligor, whereas the second gives
rise to a right of the innocent party to ask for the annulment of
the contract if the fraud is casual (dolo causante) or to recover
damages if it is incidental (dolo incidente) (Vide Articles 1170,
1171, 1338 & 1344).
WHAT
IS
NEGLIGENCE
OR
CULPA?
It is the omission of the diligence which is required by the nature

of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, par. 2, may apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father
of a family shall be required (Article 1173).
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HOW
IS FRAUD DISTINGUISHED FROM NEGLIGENCE?
a) In fraud, there is deliberate intention to cause damage or prejudice;

while in negligence, although voluntary (not done through force),
still there is no deliberate intention to cause damage;
b) Liability arising from fraud cannot be mitigated or reduced by the
courts; while liability due to negligence may be reduced in certain
cases;
c) Waiver of an action to enforce liability die to future fraud is void;
while waiver of an action to enforce liability due to future
negligence may in a certain sense be allowed; however, gross
negligence can never be excused in advance for this would be
contrary to public policy; but simple negligence may in certain
cases be excused or mitigated.
WHAT
IS THE TEST OF NELIGENCE?
The test by which we can determine the existence of negligence

in a particular case may be stated as follows:
Did the defendant in doing the alleged negligent act use the
reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence.
The law here in effect adopts the standard supposed to be supplied by
the imaginary conduct of the discreet pater familias of the Roman law.
The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and
determines liability by that (Picart vs. Smith, 37 Phil. 809).
WHAT
IS THE GENERAL RULE FOR FORTUITOUS EVENT?
No person shall be responsible for those events which could not

be foreseen, or which, though foreseen, were inevitable (Article 1174).
EXCEPTIONS:
1. In cases expressly specified by the law example, those
found in Articles 552, par. 2; 1165, par. 3, 1170; 1268;
1942; 1979; 2147; 2148; 2159 (Civil Code); and 196,
par. 6 (Family Code).3
ARTICLE 552 (Par. 2). A possessor in bad faith shall be liable for deterioration
or loss in every case, even if caused by a fortuitous event.
3
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2. When it is otherwise declared by stipulation thus, if

the contracting parties expressly agree that the debtor
can be held liable even in case of fortuitous events,
such an agreement shall be binding.
3. When the nature of the obligation requires the
assumption of risk This is an aspect of what is known
as the doctrine of assumption of risk. As applied to
obligations, it refers to a situation in which the obligor
or debtor, with full knowledge of the risk, voluntarily
enters into some obligatory relation with the creditor. It
ARTICLE 1165 (Par. 3). If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery.
ARTICLE 1170.
Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (The obligor shall be liable for damages and he
cannot escape liability (Nakpil vs. CA, 144 SCRA 596).
ARTICLE 1268. When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless the thing having been offered
by him to the person who should receive it, the latter refused without justification to
accept it.
ARTICLE 1942.
The bailee is liable for the loss of the thing, even if it
should be through a fortuitous event:
(1)
If he devotes the thing to any purpose different from that for which it has
been loaned; cd i
(2)
If he keeps it longer than the period stipulated, or after the accomplishment of
the use for which the commodatum has been constituted;
(3)
If the thing loaned has been delivered with appraisal of its value, unless there
is a stipulation exempting the bailee from responsibility in case of a fortuitous event;
(4)
If he lends or leases the thing to a third person, who is not a member of his
household;
(5)
If, being able to save either the thing borrowed or his own thing, he chose to
save the latter.
ARTICLE 1979.
The depositary is liable for the loss of the thing through
a fortuitous event:
(1)
If it is so stipulated;
(2)
If he uses the thing without the depositor's permission;
(3)
If he delays its return;
(4)
If he allows others to use it, even though he himself may have been
authorized to use the same.
ARTICLE 2147.
The officious manager shall be liable for any fortuitous
event:
(1)
If he undertakes risky operations which the owner was not accustomed to
embark upon;
(2)
If he has preferred his own interest to that of the owner;
(3)
If he fails to return the property or business after demand by the owner;
(4)
If he assumed the management in bad faith.
ARTICLE 2148.
Except when the management was assumed to save the
property or business from imminent danger, the officious manager shall be liable for
fortuitous events:
(1)
If he is manifestly unfit to carry on the management;
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is based on the principle of violenti non fit injuria no

wrong is done to one who consents. This is illustrated by
obligations arising from insurance contracts and
workmens compensation acts.
WHAT
IS A FORTUITOUS EVENT?
A fortuitous event is an event which cannot be foreseen, or which

though foreseen, is inevitable.
WHAT
ARE THE REQUISITES OF FORTUITOUS EVENT?
1. The cause of the breach of the obligation must be

independent of the will of the debtor;
2. The even must either be unforseeable or unavoidable;
3. The event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and
4. The debtor must be free from any participation in, or
aggravation of, the injury to the creditor.
IS
THERE A DIFFERENCE BETWEEN FORTUITOUS EVENTS AND FORCE MAJEURE?
Ordinarily, the terms fortuitous event and force majeure are

used interchangeably. There is, however, a technical difference. Force
majeure is a term that is applicable only to those fortuitous events
which are dependent upon human intervention, such as wars, strikes,
riots, etc., while fortuitous event is the general term that is
applicable regardless of whether the event is independent of or
dependent upon human intervention.
NOTE that when the object of the prestation is generic (like payment
of a sum of money as a consequence of a loan contract), the debtor
cannot avail of the benefit of a fortuitous event.
(2)
If by his intervention he prevented a more competent person from taking up
the management.
ARTICLE 2159.
Whoever in bad faith accepts an undue payment, shall
pay legal interest if a sum of money is involved, or shall be liable for fruits received
or which should have been received if the thing produces fruits.
ARTICLE 129. Upon the dissolution of the conjugal partnership regime, the
following procedure shall apply: x x x (6) Unless the owner has been indemnified
from whatever source, the loss or deterioration of movables used for the benefit of
the family, belonging to either spouse, even due to fortuitous event, shall be paid to
said spouse from the conjugal funds, if any.
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DOES THE CIVIL CODE PROHIBIT USURIOUS TRANSACTIONS?

Article 1175 provides that usurious transactions shall be
governed by special laws. The article in itself does not prohibit usurious
contracts. However, it specifically provides that it shall be governed by
special laws. A special law may prohibit usurious interest, allow it, or
merely put a ceiling as to what can be the highest interest that can be
legally imposed.
X
IS INDEBTED TO
IN THE AMOUNT OF
MONTHLY INSTALLMENBTS AND WITH INTEREST AT

EFFECT IF
P50, 000.0, PAYABLE

30% PER ANNUM. WHAT
IN TEN
IS THE
WOULD BE RECEIVING PAYMENT OF THE PRINCIPAL WITHYOUT RECEIVING
FIRST THE INTEREST?
The receipt of the principal by the creditor, without reservation

with respect to the interest, shall give rise to the presumption that said
interest has been paid (Article 1176, par. 1).
WHAT IS THE EFFECT IF THE OBLIGATION IS PAYABLE FROM JANUARY 2004
OCTOBER 2004 AND X DID NOT PAY THE INSTALLMENT FOR JUNE 2004 BUT WHEN
PAID IN JULY 2004, Y ISSUED A RECEIPT FOR JULY 2004?
TO
HE
There is a presumption that the June 2004 installment has

already been paid. The receipt of a later installment of a debt without
reservation as to prior installments, shall likewise raise the
presumption that such installments have been paid (Article 1176).
NOTE that the presumption here is only prima facie. The
presumption can be rebutted by strong evidence to the contrary. The
burden of proof to show that the interest/installment has not been paid
shifts to the creditor.
WHAT
ARE THE RIGHTS AND REMEDIES WHICH ARE AVAILABLE TO THE CREDITOR IN
ORDER TO PROTECT HIS RIGHTS AGAINST THE DEBTOR?
a) Exact payment;
b) Pursue the property in possession of the debtor to satisfy their
claims (generally through levying by attachments and execution
upon all the property of the debtor, except such as are exempt by
law from execution),
c) Exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person (accion
subrogatoria);
d) Impugn the acts which the debtor may have done to defraud them
(accion pauliana) (Article 1177).
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NOTES:
The third and the fourth remedies are merely subsidiary to
the second.
The above-cited rights are not absolute as the creditor
cannot bring those which are inherent in the person of the obligor.
Article1381 (1) which provides that a contract entered into
by the debtor is rescissible if it were made in fraud of creditors when
the latter cannot in any manner collect the claim due is another
remedy.
WHAT
IS THE RULE AS TO TRANSMISSIBILITY OF RIGHTS?
All rights acquired in virtue of an obligation are transmissible

(Article 1178).
EXCEPTIONS:
a) If there has been no stipulation to the contrary.
b) If the law provides otherwise.
c) If the obligation is purely personal.
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
PURE
WHAT
AND
SECTION 1
CONDITIONAL OBLIGATIONS
ARE THE DIFFERENT CLASSES OF OBLIGATIONS ACCORDING TO THE
CIVIL
CODE?
The following is the primary classification of obligations under
the Civil Code:
a) Pure, conditional, and with a term (Articles 1179; 1179 1192; 1193
- 1198);
b) Alternative and facultative (Articles 1199 1206);
c) Joint and solidary (Articles 1207 1222);
d) Divisible and indivisible (Articles 1223 1225); and
e) With and without a penal clause (Articles 1226 1230).
There are however other classifications of a secondary character
which can be gathered from scattered provisions of the Code, such as:
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a)
b)
c)
d)
e)
f)
g)
h)
i)
Natural and civil (Articles 1156; 1424);

Legal, conventional and penal (Articles 1158 1162);
Real and personal (Articles 1156; 1163 1168);
Determinative and generic (Articles 1163 1166);
Positive and negative (Articles 1163 1168);
Accessory and principal (Articles 1166, 1230);
Unilateral and bilateral (Article 1191);
Single and multiple (Articles 1199; 1206); and
Individual and collective (Article 1207);
WHAT
IS MEANT BY PURE OBLIGATION?
Every obligation whose performance does not depend upon a

future or uncertain event, or upon a past event unknown to the parties,
is demandable at once.
Every obligation which contains a resolutory condition shall also
be demandable, without prejudice to the effects of the happening of
the event (Article 1179).
Here, there are no conditions imposed, except if they are
resolutory.
WHAT
IS THE MOST DISTINCTIVE CHARACTERISTIC OF PURE CONDITIONS?
The most distinctive characteristic of a pure obligation is its

demandability. This quality, however, must not be understood in such
a way as to lead to absurd interpretations which would literally require
the obligor or debtor to comply immediately with his obligation. A
distinction must be made between (1) immediate demadability of the
obligation; and (2) its performance or fulfillment by the obligor or
debtor. Although the obligee or creditor can demand the performance
of the obligation immediately, the quality of immediate demandability
is not infringed or violated when a reasonable period is granted for
performance.
WHAT
ARE CONDITIONAL OBLIGATIONS?
Conditional obligations are those where the acquisition of a right

or the extinguishment or loss of those already acquired shall depend
upon the happening of an even which constitutes the condition.
What characterizes a conditional obligation is the fact that its
efficacy or obligatory force is subordinated to the happening of a
future or uncertain event.
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WHAT
ARE THE KINDS OF CONDITIONAL OBLIGATIONS?
a) RESOLUTORY CONDITION - is one which is demandable at once, but the

happening of an event would extinguish the obligation. This is
because once the condition is established and acknowledged, the
right immediately exists and therefore the obligation concomitant to
the right can be demanded at once. However, once the future or
uncertain event happens which constitutes the condition, it
operates to discharge the obligation. The obligation is resolved or
extinguished by operation of law (but such resolution can be made
effective at some later date if the parties so stipulate in their
contract, such as when the parties stipulate that resolution
becomes effective only from the date of written notice thereof is
sent)
b) SUSPENSIVE CONDITION - is one where the happening of an event gives
rise to an obligation. A suspensive obligation is not demandable at
once. It can be demanded only upon the happening of the future or
unknown event or a past event unknown to the parties, which
constitutes the condition. Happening of a suspensive condition
gives rise to the performance of the obligation. If the condition does
not take place, the parties would stand as if the conditional
obligation had never existed.
c) POTESTATIVE depends upon the will of the debtor. This is also called
FACULTATIVE condition.
d) CASUAL depends on chance or hazard or the will of a third person
e) MIXED depends partly on the will of one of the parties and partly on
chance or the will of a third person.
f) CONJUNCTIVE if all the conditions must be performed.
g) ALTERNATIVE if only a few of the condition have to be performed.
WHAT
IS AN OBLIGATION WITH A TERM OR PERIOD?
That which necessarily must come whether the parties know

when it will happen or not.
A
AND
ENTERED INTO A CONTRACT OF LOAN, PROVIDING THAT
WHEN HIS MEANS PERMIT HIM TO DO SO.

THE REMEDY OF
WHAT
IN CASE OF NON-PAYMENT BY
SHALL PAY
KIND OF OBLIGATION IS THIS?
WHAT
IS
B?
When the debtor binds himself to pay when his means permit
him to do so, the obligation shall be deemed to be one with a period,
subject to the provisions of article 1197 (Article 1180).
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According to Article 1197, if the obligation does not fix a period,

but from its nature and the circumstances it can be inferred that a
period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as may
under the circumstances have been probably contemplated by the
parties. Once fixed by the courts, the period cannot be changed by
them.
DISTINGUISH
CONDITIONS.
BETWEEN
THE
EFFECTS
OF
SUSPENSIVE
AND
RESOLUTORY
In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition (Article
1181).
Thus, a resolutory condition affects the obligation to which it is
attached in a manner which is diametrically opposed to that of a
suspensive condition. If the suspensive condition is fulfilled, the
obligation arises or becomes effective; if the resolutory condition is
fulfilled, the obligation is extinguished. If the first is not fulfilled, no
juridical relation is created; if the second is not fulfilled, the juridical
relation is consolidated. In other words, in the first, rights are not yet
acquired, but there is a hope or expectancy that they will soon be
acquired; in the second, rights are already acquired, but subject to the
threat of extinction.
A suspensive condition is also called a condition precedent while
a resolutory condition is also known as a condition subsequent. A
condition precedent is an act or event, other than a lapse of time,
which must exist or occur before a duty to perform a promised
performance arises. If the condition does not occur and is not excused,
the promised performance need not be rendered. A condition
subsequent is an event, the existence of which, by agreement of the
parties, operates to discharge a duty of performance that has arisen.
In case a contract involves a reciprocal obligation, the obligation
of one is a resolutory condition of the obligation of the other, the nonfulfillment of which entitles the other party to rescind the contract.
GIVE
OBLIGATION.
THE
EFFECTS
OF
POTESTATIVE,
CASUAL
AND
MIXED
CONDITIONS
UPON
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Article 1182 provides that when the fulfillment of the condition

depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a third
person, the obligation shall take effect in conformity with the
provisions of this Code.
The phrase when fulfillment of a condition connotes a
suspensive character of the prestation. There is the expectation of the
existence or accomplishment of a duty to give or to render some
service in the future. Thus:
a) If the condition is potestative in the sense that fulfillment of the
condition depends upon the sole will of the debtor, the conditional
obligation shall be void (Article 1182). This happens when the birth
of the contract depends upon the sole will of the debtor. Hence,
according to Article 1308, this is likewise prohibited and may make
the whole contract invalid. However, if the potestative condition is
imposed not on the birth of the obligation but on its fulfillment, only
the condition is avoided, leaving unaffected the obligation itself.
b) If the condition is potestative in the sense that its fulfillment
depends upon the will of the creditor, the conditional obligation
shall be valid. This is because the provision of the first sentence of
Article 1182 extends only to conditions which are potestative to the
obligor or debtor. Besides, the creditor is naturally interested in the
fulfillment of the condition since it is only such fulfillment that the
obligation arises or becomes effective.
c) If the condition is casual in the sense that its fulfillment depends
partly upon chance or upon the will of a third person, the obligation
shall take effect (Article 1182).
d) If the condition is mixed in the sense that its fulfillment depends
partly upon the will of a party to the obligation and partly upon
chance and/or will of a third person, the obligation shall be valid.
IN
THE EVENT THAT THE CONDITION IS DECLARED VOID BUT THE OBLIGATION IS
STILL VALID, SHOULD THE OBLIGATION BE DECLARED PURE AND UNCONDITIONAL?
No, because in converting it into a pure and demandable

obligation, an arrangement might be enforced which is not within the
contemplation of the parties. Hence, the best solution is to consider
the parties as having intended a period within which the valid
obligation is to be complied with such that the creditor should ask the
court to fix a period for compliance (Patente vs. Omega, 93 Phil. 218).
Page 40 of 165
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SUPPOSE
THAT THE DEBTOR EXECUTED A PROMISSORY NOTE PROMISSING TO PAY
HIS OBLIGATION TO THE CREDITOR AS SOON AS HE HAS RECEIVED FUNDS FROM THE SALE
OF HIS PROPERTY IN A CERTAIN PLACE, IS THE CONDITION POTESTATIVE OR MIXED?
The condition is mixed because its fulfillment depends not only

upon the will of the debtor but also upon the concurrence of other
factors, such as the acceptability of the price and other conditions of
the sale as well as the presence of the buyer, ready, able and willing to
purchase the property.
SUPPOSE
THAT IN THE ABOVE PROBLEM, THE DEBTOR PROMISED TO PAY HIS
OBLIGATION AS SOON AS HE HAS RECEIVED THE FUNDS DERIVED FROM THE SALE OF THE
PROPERTY IF HE FINALLY DECIDES TO SELL IT, WILL THAT MAKE ANY DIFFERENCE IN YOUR
ANSWER?
Yes, in such case, the condition is potestative with respect to the

debtor because its fulfillment would then depend upon his will.
Consequently, the condition is void. The validity of the obligation is, of
course, not affected, because the rule stated in Article 1182 to the
effect that when the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation itself shall be void, is
applicable only when the obligation shall depend for its perfection upon
the fulfillment of the condition and not when the obligation is a preexisting one.
WHAT
ARE THE EXCEPTIONS TO
ARTICLE 1182 (CONDITIONAL
OBLIGATIONS
DEPENDING UPON THE SOLE WILL OF THE DEBTOR ARE VOID)?
a) The rule is applicable only to a suspensive condition. Hence, if the

condition is resolutory and potestative, the obligation is valid even if
the fulfillment of the condition is made to depend upon the sole will
of the debtor. This is because the position of the debtor when the
condition is resolutory is exactly the same as the position of the
creditor when the condition is suspensive.
b) The rule that even the obligation itself shall be void is applicable
only to an obligation which depends for its perfection upon the
fulfillment of the potestative condition and not to a pre-existing
obligation. Example, if the debtor binds himself to pay a previous
indebtedness as soon as he decides to sell his house, although the
condition is void because of its potestative character, the obligation
itself is not affected since it refers to a pre-existing indebtedness.
Thus, when the potestative condition is imposed on the fulfillment
of the obligation, the condition alone is voided but not the
obligation.
c) A condition at once facultative and resolutory is valid though the
condition is made to depend upon the will of the obligor.
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d) A resolutory condition that depends upon the will of a third person is

not void.
SUMMARY:
a) If potestative (facultative) on the part of the debtor:
If also suspensive both the condition and the obligations are
void.
If also resolutory valid.
b) If potestative on the part of the creditor valid.
c) If casual valid.
d) If mixed valid.
WHAT
IS THE EFFECT IF IN AN OBLIGTION, IMPOSSIBLE CONDITIONS, ETC. ARE
IMPOSED?
Impossible conditions, those contrary to good customs or public

policy and those prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible, that part thereof
which is not affected by the impossible or unlawful condition shall be
valid.
The condition not to do an impossible thing shall be considered
as not having been agreed upon (Article 1183).
NOTE: It is very clear from the law that it is not only the condition
which is annulled but the whole obligation itself. Thus, an obligation to
give money as a loan only if it snows in the Philippines destroys the
efficacy of the prestation. The condition annuls the prestation. This is
also true if the condition is against good customs, public policy or is
prohibited by law.
Also, an impossible thing can never be done. Hence, to make as
a condition the doing of an impossible thing is a useless stipulation
which should not be considered as not having been agreed upon. The
whole obligation which involves an impossible condition can be
annulled.
SUMMARY:
1. If the condition is to do an impossible or illegal thing both
condition and the obligation are void;
2. If the condition is not to do the impossible (negative) obligation
is valid but the condition is disregarded.
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3. If the condition is not to do an illegal thing (negative) both

condition and the obligation are valid.
IN
OBLIGATIONS WITH POSITIVE CONDITIONS, WHEN DOES THE OBLIGATION DEEMED
EXTINGUISHED?
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 (Article 1184).
If the period is not fixed in the contract, the court, considering
the parties intentions, should determine what period was really
intended (Vide Article 1185, par. 2).
IN
OBLIGATIONS
WITH
NEGATIVE
CONDITIONS,
WHEN
DOES
THE
OBLIGATION
DEEMED EFFECTIVE?
The condition that some event will not happen at a determinate

time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event
cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled
at such time as may have probably been contemplated, bearing in
mind the nature of the obligation (Article 1185).
WHAT
IS
THE
EFFECT
WHEN
THE
DEBTOR
VOLUNTARILY
PREVENTS
THE
FULFILLMENT OF THE CONDITION?
The condition shall be deemed fulfilled when the obligor

voluntarily prevents its fulfillment (Article 1186).
This is known as constructive (or presumed) fulfillment. This
generally applies only to suspensive condition.
WHAT
ARE THE REQUISITES IN ORDER THAT CONSTRUCTIVE FULFILLMENT WILL
ARISE?
1. It must be made by the obligor;

2. It must be voluntarily made; and
3. It must actually prevent the performance of the condition.
WHEN
DO THE EFFECTS OF THE FULFILLMENT OF A CONDITION IN AN OBLIGATION
TO GIVE RETROACT?
WHAT
ARE THE EXCEPTIONS?
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When a suspensive condition takes effect, the obligation

becomes effective.
The effects of a conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
obligation. This rule is applicable only to suspensive conditions
because the efficacy of the obligation is merely suspended or held in
abeyance until the condition is fulfilled. This is not applicable to
resolutory conditions because the fulfillment of the event extinguishes
the obligation; hence, retroactivity is not relevant.
There is no retroactivity as to:
a) Fruits or interests in reciprocal and unilateral obligations (unless
there is contrary stipulation);
b) Period of prescription.
c) This principle of retroactivity applies only to consensual contracts.
In real contracts, there is immediate delivery. In consensual ones,
delivery may be made on another day.
WHAT ARRE THE RULES IF THE OBLIGATION (1) IMPOSES RECIPROCAL OBLIGATIONS;
(2) IF THE OBLIGATION IS UNILATERAL; (3) IN OBLIGATIONS TO DO AND NOT TO DO?
a) When the obligation imposes reciprocal prestations upon the
parties, the fruits and interests during the pendency of the condition
shall be deemed to have been mutually compensated.
b) If the obligation is unilateral, the debtor shall appropriate the fruits
and interests received, unless from the nature and circumstances of
the obligation it should be inferred that the intention of the person
constituting the same was different.
c) In obligations to do and not to do, the courts shall determine, in
each case, the retroactive effect of the condition that has been
complied with (Article 1187).
Fruits here refer to natural, industrial, and civil fruits (like rent)
(Vide Article 442).
WHAT
IS
THE
RIGHT
OF
THE
CREDITOR
BEFORE
THE
FULFILLMENT
OF
THE
CONDITIONS?
The creditor may, before the fulfillment of the condition, bring

the appropriate actions for the preservation of his right (Article 1188,
par. 1).
Appropriate action here means to sue in court. Other
appropriate actions that may be undertaken by the creditor:
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1. Ask for security if the debtor is about to be insolvent;

2. Ask the court to prevent alienation or concealment pendente
conditionae.
Note that the law says preservation, not preference over the
creditor.
BEFORE
THE HAPPENING OF A SUSPENSIVE CONDITION, WHAT IS THE RIGHT OF
THE DEBTOR IF HE PAYS BY MISTAKE?
The debtor may recover what during the same time he has paid
by mistake in case of a suspensive condition (Article 1188, par. 2).
IF
PAYMENT WAS NOT MADE BY MISTAKE, CAN THERE BE RECOVERY?
It depends. If the condition is fulfilled, there can be no recovery

because of the principle of retroactivity. If the condition is not fulfilled,
there should be a recovery (unless a pure donation was intended).
SUPPOSE
THAT AN OBLIGATION IS SUBJECT TO A SUSPENSIVE CONDITION, BUT
BEFORE THE FULFILLMENT OF THE CONDITION THE OBJET OF THE OBLIGATION WAS LOST,
OR IT HAS DETERIORATED, OR IMPROVEMENTS WERE MADE THEREON, WHAT IS THE EFFECT
OF SUCH LOSS, OR DETERIORATION, OR IMPROVEMENTS IF THE CONDITION IS FINALLY
FULFILLED?
When the conditions have been imposed with the intention of

suspending the efficacy of an obligation to give, the following rules
shall be observed in case of improvement, loss or deterioration of the
thing during the pendency of the condition:
(1)
If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
(2)
If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages;
(3)
When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4)
If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case;
(5)
If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6)
If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary (Article 1189).
NOTES:
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a) This article applies only if the suspensive condition is fulfilled and

the object is specific (generic).
b) The option (rescission or demand fulfillment) is given to the
creditor, regardless of the degree of deterioration caused by the
debtor.
c) Improvement belongs to the creditor because once the condition is
fulfilled, the effects of the conditional obligation shall retroact to the
day of the constitution of the obligation.
d) Improvement at the expense of the debtor, right of creditor like a
usufructuary 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 otherwise (Article
562).
WHAT
IS THE MEANING OF
LOSS
AS CONTEMPLATED IN THE ARTICLE?
It is understood that the thing is lost when it perishes, or goes

out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered (Article 1189, par. 2).
ARE
THE ABOVE RULES ALSO APPLICABLE IF THE CONDITION IS RESOLUTORY?
Yes, Article 1190 provides that in case of the loss, deterioration

or improvement of the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article (Article 1189) shall be
applied to the party who is bound to return. Thus, while the resolutory
condition has not yet been fulfilled and the (thing) prestation is
destroyed with the fault of the obligor, the obligation to return is
extinguished. If the thing is lost through the fault of the debtor, he
shall be liable for damages. If the thing deteriorates without the fault of
the obligor, the impairment is to be borne by the creditor. If the thing
deteriorates through the fault of the obligor, the creditor may choose
between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case. If the thing is improved by
nature, or by time, the improvement shall inure to the benefit of the
creditor. Lastly, if the thing improves at the expense of the debtor, he
shall have no other right than that granted to the usufructuary.
However, in applying these rules, the debtor is the person
obliged to return the object of the obligation in case of fulfillment of
the condition, while the creditor is the person to whom the thing or
object must be returned.
WHAT
ARE THE EFFECTS WHEN A RESOLUTORY CONDITION IS FULFILLED?
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a) The obligation is extinguished (Article 1181).

b) The parties, upon the fulfillment of said conditions, shall return to
each other what they have received (Article 1190).
c) The fruits or the interest thereon should also be returned after
deducting the expenses made for their production, gathering, and
preservation (Article 443).
d) In case of the loss, deterioration or improvement of the thing, the
provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to
return (Article 1190).
e) As for obligations to do and not to do, the provisions of the second
paragraph of article 1187 (the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with)
shall be observed as regards the effect of the extinguishment of the
obligation (Article 1190).
WHAT
IS MEANT BY RECIPROCAL OBLIGATIONS?
Reciprocal obligations are those which are created or established

at the same time, out if the same cause, and which result in mutual
relationship of creditor and debtor between the parties.
Reciprocal obligations are those which arise from the same cause
and in which each party is both a debtor and a creditor of the other,
such that the obligation one is dependent upon the other (Areola vs.
CA, 236 SCRA 643).
WHAT IS THE EFFECT IF ONE OF THE OBLIGORS IN RECIPROCAL OBLIGATIONS
SHOULD NOT COMPLY WITH WHAT IS INCUMBENT UPON HIM?
The power to rescind (more properly to resolve) obligations is
implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period (Article 1191). This means
that the implied power to rescind can only be enforced through court
action, in the absence of stipulation to the contrary. The decision of the
court is the revocatory act of rescission.
In reciprocal obligations, the obligation of one is a resolutory
condition of the obligation of the other, the non-fulfillment if which
entitles the other to rescind the contract. Rescission or resolution here
is predicated on the breach of faith by any of the parties to a contract
that violates the reciprocity between them.
CHOICES
OF THE INJURED PARTY:
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The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible (Article 1191). The
options are alternative and not conjunctive.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles 1385
and 1388 and the Mortgage Law (Article 1191, par. 2).
WHAT ARE
ARTICLE 1191?
THE CHARACTERISTICS OF THE RIGHT TO RESCIND OR RESOLVE UNDER
1. It exists only in reciprocal obligations;

2. It can be demanded only if the plaintiff is ready, willing and able
to comply with his own obligation and the other party is not.
3. The right to rescind is not absolute; thus:
a. It must be based on a serious or substantial breach of an
obligation as to defeat the object of the parties in making
the agreement. A mere casual breach does not justify
rescission of the contract. Example, if time is not of the
essence in the agreement, a slight delay on the part of the
obligor in the performance of his obligation is not sufficient
ground for the resolution of the agreement (Tan vs. CA, 21
SCRA 284).
b. If there is just cause for fixing the period within which the
debtor can comply, the court will not decree rescission;
c. If the property is already in the hands of an innocent third
party who has lawful possession of the same.
4. The right to rescind needs judicial approval in certain cases as
when there has already been delivery of the object;
5. The right to rescind is implied (presumed) to exist and, therefore,
need not be expressly stipulated upon;
6. The right to rescind may be waived.
NOTES:
a) The article entitles the injured party to payment of damages,
regardless of whether he demands fulfillment or rescission of the
obligation (Areola vs. CA, 236 SCRA 643).
b) In case a valid rescission is made, it creates an obligation to return
the things which were the object of the contract. Thus, rescission
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can only be made when the one who demands rescission can return
whatever he or she may be obliged to restore.
SUPPOSE
THAT THERE IS A RESERVATION OF THE RIGHT TO RESCIND IN CASE OF
BREACH OF THE OBLIGATIONS, IS THERE A NEED TO ASK FOR JUDICIAL INTERVENTION IN

THE RECISSION OF THE CONTRACT?
No, judicial intervention is not necessary for the purpose of

obtaining a judicial declaration rescinding a contract where there is a
reserved right to rescind (Luna vs. Abrigo, January 18, 1990).
WHAT
IS THE EFFECT IF BOTH PARTIES HAVE COMMITTED A BREACH?
In case both parties have committed a breach of the obligation,

the liability of the first infractor shall be equitably tempered by the
courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear
his own damages (Article 1192).
This means that if the violation can be traced to the parties and
both of them committed the beach, the article penalizes the first
violator only, if in fact or by evidence, such first violator can be
determined. The subsequent violator will not be held liable. However,
the liability of the first violator shall be equitably tempered by the
court as the injury to the other party-violator might not have been so
great had it not for the subsequent infraction of such other partyviolator. The law however states that if it cannot be determined which
of the parties first violated the contract, the obligation shall be deemed
extinguished, and each shall bear his own damages.
SECTION 2
OBLIGATIONS WITH A PERIOD
DEFINE
OBLIGATIONS WITH A TERM OR PERIOD.
Obligations with a term or period may be defined as those whose

demandability or extinguishment are subject to the expiration of a
term or period.
WHAT
IS MEANT BY A TERM OR PERIOD?
A term or a period is an interval (or length) of time, which,

exerting an influence of an obligation as a consequence of a juridical
act, either suspends its demandability or produces its extinguishment.
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If it gives rise to the effectivity of the obligation, it is a suspensive

period. If it extinguishes, it is a resolutory one.
WHAT
ARE ITS REQUISITES?
a. Futurity;
b. Certainty;
c. Physical and legal possibility.
DISTINGUISH
TERM OR PERIOD FROM CONDITION.
Term and condition may be distinguished form each other in the

following ways:
1. AS TO REQUISITES Whereas a term or period refers to an interval of
time which is future and certain, a condition refers to a fact or
event which is future and uncertain.
2. AS TO FULFILLMENT Whereas a term or period is an interval of time
which must necessarily come, although it may not be known
when, a condition is a future and uncertain fact or event which
may or may not happen.
3. AS TO INFLUENCE ON OBLIGATION Whereas a term or period merely
exerts an influence upon the time of the demandability or
extinguishment of an obligation, a condition exerts an influence
upon the very existence of the obligation itself. A condition
causes an obligation to arise or to cease, but a period merely
fixes the time or the efficaciousness of an obligation.
4. AS TO RETROACTIVITY OF EFFECTS Whereas a term or period does not
have any retroactive effects unless there is an agreement to the
contrary, a condition has retroactive effects.
5. AS TO THE EFFECT OF WILL OF DEBTOR When a term or period is left
exclusively to the will of the debtor, the existence of the
obligation is not affected, but when a condition is left exclusively
to the will of the debtor, the very existence of the obligation is
affected.
GIVE
AND DEFINE THE DIFFERENT KINDS OF TERMS OR PERIODS.
1. SUSPENSIVE
OR RESOLUTORY
A. Suspensive period(ex die) - when the obligation becomes

demandable only upon the arrival of a day certain;
B. Resolutory period (in diem) - when the obligation is
demandable at once, although terminated upon the arrival
of a day certain.
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2. LEGAL,
CONVENTIONAL OR JUDICIAL
A. Legal period when it is granted by law;

B. Conventional period when it is stipulated by the parties;
C. Judicial period when it is fixed by the court
3. DEFINITE OR INDEFINITE Article 1193 states that a day certain is
understood to be that which must necessarily come, although it
may not be known when. Thus, a period is definite when a date
or time is known beforehand, and indefinite when it can only be
determined by an event which must necessarily come to pass,
although it may not be known when
WHAT
IS A DAY CERTAIN?
A day certain is understood to be that which must necessarily

come, although it may not be known when (Article 1193, par. 3).
IN
OBLIGATIONS
WITH
PERIOD
OR
TERM,
WHEN
DOES
THE
PERIOD
OF
PRESCRIPTION BEGIN?
The period of prescription commences from the time the term in

the obligation arises, for it is only from that date that it is due and
demandable.
IF
THE HAPPENING OF A FUTURE EVENT IS FIXED BY THE PARTIES FOR THE
FULFILLEMTN OR EXTINGUISHMENT OF AN OBLIGAGTION, WHAT IS THE NATURE OF THE

OBLIGATION?
It depends If the event will necessarily come, although the date

or time when it will come may be uncertain, the event constitutes a
day certain; hence, the obligation is with a term (Article 1193, par. 3).
However, if the uncertainty consists in whether the day will come or
not, the event constitutes a condition; hence, the obligation is
conditional (Article 1193, par. 4).
STATE
THE RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THE
THING BEFORE THE ARRIVAL OF THE TERM OR PERIOD.
In case of loss, deterioration or improvement of the thing before

the arrival of the day certain, the rules in Article 1189 shall be
observed (Article 1194).
Thus:
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(1)
If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
(2)
If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages;
(3)
When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4)
If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case;
(5)
If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6)
If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary (Article 1189).
WHAT
IS THE REMEDY OF THE DEBTOR WHO PAID OR DELIVERED BEFORE THE
ARRIVAL OF THE PERIOD?
Anything paid or delivered before the arrival of the period, the

obligor being unaware of the period or believing that the obligation has
become due and demandable, may be recovered, with the fruits and
interests (Article 1195).
IN
PERIOD?
OBLIGATIONS WITH A TERM OR PERIOD, FOR WHOSE BENEFIT IS THE TERM OR
Whenever in an obligation a period is designated, it is presumed

to have been established for the benefit of both the creditor and the
debtor, 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 (Article 1196).
Consequently, the creditor cannot demand the performance of
the obligation before the expiration of the designated period; neither
can the creditor compel the debtor to perform the obligation before the
expiration of such period.
This rule, however, is not absolute. If it can be proved either that
the tenor of the obligation or from other circumstances that the period
has been established for the benefit of either the creditor or the
debtor, the general rule is no longer applicable. However, the benefit
of the period may be waived by the person in whose favor it was
constituted.
IF
THE
CONTRACT
DEMAND ITS FULFILLMENT?
DOES
NOT
PROVIDED
FOR
PERIOD,
CAN
THE
CREDITOR
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No, because an action for the court to fix the period has yet to be
filed. In the meantime, no one can ask for the fulfillment of the
obligation after the court has fixed the period for its compliance (Vda
de Ungson vs. Lopez, L-10180, March 10, 1954).
WITHIN
WHAT PERIOD SHOULD THE ACTION TO FIX THE PERIOD BE FILED?
It must be filed within ten (10) years, otherwise, it would

prescribe (Gonzalez vs. Jose, 66 Phil. 369).
WHAT
ARE
THE DIFFERENT
INSTANCES
UNDER
THE
COURTS ARE EMPOWERED TO FIX THE DURATION OF A TERM OR
CIVIL CODE
PERIOD?
WHERE THE
a. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof (Article 1197, par. 1).
b. The courts shall also fix the duration of the period when it
depends upon the will of the debtor (Article 1197, par. 2).
In every case, the courts shall determine such period as
may under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot be
changed by them (Article 1197, par. 3).
c. If the debtor binds himself to pay when his means permit him to
do so (Article 1180). Strictly speaking, however, this case
properly falls within the purview of the second, because in such a
case the power to determine when the obligation will be fulfilled
is in effect left exclusively to the will of the debtor.
NOTE: Article 1197 involves a two-step process. The court must
first determine that the obligation does not fix a period (or that the
period is made to depend upon the will of the debtor), but from the
nature and the circumstances it can be inferred that a period was
intended. This preliminary point settled, the court must then proceed
to the second step, and decide what period was probably
contemplated by the parties. So that, ultimately, the court cannot fix a
period merely because in its opinion it is or should be reasonable, but
must set the time that the parties are shown to have intended
(Gregorio Araneta, Inc. vs. Phil. Sugar Estates Development Co., Ltd.,
20 SCRA 330).
WHAT
CIVIL CODE
PERIOD?
ARE THE DIFFERENT INSTANCES UNDER THE
SHALL LOSE EVERY RIGHT TO MAKE USE OF THE TERM OR
WHEN THE DEBTOR
The debtor shall lose every right to make use of the period:
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(1)
When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
[Insolvency here need not be judicially declared.]
(2)
When he does not furnish to the creditor the guaranties or
securities which he has promised;
(3)
When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a fortuitous
event they disappear, unless he immediately gives new ones equally
satisfactory; [Note that the debtor loses the benefit of a period even if
the loss is through a fortuitous event.]
(4)
When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period;
(5)
When the debtor attempts to abscond (Article 1198).
HOW TERMS OR PERIODS ARE COMPUTED:
When the laws speak of years, months, days or nights, it shall be
understood that years are of three hundred sixty-five days each;
months, of thirty days; days, of twenty-four hours; and nights from
sunset to sunrise.
If months are designated by their name, they shall be computed by
the number of days which they respectively have.
In computing a period, the first day shall be excluded, and the last
day included (Article 13).
SECTION 3
ALTERNATIVE OBLIGATIONS
DEFINE
ALTERNATITIVE AND FACULTATIVE OBLIGATIONS.
Alternative obligations refer to those juridical relations which

comprehend several objects or prestations which are due, but the
payment or performance of one of them would be sufficient.
Facultative obligations refer to those juridical relations where
only one object or prestation has been agreed upon by the parties to
the obligation, but the obligor may deliver or render another in
substitution.
NOTES:
Under the Civil Code, there are only three prestations namely,
(1) to give; (2) to do; and (3) not to do. Strictly speaking
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therefore, when the Code speaks of different prestations, it

refers only to these three prestations. Hence, technically
speaking, a person who is bound to give either a house, a car or
a truck has only one prestation which is to give. But a person
who is obliged to either deliver a house or to paint a picture has
two prestations, namely, to give and to do. It appears
however that the phrase different prestations in the law refers
to both the strict sense and the looses sense of the word
prestation.
DISTINGUISH
ALTERNATIVE FROM FACULTATIVE OBLIGATIONS.
A. AS TO OBJECTS DUE In facultative obligations only one object is

due, whereas in alternative obligations several objects are
due;
B. AS TO COMPLIANCE Facultative obligations may be complied by
the delivery of another object or performance of another
prestation in substitution of that which is due, whereas
alternative obligations may be complied with by the
delivery of one of the objects or by the performance of one
of the prestations which is alternatively due;
C. AS TO THE RIGHT OF CHOICE In the first, the right of choice
pertains only to the debtor, whereas in the second, the
right of choice may pertain even to the creditor or to a
third person;
D. AS TO EFFECT OF FORTUITOUS LOSS - In the first, the loss or
impossibility of the object or prestation which is due
without any fault of the debtor is sufficient to extinguish
the obligation, whereas in the second, the loss or
impossibility of all the objects or prrestations which are
due without the fault of the debtor is necessary to
extinguish the obligation;
E. AS TO EFFECT CULPABLE LOSS In the first, the culpable loss of the
object which the debtor may deliver in substitution before
the substitution is effected does not give rise to any
liability on the part of the debtor; in the second, the
culpable loss of any of the objects which are alternatively
due before the choice is made may give rise to a liability
on the part of the debtor.
WHAT
IS THE RULE IF THE OBLIGATION IS ALTERNATIVE?
A person alternatively bound by different prestations shall

completely perform one of them.
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The creditor cannot be compelled to receive part of one and part

of the other undertaking (Article 1199).
Partial performance of the different prestations cannot be
considered fulfillment of the obligation and therefore cannot be done
unless the creditor accepts such partial performance as complete
performance. Hence, if the obligor can either give a house and a car or
paint two murals for the satisfaction of his obligation, he cannot give
the car and one mural. The obligation will not be satisfied through
partial fulfillment of several prestations.
IN
ALTERNATIVE OBLIGATIONS, WHO HAS THE RIGHT TO CHOOSE OR SELECT THE
OBJECT TO BE DELIVERED OR THE PRESTATION TO BE PERFORMED AMONG THOSE WHICH

ARE ALTERNATIVELY DUE?
In alternative obligations the right to choose or select belongs to

the debtor.
EXCEPTIONS:
a) When the right has been expressly granted to the creditor (Article
1200); and
b) When it has been expressly granted to a third person.
The right of choice belongs to the debtor because he is the
passive subject in an obligation. He, not the creditor, is the only
obliged to give, to do or not to do.
Any doubt as to whom the choice was given must always be
interpreted in favor of the debtor. Only an express grant of choice can
a creditor have the right to choose which prestation is to be performed.
WHAT
IS THE LIMITATION ON DEBTORS CHOICE
(IF
THE RIGHT OF CHOICE HAS
BEEN GRANTED TO HIM)?
The debtor shall have no right to choose those prestations which

are impossible, unlawful or which could not have been the object of the
obligation (Article 1200).
WHEN
ARE THE PARTIES BOUND BY THE CHOICE OF SELECTION?
The choice shall produce no effect except from the time it has
been communicated (Article 1201). Thus the parties are bound by the
choice or selection from the very moment that it has been
communicated by the party who has the right to make it to the other
party.
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WHEN
DOES THE DEBTOR LOSE THE RIGHT OF CHOICE?
The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable
(Article 1202).
Note that the law uses the word practicable. Practicable means
capable of being done, or simply feasible (The New Lexicon Websters
Dictionary of the English Language, 1987 Edition, Page 787). However,
prestations that are not practicable may also include lawful and
possible prestations but, because of some special attendant
circumstances which do not necessarily make them unlawful or
impossible, they can be done. [Hence, if the debtor has the following
alternatives: to kiss a highly contagious leper, to sing a song, or not to
pay taxes, it is clear that the last alternative is not only impracticable
but also unlawful. The first alternative, although not unlawful and not
impossible, is nevertheless practicable. In this case therefore, the
debtor loses his right of choice because only one prestation is
practicable which is to sing.]
WHAT
IS
THE
RULE
WHEN
THE
DEBTOR
CANNOT
CHOOSE
BECAUSE
OF
THE
CREDITORS ACTS?
If through the creditor's acts the debtor cannot make a choice

according to the terms of the obligation, the latter may rescind the
contract with damages (Article 1203).
IN OBLIGATIONS WHERE THERE ARE THREE OR MORE OBJECTS WHICH ARE
ALTERNATIVELY DUE, IF ONE, OR MORE, OR ALL OF THE OBJECTS ARE LOST OR
DESTROYED, WHAT ARE THE EFFECTS OF SUCH LOSS OR DESTRUCTION UPON THE
OBLIGATION AS UPON THE LIABILITY OF THE DEBTOR?
It depends:
A.
IF
If the loss is due to a fortuitous event:
RIGHT OF CHOICE BELONGS TO THE DEBTOR
a) If two or more objects remain, the obligation subsists

retaining its alternative character;
b) If only one remains, the obligation subsists, but it ceases to
be alternative.
c) If none remains, the obligation is extinguished.
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In all these cases, the debtor cannot be held liable

for damages, applying the provisions of Articles 1174, 1262
and 1266.
If the loss is due to the fault of the debtor:

retaining its alternative character. The debtor in such a
case cannot be held liable for damages because he can still
comply with his obligation.
be alternative. The debtor in such a case cannot be held
liable for damages because he can still comply with his
obligation.
c) If none remains, the obligation is converted into an
obligation to indemnify for damages. The indemnity shall
consist of the last object to be lost plus or that service
which last become impossible, consequential damages
(Article 1204). Consequential damages are damages other
than the value of the last thing or service.
B.
IF
If the loss is due to a fortuitous event, the effects are the same
as where the right belongs to the debtor.
If the loss is due to the fault of the debtor:
THE RIGHT BELONGS TO THE CREDITOR

retaining its alternative character. If the creditor chooses
any of those remaining, the debtor cannot be held liable
for damages; however, if he chooses any of those which
are lost, the debtor is liable for the value of the object plus
damages.
be alternative. In other words, it has become a simple
obligation to deliver the remaining object or to indemnify
for damages depending upon the discretion of the creditor.
If the latter chooses the object remaining, the debtor
cannot be held liable for damages; however, if he chooses
any of those which were lost, the debtor is liable for the
value of the object plus damages.
c) If none remains, the obligation is converted into an
obligation to indemnify for damages. The indemnity shall
consist of the price of the object chosen by the creditor
plus consequential damages (Article 1205).
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NOTES:
Note that the debtor will not be liable in any way for reducing the
alternatives from three to two alternatives, provided what
remains are lawful, practicable, possible or consistent with the
object of the obligation.
Likewise, the debtor will not be liable for converting his
alternative obligation to a simple one where there is only one
lawful and possible prestation. The debtor may even cause the
loss of one of the things, or render one of the services
impossible.
But when the debtor is responsible for losing or rendering
impossible all his alternative prestations, the creditor is entitled
to damages.
IN
FACULTATIVE
OBLIGATIONS,
IF
THE
SUBSTITUTE
IS
LOST
OR
DESTROYED
THROUGH THE FAULT OF THE DEBTOR, IS HE LIABLE FOR DAMAGES?
If the loss or destruction took place AFTER the substitution has

been made, undoubtedly, the debtor is liable for damages for the
reason that once the substitution is effected by the debtor by duly
notifying the creditor of such fact, the obligation is converted into a
simple one with the substitute as the object of the obligation.
If the loss or destruction took place BEFORE the substitution could

be effected, it is believed that the debtor cannot be held liable. It
does not affect the principal obligation and hence the debtor will
not be liable.
JOINT
SECTION 4
AND SOLIDARY OBLIGATIONS
DEFINE JOINT AND SOLIDARY OBLIGATIONS.
When there is concurrence of two or more creditors or of two or

more debtors in one and the same obligation, such obligation may
either be joint (obligacion mancomunada) or solidary (obligacion
solidaria).
A JOINT OBLIGATION is an obligation where there is a concurrence of
several creditors, or several debtors, or of several creditors and
debtors, by virtue of which each of the creditors has a right to demand,
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while each of the debtors is bound to render, compliance with his

PROPORTIONATE part of the prestation.
A SOLIDARY OBLIGATION is an obligation where there is a concurrence
of several creditors, or of several debtors, or of several creditors and
debtors, by virtue of which each of the creditors has a right to demand,
while each of the debtors is bound to render the ENTIRE compliance with
the prestation which constitutes the object of the obligation.
WHERE
THERE IS A CONCURRENCE OF SEVERAL CREDITORS, OR OF SEVERAL
DEBTORS, OR OF SEVERAL CREDITORS AND DEBTORS IN ONE AND THE SAME OBLIGATION
WHAT IS THE NATURE OF THE OBLIGATION
IS IT JOINT OR SOLIDARY?
As a general rule, the obligation is JOINT. Article 1207 provides

that: 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, or that each one of the latter is
bound to render, entire compliance with the prestation.
WHAT
ARE THE CONSEQUENCES OF A JOINT OBLIGATION?
If from the law, or the nature or the wording of the obligations to

which the preceding article refers the contrary does not appear
a) The credit or debt shall be presumed to be divided into as many
shares as there are creditors or debtors,
b) The credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits
(Article 1208).
WHEN
IS AN OBLIGATION SOLIDARY?
There is a solidary liability only:

1. When the obligation expressly so states; or
2. When the law requires solidarity; or
3. When the nature of the obligation requires solidarity (Article
1207).
WHAT
ARE THE OBLIGATIONS WHERE THE LAW REQUIRES SOLIDARITY?
1. If two or more heirs take possession of the estate, they shall be

solidarily liable for the loss or destruction of a thing devised or
bequeathed, even though only one of them should have been
negligent (Article 927).
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2. All partners are liable solidarily with the partnership for

everything chargeable to the partnership under articles 1822 and
1823 (Article 1824).
3. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to
act as though he had full powers (Article 1911).
4. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency (Article 1915).
5. When there are two or more bailees to whom a thing is loaned in
the same contract, they are liable solidarily (1945).
6. The responsibility of two or more officious managers shall be
solidary, unless the management was assumed to save the thing
or business from imminent danger (Article 2146, par. 2).
7. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary (Article 2157).
8. The responsibility of two or more persons who are liable for
quasi-delict is solidary (Article 2194).
9. Several and subsidiary liability of principals, accomplices and
accessories of a felony.
WHAT
ARE THE DIFFERENT KINDS OF SOLIDARITY?
1. ACTIVE (among the creditors) A tie or vinculum among

several creditors of one and the same obligation by virtue
of which each of them, in relation to his co-creditors,
possesses the character of creditor only with respect to his
share in the obligation, but in relation to the common
debtor or debtors, represents all of the other creditors. The
most fundamental effect of active solidarity is the creation
of a relationship of mutual agency among the solidary
creditors by virtue of which each creditor is empowered to
exercise against the debtor or debtors not only the rights
which corresponds to him, but also all the rights which
correspond to the other creditors, with the consequent
obligation to render an account of his acts to such
creditors.
2. PASSIVE (among the debtors) A ties of vinculum among
several debtors of one and the same obligation by virtue of
which each of the, in relation the common creditor or
creditors, represents all of the other debtors, and in
relation to his co-debtors, possesses the character of
debtor only with respect to his share in the obligation.
Here, each solidary debtor, insofar as the creditor or
creditors are concerned, is the debtor of the entire amount;
however, with respect to his co-debtors, he is the debtor
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only to the extent of his share of the obligation. Hence, the

most fundamental effect of solidarity among the debtors is
the liability of each debtor for the payment of the entire
obligation, with the consequent right to demand
reimbursement from the others for their corresponding
shares once payment has been made.
3. Mixed (among the creditors and the debtors at the same
time).
WHAT
ARE THE CHARACTERISTICS OF JOINT DIVISIBLE OBLIGATIONS?
1. Each creditor can demand only for the payment of his

proportionate share of the credit, while each of the debtor can be
held liable only for the payment of his proportionate share of the
debt (Articles 1207; 1208).
2. A joint creditor cannot act in representation of the other
creditors, while a joint debtor cannot be compelled to answer for
the acts or liability of the other debtors.
3. The demand for the fulfillment made by the creditor upon one of
the debtors does not place the other debtors in default.
4. The interruption of the prescriptive period with respect to one
debtor does not affect the rights of others.
5. The defense of one debtor is not a valid defense of the others.
WHAT
IS AN INDIVISIBLE JOINT OBLIGATION?
It is an obligation in which the object is indivisible but the tie

between the parties is joint who are merely proportionately liable.
The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility (Article 1210).
STATE THE RULES IN AN INDIVISIBLE JOINT OBLIGATION.
1. The right of the creditors may be prejudiced only by their
collective acts,
2. The debt can be enforced only by proceeding against all the
debtors (demand must be made on all of them),
3. If one of the latter should be insolvent, the others shall not be
liable for his share (Article 1209).
4. If there be joint creditors, delivery must be made to all, unless
one is specifically authorized by the others.
5. Each joint creditor is allowed to renounce his proportionate
credit.
WHAT
ARE
THE
CHARACTERISTICS
WHICH
OBLIGATION FROM A JOINT DIVISIBLE OBLIGATION?
DISTINGUISH
JOINT
INDIVISIBLE
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Although in a joint indivisible obligation, the creditor cannot act

in representation of the others and the debtor cannot be compelled to
answer for the acts or liability of the others because of its joint
character, yet, a joint INDIVISIBLE obligation is distinguishable from a joint
DIVISIBLE
obligation because of the presence of the following
characteristics:
1. If there are two or more debtors, compliance with the obligation
requires the concurrence of all of them, although each for his
own share. Consequently, the obligation can be enforced only be
proceeding against all of the debtors (Article 1209).
2. If there are two or more creditors, the concurrence of all of them,
although each for his own share, is also necessary for the
enforcement of the obligation. This is because the obligation is
joint, and therefore, a creditor cannot act in representation of the
others, and it is also indivisible, and therefore, not susceptible of
partial fulfillment.
IN
A JOINT INDIVISIBLE OBLIGATION, WHAT IS THE EFFECT IF ANYONE OF THE
DEBTORS SHOULD FAIL TO COMPLY WITH HIS UNDERTAKING?
If anyone of the debtors in a joint indivisible obligation should fail

to comply with undertaking, the obligation is converted into one of
indemnity for damages. However, the debtors who may have been
ready to comply with what is incumbent upon him shall not contribute
to the indemnity beyond the corresponding portion of the price of the
thing or the value of the service in which the obligation consists. On
the other hand, the debtor who failed or refused to comply with his
undertaking shall pay not only his share of such or value, but also al of
the damages suffered by the creditor or creditors as a result of the
non-fulfillment of the obligation (Article 1224).
DISTINGUISH
BETWEEN SOLIDARITY AND INDIVISIBILITY.
1. AS TO NATURE Solidarity refers to the legal tie or vinculum, and

consequently, to the parties of the obligation, whereas
indivisibility refers to the prestation which constitutes the object
of the obligation.
2. AS TO REQUISITES Plurality of subjects is indispensable in solidarity,
whereas it is not required in indivisibility.
3. AS TO EFFECT OF BREACH In solidarity, when the obligation is
converted into one of indemnity for damages because of breach,
the solidary character of the obligation remains, whereas in
indivisibility, the indivisible character of the obligation is
terminated.
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CAN
SOLIDARITY EXIST ALTHOUGH THE CREDITORS AND DEBTORS MAY NOT BE
BOUND IN THE SAME MANNER AND BY THE SAME PERIODS AND CONDITIONS?
Solidarity may exist although the creditors and the debtors may
not be bound in the same manner and by the same periods and
conditions (Article 1211).
WHAT
ARE THE RULES IN SOLIDARY OBLIGATIONS?
a) Each one of the solidary creditors may do whatever may be useful

to the others, but not anything which may be prejudicial to the
latter (Article 1212).
b) A solidary creditor cannot assign his rights without the consent of
the others (Article 1213).
IN
SOLIDARY OBLIGATIONS, TO WHOM MUST THE DEBTOR PAY?
The debtor may pay any one of the solidary creditors; but if any
demand, judicial or extrajudicial, has been made by one of them,
payment should be made to him (Article 1214).
WHAT
IS THE EFFECT OF NOVATION, COMPENSATION, CONFUSION OR REMISSION
OF DEBT MADE BY A SOLIDARY CREDITOR?
Novation, compensation, confusion or remission of the debt,

made by any of the solidary creditors or with any of the solidary
debtors, shall extinguish the obligation, without prejudice to the
provisions of Article 1219.
The creditor who may have executed any of these acts, as well
as he who collects the debt, shall be liable to the others for the share
in the obligation corresponding to them (Article 1215).
IN SOLIDARY OBLIGATION, AGAINST WHOM MAY THE CREDITOR PROCEED?
The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one
of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully
collected (Article 1216).
WHAT
IS THE EFFECT OF PAYMENT MADE BY ONE OF THE SOLIDARY DEBTORS?
Payment made by one of the solidary debtors extinguishes the

obligation. If two or more solidary debtors offer to pay, the creditor
may choose which offer to accept (Article 1217).
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WHAT
IS THE RIGHT OF THE SOLIDARY DEBTOR WHO PAID?
He who made the payment may claim from his co-debtors only
the share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded (Article 1217,
par. 2).
STATE
THE RULE IF ONE OF THE SOLIDARY DEBTORS CANNOT PAY HIS SHARE TO
THE DEBTOR WHO PAID.
When one of the solidary debtors cannot, because of his

insolvency, reimburse his share to the debtor paying the obligation,
such share shall be borne by all his co-debtors, in proportion to the
debt of each (Article 1217, par. 3).
HOWEVER:
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 (Article 1218).
WHAT
IS THE EFFECT OF REMISSION OF A SOLIDARY OBLIGATION EFFECTED BY A
SOLIDARY CREDITOR
THE
CREDITORS
(1)
UPON THE OBLIGATION ITSELF,
THEMSELVES,
AND
(3)
UPON
THE
(2)
UPON THE RELATIONSHIP OF
RELATIONSHIP
OF
THE
DEBTORS
THEMSELVES?
1. UPON THE OBLIGATION If the remission is total, the entire obligation is

extinguished; if it is partial, the obligation is extinguished in that
part or aspect to which the remission refers (Article 1215).
2. UPON THE SOLIDARY CREDITOR The solidary creditor responsible for the
remission shall be liable to the other solidary creditors for the
shares in the obligation corresponding to them (Ibid).
3. UPON THE SOLIDARY DEBTORS As far as the solidary debtors are
concerned, the effects of remission may be summarized as
follows:
a. The remission made by the creditor of the share which
affects one of the solidary debtors does not release the
latter from his responsibility towards the co-debtors, in
case the debt had been totally paid by anyone of them
before the remission was effected (Article 1219).
b. The remission of the whole obligation, obtained by one of
the solidary debtor, does not entitle him to reimbursement
from his co-debtors (Article 1220).
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WHAT
IS THE EFFECT OF THE LOSS OF THE THING DUE?
If the thing has been lost or if the prestation has become

impossible without the fault of the solidary debtors, the obligation shall
be extinguished.
If there was fault on the part of any one of them, all shall be
responsible to the creditor, for the price and the payment of damages
and interest, without prejudice to their action against the guilty or
negligent debtor
If through a fortuitous event, 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, the provisions of the preceding paragraph shall apply (Article
1221).
WHAT
ARE THE DEFENSES WHICH ARE AVAILABLE TO A SOLIDARY DEBTOR IF THE
CREDITOR PROCEEDS AGAINST HIM ALONE FOR THE PAYMENT OF THE ENTIRE OBLIGATION?
A solidary debtor may, in actions filed by the creditor, avail

himself of all defenses which are derived from the nature of the
obligation and of those which are personal to him, or pertain to his own
share. With respect to those which personally belong to the others, he
may avail himself thereof only as regards that part of the debt for
which the latter are responsible (Article 1222).
DIVISIBLE
DEFINE
SECTION 5
INDIVISIBLE OBLIGATIONS
AND
DIVISIBLE AND INDIVISIBLE OBLIGATIONS.
Divisible obligations are those which have as their object a

prestation which is susceptible of partial performance without the
essence of the obligation being changed.
Indivisible obligations are those which have as their object a
prestation which is not susceptible of partial performance, because
otherwise the essence of the obligation will be changed.
WHEN
IS A THING DIVISBLE OR INDIVISIBLE?
A thing is divisible when, if separated into parts, its essence is

not changed or its value is not decreased disproportionately, because
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each of the parts into which it is divided are homogeneous and

analogous to each other as well as to the thing itself.
A thing is indivisible when, if separated into parts, its essence is
changed or its value is decreased disproportionately.
DISTINGUISH
BETWEEN INDIVISIBILITY FROM SOLIDARITY.
SOLIDARITY
INDIVISIBILITY
1. Refers to the tie between the 1. Refers to the nature of the
parties.
obligation.
2. Needs at least two debtors or 2. May exist even if there is only
creditors.
one debtor and only one creditor.
3. The fault of one is the fault of 3. The fault if one is not the fault
the bothers.
of the others.
GIVE
AND DEFINE THE DIFFERENT KINDS OF DIVISION.
The division of a thing may be:

a. QUANTITATIVE when the thing can be materially divided into parts
and such parts are homogeneous to each other, such as when
the parts are separated from each other as in the case of
movables, or when the limits of the parts are fixed by metes and
bounds as in the case of movables. This depends on quantity.
b. QUALITATIVE when the thing can be materially divided, but the
parts are not homogenous to each other, such as in the partition
of an inheritance. This depends on quality, irrespective of
quantity.
c. IDEAL OR INTELECTUAL OR MORAL when the thing can only be separated
into ideal or undivided parts, not material parts, as in the case of
ownership. This exists only in the mind and not in physical
reality.
GIVE
THE DIFFERENT KINDS OR CLASSES OF INDIVISIBLITY.
Indivisibility may be:

a. CONVENTIONAL - Indivisible by common agreement;
b. NATURAL OR ABSOLUTE indivisible by the nature of the
object of undertaking; and
c. LEGAL indivisible as provided by law.
DISTINGUISH
BETWEEN THE DIVISIBILITY OF AN OBLIGATION AND THE DIVISIBILITY
OF THE THING WHICH CONSTITUTES THE OBJECT OF THE OBLIGATION.
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The divisibility of an obligation refers to the PERFORMANCE of the

prestation which constitutes the object of the obligation, whereas the
divisibility of the thing which constitutes the object if the obligation
refers to the PRESTATION itself.
IF
THE THING WHICH CONSTITUTES THE OBJECT OF THE OBLIGATION TO GIVE IS
DIVISIBLE, DOES IT NECESSARILY FOLLOW THAT THE OBLIGATION IS ALSO DIVISIBLE?
SUPPOSE
THAT THE THING IS INDIVISIBLE, DOES IT NECESSARILY FOLLOW THAT THE
OBLIGATION TO GIVE IS ALSO INDIVISIBLE?
If the thing which constitutes the object of an obligation to give is

by its nature divisible, the general rule is that the obligation is also
divisible since it is evidently susceptible of partial compliance.
This rule is subject to the following exceptions:
a. That the obligation is indivisible by express provision of
law; and
b. That it is indivisible by intention of the parties (Article
1225).
If the thing which constitutes the object of the obligation to give
is by its very nature indivisible, the obligation is also indivisible since it
is evident that it is not susceptible of partial compliance. This rule is
absolute in character.
The nature and effect of obligations are very much different from
and do not affect the divisibility or indivisibility of the things that are
the object of obligations in which there is only one debtor and only one
creditor (Article 1223).
WHAT
IS A JOINT INDIVISIBLE OBLIGATION?
It is an obligation where the object or prestation is indivisible but

the parties are bound jointly. Example: A and B are jointly bound to
give a specific car to C.
WHAT
IS THE EFFECT OF NON-COMPLIANCE OF A JOINT INDIVISIBLE OBLIGATION?
A joint indivisible obligation gives rise to indemnity for damages

from the time anyone of the debtors does not comply with his
undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the value of the
service in which the obligation consists (Article 1224).
WHAT OBLIGATIONS ARE DEEMED INDIVISIBLE?
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a. Obligations to give definite things;

b. Those which are not susceptible of partial performance
(Article 1225, par. 1);
c. Those so provided by law;
d. Those things which, though physically divisible, are
intended by the parties to be indivisible (Article 1225, par.
3).
WHAT
OBLIGATIONS ARE DEEMED DIVISIBLE?
When the obligation has for its object:

a. The execution of a certain number of days of work;
b. The accomplishment of work by metrical units;
c. Analogous things which by their nature are susceptible of partial
performance (Article 1225, par. 2);
d. When the purpose of the obligation is to pay a certain amount in
installment.
IN
OBLIGATIONS NOT TO DO, HOW IS THE DIVISIBILITY OR INDIVISIBILITY THEREOF
DETERMINED?
In obligations not to do, divisibility or indivisibility shall be

determined by the character of the prestation in each particular case
(Article 1225, par. 4).
WHAT
IS THE EFFECT OF ILLEGALITY OF THE TERMS OF A DIVISIBLE CONTRACT?
In case of a divisible contract, if the illegal terms can be

separated from the legal ones, the latter may be enforced (Article
1420).
SECTION 6
OBLIGATIONS WITH A PENAL CLAUSE
DEFINE
OBLIGATIONS WITH A PENAL CLAUSE.
An obligation with a penal clause is one with an accessory

undertaking by virtue of which the obligor assumes a greater liability in
case of breach of the obligation.
WHAT
IS MEANT BY PENAL CLAUSE OR PENALTY?
A penal clause is an accessory obligation attached to a principal

obligation by virtue of which the obligor is bound to pay a stipulated
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indemnity or to perform an agreed prestation for the purpose of

insuring the performance of the principal obligation.
It is a coercive means to obtain from the debtor compliance of
the obligation.
IN
OBLIGATIONS
CONSIDERED
AS
WITH
SUBSTITUTE
PENAL
FOR
CLAUSE,
DAMAGES
WHEN
OR
SHALL
INTERESTS?
THE
PENALTY
WHAT
ARE
BE
THE
EXCEPTIONS?
As a general rule, in obligations with a penal clause, the penalty

shall substitute the indemnity for damages and the payment of
interests in case of noncompliance (Article 1226, par. 1). In such a
case, proof of actual damages suffered by the creditor is not necessary
in order that the penalty may be demanded (Article 1228).
There are three EXCEPTIONS to the rule that a penalty clause shall
not be a substitute for the payment of interest and damages:
1. If there is no stipulation to the contrary;
2. When the obligor is sued for refusal to pay the agreed penalty;
and
3. When the obligor is guilty of fraud in the fulfillment of the
obligation (Article 1226, par. 1).
In all of these cases, it is evident that the purpose of the penalty
is to punish the obligor. Consequently, the obligee can recover from
him not only the penalty, but also the damages resulting from the
breach of the principal obligation.
MAY ANY PENALTY BE DEMANDABLE?
No. The penalty may be enforced only when it is demandable in
accordance with the provisions of the Civil Code (Article 1226, par. 2),
and one which states that the penalty may be reduced if it is iniquitous
or unconscionable (Article 1229).
WHAT
ARE THE PURPOSES OF A PENAL CLAUSE IN AN OBLIGATION?
A penal clause has three purposes:

a. Funcion coercitiva o de garantia to insure the
performance of the obligation;
b. Funcion liquidatoria to liquidate the amount of
damages to be awarded to the injured party in case
of breach of the principal obligation; and
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c. Funcion
estrictamente
penal
in
certain
exceptional cases, to punish the obligor in case of
breach of the principal obligation.
The second is compensatory, while the third is punitive in
character; the first, on the other hand, is the general purpose
regardless of whether the penalty is compensatory or punitive.
WHAT
ARE THE DIFFERENT KINDS OF PENALTIES?
Penalty may be classified as follows:

a. AS
TO ORIGIN:
a) Legal when it is constituted by law.

b) Conventional when it is constituted by agreement of the
parties.
B.
AS
TO PURPOSE:
a) Compensatory when it is established for the purpose of

indemnifying the damages suffered by the obligee or
creditor in case of breach of the obligation.
b) Punitive when it is established for the purpose of
punishing the obligor or debtor in case of breach of the
obligation.
C.
AS
TO EFFECT:
a) Subsidiary when only the penalty may be demanded in

case of breach of the obligation.
b) Joint when the injured party may demand the
enforcement of both the penalty and the principal
obligation.
IS
THERE ANY DIFFERENCE BETWEEN THE PENALTY IN OBLIGATIONS WITH A PENAL
CLAUSE AND LIQUIDATED DAMAGES?
As a general rule, there is none. In other words, the penalty in its

compensatory aspect is exactly the same as the liquidated damages
defined in Article 2226 of the Civil Code. In both cases, proof of actual
damages suffered by the creditor is unnecessary. However, the penalty
in its punitive aspect is different from liquidated damages. Thus, when
there is a stipulation that the creditor can recover damages in addition
to the penalty, or when the debtor is sued for refusal to pay the
penalty, or when the debtor is guilty of fraud, it is clear that in such
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cases the creditor can recover not only the agreed penalty but also
damages suffered by him.
Imposition of the liquidated damages for breach of contract, such
as in a building contract, bars any award for additional damages at
large for the same breach (Navarro vs. Mallari, 45 Phil. 242).
CAN
THE DEBTOR SUBSTITUTE THE PENALTY FOR THE PRINCIPAL OBLIGATION?
No. The debtor cannot exempt himself from the performance of

the obligation by paying the penalty. He can only do so if the right has
been expressly reserved for him (Article 1227).
This is so because the payment of the penalty is merely an
accessory obligation. It is not the principal obligation.
CAN
THE CREDITOR DEMAND BOTH FULFILLMENT AND THE PENALTY AT THE SAME
TIME?
No. The creditor cannot demand the fulfillment of the obligation

and the satisfaction of the penalty at the same time. He can only do so
if the right has been clearly granted him. However, if after the creditor
has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the
penalty may be enforced (Article 1227).
WHAT
CODE
OBLIGATION?
ARE THE DIFFERENT CASES UNDER THE CIVIL
REDUCE THE PENALTY WHICH IS ATTACHED TO AN
WHERE COURTS MAY
A contract is a source of obligation. It is the law between the

parties, hence, neither the law nor the courts will extricate a party
from an unwise or undesirable contract he or she entered into with all
the required formalities and with full awareness of its consequences.
One exception to this rule, however is the matter of penalties. Courts
may reduce the penalty attached to an obligation:
1. When the principal obligation has been partly complied with by
the debtor.
2. When the principal obligation has been irregularly complied with
by the debtor.
3. When the penalty is iniquitous or unconscionable, even if there
has been no performance (Article 1229).
A penalty clause is construed against the one enforcing it. If it is
so unconscionable that its enforcement, in effect, constitutes an undue
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deprivation or confiscation of the property of the obligor, the courts

can strike it down as an invalid one.
WHAT
ARE THE RULES IN CASE THE PRINCIPAL OBLIGATION OR THE PENAL CLAUSE
IS VOID?
1. The nullity of the penal clause does not carry with it that of the
principal obligation.
2. The nullity of the principal obligation carries with it that of the
penal clause (Article 1230).
The penal clause, being merely an accessory obligation, does not
invalidate the principal obligation in the event that such penalty clause
is void or without effect. Being merely accessory to enforce the main
obligation, such penal clause could never exist if the main obligation
does not exist. Hence, the nullity of the principal obligation carries with
it that of the penal clause.
SUMMARY
ON RULES IN OBLIGATIONS WITH A PENAL CLAUSE:
1. The penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance (Article 1226, par.
1), EXCEPT if there is no stipulation to the contrary; when the
obligor is sued for refusal to pay the agreed penalty; and when
the obligor is guilty of fraud in the fulfillment of the obligation
2. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where this
right has been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has
been clearly granted him. However, if after the creditor has
decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault,
the penalty may be enforced (Article 1227).
3. Proof of actual damages suffered by the creditor is not necessary
in order that the penalty may be demanded (Article 1228).
CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
WHAT
ARE THE DIFFERENT MODES OF EXTINGUISHING OBLIGATIONS?
Obligations are extinguished:
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(1)
(2)
(3)
(4)
(5)
(6)
By
By
By
By
By
By
payment or performance;
the loss of the thing due;
the condonation or remission of the debt;
the confusion or merger of the rights of creditor and debtor;
compensation;
novation.
Other causes of extinguishment of obligations, such as

annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code (Article 1231).
HOW
ARE
THE
CAUSES
OF
EXTINGUISHMENT
OF
OBLIGATIONS
ACCORDING TO THE CIVIL CODE?
ORDINARILY
a)
b)
c)
d)
e)
f)
Payment of performance
Loss of the thing due
Condonation or remission of the debt or waiver
Confusion or merger of the rights of creditor and debtor
Compensation
Novation (Article 1231)
OTHER
a)
b)
c)
d)
CAUSES IN
ARTICLE 1231
BUT GOVERNED BY OTHER CHAPTERS:
Annulment
Rescission
Fulfillment of resolutory condition
Prescription
STILL
a)
b)
c)
d)
e)
f)
g)
BY:
OTHER CAUSES:
Death of a party in case the obligation is personal

Resolutory term
Change in civil status
Compromises
Mutual dissent
Impossibility of fulfillment
Fortuitous event
SECTION 1
PAYMENT OR PERFORMANCE
DEFINE
PAYMENT.
CLASSIFIED
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Payment is a mode of extinguishing obligations which consists

not only the delivery of money but also the performance, in any other
manner, of an obligation (Article 1232). `
IF
A THIRD PERSON PAYS AN OBLIGATION, WHAT ARE THE RIGHTS WHICH ARE
AVAILABLE TO HIM?
If a third person pays the obligation with the knowledge and

consent of the debtor, there are two rights which are available to him:
a. He can recover from the debtor the entire amount which he has
paid (Article 1236, par. 2);
b. He is subrogated to all of the rights of the creditor (Article 1302,
No. 2).
However, if the payment is made without the knowledge or
against the will of the debtor, there is only one right which is available
to him:
a. He can recover only insofar as the payment has been beneficial
to the said debtor (Article 1236, par. 2).
WHAT
ARE THE REQUISITES FOR A VALID PAYMENT?
A debt shall not be understood to have been paid unless the

thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be (Article 1233).
WHAT IS THE EFFECT OF SUBSTANTIAL PERFORMANCE IN GOOD FAITH?
If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee (Article
1234).
WHAT
IS THE EFFECT IF THE OBLIGEE ACCEPTS PERFORMANCE KNOWING ITS
INCOMPLETENESS OR IRREGULARITY?
When the obligee accepts the performance, knowing its

incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with (Article 1235).
There is waiver and estoppel here.
IF
THERE IS DEFAULT IN THE PERFORMANCE OF ONES OBLIGATION, WHAT IS THE
EFFECT OF THE ACCEPTANCE OF DELAYED PAYMENT?
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Rescission is impliedly waived. Failure to exercise the right of

rescission after the debtor defaulted constitutes a waiver of such right.
The continued acceptance of payments after the default places the
debtor in estoppel.
MAY
THIRD
PERSON
COMPEL
THE
CREDITOR
TO
ACCEPT
PAYMENT
OR
PERFORMANCE OF AN OBLIGATION?
No, as a general rule because there is no privity of contract

between the third person and a party to a contract. This rule is,
however subject to the following exceptions:
a. When it is made by a third person who has an interest in the
fulfillment of the obligation (Article 1236). Thus, a guarantor or a
co-debtor can compel the creditor to accept payment or
performance, since in this case, the payor is not a stranger to the
obligation.
b. When there is a stipulation to the contrary (Article 1236). In this
case, the creditor waives his right to refuse to deal with
strangers to the obligation.
WHAT
IS THE EFFECT IF A THIRD PERSON PAYS ON BEHALF OF THE DEBTOR
WITHOUT HIS KNOWLEDGE OR AGAINST HIS CONSENT?
Whoever pays on behalf of the debtor without the knowledge or

against the will of the latter, cannot compel the creditor to subrogate
him in his rights, such as those arising from a mortgage, guaranty, or
penalty (Article 1237).
WHAT
IS SUBROGATION?
Subrogation means the act of putting somebody into the shoes

of the creditor, hence, enabling the former to exercise all the rights
and actions that could have been exercised by the latter.
Subrogation transfers to the person subrogated the credit with
all the rights thereto appertaining, either against the debtor or against
third persons, be they guarantors or possessors of mortgages, subject
to stipulation in a conventional subrogation (Article 1303).
HOW
IS SUBROGATION DISTINGUISHED FORM REIMBURSEMENT?
a) In subrogation, recourse can be had to the mortgage or guaranty

or pledge; in reimbursement, there is no such recourse.
b) In subrogation, the debt is extinguished in one sense, but a new
creditor, with exactly the same rights as the old one, appears on
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the scene. In reimbursement, the new creditor has different

rights, so it is as if there has been an extinguishment of the
obligation.
c) In subrogation, there is something more than a personal action
for recovery; in reimbursement, there is only a personal action to
recover to the amount.
Note however, that in both reimbursement and subrogation,
there can be recovery of what the stranger has paid (Article 1236).
WHEN
IS PAYMENT BY A STRANGER DEEMED A DONATION?
Payment made by a third person who does not intend to be

reimbursed by the debtor is deemed to be a donation, which requires
the debtor's consent. But the payment is in any case valid as to the
creditor who has accepted it (Article 1238).
WHAT
IS THE EFFECT OF PAYMENT MADE BY AN INCAPACITATED PERSON?
In obligations to give, payment made by one who does not have

the free disposal of the thing due and capacity to alienate it shall not
be valid, without prejudice to the provisions of article 1427 under the
Title on "Natural Obligations" (Article 1239); thus:
If a person has no capacity to give:
a) Payment is not valid if accepted;
b) Creditor cannot be compelled to accept it;
c) The remedy of consignation is not proper.
Exception as provided for in Article 1427:
When a minor below eighteen and twenty-one years of age, who
has entered into a contract without the consent of the parents or
guardian voluntarily pays a sum of money or delivers a fungible thing
in fulfillment of the obligation, there shall be no right to recover the
same from the obligee who has spent or consumed it in good faith.
TO
WHOM MUST PAYMENT BE MADE?
Payment shall be made, as a general rule, to:

a) The person in whose favor the obligation has been constituted,
or
b) His successor in interest, or
c) Any person authorized to receive it (Article 1240).
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WHAT
IS THE EFFECT IF PAYMENT IS MADE TO A PERSON OTHER THAN THOSE
ENUMERATED IN
ARTICLE 1240?
The payment shall not be valid; except:

a) Payment made to a third person provided that it has redounded
to the benefit of the creditor;
b) Payment made to the possessor of the credit provided that it was
made in good faith (Articles 1241, par. 2, and 1242).
WHAT
IS
THE
EFFECT OF
PAYMENT
MADE
TO A PERSON
INCAPACITATED
TO
MANAGE OR ADMINISTER HIS PROPERTY?
Payment to a person who is incapacitated to administer his

property shall be valid only:
a) If he has kept the thing delivered, or
b) Insofar as the payment has been beneficial to him (Article 1241,
par. 1).
WHAT
IS THE EFFECT OF PAYMENT MADE TO AN UNAUTHORIZED THIRD PERSON?
Payment made to a third person shall be valid insofar as it has

redounded to the benefit of the creditor (Article 1241, par 2).
MUST THE BENEFIT TO THE CREDITOR BE PROVEN?
Such benefit to the creditor need not be proved in the following
cases:
(1)
If after the payment, the third person acquires the creditor's
rights;
(2)
If the creditor ratifies the payment to the third person;
(3)
If by the creditor's conduct, the debtor has been led to believe
that the third person had authority to receive the payment (Article
1241).
WHAT
IS THE EFFECT OF PAYMENT MADE TO THE CREDITOR BY THE DEBTOR AFTER
THE LATTER HAS BEEN JUDICIALLY ORDERED TO RETAIN THE DEBT?
Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid (Article
1243).
The judicial order in this case may have been prompted by an
order of attachment, injunction or garnishment
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CAN
A DEBTOR OF A THING COMPEL THE CREDITOR TO RECEIVE A DIFFERENT ONE?
The debtor of a thing cannot compel the creditor to receive a

different one, although the latter may be of the same value as, or more
valuable than that which is due (Article 1244, par. 1).
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will
(Article 1244, par 2).
UNDER
WHAT CIRCUMSTANCES MAY A DEBTOR COMPEL THE CREDITOR TO ACCEPT
A THING DIFFERRENT FROM THAT WHICH WAS AGREED UPON?
a) When the obligation is a facultative obligation. Here, one

prestation has been agreed upon; but the obligor may render
another in substitution of the same (Article 1206).
b) When there is another contract entered into between the parties
resulting in dacion en pago or novation;
c) When there is a waiver made by the creditor as when he
accepted a thing other than what was agreed upon. This
constitutes estoppel.
WHAT
IS DATION IN PAYMENT?
Dation in payment, whereby property is alienated to the creditor

in satisfaction of a debt in money, shall be governed by the law of
sales (Article 1245)
It is a mode of extinguishing an obligation whereby the debtor
alienates in favor of the creditor, property for the satisfaction of
monetary debt.
WHAT
ARE THE REQUISITES FOR A VALID DATION IN PAYMENT?
a) Consent of the creditor (for sales presupposes consent of both

parties)
b) It must not be prejudicial to the other creditor;
c) The debtor must not have been declared insolvent by judicial
decree.
WHAT
THINGS?
MUST BE DELIVERED IN OBLIGATIONS TO GIVE INDETERMINATE OR GENERIC
When the obligation consists in the delivery of an indeterminate

or generic thing, whose quality and circumstances have not been
stated, the creditor cannot demand a thing of superior quality. Neither
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can the debtor deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into consideration
(Article 1246).
WHO
PAYS FOR THE EXTRAJUDICIAL EXPENSES REQUIRED BY THE PAYMENT?
The extrajudicial expenses required by the payment shall be for

the account of the debtor. With regard to judicial costs, the Rules of
Court shall govern.
Exception: When there is stipulation to the contrary (Article
1247).
MAY
CREDITOR
BE
COMPELLED
TO
PARTIALLY
RCEIVE
THE
PRESTATIONS
CONSTITUTING THE OBLIGATION?
The creditor cannot be compelled partially to receive the

prestations in which the obligation consists. Neither may the debtor be
required to make partial payments (Article 1248).
EXCEPTIONS:
a) When there is stipulation to this effect;
b) When the different prestations are subject to different conditions
or different terms;
c) When the debt is in part liquidated and in part unliquidated,
performance of the liquidated part may be insisted upon either
by the debtor or creditor;
d) When a joint debtor pays his share or the creditor demands the
same;
e) When a solidary debtor pays only the part demandable because
the rest are not yet demandable on account of their being
subject to different terms and conditions;
f) In case of compensation, when one debt is larger than the other,
it follows that a balance is left;
g) When work is to be done by parts.
WHAT
IS MEANT BY LEGAL TENDER?
Legal tender, within the meaning of Article 1249, refers to such

currency which may be used for the payment of all debts, whether
public or private.
It is that which a debtor may compel a creditor to accept in
payment of the debt whether private or public.
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IN
MONETARY OBLIGATIONS, IN WHAT CURRENCY SHALL PAYMENT BE MADE?
The payment of debts in money shall be made in the currency

stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines (Article 1249).
This has been modified by RA 529 which provides that
obligations incurred after June 16, 1950, which are for the purpose of
payment a foreign currency or an amount of Philippine money to be
measured by gold or foreign currency, shall be null, void and of no
effect. However, in such a case, only the stipulation with respect to the
currency is void. The creditor can still demand payment in Philippine
legal tender measured at the exchange rate prevailing not at the time
of payment, but at the time of contracting or incurring the dent.
RA 529 has in turn been amended by RA 4100, which took effect
on June 1964 which provides that in import-export and other
international banking, financial investment and industrial transactions,
the parties agreement a to currency in which an obligation will be paid
is binding.
CAN
A MONETARY OBLIGATION BE PAID WITH PROMISSORY NOTES PAYABLE TO
ORDER, OR BILLS OF EXCHANGE, OR OTHER MERCANTILE DOCUMENTS?
As a general rule, no, except:

a) When they have been cashed or,
b) When through the fault of the creditor they have been impaired,
as when the check its lost its value.
c) When the creditor is in estoppel or he had previously promised
he would accept a check.
In the meantime, the action derived from the original obligation
shall be held in abeyance (Article 1249, par. 2).
A check, even a managers check, is not a legal tender, therefore
the creditor cannot be compelled to accept payment through this
means.
IN
CASE
AN
EXTRAORDINARY
INFLATION
OR
DEFLATION
CURRENCY SHOULD SUPERVENE, WHAT VALUE WILL BE THE BASIS OF
PHILIPPINE
PAYMENT?
OF
THE
In case an extraordinary inflation or deflation of the currency

stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary (Article 1250).
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Note that this article has no more application today. The article
speaks of the inflation or deflation of the currency stipulated, meaning
the currency other than Philippine legal tender as allowed by Article
1249. But since today, no foreign currency can be stipulated under RA
529, it follows that literally construed, Article 1250 cannot be made
used of for the present. By analogy or extension, it may be possible to
include the extraordinary inflation or deflation of the Philippine
currency.
WHERE
MUST PAYMENT BE MADE?
RULES:
a) Payment shall be made in the place designated in the obligation.
b) There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was
constituted.
c) In any other case the place of payment shall be the domicile of
the debtor.
d) If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by him.
e) These provisions are without prejudice to venue under the Rules
of Court (Article 1251).
WHAT
ARE THE
SUBSECTION 1
Application of Payments
SPECIAL FORMS OF PAYMENT?
a. Application (or imputation) of payment (Article 1252)

b. Dation in payment (adjudication en pago or datio in solutum)
(Article 1245)
c. Assignment in favor of creditors (cession) (Article 1255)
d. Tender of payment or consignation (Articles 1256-1261)
DEFINE
APPLICATION OF PAYMENT.
Application of payment is the designation of the debt to which

the payment must be applied when the debtor has several obligation
of the same kind in favor of the same creditor.
It is the phrase applied to show which debt, out of two or more
debts owing the same creditor, is being paid.
WHAT
ARE THE REQUISITES OF APPLICATION OF PAYMENT?
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a.
b.
c.
d.
e.
There must be two or more debts;

There must only one debtor and only one creditor;
There must be two or more debts of the same kind;
All of the debts must be due; and
The amount paid by the debtor must not be sufficient to cover
the total amount of all the debts.
WHAT
ARE THE EXCEPTIONS TO THE RULE THAT IN APPLICATION OF PAYMENT,
THER MUST BE ONLY ONE DEBTOR AND ONLY ONE CREDITOR?
The case of a solidary debtor who may have obligations other

than the solidary obligation in favor of the creditor to whom payment is
made is sometimes given as an exception. Although there is no
question that such a debtor can designate the debt to which the
payment must be applied, yet, this doe not constitute an exception
because of the principle of mutual agency existing among the solidary
debtors.
A real exception is the one given in Article 1792. Under this
article, if a debtor is indebted to a partnership and also to the
managing partner at the same time and both debts are already
demandable, such debtor, if he pays, may apply the payment to his
debt to the managing partner, provided that such debt is more onerous
to him. Here, actually there are two creditors since the personality of
the partnership is separate and distinct from that of the partners.
TO
WHOM DOES THE RIGHT TO MAKE AN APPLICATION OF PAYMENT BELONG?
As a general rule, the right to make an application of payment

belongs to the debtor. (Similar to a case where the obligation is subject
to an alternative obligation or prestation, the choice as to which debt
the payment is to be applied is given to the debtor. For this purpose,
the debtor must make a declaration as to which debt should the
payment be applied.) However, if he does not avail himself of this
right, the creditor may wrest the initiative from him by giving to him a
receipt designating the debt to which the payment shall be applied.
But even this does not really constitute an exception, because the
debtor may either accept or reject the application (Article 1252).
The rule on application of payment by the debtor must conform
to the general rules on payment provided for from Articles 1232 up to
1251. Thus if the debtor makes a declaration as to the particular debt
(from among a number of debts) to which his payment is to be applied,
the creditor can validly refuse such declaration or application if the
payment is to be applied to a debt which will only partially pay the
particular indebtedness. This is so because according to Article 1233,
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payment must, as a general rule, be always completely delivered or

rendered, and, according to Article 1248, the creditor cannot be
compelled partially to receive the prestation in which the obligation
consists. The debtor must apply the payment to an indebtedness
which, through such application, shall be completely extinguished.
IF
THE DEBTS ARE NOT YET DUE, MAY THERE BE APPLICATION OF PAYMENT?
Yes, but only:

a. If the parties so stipulate, or
b. When the application of payment is made by the party (which
may either be the debtor or the creditor) for whose benefit the
term has been constituted (Article 1252).
How is application made?
a. The debtor makes the designation (Article 1252, par. 1)
b. If not, the creditor makes it, by so stating in the receipt that he
issues (Article 1251, par. 2)
c. If neither the debtor nor the creditor has made the application, or
if the application is not valid, then application is made by
operation of law (Articles 1253, 1254)
WHAT
IS THE RULE IF THE DEBTOR ACCEPTS FROM THE CREDITOR A RECEIPT IN
WHICH AN APPLICATION OF PAYMENT IS MADE?
The law provides that if the debtor accepts from the creditor a
receipt in which an application of payment is made, the former cannot
complain of the same, unless there is a cause for invalidating the
contract (Article 1252, par. 2).
It must be noted that the debtor must not only merely receive
the receipt but he must accept the receipt. Thus, if A is indebted to B
for P1, 000, P2, 000 and P900, and A pays B P500 without mentioning
as to which debt the P500 will be applied and if B is agreeable to any
partial payment, and issues a receipt indicating that the P500 shall be
applied to the P1, 000 debt, and A readily accepts the said receipt, A
cannot later complain that the P500 should have been applied to the
P2, 000 debt unless there exists a cause to invalidate the contract in
connection with the indebtedness in the amount of P1, 000. This is
based on the doctrine of estoppel. However, if the indebtedness has
been obtained through fraud or intimidation which is a cause to annul
the contract, the debtor is not estopped from questioning the
application.
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ONCE
AN APPLICATION OF PAYMENTS IS MADE, MAY IT BE REVOKED?
No, unless both parties agree. Even if both parties agree,

however, still the revocation or change in the application will not be
allowed if third persons would be prejudiced.
WHAT
IS THE RULE OF THE DEBT PRODUCES INTEREST?
If the debt produces interest, payment of the principal shall not

be deemed to have been made until the interests have been covered
(Article 1253).
This article is merely directory, and not mandatory. Although
interest attaches to the principal, the payment of both principal and
interest, in effect, constitutes two payment by the debtor. In fact
according to the law, the receipt of the principal by the creditor without
reservation with respect to the interest, shall give rise to the
presumption that the interest has been paid (Article 1176).
WHAT
IS MEANT BY LEGAL APPLICATION OF PAYMENT?
(WHAT
IS THE RULE IF
THE PAYMENT CANNOT BE APPLIED IN ACCORDANCE WITH THE PRECEDING RULES, OR IF

APPLICATION CAN NOT BE INFERRED FROM OTHER CIRCUMSTANCES?)
a. The debt which is most onerous to the debtor, among those due,
shall be deemed to have been satisfied.
b. If the debts due are of the same nature and burden, the payment
shall be applied to all of them proportionately (Article 1254).
EXAMPLES:
a. Where there are various debts which are due and they were
incurred at different dates, the oldest are more onerous.
b. When one bears interest and the other does not, the former is
more onerous.
c. Where one is secured and the other is not, the former is more
onerous.
d. Where the debtor is bound as principal in one and as guarantor
or surety in another, the former is more onerous.
e. Where the debtor is bound as a solidary debtor in one and as the
sole debtor in another, the former is more onerous.
WHAT
IS PAYMENT BY
SUBSECTION 2
Payment by Cession
CESSION?
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Cession or assignment may be defined as a special form of

payment whereby the debtor abandons all of his property for the
benefit of his creditors in order that from the proceeds thereof the
latter may obtain payment of their creditors.
Article 1255 provides:
The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which, on the effect of
the cession, are made between the debtor and his creditors shall be
governed by special laws.
WHAT
ARE ITS REQUSITES?
In order that the debtor can avail himself of this form of

payment, it is essential that:
a. There must be plurality of debts;
b. There must be more than one creditor;
c. There must be complete or partial or relative insolvency of the
debtor;
d. There is abandonment of all debtors property not exempt from
execution (unless exemption is validly waived by the debtor) in
favor of creditors; and
e. It must be accepted by the creditor.
WHAT
ARE THE DIFFERENT KINDS OF PAYMENT BY CESSION?
Payment by cession may either be contractual (voluntary) or

judicial. The cession referred to in Article 1255 is contractual, while the
cession which is regulated by the Insolvency Law, and which may be
voluntary or involuntary, is judicial.
WHAT
ARE THE EFFECTS OF VOLUNTARY ASSIGNMENT?
1. The creditors do not become the owners; they are merely

assignees with authority to sell (If ownership is transferred,
this becomes a datio in solutum).
2. The debtor is released up to the amount of the net
proceeds of the sale, unless there is a stipulation to the
contrary (Article 1255, 2nd sentence). The balance remains
collectible.
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3. Creditors will collect credits in the order of preference

agreed upon, or in default of agreement, in the order
ordinarily established by law.
DISTINGUISH
BETWEEN DATION IN PAYMENT AND PAYMENT BY CESSION.
1. As to number of parties: Whereas in dacion en pago there may

be only one creditor, in payment by cession plurality of creditor
is essential;
2. As to financial condition: Whereas in dacion en pago the debtor
is not necessarily in a state of financial difficulty, in payment by
cession the debtor is in a state of partial or relative insolvency.
3. As to object: Whereas in dacion en pago what is delivered by the
debtor is merely a thing to be considered as the equivalent of
the performance of the obligation, in payment by cession what is
ceded by the debtor is the universality of all his property.
4. As to effect: Whereas in dacion en pago the payment
extinguishes the obligation to the extent of the value of the thing
delivered either as agreed upon or as may be proved, unless the
silence of the parties signifies that they consider the delivery of
the thing as the equivalent of the performance of the obligation,
in payment by cession the effect is merely to release the debtor
for the net proceeds of the things ceded or assigned, unless
there is a contrary intention.
OTHER
DISTINCTIONS:
DACION EN PAGO
Does not affect all the properties
CESSION
In
general,
affects
all
the
properties of the debtor
of Requires more than one creditor
Does not require plurality

creditors
Only
specific
or
concerned
creditors consent is required
May take place during the
solvency of the debtor
Transfers ownership upon delivery
This is really an act of novation
Requires the consent if all the

creditors
Requires full or partial insolvency
Does not transfer ownership
Not an act of novation
SUBSECTION 3
Tender of Payment and Consignation
DEFINE
TENDER OF PAYMENT AND CONSIGNATION.
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Tender of payment consists in the manifestation made by the

debtor to the creditor of his decision to comply immediately with his
obligation. It is the act of offering the creditor what is due him together
with a demand that the creditor accept the same. Consignation, on the
other hand, refers to the deposit of the object of the obligation in a
competent court in accordance with the rules prescribed by law after
refusal or inability of the creditor to accept the tender of payment. It
generally requires a prior tender of payment.
DISTINGUISH
BETWEEN TENDER OF PAYMENT AND CONSIGNATION.
1. Tender of payment is the antecedent of consignation; in other

words, while the first is the preparatory act, the second is the
principal act which will produce the effects of payment. The
priority of tender of payment is the attempt to make a private
settlement before proceeding to the solemnities of consignation.
2. Tender of payment is by its very nature extrajudicial in
character, while consignation is judicial.
STATE THE RATIONALE FOR CONSIGNATION.
The rationale for consignation is to avoid the performance of an
obligation becoming more onerous to the debtor by reason of causes
imputable to him. `
WHAT
ARE THE SPECIAL REQUISITES OF CONSIGNATION?
In order that consignation shall produce the effects of payment, it is

not only essential that it must conform with all of the requisites of
payment, but it is also essential that certain special requirements
prescribed by law must be complied with. The debtor must show:
1. That the debt is due;
2. That there must be prior tender, unless tender is excused;
3. The consignation has been made either because the creditor to
whom tender of payment was made refused to accept the
payment without just cause, or because any of the causes
stated by law for effective consignation without previous tender
of payment exists (Article 1256);
4. That previous notice of the consignation had been given to the
persons interested in the fulfillment of the obligation (Article
1256);
5. That the thing or amount due had been placed at the disposal of
judicial authority (Article 1258, par. 1) accompanied by proof
that tender had been duly made, unless tender is excused;
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6. That after the consignation had been made, the persons

interested in the fulfillment of the obligation had been notified
thereof (Article 1258, par. 2).
WHAT
IS THE EFFECT OF TENDER WITHOUT CONSIGNATION?
Tender of payment without consignation does not extinguish the

debt; consignation must follow.
WHAT
ARE THE EXCEPTIONS TO THE RULE THAT BEFORE CONSIGNATION SHALL
PRODUCE THE EFFECTS OF PAYMENT, IT IS ESSENTIAL THAT THERE MUST BE A PREVIOUS

TENDER OF PAYMENT?
Consignation alone shall produce the same effect in the following

cases:
(1)
When the creditor is absent or unknown, or does not appear at
the place of payment;
(2)
When he is incapacitated to receive the payment at the time it is
due;
(3)
When, without just cause, he refuses to give a receipt;
(4)
When two or more persons claim the same right to collect;
(5)
When the title of the obligation has been lost (Article 1256).
BE
WHEN
PROVED?
MUST THE SPECIAL REQUISTES OF A VALID AND EFFECTIVE CONSIGNATION
Under the law, after the consignation has been made, it is

required that the debtor shall notify the creditor and all of the persons
interested in the fulfillment of the obligation of such fact (Article 1258).
It is at this stage that three possible situations may arise:
1. The creditor may accept the ting or amount deposited. In such a
case, the question of payment is settled altogether. The question
as to whether the consignation is valid or not becomes moot.
2. The creditor may refuse to accept the thing or amount deposited.
In such as case, the debtor shall then bring an action against him
in order to compel him to accept said thing or amount. In order
that such action shall prosper, all of the requisites of a valid and
effective consignation must be proved.
3. The creditor may neither accept nor impugn the consignation
because he is not interested, or he is not known, or he is absent.
In such a case, the debtor shall then file a motion in court asking
for the cancellation of the obligation (Article 1260). In order that
such motion shall be granted, all of the requisites of a valid and
effective consignation must be proved.
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WHO
BEARS THE EXPENSES OF CONSIGNATION?
The expenses of consignation, when properly made, shall be

charged against the creditor (Article 1259).
WHAT
ARE THE EFFECTS OF CONSIGNATION DULY MADE?
1. Once the consignation has been duly made, the debtor may ask
the judge to order the cancellation of the obligation (Article
1260).
2. The running of interest is suspended.
WHEN
MAY THE DEBTOR WITHDRAW THE THING OR SUM CONSIGNED?
As a matter of right:
Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly made, the
debtor may withdraw the thing or the sum deposited, allowing the
obligation to remain in force (Article 1260).
As a matter of privilege:
If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every
preference which he may have over the thing. The co-debtors,
guarantors and sureties shall be released (Article 1261).
SECTION 2
Loss of the Thing Due
DEFINE
LOSS OF THE THING DUE.
In its strict sense, loss of the thing due means that the thing
which constitutes the object of the obligation perishes or goes out of
commerce of man, or disappears in such a way that its existence is
unknown or it cannot be recovered (Article 1189, par. 2).
In its broad sense, it means impossibility of compliance with the
obligation through any cause. In other words, it is synonymous with
what other codes term impossibility of performance.
This is the sense in which it is understood in Articles 1262 to
1269.
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The courts shall determine whether, under the circumstances,

the partial loss of the object of the obligation is so important as to
extinguish the obligation (Article 1264).
WHAT
REQUISITES
MUST CONCUR IN ORDER THAT AN OBLIGATION SHALL BE
EXTINGUISHED BY THE LOSS OR DESTRUCTION OF THE THING DUE?
a) The thing which is lost is determinate;

b) The thing is lost without any fault of the debtor. If the thing is lost
through the fault of the debtor, the obligation is transformed into an
obligation to indemnify the oblige or creditor for damages;
c) The thing is lost before the debtor has incurred in delay (Article
1262).
WHAT
ARE THE EXCEPTIONS TO THE RULE ABOVE?
1. When by law, the obligor is liable for fortuitous events, (Article

1262, par. 2).
2. When by stipulation, the obligor is liable for fortuitous events,
3. When the nature of the obligation requires the assumption of risk
(Article 1262, par. 2 & 1174).
4. When the loss of the thing is due to the fault of the debtor
(Article 1262, par.1)
5. When the loss of the thing occurs after the debtor has incurred in
delay (Article 1262, par. 1 & Article 1165, par. 3).
6. When the debtor promised to deliver the same thing to two or
more persons who do not have the same interest (Article 1165,
par. 3).
7. When the obligation is generic (Article 1263); except when the
generic thing is delimited, or when the generic thing has already
been segregated or set aside..
8. When the debt of a certain and determinate thing proceeds from
a criminal offense, unless the thing having been offered by him
to the person who should receive it, the latter refused without
justification to accept it. (Article 1268).
WHAT
IS THE PRESUMPTION IF THE THING IS LOST IN THE POSSESSION OF THE
DEBTOR?
Whenever the thing is lost in the possession of the debtor, it shall

be presumed that the loss was due to his fault, unless there is proof to
the contrary, and without prejudice to the provisions of article 1165.
This presumption does not apply in case of earthquake, flood, storm or
other natural calamity (Article 1265).
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IN
OBLIGATIONS
CONSTITUTES
THE
DO,
TO
OBJECT
OF
WHAT
THE
IS
THE
OBLIGATION
EFFECT
IF
BECOMES
THE
PRESTATION
LEGALLY
OR
WHICH
PHYSICALLY
IMPOSSIBLE?
The debtor in obligations to do shall also be released when the

prestation becomes legally or physically impossible without the fault of
the obligor (Article 1266); provided that such impossibility was not due
to his fault and that it took place before he has incurred in delay.
CAN
THE SAME RULE BE APPLIED TO OBLIGATIONS NOT TO DO?
In rare or exceptional cases, the same rule applies to obligations

not to do, such as when the obligor is compelled to do that which he
had obligated himself to refrain from performing or doing. In such
cases, his obligation is extinguished applying the same principle
invoked in Article 1266.
WHAT
IS THE EFFECT OF DIFFICULTY OF THE SERVICE BEYOND THE PARTIES
CONTEMPLATION?
When the service has become so difficult as to be manifestly

beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part (Article 1267).
WHAT
IS
THE
RIGHT
OF
THE
CREDITOR
WHEN
THE
OBLIGATION
HAS
BEEN
EXTINGUISHED BECAUSE OF THE LOSS OF THE THING?
The obligation having been extinguished by the loss of the thing,

the creditor shall have all the rights of action which the debtor may
have against third persons by reason of the loss (Article 1269).
SECTION 3
Condonation or Remission of the Debt
DEFINE
CONDONATION OR REMISSION.
Remission is an act of liberality by virtue of which the oblige,

without receiving any price or equivalent, renounces the enforcement
of the obligation, as a result of which it is extinguished in its entirety or
in that part or aspect of the same to which the remission refers.
It is the gratuitous abandonment by the creditor of his right.
WHAT
REQUISITES
EXTINGUISHED BY REMISSION?
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In order that there will be a remission or condonation which will

result in the total or partial extinguishment of the obligation, it is
essential that the following requisites must concur:
a) The condonation or remission must be essentially gratuitous;
b) There must be acceptance by the obligor. It may be made expressly
or impliedly; and
c) The obligation must be demandable.
WHAT
RULES GOVERN REMISSION AND CONDONATION?
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore, comply
with the forms of donation. (Article 1270)
WHAT
ARE THE DIFFERENT KINDS OF REMISSION?
Remission or condonation may be classified as follows:

1. AS TO FORM It may be express or implied. It is express when it is
made in accordance with the formalities prescribed by law for
donations. It is implied when, although it is not made in
accordance with the formality prescribed by law for donations, it
can be deduced from the acts of the obligee or creditor.
2. AS TO EXTENT It may be total or partial. It is total when the entire
obligation is extinguished. It is partial when it refers to the
principal or accessory obligation or to an aspect thereof which
affects the debtor, as for instance solidarity.
3. AS TO CONSTITUTION It may be inter vivos or mortis causa. The first
refers to that which is constituted by agreement of the obligee
and the obligor, in which case it partakes of a donation inter
vivos (See Article 725, et. seq.); the second, on the other hand,
refers to that which is constituted of the nature of a donation
mortis causa (See Articles 935, 936 and 937).
WHAT
ARE EXAMPLES OF IMPLIED REMISSION?
1. The delivery of a private document evidencing a credit, made

voluntarily by the creditor to the debtor, implies the renunciation
of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by proving that
the delivery of the document was made in virtue of payment of
the debt. (Article 1271)
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2. Whenever the private document in which the debt appears is

found in the possession of the debtor, it shall be presumed that
the creditor delivered it voluntarily, unless the contrary is
proved. (Article 1272)
3. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the
creditor, is found in the possession of the debtor, or of a third
person who owns the thing. (Article 1274)
WHAT
IS THE EFFECT OF RENUNCIATION OF THE PRINCIPAL DEBT?
The renunciation of the principal debt shall extinguish the

accessory obligations; but the waiver of the latter shall leave the
former in force. (Article 1273)
DEFINE
SECTION 4
Confusion or Merger of Rights
CONFUSION.
Confusion may be defined as the merger of the characters of

creditor and debtor in the same person by virtue of which the
obligation is extinguished (Article 1275). It is the meeting in the same
person of the qualities of creditor and debtor with respect to one and
the same obligation.
WHAT
REQUISITES
EXTINGUISHED BY CONFUSION?
In order that there will be a confusion of rights which will result in

the extinguishment of the obligation, it is essential that the following
requisites must concur:
1. The merger of the characters of creditor and debtor must be in
the same person (Article 1275);
2. It must be placed in the person of either the principal creditor or
the principal debtor (Article 1276); and
3. It must be complete or definite.
The requisite that the merger of rights of creditor and debtor
must be complete and definite does not mean that the extinguishment
of the obligation should be complete or total in character; it merely
means that whether the merger refers to the entire obligation or only a
part thereof, it must be of such a character that there will be a
complete and definite meeting of all the qualities of creditor and
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debtor in the obligation or in the part or aspect thereof which is

affected by the merger.
WHAT
WHAT
IS THE EFFECT OF MERGER IN THE PRINCIPAL DEBTOR OR CREDITOR?
IS THE EFFECT OF CONFUSION IN THE PERSON OF THE GUARANTORS?
Merger which takes place in the person of the principal debtor or

creditor benefits the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the obligation. (Article
1276)
WHAT
IS THE EFFECT OF CONFUSION IN A JOINT OBLIGATION?
Confusion does not extinguish a joint obligation except as

regards the share corresponding to the creditor or debtor in whom the
two characters concur. (Article 1277)
SECTION 5
Compensation
DEFINE
COMPENSATION.
Compensation is a mode of extinguishing in their concurrent

amount those obligations of persons who in their own right are
creditors and debtors of each other. It is a figurative operation of
weighing two obligations simultaneously in order to extinguish them to
the extent in which the amount of one is covered by the amount of the
other.
WHAT
REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALK BE
EXTINGUISHED BY COMPENSATION?
The essential requisites of compensation are:

1. There must be 2 parties who, in their own right, are principal
creditors and principal debtors of each other (Articles 1278,
1279, No. 1);
2. Both debts must consist in money, or if the things due are
fungibles (consumables), they must be of the same kind and
quality (Article 1279, No. 2);
3. Both debts must be due (Article 1279, No. 3);
4. Both debts must be liquidated and demandable (Article 1279,
No. 4);
5. There must be no retention or controversy commenced by third
persons over either of the debts and communicated in due time
to the debtor (Article 1279, No. 5);
6. The compensation must not be prohibited by law (Articles 1287,
1288).
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GIVE
EXAMPLES OF COMPENSATION PROHIBITED BY LAW.
The compensation of the following are prohibited:

1. Debts arising from a depositum (except bank deposits,
which are by law considered as loans to the bank) (Articles
1287, 1980).
2. Debts arising from the obligation of a depositary (Article
1287)
3. Debts arising from the obligations of a bailee in
commodatum (Article 1287).
4. Debts arising from a claim for future support due by
gratuitous title (Article 1287).
5. Debts consisting in civil liability from a penal offense
(Article 1288).
6. Damages suffered by a partnership thru the fault of a
partner cannot be compensated with profits and benefits
which he may have earned for the partnership by his
industry (Article 1794).
WHAT
ARE THE DIFFERENT KINDS OF COMPENSATION?
Compensation may be classified into:

AS TO CAUSE:
1. LEGAL when it takes effect by operation of law from the moment
all of the requisites prescribed by law are present. This is the
fixed type which is regulated by Articles 1278 and 1279.
2. VOLUNTARY when the parties who are mutually creditors and
debtors agree to compensate their respective obligations, even
though all of the requisites for compensation may not then be
present.
3. JUDICIAL when it takes effect by judicial decree. This occurs, for
instance, where one of the parties to a suit over an obligation
has a claim for damages against the other and the former sets it
off by proving his right to said damages and the amount thereof
(Article 1283).
AS
TO EFFECT:
1. TOTAL when the debts to be compensated are equal in amount

(Article 1281);
2. PARTIAL when the debts to be compensated are not equal in
amount (ibid).
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HOW
IS
COMPENSATION
DISTINGUISHED
FROM
PAYMENT,
CONFUSION
AND
COUNTERCLAIM?
Compensation may be distinguished from payment in the

following ways:
1. The requisites prescribed by law for compensation are different
from those prescribed by law for payment,
2. Compensation takes effect by operation of law, whereas
payment takes effect by act of the parties.
3. Capacity to give and acquire is not necessary in compensation,
but it is essential in payment.
4. Compensation is, as a rule, partial, whereas payment is, as a
rule, complete and indivisible.
Compensation may be distinguished form confusion in the following
ways:
1. As to number of persons, in compensation there must be two
persons who, in their own right, are creditors and debtors of each
other; whereas in confusion there is only one person in whom is
merged the qualities of creditor and debtor.
2. As to number of obligations, in compensation there must be at
least 2; whereas in confusion there is only one.
Compensation may be distinguished from set-off or counterclaim in the following ways:
1. Compensation requires that the 2 debts must consist in money,
or if the things due are fungibles, they must be of the same kind
and quality; but in counter-claim this is not necessary.
2. Compensation, as a general rule, requires that the debts must be
liquidated, but counter-claim does not.
3. Compensation need not be pleaded, whereas a counter-claim
must be pleaded to be effectual.
MAY
A GUARANTOR SET UP COMPENSATION WITH RESPECT TO PRINCIPAL DEBT?
Notwithstanding the provisions of the preceding article, the

guarantor may set up compensation as regards what the creditor may
owe the principal debtor (Article 1280). This is an exception to Article
1279, par. 1, because a guarantor is subsidiarily liable, nor principally
bound.
WHEN
IS THERE CONVENTIONAL OR VOLUNTARY COmpensation?
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When the parties may agree upon the compensation of debts

which are not yet due (Article 1282). Here the requisites mentioned in
Article 1279 do not apply.
WHEN
IS THERE JUDICIAL COMPENSATION OR SET-OFF?
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. (Article 1283)
Pleading and proof of the counter-claim must be made. All the
requisites mentioned in Article 1279 must be present except that at
the time of pleading, the claim need not yet be liquidated. The
liquidation (or fixing of the proper sum) must be made in the
proceedings.
MAY
ANNULABLE?
THERE BE COMPENSATION IF ONE OR BOTH DEBTS ARE RESCISSIBLE OR
When one or both debts are rescissible or voidable, they may be

compensated against each other before they are judicially rescinded or
avoided (Article 1284). This is so because these debts are valid until
rescinded or voided, hence compensation is allowed.
WHAT
IS THE EFFECT OF ASSIGNMENT ON COMPENSATION OF DEBTS?
1. 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.
2. 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.
3. 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.
(Article 1285)
WHEN
IS THERE COMPENSATION BY OPERATION OF LAW?
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. (Article 1286)
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This takes place 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. (Article
1290)
WHAT
RULE
SHOULD
BE
APPLIED
IF
A PERSON SHOULD
HAVE
AGAINST
HIM
SEVERAL DEBTS WHICH ARE SUSCEPTIBLE OF COMPENSATION?
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. (Article 1289)
SECTION 6
Novation
DEFINE
NOVATION.
Novation is the substitution or change of an obligation by

another, resulting in its extinguishment or modification, either by:
1. Changing its object or principal conditions, or
2. By substituting another in place of the debtor, or
3. By subrogating a third person in the rights of the creditor (Article
1291).
It is one of the modes of extinguishing obligations through the
creation of a new one effected by the change or substitution of an
obligatory relation by another with the intention of substantially
extinguishing or modifying the same.
WHAT
ARE THE KINDS OF NOVATION?
Novation may be classified into:

1. AS
TO ITS ESSENCE
it may be:
a) Objective or real when it refers to the change either

in the cause, object of principal conditions of the
obligation (Article 1291, No. 1);
b) Subjective or personal when the substitution of
another in the person of the debtor or to the
subrogation of a third person in the rights of the
creditor (Article 1291, Nos. 2 and 3). Kinds:
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a. Passive when there is substitution of the

debtor.
b. Active when there is subrogation in the
rights of the creditor.
c. Mixed when there is combination of
objective and subjective novation.
2. AS
TO ITS FORM
it may be:
a) Express when it is declared in unequivocal terms that the

obligation is extinguished by a new one which substitutes
the same.
b) Tacit when the old and the new obligations are
incompatible with each other on every point (Article 1292).
3. AS TO ITS EXTENT OR EFFECT it may be total or partial, depending upon
whether there is an absolute extinguishment of the old obligation
or merely a modification.
WHAT
REQUISITES
MUST
CONCUR
IN
ORDER
THAT
AN
OBLIGATIN
SHALL
BE
EXTINGUISHED OR MODIFIED BY NOVATION?
In order that an obligation may be extinguished by another which

substitute the same, there are four requisites:
a.
b.
c.
d.
A previous valid obligation;

Agreement of the parties to the new obligation;
Extinguishment of the old obligation; and
Validity of the new obligation (Tiu Siuco vs. Habana, 45 Phil.
707).
WHEN
CAN AN OBLIGATION BE IMPLIEDLY EXTINGUISHED BY ANOTHER WHICH
SUBSITUTE THE SAME?
In order that an obligation may be extinguished by another which

substitutes 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. (Article 1292)
The test of incompatibility between the old and the new
obligations is to determine whether or not both of them can stand
together, each having its own independent existence. If they can stand
together, there is no incompatibility; consequently, there is no
novation. If they cannot stand together, there is incompatibility;
consequently, there is novation (Borja vs. Mariano, 66 Phil. 93;
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Guerrero vs. Court of Appeals, 29 SCRA 791; Millar vs. Court of

appeals, 38 SCRA 642).
SUPPOSE
THAT IN A SECOND AND NEW CONTRACT, THE DEBTOR ACKNOWLEDGES
OR RATIFIES THE OLD CONTRACT, IS THERE NOVATION?
There is no novation. It is clear that the first contract and the

second contract can stand together; and consequently, there can be
no incompatibility between them (Ramos vs. Gibbon, 67 Phil. 371;
Padilla vs. Levy Hermanos, Inc., 69 Phil. 681; Pablo vs. Sapungan, 71
Phil. 145; Magdalena Estate, Inc. vs. Rodriguez, 18 SCRA 967; Millar vs.
Court of Appeals, supra).
SUPPOSE
THAT IN THE SECOND AND NEW CONTRACT, THERE IS A POSTPONEMENT
OF THE DATE OF PAYMENT OR AN EXTENSION OF THE PERIOD OF PAYMENT, IS THERE A

NOVATION?
There is no novation because in such cases there is no clear case

of incompatibility between the 2 obligations; neither is there a change
in the obligatory relation between the parties which will alter the
essence of the old obligation (Ynchausti & Co., vs. Yulo, 34 Phil. 978;
Pascual vs. Lacsamana, 100 Phil. 381; La Tondena, Inc. vs. Alto Surety
& Insurance Co., 101 Phil. 879).
SUPPOSE
THAT IN A SECOND AND NEW CONTRACT, THERE IS ANOTHER METHOD OF
PAYMENT AGREED UPON, OR THERE IS AN ADDITIONAL SECURITY, IS THERE A NOVATION?
There is no novation. It is clear that the two contracts can stand

together; and consequently, there can be no incompatibility between
them (Zapanta vs. De Rotaeche, 21 Phil. 154; Bank of the P.I. vs.
Herridge, 47 Phil. 57; Millar vs. Court of Appeals, supra).
SUPPOSE
THAT IN A SECOND AND NEW CONTRACT, A SURETY BOND IS FILED, OR A
THIRD PERSON ASSUMES PAYMENT OF THE OBLIGATION AND THE CREDITOR ACCEPTS
PARTIAL PAYMENTS FORM SUCH THIRD PERSON, IS THERE A NOVATION?
There is no novation so long as there is no agreement that the

first debtor shall be released from responsibility. This is so even when
a surety bond is filed, for the simple reason that such bond is not a
new and separate contract but merely an accessory of the original
contract. In such a case, the third person who has assumed payment of
the obligation merely becomes a co-debtor or surety. If there is no
agreement as to solidarity, the first and second debtors are considered
obligated jointly (Dungo vs. Lopena, 6 SCRA 1007; Magdalena Estate,
Inc. vs. Rodriguez, supra).
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WHAT ARE THE 2 FORMS OF NOVATION BY

DEBTOR? DEFINE THEM AND GIVE THEIR ESSENTIAL
SUBSTITUTION OF THE PERSON OF THE

REQUISITES.
There are 2 forms of novation by substitution:

a. Expromision If the substitution of debtors is effected with the
consent of the creditor at the instance of the new debtor even
without the knowledge or against the will of the debtor. There
are two kinds of substitution by expromision:
a) Substitution with the knowledge and consent of the old
debtor; and
b) Substitution without the knowledge or against the will of
the old debtor.
b. Delegacion If the substitution of debtors is effected with the
consent of the creditor at the instance of the old debtor with the
concurrence of the new debtor. In other words, delegacion refers
to the substitution of debtors effected when the original debtors
offers and the creditor accepts a third person who consents to
the substitution.
REQUISITES
OF EXPROMISION:
a. The initiative for the substitution must emanate from the new
debtor; and
b. There must be consent of the creditor to the substitution.
REQUISITES OF DELEGACION:
a) The initiative for the substitution must emanate from the old
debtor;
b) Consent of the debtor; and
c) Acceptance by the creditor.
IN
EXPROMISION,
SUPPOSE
THAT
THE
NEW
DEBTOR
EVENTUALLY
PAID
THE
OBLIGATION WHEN IT BECAME DUE AND DEMANDABLE, WHAT ARE THE RIGHTS WHICH ARE
AVAILABLE TO HIM?
According to Article 1293, payment by the new debtor gives him

the right mentioned in Article 1236 and 1237. Consequently
a) If the substitution was effected with the knowledge and consent
of the original debtor; and consequently, payment is made by
the new debtor with or without the knowledge and consent of the
original debtor, the new debtor cannot demand reimbursement
form the original debtor the entire amount which he has paid
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and, at the same time, be subrogated to all the rights of the

creditor (Article 1236, 1237, 1302, 1303)
b) If the substitution was effected without the knowledge and
consent of the original debtor, and consequently, payment is
made by the new debtor again without the knowledge and
consent of the original debtor; the new debtor can demand
reimbursement from the original debtor only insofar as the
payment has been beneficial to such debtor; but he cannot be
subrogated to the rights of the creditor. However, if payment is
made with the knowledge and consent of the original debtor,
although the substitution had been effected without his
knowledge and consent, the new debtor can still demand
reimbursement from the original debtor of the entire amount
which he has paid and, at the same time, be subrogated to all
the rights of the creditor (Articles 1236, 1237, 1302, 1303).
IN
DELEGACION,
SUPPOSE
THAT
THE
NEW
DEBTOR
EVENTUALLY
PAID
THE
OBLIGATION WHEN IT BECAME DUE AND DEMANDABLE, WHAT ARE THE RIGHTS WHICH ARE
AVAILABLE TO HIM?
According to Article 1293, payment by the new debtor gives him

the rights mentioned in Articles 1236 and 1237. Consequently, since
the substitution was effected with the consent of all the parties, the
new debtor (delegado) can demand reimbursement from the original
debtor (delegante) of the entire amount which he has paid (Article
1236) as well as compel the creditor (delegatorio) to subrogate him in
all of his rights (Articles 1302 and 1303).
IN
EXPROMISION, IF THE NEW DEBTOR IS UNABLE TO PAY THE OBLIGAION BY
REASON OF INSOLVENCY, CAN THE CREDITOR THEN PROCEED AGAINST THE OLD DEBTOR
FOR PAYMENT?
According to Article 1294, if the substitution was effected without

the knowledge or against the will of the original debtor, the new
debtors insolvency or non-fulfillment of the obligation shall not revive
the original debtors liability to the creditor. Thus, if the substitution
was effected with the knowledge and consent of the original debtor,
the new debtors insolvency or non-fulfillment of the obligation shall
revive the original debtors liability to the creditor.
IN
DELEGACION, IF THE NEW DEBTOR IS UNABLE TO PAY THE OBLIGATION BY
REASON OF INSOLVENCY, CAN THE CREDITOR THEN PROCEED AGAINST THE OLD DEBTOR
FOR PAYMENT?
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If the substitution was effected by delegacion, according to

Article 1295, the right of action of the creditor can no longer be revived
except in the following cases:
a) When the insolvency of the new debtor (delegado) was already
existing and of public knowledge at the time when the original
debtor (delegante) delegated his debt;
b) When such insolvency was already existing and known to the
original debtor (delegante) when he delegated his debt.
PURPOSE
OF THE TWO EXCEPTIONS:
The purpose of the two exceptions is to prevent the commission

of fraud. With regard to the first exception, the condition of the
insolvency of the delegado was of public knowledge and should exist at
the time the delegation was made, because if it were otherwise, the
delegante cannot then be held responsible since he himself was not
aware of it.
WHAT
IS THE EFFECT OF NOVATION ON ACCESSORY OBLIGATION?
When the principal obligation is extinguished in consequence of

a novation, accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent. (Article 1296)
This Article applies to extinctive novation. If the novation is
merely modificatory, the rules as to guarantors who did not consent
are as follows:
a. If the modified obligation is more onerous, they are
liable only for the original obligation;
b. If the modified obligation is now less onerous, the
guarantors and sureties are still responsible.
WHAT IS THE EFFECT OF NOVATION IF
IF
THE
OLD
OBLIGATION
WAS
VOID,
OR
(1)
(3)
THE NEW OBLIGATION IS VOID OR

IF
THE
ORIGINAL
OBLIGATION
(2)
WAS
CONDITIONAL?
a) If the new obligation is void, the original one shall subsist, unless
the parties intended that the former relation should be
extinguished in any may be agreed upon. (Article 1297)
b) 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. (Article 1298)
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c) If the original obligation was subject to a suspensive or

resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated. (Article 1299)
DEFINE SUBROGATION.
Subrogation (extinctive and subjective novation by change of the

creditor) is the transfer to a third person of all the rights appertaining
to the creditor, including the right to proceed against guarantors, or
possessors of mortgages, subject to any legal provision or any
modification that may be agreed upon.
WHAT
RIGHTS OF THE
2 FORMS
CREDITOR?
ARE THE
OF NOVATION BY SUBROGATING A THIRD PERSON IN THE
a) CONVENTIONAL SUBROGATION that which takes place by the agreement

of the original creditor, the third person substituting the original
creditor and the debtor (Articles 1300 and 1301).
b) LEGAL SUBROGATION that which takes place by operation of law
(Articles 1300 and 1302).
DISTINGUISH
BETWEEN
CONVENTIONAL
SUBROGATION
AND
ASSIGNMENT
OF
RIGHTS.
a) AS TO THE Rules WHICH GOVERN Conventional subrogation is governed

by Articles 1300 to 1304, whereas assignment of rights is
governed by Articles 1624 to 1627.
b) AS TO THE NECESSITY OF DEBTORS CONSENT In conventional subrogation,
the debtors consent is required, whereas in assignment of rights
it is not.
c) AS TO EFFECT UPON THE OBLIGATION Conventional subrogation has the
effect of extinguishing the obligation and giving rise to a new
one, whereas assignment of rights has the effect of transmitting
the rights of the creditor to another person without modifying or
extinguishing the obligation.
d) AS TO EFFECT UPON VICES In conventional subrogation, defects or
vices in the original obligation are cured, whereas in assignment
of rights they are not.
e) AS TO THE TIME OF EFFECTIVITY In conventional subrogation, the effect
arises from the moment of novation or subrogation, whereas in
assignment of rights the effect, as far as the debtor is concerned,
arises from the moment of notification.
WHAT
ARE THE DIFFERENT EXCEPTIONS TO THE RULE THAT LEGAL SUBROGATION
CANNOT BE PRESUMED?
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a) When a creditor pays another creditor who is preferred even

without the debtors knowledge;
b) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor; and
c) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latters share
(Article 1302)
WHAT
IS THE EFFECT OF SUBROGATION?
If the subrogation is total, it transfers to the person subrogated

the credit with all the rights thereto appertaining either against the
debtor or, against third persons, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation.
If the subrogation is partial, the same rule is applicable, but the
creditor to whom partial payment has been made may exercise his
right for the remainder. In other words, both the right of the subrogee
and the right of the creditor shall co-exist. In case of conflict between
the 2, however, the right of the latter shall be preferred (Article 1304).
TITLE II
CONTRACTS
CHAPTER 1
GENERAL PROVISIONS
DEFINE
CONTRACTS.
A contract is a meeting of minds between two persons whereby

one binds himself, with respect to the other, to give something or to
render some service (Article 1305).
A contract is defined as a juridical convention manifested in legal
form, by virtue of which one or more persons bind themselves in favor
of another or others, or reciprocally, to the fulfillment of a prestation to
give, to do, or not to do (Jardine Davies vs. CA, G.R. No. 12066, June
19, 2000).
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In its broadest sense, a contract has likewise been defined as an

agreement whereby at least one of the parties acquires a right, either
in rem or in personam, in relation to some person, thing, act or
forbearance.
DISTINGUISH
A CONTRACT FROM AN OBLIGATION.
Contract is the cause, whereas obligation is the effect. There are

five sources of obligations, one of which is contract. Consequently,
there can be an obligation without a contract, but there can be no
contract without a resultant obligation.
WHAT
ARE THE ELEMENTS OF A CONTRACT?
The elements of a contract may be classified as follows:

a. ESSENTIAL The essential elements are those without which there
can be no contract. The elements are, in turn, subdivided into:
a) Common those which are present in all contracts, such as
consent, object certain and cause.
b) Special those which are present only in certain contracts,
such as delivery in real contracts or form in solemn ones.
c) Extraordinary those which are peculiar to a specific
contract, such as the price in a contract of sale.
b. NATURAL - The natural elements are those which are derived from
the nature of the contract and ordinarily accompany the same.
They are presumed by law, although they can be excluded by
the contracting parties if they so desire. Thus, warranty against
eviction is implied in a contract of sale, although the contracting
parties may increase, diminish or even suppress it.
c. ACCIDENTAL The accidental elements are those which exist only
when the parties expressly provided for them for the purpose of
limiting or modifying the normal effects of the contract. They are
called accidental because they may be present or absent,
depending upon whether or not the parties have agreed upon
them. Examples of these are conditions, terms and modes.
WHAT
A.
ARE THE CLASSIFICATIONS OF CONTRACTS?
ACCORDING
TO PERFECTION OR FORMATION:
a) Consensual perfected by mere consent; example sale
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b) Real perfected by delivery; examples depositum,

pledge, commodatum
c) Formal or solemn those were special formalities are
essential before the contract may be perfected; example
donation inter vivos
of real property requires for its
validity a public instrument.
B.
ACCORDING
TO CAUSE OR EQUIVALENT OF THE VALUE OF PRESTATIONS:
a) Onerous when there is an interchange of equivalent

valuable consideration
b) Gratuitous or lucrative this is free, this one party receives
no equivalent prestation
c) Remunerative one where one prestation is given for a
benefit or service that had been rendered previously.
C. ACCORDING TO IMPORTANCE OF ONE UPON ANOTHER:
a) Principal the contract may stand alone by itself; example,
sale, lease
b) Accessory this depends for its existence upon another
contract; example, mortgage where the principal contract
is one of loan.
c) Preparatory here, the parties do not consider the contract
as an end by itself, but as a means thru which future
transaction or contracts may be made; examples, agency,
partnership
D.
ACCORDING
TO THE PARTIES OBLIGATED:
a) Unilateral where only one of the parties has an obligation;

example, commodatum
b) Bilateral where both parties are required to render
reciprocal prestations; example, sale
E.
ACCORDING
TO THEIR DESIGNATION:
a) Nominate where the contract is given a particular or

special name like commodatum, partnership, agency, sale,
deposit
b) Innominate those which are not given any special name;
they lack individuality and are not regulated by special
provisions of law. These contracts shall be regulated by the
stipulation of the parties; by the general principles of
obligations and contracts, by the rules governing the most
analogous nominate contracts, and by the customs of the
place. Example:
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1) Du ut des - I give that you give.

2) Du ut facias I give that you do.
3) Facio ut facias I do that you do.
F.
ACCORDING
TO THE RISK OF FULFILLMENT:
a) Commulative where the parties contemplate a real

fulfillment; therefore, equivalent values are given, like sale,
lease
b) Aleatory where the fulfillment is dependent upon chance,
thus the values may vary because of the risk or chance,
like an insurance contract.
G.
ACCORDING
TO THE TIME OF PERFORMANCE OR FULFILLMENT:
a) Executed one completed at the time the contract is

entered into, that is, the obligations are complied with at
this time; example, a sale of property which has already
been delivered and which has already been paid for.
b) Executory one where the prestations are to be complied
with at some future time; example, a perfected sale where
the property has not yet been delivered and where the
price has not yet been given
H.
ACCORDING
TO SUBJECT MATTER:
a) Contracts involving things (like sale)

b) Contracts involving rights and credits (like usufruct or
assignment of credits)
c) Contracts involving services (like agency, contract of
common carrier)
I.
ACCORDING
TO OBLIGATIONS IMPOSED AND REGARDED BY THE LAW:
a) Ordinary like sale

b) Institutional like contract of
J.
ACCORDING
MARRIAGE
TO THE EVIDENCE FOR ITS PROOF:
a) Those requiring merely oral or parol evidence

b) Those requiring written proof (like contracts enumerated
under the Statute of Frauds)
K.
ACCORDING
CONTRACT:
TO THE NUMBER OF PERSONS ACTUALLY AND PHYSICALLY ENTERING INTO THE
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a) Ordinary where two parties are represented by different

persons, like sale
b) Auto-contracts where only one person represents two
opposite parties but in different capacities
L.
ACCORDING
CONTRACT:
TO THE NUMBER OF PERSONS WHO PARTICIPATED IN THE DRAFTING OF THE
a) Ordinary like an ordinary sale

b) Contract of adhesion like one prepared by a real estate
company for the sale of real estate; or one prepared by an
insurance company where the buyer or the person
interested in being insured signifies his consent by signing
the contract
M. ACCORDING TO THE NATURE OF THE CONTRACT:
a) Personal
b) Impersonal
WHAT
ARE THE DIFFERENT PHASES/ STAGES IN THE LIFE OF A CONTRACT?
a) PREPARATION OR GENERATION where the parties are progressing with

their negotiations; they have not yet arrived to any definite
agreement, although there may have been a preliminary offer
and bargaining. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract
to the time the contract is concluded (perfected).
b) PERFECTION OR BIRTH where the parties have at long last came to a
definite agreement, the elements of definite subject matter and
valid cause have been accepted by mutual consent. The
perfection takes place upon the concurrence of the essential
elements thereof.
c) CONSUMMATION where the terms of the contract are performed, and
the contract may be said to have been fully executed. The stage
of consummation begins when the parties perform their
respective undertakings under the contract culminating in the
extinguishment thereof.
WHAT
ARE THE BASIC PRINCIPLES OR CHARACTERISTICS OF A CONTRACT?
a) FREEDOM TO STIPULATE OR AUTONOMY OF CONTRACTS the contracting parties

are free to enter into a contract and to establish such
stipulations, clauses, terms and conditions as they may deem
convenient provided they are not contrary to law, morals, good
customs, public order, or public policy
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b) OBLIGATORY FORCE OR CHARACTER OF CONTRACTS AND COMPLIANCE IN GOOD FAITH

once the contract has been perfected, it shall be of obligatory
force upon both of the contracting parties
c) PERFECTION BY MERE CONSENT as a rule
d) BOTH PARTIES ARE MUTUALLY BOUND OR MUTUALLY OF CONTRACTS the essential
equality of the contracting parties whereby the contract must
bind both of them
e) RELATIVITY generally, it is binding only between the parties, their
assigns and heirs.
WHAT
ARE THE LIMITATIONS UPON THE RIGHT OF THE CONTRACTING PARTIES TO
ESTABLISH SUCH STIPULATIONS, CLAUSES, TERMS, AND CONDITIOS AS THEY MAY DEEM
CONVENIENT?
The contracting parties may establish such stipulations, clauses,

terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public
policy (Article 1306).
This is the principle of freedom to stipulate or autonomous
nature of contracts. Freedom to stipulate terms and conditions is the
essence if the contractual system provided such stipulations are not
contrary to law, morals, good customs, public order, or public policy.
This freedom also prohibits a party from coercing or intimidating or
unduly influencing another to enter into a contract.
WHAT LAWS GOVERN CONTRACTS?
It is a rule that only laws existing at the time of the execution of
a contract are applicable thereto and that later statutes do not govern
contracts unless the latter is specifically intended to have a retroactive
effect. A later law which enlarges, abridges or in any manner changes
the intent of the parties to the contract necessarily impairs the
contract itself and cannot be given retroactive effect without violating
the constitutional prohibition against impairment of contracts.
However, non-impairment of contracts or vested rights clauses will
have to yield to the superior and legitimate exercise by the State of
police power.
WHAT
REGULATED?
ARE
THE
KINDS
OF
INNOMINATE
CONTRACTS
1) Du ut des - I give that you give.

2) Du ut facias I give that you do.
3) Facio ut facias I do that you do
Innominate contracts shall be regulated by:
AND
HOW
ARE
THEY
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1) The stipulations of the parties,

2) The provisions of Titles I and II of this Book,
3) The rules governing the most analogous nominate contracts,
and
4) The customs of the place (Article 1307).
WHAT
IS MEANT BY MUTUALITY OF CONTRACTS?
The mutuality of contracts refers to the position of essential

equality which must be occupied by both of the contracting parties in
relation of the contract.
The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them (Article 1308).
CAN
THE DETERMINATION OF THE PERFORMANCE BE LEFT TO A THIRD PERSON?
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 (Article 1309).
WHEN IS THE DECISION OF THE THIRD PERSON BINDING?
The determination shall not be obligatory if it is evidently

inequitable. In such case, the courts shall decide what is equitable
under the circumstances (Article 1310).
WHAT
IS MEANT BY RELATIVITY OF CONTRACTS?
Relativity of contracts refers to the principle of the civil law that a

contract can only bind the parties who had entered into it or their
successors who have assumed their personality or their judicial
position, and that, as a consequence, such contract can neither favor
or prejudice a third person, in conformity with the axiom res inter alios
acta aliis nocet prodest (the act, declaration, or omission of another,
cannot affect another, except as otherwise provided by law or
agreement) [Vide Section 25, Rule 130, Rules of Evidence]. Thus
Article 1311 declares that contracts take effect only between the
parties, their assigns and heirs.
WHAT
ARE
THE
EXCEPTIONS
TO
THE
PRINCIPLE
OF
RELATIVITY
(WHERE
CONTRACT MAY EITHER FAVOR OR PREJUDICE A THIRD PERSON)?
a) Where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by provision
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b)
c)
d)
e)
f)
g)
of law. The heir is not liable beyond the value of the property he
received from the decedent (Article 1311).
Stipulation Pour Autrui where a contract contains a beneficial
stipulation in favor of a third person provided he communicated
his acceptance to the obligor before its revocation. (Article 1311,
par. 2).
In contracts creating real rights where third persons come into
possession of the object of the contract, subject to the provisions
of the Mortgage Law and the Land Registration Laws (Article
1312).
Where the contract is entered into in order to defraud a third
person, in which case, creditors are protected in cases of
contracts intended to defraud them (Article 1313).
Where the third person induces a contracting party to violate his
contract. The third person who induces another to violate his
contract shall be liable for damages to the other contracting
party (Article 1314). This is called TORT INTERFERENCE.
Where, in some cases, third persons may be adversely affected
by a contract where they did not participate (Articles 2150,
2151).
Where the law authorizes the creditor to sue on a contract
entered into by his debtor (Accion Directa).
WHAT
IS
MEANT
BY
STIPULATION
POUR
AUTRUI?
WHAT
REQUISITES
MUST
CONCUR IN ORDER THAT SUCH A STIPULATION MAY BE ENFORCED?
A stipulation pour autrui is a stipulation in a contract, clearly and

deliberately conferred by the contracting parties as a favor upon a
third person who must accept it.
Before such a stipulation may be enforced, it is necessary that
the following requisites must concur:
That it must be for the benefit or interest of the third person;
The stipulation must be a part, not the whole of the contract;
That such benefit or interest must not be merely incidental;
That the contracting parties should have clearly and deliberately
conferred such benefit or interest upon the third person;
e) That neither of the contracting parties bears the legal
representation or authorization of the third party; and
f) That the third person should have communicated his acceptance
or interest to the obligor before its revocation (Article 1311, par.
2).
a)
b)
c)
d)
It is not, however necessary that such third person be always

named in the contract.
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WHAT
ARE THE REQUISITES FOR TORT INTERFERENCE?
a) Existence of a valid contract;

b) Knowledge on the part of the third person of the existence of
contract; and
c) The interference of the third person is without legal justification
or excuse.
HOW
ARE CONTRACTS PERFECTED?
Distinguish:
a) If the contract is consensual (Consensuality of Contracts)
Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what
has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good
faith, usage and law (Article 1315).
b) If the contract is realReal contracts, such as deposit, pledge and commodatum,
are not perfected until the delivery of the object of the obligation
(Article 1316).
MAY
A PERSON CONTRACT IN THE NAME OF ANOTHER?
WHAT
ARE THE EFFECTS?
No one may contract in the name of another, except when

1. He has been authorized or
2. Unless he has by law a right to represent
him, or
3. Unless it is ratified, expressly or
impliedly, by the person on whose behalf
it has been executed, before it is revoked
by the other contracting party (Article
1317).
A contract entered into in the name of another by one who has
no authority or legal representation, or who has acted beyond his
powers, shall be unenforceable (Article 1317, par 2.).
ESSENTIAL
CHAPTER 2
REQUISITES OF CONTRACTS
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GENERAL PROVISIONS
WHAT
ARE THE ESSENTIAL REQUISITES OF A CONTRACT?
There is no contract unless the following requisites concur:

(1)
(2)
(3)
Consent of the contracting parties;

Object certain which is the subject matter of the contract;
Cause of the obligation which is established (Article 1318).
This applies to consensual contracts. If the contract is real, a

fourth requisite delivery is required, if the contract is formal or
solemn, there must be compliance with the formalities required by law.
When the law uses the word concur, it means that all the three
(3) requisites must be present. The absence of one requisite negates
the existence of a contract.
SECTION 1
CONSENT
WHAT
IS MEANT BY CONSENT?
As applied to contracts, consent signifies the concurrence of the

wills of the contracting parties with respect to the object and the cause
which shall constitute the contract.
It is the concurrence of the will of the offerer and the acceptor as
to the thing and the cause which constitute a contract. An offer is a
manifestation of a willingness to enter into a bargain so made as to
justify another person in understanding that his assent to that bargain
is invited and will conclude it.
It is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract
(Article 1319).
WHAT ARE THE REQUISITES OF CONSENT?
In order that there is consent, the following elements must

concur:
1. The consent must be manifested by the
concurrence of the offer and the acceptance
(Articles 1319-1326).
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2. The contracting parties must possess the

necessary legal capacity (Articles 1327-1329)
3. The consent must be intelligent, free,
spontaneous and real (Articles 1330-1346).
The first is expressly stated in the Code; the second and third are
implied.
WHEN
ARE CONTRACTS PERFECTED?
In general, contracts are perfected from the moment there is a

manifestation of the concurrence between the offer and the
acceptance with respect to the object and the cause which shall
constitute the contract (Article 1319, par. 1).
However, if the acceptance is made by letter or telegram, we
must distinguish. According to Article 1319, par. 2, the contract is
perfected from the moment that the offeror has knowledge of such
acceptance. The said article provides that Acceptance made by letter
or telegram does not bind the offerer except from the time it came to
his knowledge. The contract, in such a case, is presumed to have been
entered into in the place where the offer was made.
An acceptance may be express or implied (Article 1320).
WHAT ARE THE DIFFERENT THEORIES AS APPLIED TO PERFECTION OF CONTRACTS?
There are actually four different theories which have been
advanced in order to pin-point the exact moment when a contract is
perfected if the acceptance by the offeree is made by a letter or
telegram. They are:
1. MANIFESTATION THEORY the contract is perfected from
the moment the acceptance is declared or made.
This is the theory which is followed by the Code of
Commerce.
2. EXPEDITION THEORY the contract is perfected from the
moment the offeree transmits the notification of
acceptance to the offeror, as when the letter is
placed in the mailbox. This is the theory which is
followed by the majority if American courts.
3. RECEPTION THEORY the contract is perfected the
moment that the notification of acceptance is in the
hand of the offeror in such a manner that he can
under conditions, procure the knowledge of its
contents, even if he is not able actually to acquire
such knowledge by reason of absence, sickness or
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some other cause. This is the theory which is

followed by the German Civil Code.
4. COGNITION THEORY the contract is perfected from the
moment the acceptance comes to the knowledge of
the offeror. This is the theory followed in the
Philippines as provided by Article 1319 of the Civil
Code.
X
SENT A LETTER TO
DAYS AFTER RECEIPT,
X
XS
SENT
OF ACCEPTANCE REACHED
AND OFFERED HIS HOUSE AND LOT FOR SALE.
TWO
A LETTER ACCEPTING THE OFFER, BUT WHEN THE LETTER

RESIDENCE, HE WAS ALREADY DEAD.
WAS
THERE A
MEETING OF THE MINDS?
None. Acceptance made by a letter does not bind the offerer

except from the time it came to his knowledge (Article 1319). Since X
was already dead when the letter of acceptance reached his residence,
he could not have known the said acceptance.
SUPPOSE
THE ACCEPTANCE WAS COMMUNICATED TO THE AGENT OF
WHO WAS
ALIVE AT THE TIME HIS AGENT CAME TO KNOW OF SUCH ACCEPTANCE, IS THERE A BINDING
CONTRACT?
Yes, because the act of the agent or knowledge acquired by the

agent duly authorized is also the act of the principal, provided tat he
acted within the scope of his authority.
IF
THERE IS AN OFFER AND THERE IS AN ACCEPTANCE WITH CONDITIONS, IS THERE
A PERFECTED CONTRACT?
None, because an offer must be clear and definite while an

acceptance must be unconditional in order that their concurrence can
give rise to a perfected contract. If there are conditions imposed, there
is no meeting of the minds, as the same is a mere counter-offer.
WHAT
ARE THE THINGS THAT MAY BE FIXED BY THE OFFEROR?
The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with (Article 1321).
WHEN
IS THERE ACCEPTANCE WHEN OFFER IS MADE THRU AN AGENT?
An offer made through an agent is accepted from the time

acceptance is communicated to him (Article 1322).
WHEN
DOES AN OFFER BECOME INEFFECTIVE?
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An offer becomes ineffective upon the death, civil interdiction,

insanity, or insolvency of either party before acceptance is conveyed
(Article 1323)
The phrase before acceptance is conveyed means before
acceptance has come to the actual knowledge of the offeror.
WHAT
IS THE NATURE AND CONCEPT OF A CONTRACT OF ADHESION?
A contract of adhesion is one where its terms are prepared by

only one party while the other party merely affixes his signature
signifying his adhesion thereto. Such contracts are not void in
themselves. They are binding as ordinary contracts. However,
contracts of adhesion are construed against the party preparing such
contracts.
WHAT
IS AN OPTION?
It is a contract granting a person the privilege to buy or not to

buy certain objects at anytime within the agreed period at a fixed
price. The contract of option is a separate and distinct contract from
the contract which the parties may enter into upon the consummation
of the contract. Therefore, an option must have its own cause or
consideration, a cause distinct from the selling price itself.
WHAT IS THE RULE ON OPTIONS?
When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised (Article 1324).
Thus, we must distinguish between the effect of an option which
is without a consideration and one which is founded upon a
consideration upon the right of the offeror to withdraw his offer or
proposal. If the option is without any consideration, the offeror may
withdraw his offer by communicating such withdrawal to the offeree at
any time before acceptance; if it is founded upon a consideration, the
offeror can not withdraw his offer. Upon the expiration of the option
period and the person given such option does not manifest his or her
acceptance, the offeror may offer the intended contract to somebody
else.
DISTINGUISHED
FROM EARNEST MONEY:
Option money in an option contract must be differentiated from

an earnest money. Earnest money is considered part of the price in a
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contract of sale and can be proof of perfection of the contract.

However, it is not the giving of the earnest money per se but the proof
of the concurrence of all the essential elements of the contract of sale
which establishes the existence of a perfected sale.
WHAT
IS
THE
RULE
WITH
RESPECT
TO
BUSINESS
ADVERTISEMENTS
AND
ADVERTISEMENTS FOR BIDDERS?
a) Unless it appears otherwise, business advertisements of

things for sale are not definite offers, but mere invitations
to make an offer (Article 1325).
b) Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears
(Article 1326).
WHO
ARE INCAPACITATED TO GIVE THEIR CONSENT?
The following cannot give consent to a contract:

a) Unemancipated minors;
b) Insane or demented persons, and deaf-mutes who do not know how
to write (Article 1327) ;
c) Deaf-mutes who do not know how to write;
d) Married women of age in cases specified by law;
e) Persons suffering from civil interdiction; and
f) Incompetents under guardianship (Rules 93-94, Rules of Court).
The incapacity declared in article 1327 is subject to the
modifications determined by law, and is understood to be without
prejudice to special disqualifications established in the laws (Article
1329).
Under the Family Code, emancipation takes place by the
attainment of the age of majority and, unless otherwise provided,
majority commences at the age of eighteen years.
WHAT
ARE THE EXCEPTIONS TO THE RULE THAT A CONTRACT ENTERED INTO BY AN
UNEMANCIAPTED
MINOR
WITHOUT
THE
CONSENT
OF
HIS
PARENTS
OR
GUARDIAN
IS
VOIDABLE?
a) Where the contract is entered into by a minor who misrepresents

his age, applying the doctrine of estoppel;
b) Where the contract involves the sale and delivery of necessaries
to the minor (Article 1489, par. 2);
c) Where it involves a natural obligation and such obligation is
voluntarily fulfilled by the minor (Articles 1426 and 1427);
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WHAT IS THE STATUS OF A CONTRACT ENTERED INTO DURING LUCID INTERVALS, IN

A STATE OF DRUNKENESS OR DURING HYPNOTIC SPELLS, OR WHEN CONSENT WAS GIVEN
THROUGH MISTAKE, VIOLENCE, INTIMIDATION, UNDUE INFLUENCE OR FRAUD?
Contracts entered into during a lucid interval are valid. Contracts

agreed to in a state of drunkenness or during a hypnotic spell are
voidable (Article 1328).
Lucid interval is that period of time when an insane person acts
with reasonable understanding, comprehension and discernment with
respect to what he is doing.
Contracts entered into a state of drunkenness may likewise be
annullable. However, the intoxication must be of such character as to
perpetuate undue advantage over the drunken person.
A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable (Article 1330)
WHAT
ARE THE VICES OF CONSENT?
a) VICES OF THE WLL - mistake, violence, intimidation, undue influence,

or fraud (Article 1330)
b) VICES OF DECLARATION comprehends all forms of simulated contracts.
WHAT
ARE THE REQUISITES IN ORDER THAT MISTAKE MAY INVALIDATE CONSENT?
In order that mistake may invalidate consent, it should refer to:

a) The substance of the thing which is the object of the contract, or
b) Those conditions which have principally moved one or both
parties to enter into the contract.
DEFINE
MISTAKE OF FACT AND MISTAKE OF LAW.
There is mistake of fact when one or both of the contracting

parties believe that a fact exists when in reality it does not, or that
such fact does not exist when in reality it does. On the other hand,
there is a mistake of law when one or both of the contracting parties
arrive at an erroneous conclusion regarding the interpretation of a
question of law or the legal effects of a certain act or transaction.
WHICH
VOIDABLE?
OF THESE MISTAKES CAN VITIATE CONSENT RENDERING THE CONTRACT
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As a general rule, it is only a mistake of fact which will vitiate

consent, thus rendering the contract voidable; a mistake of law, on the
other hand, does not render the contract voidable because of the wellknown principle that ignorance of the law does not excuse anyone
from compliance therewith.
WHAT MISTAKES OF FACT WILL RENDER A CONTRACT VOIDABLE?
a) MISTAKE
AS TO THE OBJECT OF THE CONTRACT
(Error in re) This may refer to:
1) Mistake as to the identity of the thing, or

2) Mistake as to the substance of the thing, or
3) Mistake as to the condition of the thing, provided such
condition has principally moved one or both of the parties
to enter into the contract; or
4) Mistake as to the quantity of the thing, provided that the
extent or dimension of the thing was one of the principal
reasons of one or both of the parties for entering into the
contract.
B)
MISTAKE
AS TO PERSON:
1) 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) A simple mistake of account shall give rise to its correction
(Article 1331).
WHAT
IS THE RULE IN CASE OF INABILITY TO READ OR UNDERSTAND?
When one of the parties is unable to read, or if the contract is in

a language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have
been fully explained to the former (Article 1332).
WHAT
IS THE EFFECT OF KNOWLEDGE OF DOUBT OR RISK?
There is no mistake if the party alleging it knew the doubt,

contingency or risk affecting the object of the contract (Article 1333). It
does not therefore vitiate consent.
IS
THERE ANY EXCEPTION TO THE RULE THAT A MISTAKE OF LAW CANNOT VITIATE
CONSENT RENDERING THE CONTRACT VOIDABLE?
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Mistake of law as a rule will not vitiate consent? There is however

an exception to this rule. According to Article 1334, mutual error as to
the legal effect of an agreement when the real purpose of the parties is
frustrated, may vitiate consent.
Three requisites are therefore necessary:
a) The mistake or error must be with respect to the legal effect of
an agreement;
b) The mistake or error must be mutual; and
c) The real purpose of the parties must be frustrated.
WHAT
IS MEANT BY VIOLENCE AND INTIMIDATION?
There is violence when in order to wrest consent, serious or

irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and
grave evil upon his person or property, or upon the person or property
of his spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent (Article 1335).
WHAT
ARE THE REQUISITES OF VIOLENCE AND INTIMIDATION WHICH WILL RENDER
THE CONTRACT VOIDABLE?
In order that consent is vitiated through violence, it is essential

that the following requisites must concur:
a) The force employed to wrest consent must be serious and
irresistible; and
b) It must be the determining cause for the party upon whom it is
employed in entering into the contract.
Intimidation, on the other hand, requires the concurrence of the
following requisites:
a) One of the contracting parties is compelled to give his consent
by a reasonable and well-grounded fear of evil;
b) The evil must be imminent and grave;
c) Upon his person, property, or upon the person or property of his
spouse, descendants, or ascendants.
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d) The evil must be unjust, an actionable wrong; and

e) The evil must be the determining cause for the party upon whom
it is employed in entering into the contract.
DISTINGUISH
BETWEEN VIOLENCE AND INTIMIDATION.
a) While violence is external, intimidation is internal

b) While violence prevents the expression of the will substituting it
with a material act dictated by another, intimidation influences
the operation of the will, inhibiting it in such a way that the
expression thereof is apparently that of a person who has freely
given his consent.
c) Violence is physical compulsion, while intimidation is moral
compulsion.
WHAT
IS THE EFFECT IF VIOLENCE OR INTIMIDATION WAS EMPLOYED BY THIRD
PERSON?
Violence or intimidation shall annul the obligation, although it

may have been employed by a third person who did not take part in
the contract (Article 1336).
WHAT IS MEANT BY UNDUE INFLUENCE?
There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of
a reasonable freedom of choice.
The following circumstances shall be considered:
a. the confidential, family, spiritual and other relations between the
parties, or
b. the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in
financial distress (Article 1337).
WHAT
ARE THE REQUISITES FOR UNDUE INFLUENCE TO VITIATE CONSENT?
a) Improper advantage
b) Power of the will of another
c) Deprivation of the latters will of a reasonable freedom of choice
WHAT
IS MEANT BY FRAUD?
There is fraud when, through insidious words or machinations of

one of the contracting parties, the other is induced to enter into a
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contract which, without them, he would not have agreed to (Article

1338).
WHAT
ARE THE DIFFERENT CLASSES OF CIVIL FRAUD?
Civil fraud may be classified as:

a. FRAUD IN THE PERFECTION [OR CELEBRATION] OF THE CONTRACT (Article 1338, et
seq.) Fraud which is employed by a party to the contract in
securing the consent of the other party. This may either be:
1) DOLO CAUSANTE OR CAUSAL FRAUD refers to those deceptions or
misrepresentations of a serious character employed by one
party without which the other party would not have entered
into the contract.
2) DOLO INCIDENTE OR INCIDENTAL FRAUD Refers to those incidental
deceptions and misrepresentations employed by one party
without which the other party would still have entered into the
contract.
b. FRAUD IN THE PERFORMANCE OF THE OBLIGATION (Article 1170) Fraud which
is employed by the obligor in the performance of an existing
obligation
WHAT
ARE THE REQUISITES OF FRAUD
[DOLO
CAUSANTE] WHICH WILL RENDER A
CONTRACT VOIDABLE?
In order that the consent of a party to a contract is vitiated by

fraud thus rendering such contract voidable, it is essential that the
following requisites must concur:
a) Fraud or insidious words or machinations must be employed by
one of the contracting parties;
b) The fraud or insidious words or machinations must be serious;
c) There must be deliberate intent to deceive or to induce;
d) The fraud or insidious words or machinations must induce the
other party to enter into the contract, that is, the other party
must have relied on the untrue statement and must himself not
be guilty of negligence in ascertaining the truth; and
e) The fraud should not have been employed by both of the
contracting parties or by third persons.
DISTINGUISH
BETWEEN DOLO CAUSANTE AND DOLO INCIDENTE.
Dolo causante (Article 1338) and Dolo incidente (Article 1344)

may be distinguished from each other in the following ways:
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a) The first refers to a fraud which is serious in character, whereas

the second is not serious;
b) The first is the cause which induces the party upon whom it is
employed in entering into the contract, whereas the second is
not the cause;
c) The effect of the first is to render the contract voidable, whereas
the effect of the second is to render the party who employed it
liable for damages.
DOES
FAILURE TO DISCLOSE FACTS TO THE OTHER PARTY, EXAGGERATION IN
TRADE, EXPRESSION OF AN OPINION CONSTITUTE FRAUD WHICH WILL RENDER A CONTRACT

VOIDABLE?
Failure to disclose facts, when there is a duty to reveal them, as

when the parties are bound by confidential relations, constitutes fraud
(Article 1339).
The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent (Article
1340).
A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former's
special knowledge (Article 1341).
WHAT
IS THE EFFECT IF THERE IS MISREPRESENTATION BY THIRD PERSON?
Misrepresentation by a third person does not vitiate consent,

unless:
a) Such misrepresentation has created substantial mistake and
b) Such misrepresentation is mutual (Article 1342).
WHAT
IS THE EFFECT OF MISREPRESENTATION MADE IN GOOD FAITH?
Misrepresentation made in good faith is not fraudulent but may

constitute error (Article 1343).
WHEN
SHALL FRAUD MAKE A CONTRACT VOIDABLE?
[REQUISITES
FOR FRAUD TO
VITIATE CONSENT]
In order that fraud may make a contract voidable:

a) Fraud should be serious, and
b) Fraud should not have been employed by both contracting
parties [the parties must not be in pari delicto] (Article 1344).
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This refers to causal fraud. If the fraud is merely incidental fraud,

it only obliges the person employing it to pay damages.
WHAT
IS MEANT BY SIMULATION OF CONTRACTS?
Simulation of a contract which is referred to as vices of

declaration is the process of intentionally deceiving others by
producing the appearance of a contract that really does not exist
(absolute simulation) or which is different from the true agreement
(relative simulation). Simulation is absolute when the parties do not
intend to be bound at all, as when a debtor simulates the sale of his
properties to a friend in order to prevent their possible attachment by
creditors; while simulation is relative when the parties conceal their
true agreement, as when a person conceals donation by simulating a
sale of the property to the beneficiary for a certain consideration
(Article 1345).
WHAT
ARE THE REQUISITES FOR SIMULATION?
a) An outward declaration of will different from the will of the

parties;
b) The false appearance must have been intended by mutual
agreement;
c) The purpose is to deceive third persons.
WHAT ARE THE EFFECTS OF SIMULATION?
An absolutely simulated or fictitious contract is void. A relative

simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement (Article
1346).
SECTION 2
OBJECT OF CONTRACTS
WHAT
IS MEANT BY OBJECT OF CONTRACTS?
The object of a contract may be defined as the thing, right or

service which is the subject matter of the obligation which is created or
established.
WHAT
REQUISITES MUST CONCUR IN ORDER THAT A THING, RIGHT OR SERVICE
MAY BE THE OBJECT OF CONTRACTS?
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As a general rule, all things, rights or services may be the object

of contracts. It is however, essential that the following requisites must
concur:
a) The object should be within the commerce of men; in other
words, it should be susceptible of appropriation and
transmissible from one person to another;
b) The object should be real and possible; in other words, it should
exist at the moment of the celebration of the contract, or at
least, it can exist subsequently or in the future;
c) The object should be licit; in other words, it should not be
contrary to law, morals, good customs, public order or public
policy;
d) The object must be transmissible;
e) The object should be determinate, or at least, possible of
determination, as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the
contract, provided it is possible to determine the same, without
the need of a new contract between the parties (Article 1349).
WHAT
THINGS, RIGHTS OR SERVICES CANNOT BE THE OBJECT OF CONTRACTS?
a) Things which are outside the commerce of men, including future

things;
b) Rights which are intransmissible;
c) Future inheritance except in cases expressly authorized by law;
d) Services which are contrary to law, morals, good customs, public
order or public policy (Article 1347);
e) Impossible things or services (Article 1348);
f) Objects which are not determinate as to their kind (Article 1349).
If the parties enter into a contract with respect to the above
contracts, the contract is void or inexistent.
SECTION 3
CAUSE OF CONTRACTS
WHAT
IS MEANT BY CAUSE OF CONTRACTS?
In general, cause is the why of the contract or the essential

reason which moves the contracting parties to enter into the contract.
In other words, it is the immediate, direct or proximate reason which
explains and justifies the creation of an obligation through the will of
the contracting parties.
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In particular:
a) In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service
by the other;
b) In remuneratory ones, the service or benefit which is
remunerated; and
c) In contracts of pure beneficence, the mere liberality of the
benefactor (Article 1350).
DISTINGUISH
CAUSE AND CONSIDERATION.
In this jurisdiction, cause and consideration are used

interchangeably. After all, causa is merely the civil law term, while
consideration is the common law term. However, causa in civil law
jurisdictions is broader in scope than consideration in Anglo-American
jurisdictions. Many agreements which cannot be supported in AngloAmerican law for want of consideration can be enforced under the
broader doctrine of causa.
DISTINGUISH THE CAUSE FROM THE OBJECT OF CONTRACTS.
The cause must not be confused with the object of the contract.
Of course, there can be no question about the difference between the
two cases of remuneratory and gratuitous contracts; thus, in the first,
the cause is the service or benefit which is remunerated, while the
object is the thing which is given in remuneration, and in the second
the cause is the liberality of the donor or benefactor.
In onerous contracts, however, there is a tendency to confuse
one with the other. Nevertheless, it is clear that the cause, for each
contracting party, is the prestation or promise of a thing or service by
the other, while the object of the contract, on the other hand, is the
thing or service itself.
Thus, in a contract of sale, the cause as far as the vendor is
concerned is the acquisition of the purchase price, and as far as the
vendee is concerned, it is the acquisition of the thing, or stated in a
different way, the cause of the obligation of the vendor is the
obligation of the vendee and the cause of the obligation of the vendee
is the obligation of the vendor, while the object of the contract, on the
other hand, is the thing which is sold and the price which is paid
[Castans and Manresas view].
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DISTINGUISH
THE CAUSE OF A CONTRACT FROM THE MOTIVES OF THE PARTIES IN
ENTERING INTO A CONTRACT.
The particular motives of the parties in entering into a contract

are different from the cause thereof (Article 1351).
The differences between the two are as follows:
a) Whereas the cause is the direct or most proximate reason of the
contract, the motives are the indirect or remote reasons;
b) Whereas the cause is the objective or juridical reason of a
contract, the motives are the psychological or purely personal
reasons;
c) Whereas the cause is always the same, the motives may differ
for each contracting party.
d) The motive may be unknown to the other, the cause is always
known.
e) The presence of motive cannot cure absence of cause.
IS
THERE ANY EXCEPTION TO THE RULE THAT THE PARTICULAR MOTIVES OF THE
PARTIES IN ENTERING INTO A CONTRACT ARE DIFFERENT FROM THE CAUSE THEREOF?
There is an exception to the rule and that is when the contract is

conditioned upon the attainment of the motive of either contracting
parties. In other words, the motive may be regarded as causa when it
predetermines the purpose of the contract.
WHAT
REQUISITES MUST CONCUR IN ORDER THAT THERE WILL BE A SUFFICIENT
CAUSE UPON WHICH A CONTRACT MAY BE FOUNDED?
In order that there will be a sufficient cause upon which a

contract may be founded, it is essential that the following requisites
must concur:
a) The cause should be in existence (it must be present);
b) The cause should be licit or lawful; and
c) The cause should be true.
Thus, contracts without cause, or with unlawful cause, produce
no effect whatsoever. The cause is unlawful if it is contrary to law,
morals, good customs, public order or public policy (Article 1352). The
same is true if the cause stated in the contract is false, unless it is
proven that they were founded upon another cause which is true and
lawful (Article 1353).
WHAT
IS THE PRESUMPTION AS TO CAUSE?
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Although the cause is not stated in the contract, it is presumed

that it exists and is lawful, unless the debtor proves the contrary
(Article 1354).
WHAT
IS LESION?
It is inadequacy of cause, like insufficient price for a thing sold.

WHAT
ARE THE RULES ON LESION?
As a general rule, lesion or inadequacy of price does not

invalidate a contract. Lesion, however, may be evidence of the
presence of fraud, mistake or undue influence.
Exceptions (when lesion may invalidate the contract):
a) When together with lesion, there is fraud, mistake or undue
influence (Article 1355).
b) In cases expressly provided for by law (Articles 13814 and 10985)
CHAPTER 3
FORM OF CONTRACTS
AS
A RULE, WHAT IS THE FORM OF A CONTRACT IN ORDER THAT IT WILL BE OF
OBLIGATORY FORCE?
Contracts shall be obligatory, in whatever form they may have

been entered into, provided all the essential requisites for their validity
are present (Article 1356).
We have therefore retained the spiritual system of the Spanish
Civil Code by virtue of which the law looks more at the spirit rather
than at the form of contracts. Hence, under our legal system, the form
in which a contract is executed has no effect, as a general rule, upon
its obligatory force, provided all of the essential requisites for its
validity are present.
4
ARTICLE 1381. The following contracts are rescissible:

(1)
Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are
the object thereof;
(2)
Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
5
ARTICLE 1098.
A partition, judicial or extra-judicial, may also be rescinded on
account of lesion, when any one of the co-heirs received things whose value is less,
by at least one-fourth, than the share to which he is entitled, considering the value of
the things at the time they were adjudicated. (1074a) aisa dc
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However, this principle merely applies to CONSENSUAL CONTRACTS. In

certain form is required while a REAL CONTRACT requires
delivery in addition to the essential requisites of a contract.
FORMAL CONTRACTS,
WHAT
ARE THE EXCEPTIONS TO THE ABOVE RULE?
When Article 1356 speaks of contracts as being obligatory

regardless of the form in which they may have been entered into, it
does not include those contracts for which the law prescribes form
either for validity or for enforceability. There are therefore exceptions
to the general rule:
1. When the law requires that a contract be in some form in order
that it may be valid or enforceable, or
2. That a contract be proved in certain way.
In such instances, the requirement is absolute and indispensable
and the right of the parties stated in the following article cannot be
exercised (Article 1356).
WHAT
ARE THE DIFFERENT KINDS OF FORMALITIES WHICH ARE PRESCRIBED BY
LAW FOR CERTAIN CONTRACTS?
Article 1358 enumerates certain kinds of contracts which must

appear either in a public instrument or in a private document. The
purpose of the requirement, however, is not to validate or to enforce
the contract, but to insure its efficacy; in other words, the form
required is neither for validity or enforceability but for CONVENIENCE of the
contracting parties. Hence, the forms required by law for the execution
of certain contracts may be divided into:
1. Those which are merely for CONVENIENCE (governed by Articles 1356
to 1358);
2. Those which are necessary for the VALIDITY of the contracts
(governed by scattered provisions of the Civil Code and by
special laws); and
3. Those which are necessary for the ENFORCEABILITY of the contract
(governed by the Statute of Frauds).
WHAT
IS THE RIGHT OF THE CONTRACTING PARTIES IF THE LAW REQUIRES A
DOCUMENT OR OTHER SPECIAL FORM?
If the law requires a document or other special form, as in the

acts and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the contract
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has been perfected. This right may be exercised simultaneously with

the action upon the contract (Article 1357).
This article is applicable only when form is needed only for
not for validity or enforceability. In other words, before the
contracting parties may be compelled to execute the needed form, it is
essential that the contract be PERFECTED (valid) (Article 1357) and
ENFORCEABLE under the Statute of Frauds (Article 1356).
CONVENIENCE,
The right to compel under Article 1357 cannot be exercised if the

law requires that a contract be in some form in order that it may be
VALID
and ENFORCEABLE, because Article 1356 provides that that
requirement is ABSOLUTE and INDISPENSABLE.
WHAT
ARE THE FORMALITIES WHICH ARE MERELY FOR THE CONVENIENCE OF THE
CONTRACTING PARTIES?
The following must appear in a public document:

(1)
Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein are
governed by articles 1403, No. 2, and 1405;
(2)
The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains;
(3)
The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4)
The cession of actions or rights proceeding from an act
appearing in a public document (Article 1358).
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But sales of
goods, chattels or things in action are governed by articles 1403, No. 2
and 1405 (Article 1358).
Note that the necessity for the public document in the contracts
enumerated above is only for CONVENIECE, not for VALIDITY or ENFORCEABILITY.
Formal requirements are for the benefit or third parties.
Noncompliance therewith does not adversely affect the validity of the
contract or the contractual rights and obligations of the parties
thereunder (Fule vs. CA, G.R. No. 112212, March 2, 1998)
WHAT
CONTRACTS?
ARE
THE
FORMALITIES
WHICH
ARE
NECESSARY
FOR
THE
VALIDITY
OF
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These contracts may be classified as follows:

1. Those which must appear in writing;
2. Those which must appear in a public document; and
3. Those which must be registered.
CONTRACTS
WHICH MUST APPEAR IN WRITING:
1. Donations of personal property whose value exceeds five

thousand pesos. According to Article 748, the donation and the
acceptance shall be made in writing; otherwise, it shall be void.
2. Sale of piece of land or any interest therein by an agent.
According to Article 1874, if the authority of the agent is not in
writing, the sale is void.
3. Antichresis. According to Article 2134, in contracts of antichresis,
the amount of the principal and of the interest shall be specified
in writing; otherwise, the contract shall be void.
4. Agreements regarding payment of interest in contracts of loan.
According to Article 1956, no interest shall be due unless it has
been expressly stipulated in writing. The validity of the contract
of loan, however, is not affected.
CONTRACTS
WHICH MUST APPEAR IN A PUBLIC DOCUMENT:
1. Donations of immovable property. According to Article 1749, the

donation must be made in a public document. The acceptance,
on the other hand, may be made in the same deed of donation or
in a separate public document. If the acceptance is made in a
separate public document, the donor shall be notified in
authentic form and such fact shall be noted in both instruments.
Noncompliance with any of these formalities shall render the
donation void.
2. Partnerships where immovable property or real rights are
contributed to the common fund. According to Articles 1771 and
1773, in a contract of partnership where immovable property or
real rights are contributed to the common fund, it is necessary
that the contract must appear in a public instrument and that
there must be an inventory of the immovable property and real
rights, signed by the partners, and attached to the public
instrument; otherwise, the contract is void.
CONTRACTS
WHICH MUST BE REGISTERED:
1. Chattel mortgages. According to Article 2140, by a chattel

mortgage, personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation. If the
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movable, instead of being recorded, is delivered to the creditor

or a third person, the contract is a pledge and not a chattel
mortgage.
2. Sales or transfers of large cattle. According to the Cattle
Registration Act, no sale or transfer of large cattle shall be valid
unless it is duly registered and a certificate of transfer is secured.
CHAPTER 4
REFORMATION OF INSTRUMENTS (N)
WHAT
IS THE DOCTRINE OF REFORMATION OF INSTRUMENTS UNDER THE
CIVIL
CODE?
When the true intention is not expressed in the instrument
purporting to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may
be expressed (Article 1359).
WHAT
REFORMED?
REQUISITES
MUST
CONCUR
IN
ORDER
THAT
AN
INSTRUMENT
MAY
BE
1. There must be meeting of the minds of the parties;

2. Their true intention is not expressed in the instrument; and
3. Such failure to express their true intention is due to mistake,
fraud, inequitable conduct or accident.
4. There must be convincing proof thereof;
5. It must be brought within the proper prescriptive period;
6. The document must not refer to a simple unconditional donation
inter vivos, or to wills, or to a contract where the real agreement
is void (Article 1366).
If mistake, fraud, inequitable conduct, or accident has prevented
a meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract (Article
1359).
WHAT
ARE THE DISTINCTIONS BETWEEN REFORMATION AND ANNULMENT?
The most fundamental distinctions between an action for

reformation of an instrument and an action for the annulment of a
contract are:
1. Whereas the first presupposes a perfectly valid contract in which
there has already been a meeting of the minds of the contracting
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parties, the second is based on a defective contract in which

there has been no meeting of the minds because the consent of
one of the contracting parties has been vitiated.
2. Reformation does not invalidate a contract; annulment
invalidates a contract.
WHAT
IS THE RULE IN CASE OF CONFLICT BETWEEN THE
CIVIL CODE
AND THE
PRINCIPLES OF GENERAL LAW ON REFORMATION?
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 (Article 1360).
WHAT
ARE THE INSTANCES IN WHICH REFORMATION MAY BE ASKED?
1. When a mutual mistake of the parties causes the failure of the

instrument to disclose their real agreement, said instrument may
be reformed (Article 1361).
2. 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, the former may ask for the reformation of
the instrument (Article 1362).
3. When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but
concealed that fact from the former, the instrument may be
reformed (Article 1363).
4. When through the ignorance, lack of skill, negligence or bad
faith on the part of the person drafting the instrument or of the
clerk or typist, the instrument does not express the true intention
of the parties, the courts may order that the instrument be
reformed (Article 1364).
5. If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property is
sold absolutely or with a right of repurchase, reformation of the
instrument is proper (Article 1365).
WHAT
INSTRUMENTS CANNOT BE REFORMED?
There shall be no reformation in the following cases:

(1)
(2)
(3)
Simple donations inter vivos wherein no condition is imposed;

Wills;
When the real agreement is void (Article 1366).
WHAT
IS THE EFFECT ON REFORMATION IF ONE OF THE PARTIES HAS BROUGHT AN
ACTION TO ENFORCE THE INSTRUMENT?
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When one of the parties has brought an action to enforce the

instrument, he cannot subsequently ask for its reformation (Article
1367).
WHO
ARE THE PERSONS WHO MAY ASK FOR REFORMATION OF INSTRUMENT?
Reformation may be ordered at the instance of either party or his

successors-in-interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs and assigns (Article 1368).
The procedure for the reformation of instrument shall be
governed by rules of court to be promulgated by the Supreme Court
(Article 1369).
CHAPTER 5
INTERPRETATION OF CONTRACTS
RULES:
1. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to
the evident intention of the parties, the latter shall prevail over
the former (Article 1370).
2. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered (Article 1371).
3. However general the terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases
that are different from those upon which the parties intended to
agree (Article 1372).
4. If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is
most adequate to render it effectual (Article 1373).
5. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may
result from all of them taken jointly (Article 1374).
6. Words which may have different significations shall be
understood in that which is most in keeping with the nature and
object of the contract (Article 1375).
7. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily established (Article
1376).
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8. The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity (Article 1377).
9. When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to
incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests. If the doubts are cast upon the principal
object of the contract in such a way that it cannot be known what
may have been the intention or will of the parties, the contract
shall be null and void (Article 1378).
10. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts
(Article 1379).
DEFECTIVE CONTRACTS
WHAT
ARE THE FOUR KINDS OF DEFECTIVE CONTRACTS?
1. Rescissible valid until rescinded; there is a sort of extrinsic

defect consisting of economic damage or lesion.
2. Voidable valid until annulled, unless there has been ratification.
The defect is more or less intrinsic, as in the case of vitiated
consent.
3. Unenforceable cannot be sued upon or enforced, unless it is
ratified. In a way, it may be considered a validable transaction,
that is, it has no effect now, but it may be effective upon
ratification.
4. Void has no effect at all, it cannot be ratified or validated.
The contracts provided above are in the decreasing order as to
their effectiveness.
CHAPTER 6
RESCISSIBLE CONTRACTS
DEFINE
RESCISSIBLE CONTRACTS.
A rescissible contract is a contract which is valid because it

contains all of the essential requisites prescribed by law, but which is
defective because of the injury or damage to either of the contracting
parties or to third persons, as a consequence of which it may be
rescinded by means of a proper action for rescission.
DEFINE
RESCISSION.
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Rescission is a remedy granted by law to the contracting parties,

and even to third persons, to secure the reparation of damages caused
to them by a contract, even if the same should be valid, by means of
the restoration of things to their condition prior to the celebration of
the contract.
DISTINGUISH
RESCISSION OF CONTRACTS FROM RESCISSION OR RESOLUTION OF
RECIPROCAL OBLIGATIONS.
Rescission of rescissible contracts must not be confused with the

rescission or resolution of reciprocal obligation under Article 1191 of
the Civil Code. Although there are similarities both with respect to
validity and effects, they are distinguished from each other in the
following ways
1. AS TO PARTY WHO MAY INSTITUTE ACTION: In rescission the action may be
instituted not only by a party to the contract but even by third
persons, whereas in resolution the action may be instituted only
by a party to the contract.
2. AS TO CAUSES: In rescission there are several causes or grounds
such as lesion, fraud and others expressly specified by law,
whereas in resolution the only ground is failure of one of the
contracting parties to comply with what is incumbent upon him.
3. AS TO POWER OF THE COURTS: In rescission there is no power of the
courts to grant extension of time for performance of the
obligation so long as there is a ground for rescission, whereas in
resolution the law expressly declares that courts shall have a
discretionary power to grant an extension for performance
provided that there is just cause
4. AS TO CONTRACTS WHICH MAY BE RESCINDED OR RESOLVED: In rescission, any
contract, whether unilateral or reciprocal, may be rescinded;
whereas in resolution only reciprocal contracts may be resolved.
WHAT
CONTRACTS ARE RESCISSIBLE?
The following contracts are rescissible:

(1)
Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2)
Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
(3)
Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
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(4)
Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;
(5)
All other contracts specially declared by law to be subject to
rescission. (Article 1381)
(6)
Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible. (Article 1382)
WHAT
REQUISITES MUST CONCUR BEFORE A CONTRACT MAY BE RESCINDED ON THE
GROUND OF LESION?
Whether the contract is entered into by a guardian in behalf of

his ward or by a legal representative in behalf of an absentee, before it
can be rescinded on the ground of lesion, it is indispensable that the
a. The contract must be entered into by the guardian in
behalf of his ward or by the legal representative in behalf
of an absentee (Article 1381, Nos. 1 and 2);
b. The ward or absentee suffered lesion of more than onefourth of the value of the property which is the object of
the contract (ibid);
c. The contract must be entered without judicial approval
(Article 1386)
d. There must be no legal means for obtaining reparation for
the lesion (Article 1385, par. 1);
e. The person bringing the action must be able to return
whatever he may be obliged to restore (Article 1385, par.
1); and
f. The object of the contract must not be legally in the
possession of a third person who did not act in bad faith
(Article 1385, par. 1)
WHAT
REQUISITES MUST CONCUR BEFORE A CONTRACT ENTERED INTO IN FRAUD
OF CREDITORS CAN BE RESCINDED?
Before a contract can be rescinded on the ground that it has

been entered into in fraud of creditors, it is indispensable that the
a. There must be a credit existing prior to the celebration of the
contract;
b. There must be fraud, or at least the intent to commit fraud, to
the prejudice of the creditor seeking rescission;
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c. The creditor cannot in any other legal manner collect his credit;
and
d. The object of the contract must not be legally in the possession
of a third person who did not act in bad faith.
WHO
ARE THE PERSONS WHO MAY INSTITUTE AN ACTION FOR THE RESCISSION OF
A RESCISSIBLE CONTRACT?
The action for rescission may be instituted by the following:

a. The person who is prejudiced, such as the person suffering
the lesion in rescissory actions based on lesion, the
creditor who is defrauded in rescissory actions based on
fraud, and other persons authorized to exercise the same
in other rescissory actions;
b. Their representatives;
c. Their heirs; and
d. Their creditors by virtue of the subrogatory action defined
in Article 1177.
IN
RESCISSORY ACTIONS BASED ON FRAUD, IT IS ESSENTIAL THAT FRAUD OR THE
INTENT TO DEFRAUD MUST BE PROVED.
HOW
CAN THIS BE DONE?
Such fraud or the intent to defraud may be either presumed in

accordance with Article 1387 or duly proved in accordance with the
ordinary rules of evidence.
The law presumes that there is fraud of creditors in the following
cases:
a. Alienation of property by gratuitous if the donor did not
reserve sufficient property to pay all debts contracted
before the alienation.
b. Alienations of property by onerous title if made by persons
against whom some judgment has been rendered in any
instance or some writ of attachment 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. (Article 1387)
WHAT
IS THE EXTENT OF RESCISSION?
Rescission shall be only to the extent necessary to cover the

damages caused. (Article 1384)
WHAT
ARE THE OBLIGATIONS OF THE PLAINTIFF IN CASE RESCISSION IS GRANTED?
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Rescission creates the obligation to return the things which were

the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
(Article 1385)
WHAT
ARE THE INSTANCES WHEN RESCISSION CANNOT BE DEMANDED?
a. When the plaintiff who demands rescission cannot

anymore return the thing;
b. 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. In this case, indemnity for damages may be
demanded from the person causing the loss. (Article 1385)
c. Rescission referred to in Nos. 1 and 2 of Article 1381 with
respect to contracts approved by the courts. (Article 1386)
WHAT
IS
THE
LIABLITY
OF
ONE
WHO
ACQUIRES
IN
BAD
FAITH
THE
THINGS
ALIENATED IN FRAUD OF CREDITORS?
Whoever acquires in bad faith the things alienated in fraud of

creditors, shall indemnify the latter for damages suffered by them on
account of the alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer shall be
liable first, and so on successively. (Article 1388)
WHAT
IS THE PRESCRIPTIVE PERIOD OF RESCISSION?
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. (Article 1389)
CHAPTER 7
VOIDABLE CONTRACTS
DEFINE
VOIDABLE CONTRACTS.
Voidable contracts are those in which all of the essential

elements for validity are present, but the element of consent is vitiated
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either by lack of legal capacity of one of the contracting parties, or by

mistake, violence, intimidation, undue influence, or fraud.
DISTINGUISH
VOIDABLE CONTRACTS FROM RESCISSIBLE CONTRACTS.
Voidable and rescissible contracts may be distinguished from

each other in the following ways:
a. In a voidable contract, the defect is instrinsic because it consists
of a vice which vitiates consent, whereas in a rescissible contract
the defect is external because it consists of damage or prejudice
either to one of the contracting parties or to a third person
(Articles 1381, 1390);
b. In the former, the contract is voidable even if there is not
damage or prejudice, whereas in the latter, the contract is not
rescissibloe if there is not damage or prejudice;
c. In the former, the annulability of the contract is based on law,
whereas in the latter the rescissibility of the contract is based on
equity. Hence, annulment is not only a remedy but a sanction,
whereas rescission is a mere remedy. Public interest, therefore,
predominates in the first, whereas private interest predominates
in the second;
d. The causes of annulment are different from the causes of
rescission;
e. The former is susceptible of ratification, whereas the latter is not
(Articles 1381, 1390); and
f. Annulment may be invoked only by a contracting party, whereas
rescission may be invoked either by a contracting party or by a
third person who is prejudiced.
WHAT
CONTRACTS ARE VOIDABLE?
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. (Article
1390)
WHAT
IS THE PRESCRIPTIVE PERIOD OF ANNULING A VOIDABLE CONTRACT?
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The action for annulment shall be brought within four years.

(Article 1391)
This period shall begin:
a. In cases of intimidation, violence or undue influence, from the
time the defect of the consent ceases.
b. In case of mistake or fraud, from the time of the discovery of the
same.
c. And when the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship
ceases.
HOW
MAY A VOIDABLE CONTRACT BE CONVALIDATED?
There are 3 ways or modes of convalidating a voidable contract.

They are:
a. By prescription of the action for annulment (Article 1391);
b. By ratification or confirmation (Articles 1392-1396); and
c. By the loss of the thing which is the object of the contract
through the fraud or fault of the person who is entitled to
institute the action for the annulment of the contract (Article
1401)
WHAT
IS MEANT BY RATIFICATION OF VOIDABLE CONTRACTS? WHAT ARE ITS
REQUISITES?
Ratification, or confirmation as it is known in the Spanish Civil

Code, is defined as the act or means by virtue of which efficacy is
given to a contract which suffers from a vice of curable nullity.
Ratification or confirmation requires the concurrence of the
following requisites:
a. The contract should be tainted with a vice which is
susceptible of being cured (the contract must be a
voidable one);
b. The confirmation should be effected by the person who
is entitled to do so under the law;
c. It should be effected with knowledge of the reason
which renders the contract voidable; and
d. The reason which renders the contract voidable should
have already disappeared.
e. The person ratifying must be the injured party.
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HOW
MAY RATIFICATION BE MADE?
Ratification may be effected expressly or tacitly.

There is an express 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 expressly declare his
renunciation of his right to annul the contract.
On the other hand, 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. (Article
1393)
WHO
MAY EFFECT THE RATIFICATION?
Ratification may be effected by the guardian of the incapacitated

person. (Article 1394)
Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment. (Article 1395)
WHAT
IS THE EFFECT OF RATIFICATION?
a. Ratification cleanses the contract from all its defects from the
moment it was constituted. (Article 1396) There is retroactive
effect of ratification, thus, once ratification has taken place,
annulment based on the original defects cannot prosper.
b. The action to annul is extinguished (Article 1392), thus the
contract becomes a completely valid one.
WHO
MAY INSTITUTE AN ACTION FOR ANNULMENT OF A VOIDABLE CONTRACT?
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. (Article 1397)
There are therefore 2 different requisites in order that a person
may institute the action for the annulment of a voidable contract:
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a. The plaintiff must have an interest in the contract in the

sense that he is obliged thereby either principally or
subsidiarily; and
b. The victim and not the party responsible for the vice or
defect must be the one who must assert the same.
IF
A PERSON IS NOT OBLIGED PRINCIPALLY OR SUBSIDIARILY UNDER A CONTRACT,
WOULD IT BE POSSIBLE FOR HIM TO INSTITUTE AN ACTION FOR THE ANNULMENT OF THE
CONTRACT?
As a rule, a contract cannot be assailed by one who is not a party

thereto. However, the Supreme Court in several cases has held that a
person, who is not a party obliged principally or subsidiarily under a
contract, may bring an action for annulment of the contract if he is
prejudiced in his rights with respect to one of the contracting parties,
and can show detriment which would positively result to him from the
contract in which he has no intervention (Singson vs. Isablea Sawmill,
88 SCRA 623, citing Teves vs. Peoples Homesite and Housing Corp, 23
SCRA 1114 and De Santos vs. City of Manila, 45 SCRA 409).
IS
WHAT ARE THE OBLIGATIONS OF THE CONTRACTING

ANNULED? WHAT ARE THE EFFECTS OF ANNULMENT?
PARTIES AFTER AN OBLIGATION
a. If the contract has not yet been complied with, the parties
are excused from their obligation.
b. If the contract has already been performed, 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.
c. In obligations to render service, the value thereof shall be
the basis for damages. (Article 1398)
WHAT
ARE THE INSTANCES WHERE THERE IS NO OBLIGATION TO MAKE ANY
RESTITUTION?
When the defect of the contract consists in the incapacity of one

of the parties, 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. (1399)
WHAT
IS THE LIABILITY OF THE OBLIGOR IF HE CANNOT RETURN THE THING?
Whenever the person obliged by the decree of annulment to

return the thing can not do so because it has been lost through his
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fault, he shall return the fruits received and the value of the thing at
the time of the loss, with interest from the same date. (Article 1400)
WHAT
IS THE EFFECT ON THE RIGHT TO ANNUL IF THE THING WHICH IS THE
OBJECT OF THE CONTRACT IS LOST?
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.
If the right of action is based upon the incapacity of any one of
the contracting parties, the loss of the thing shall not be an obstacle to
the success of the action, unless said loss took place through the fraud
or fault of the plaintiff. (Article 1401)
WHEN
MUST THE THING BE RETURNED?
As long as one of the contracting parties does not restore what in

virtue of the decree of annulment he is bound to return, the other
cannot be compelled to comply with what is incumbent upon him.
(Article 1402)
CHAPTER 8
UNENFORCEABLE CONTRACTS (N)
DEFINE
UNENFORCEABLE CONTRACTS.
Unenforceable contracts are those which cannot be enforced by

a proper action in court, unless ratified.
WHAT
ARE THE KINDS OF UNENFORCEABLE CONTRACT?
a. Those entered into without or in excess of authority

(unauthorized contracts);
b. Those that do not comply with the Statute of Frauds;
c. Those where both of the contracting parties do not possess
the required legal capacity.
DISTINGUISH
UNENFORCEABLE CONTRACTS FROM OTHER DEFECTIVE CONTRACTS.
In general, unenforceable contract may be distinguished from

the other defective contracts in the following ways:
a. FROM RESCISSIBLE CONTRACTS First, unenforceable contracts cannot be
enforced by a proper action in court, whereas rescissible
contracts are valid and enforceable unless they are rescinded.
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Second, the former cannot be assailed by third persons, whereas

the latter may be assailed by third persons who are prejudiced.
b. FROM Voidable contracts unenforceable contracts cannot be
enforced by a proper action in court, whereas voidable contracts
are binding and enforceable unless they are annulled by a proper
action in court.
c. FROM VOID CONTRACTS There are some unenforceable contracts
which are valid and, therefore, may produce effects, although
they cannot be enforced by a proper action in court; void or
inexistent contracts, on the other hand, do not produce, as a
general rule, any effect whatsoever. Hence, unenforceable
contracts are susceptible of ratification, whereas void contracts
are not.
WHAT
CONTRACTS ARE UNENFORCEABLE?
The following contracts are unenforceable, unless they are

ratified:
(1)
Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has acted
beyond his powers;
(2)
Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its
contents:
(a)
An agreement that by its terms is not to be performed
within a year from the making thereof;
(b)
A special promise to answer for the debt, default, or
miscarriage of another;
(c)
An agreement made in consideration of marriage, other
than a mutual promise to marry;
(d)
An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the buyer
accept and receive part of such goods and chattels, or the evidences,
or some of them, of such things in action, or pay at the time some part
of the purchase money; but when a sale is made by auction and entry
is made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
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(e)
An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest therein;
(f)
A representation as to the credit of a third person.
(3)
HOW
Those where both parties are incapable of giving

consent to a contract (Article 1403).
MAY CONTRACTS INFRINGING THE
STATUTE
OF
FRAUDS
BE RATIFIED?
Contracts infringing the Statute of Frauds may be ratified either:

a. by the failure to object to the presentation of oral evidence to
prove the same, or
b. by the acceptance of benefits under them (Article 1405).
DISTINGUISH FROM EACH OTHER CONFIRMATION, RATIFICATION,
RECOGNITION (OR ACKNOWLEDGMENT).
AND
Ratification is curing the defect of lack of authority in an

authorized contract (entered into by another) (Articles 1317, 1405).
Under the present Code, the term ratification is used to designate the
act of validating any kind of defective contract.
Confirmation is curing a defect of a voidable contract (Article
1396). It tends to cure a vice of nullity and ratification is for the
purpose of giving authority to a person who previously acted in the
name of another without authority (Luna vs. Linatoc, 74 Phil. 15).
Recognition or acknowledgment, on the other hand, is merely to
cure a defect of proof (Article 1405). In recognition, there is no vice to
be remedied, such as fraud, violence, or mistake, so that the case is
distinguished from confirmation. In Recognition, the person on behalf
of another is duly authorized to do so, so the situation is different from
ratification (Ibid).
called
Under the new Civil Code, all three terms are now uniformly
RATIFICATION.
WHAT
IS THE REMEDY OF A PARTY WHEN THE CONTRACT IS UNENFORCEABLE AND
A PUBLIC DOCUMENT IS NECESSARY FOR ITS REGISTRATION?
When a contract is enforceable under the Statute of Frauds, and

a public document is necessary for its registration in the Registry of
Deeds, the parties may avail themselves of the right under Article
1357 (Article 1406).
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WHAT
IS THE EFFECT IF BOTH PARTIES ARE INCAPACITATED, AND THE GUARDIAN
OF ONE OF THEM RATIFIES THE CONTRACT?
In a contract where both parties are incapable of giving consent,

express or implied ratification by the parent, or guardian, as the case
may be, of one of the contracting parties shall give the contract the
same effect as if only one of them were incapacitated (Article 1407).
WHAT
IS THE EFFECT IF BOTH PARENTS OR GUARDIANS RATIFY THE CONTRACT?
If ratification is made by the parents or guardians, as the case

may be, of both contracting parties, the contract shall be validated
from the inception (Article 1407, par. 2).
WHO
CAN ASSAIL UNENFORCEABLE CONTRACTS?
It is only the parties who can assail an unenforceable contract. It

cannot be assailed by third persons (Article 1408).
VOID
DEFINE
OR
CHAPTER 9
INEXISTENT CONTRACTS
VOID AND INEXISTENT CONTRACTS.
In general, void and inexistent contracts may be defined as those

which lack absolutely either in fact or in law one or some or all of those
elements which are essential for its validity.
In particular, void contracts are contracts where all of the
requisites prescribed by law for contracts are present, but the cause,
object or purpose is contrary to law, morals, good customs, public
order or public policy, or they are prohibited by law, or they are
decalred by law to be void.
Inexistent contracts, on the other hand, are those contracts
which lack absolutely one or some or all of thoser requisites which are
essential for validity.
DISTINGUISH
BETWEEN VOID AND INEXISTENT CONTRACTS.
Void and inexistent contracts may be distinguished from each

other in the following ways :
a) Void contracts refer to those where all of the the requisites of a
contract are present but the cause, object or purpose is contrary
to law, morals, good customs, public order or public policy, or the
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contract itself is prohibited or declared by law to be void ;

inexistent contracts, on the other hand, refer to those where one
or some or all of those requisites which are essential for validity
are absolutely lacking (Liguez vs. Court of Appeals, 102 Phil.
577).
b) The principle of in paru delicto is applicable in the first, but not in
the second. Consequently, the first may produce effects (Articles
1411, 1412), but the second does not produce any effect
whatsoever.
WHAT
ARE THE CHARACTERISTICS OF VOID CONTRACTS
a. The right to set up the defense of illegality cannot be waived

(Article 1409), and may be considered on appeal even if not
raised in the trial court.
b. The action or defense for their declaration as inexistent does not
prescribe (Article 1410)
c. The defense of illegality of contracts is not available to third
persos whose interests are not directly affected (Article 1412)
d. Cannot give rise to a contract ; thus a contract which is the
direct result of a previous illegal contract is also void and
inexistent (Article 1422)
e. Generally produces no effect.
f. They cannot be ratified (Article 1409).
DISTINGUISH
VOID
AND
INEXISTENT
CONTRACTS
FROM
THE
OTHER
DEFECTIVE
CONTRACTS.
VOID OR INEXISTENT CONTRACT MAY BE DISTINGUISHED FROM A RESCISSIBLE CONTRACT
IN THE FOLLOWING WAYS
a. A void or inexistent contract produces, as a rule, no effect even if

it is not set aside by a direct action, whereas a rescissible
contract is valid unless it is rescinded (Articles 1380, 1409).
b. The defect of the former consists in absolute lack in fact or in law
of one or some or all of the essentail elements of a contract,
whereas the defect of the latter consists in lesion or damage to
one of the contracting parties or to third persons.
c. In the former, the nullity or inexistence of the contract is based
on the law, whereas, in the latter its rescissible character is
based on equity. Hence, an actin for declaration of absolute
nullity or inexistence is not only a remedy but a sanction,
whereas an action for rescission is a mere remedy. Public
interest, therefore, predominates in the first, whereas private
interest predominates in the second.
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d. The action for the declaration of the nullity or inexistence of a

contract is imprescriptible, whereas the action for the rescission
of a contract is prescriptible (Articles 1389, 1410)
e. The nullity or inexistence of a contract cannot as a rule be
assailed by third persons, whereas the rescissible character of a
contract may be assailed by third persons (Articles 1381, 1382,
1409)
A
VOID CONTRACT MAY BE DISTINGUISHED FROM A VOIDABLE CONTRACT IN THE FOLLOWING
WAYS:
a. A void or inexistent contract produces, as a general rule, no

effect even if it is not set aside by a direct action, whereas a
voidable contract is binding unless it is annulled (Articles 1390,
1409)
b. The causes for the inexistence or absolute nullity of the former
are different from the causes for the annulability or relative
nullity of the latter (Ibid).
c. The former is not susceptible of ratification, whereas the latter is
susceptible of ratification.
d. The action for the declaration of the nullity or inexistence of a
contract is imprescriptible, whereas the action for the annulment
of a contract is prescriptible (Articles 1391, 1140)
e. The defense of inexistence or absolute nullity is available to third
persons whose interests are directly affected, whereas the
defense of annulability is not available to third persons (Articles
1397, 1421)
A VOID CONTRACT MAY BE DISTINGUISHED FROM AN UNENFORCEABLE CONTRACT IN THE
FOLLOWING WAYS:
a. In a void or inexistent contract, there is in law or in reality no
contract at all, whereas in an unenforceable contract, there is
actually a contract which cannot be enforced by a court action
unless ratified (Articles 1403, 1409).
b. The causes for the inexistence or absolute nullity of the former
are different from the causes for the unenforceability of the latter
(Ibid).
c. The former is not susceptible of ratification, while the latter is
susceptible of ratification (Articles 1404, 1405, 1407, 1409).
d. The former can be assailed by third persons whose interests are
directly affected, whereas the latter cannot be assailed by third
persons (Articles 1408, 1421).
WHAT
CONTRACTS ARE VOID OR INEXISTENT
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The following contracts are inexistent and void from the

beginning:
(1)
Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2)
Those which are absolutely simulated or fictitious;
(3)
Those whose cause or object did not exist at the time of the
transaction;
(4)
Those whose object is outside the commerce of men;
(5)
Those which contemplate an impossible service;
(6)
Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7)
Those expressly prohibited or declared void by law. (Article
1409)
These contracts cannot be ratified. Neither can the right to set
up the defense of illegality be waived.
In addition, we can also include:
a. Those which are direct results of previous illegal contract (Article
1422);
b. Those where there is no concurrence between offer and
acceptance with regard to the object and the cause of the
contract; and
c. Those which do not comply with the required form where such
form is essential for validity.
WHAT
IS THE PRINCIPLE OF IN PARI DELICTO?
When the defect of a void contract consists in the illegality of the

cause or object of the contract, and both parties are at fault or in pari
delicto, the law refuses them every remedy and leaves them where
they are. This rule, which is embodied in Articles 1411 and 1412, is
what is commonly known as the principle of in pari delicto. It is a rule
which is expressed in the maxims: Ex dolo malo non oritur action and
In pari delicto potior est condition defendentis. The law will not aid
either party to an illegal agreement; it leaves then where they are.
WHAT
DELICTO?
IS THE EFFECT IF BOTH PARTIES TO AN ILEGAL CONTRACT ARE IN PARI
When the nullity proceeds from the illegality of the cause or

object of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto:
a. They shall have no action against each other, and
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b. Both shall be prosecuted.

c. Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable
to the things or the price of the contract.
This rule shall be applicable when only one of the parties is
guilty; but the innocent one may claim what he has given, and shall
not be bound to comply with his promise. (Article 1411)
WHAT
ARE THE EXCEPTIONS TO THE PRINCIPLE OF IN PARI DELICTO?
The exceptions to the principle of in pari delicto are the

following:
a. Payment of usurious interest. In such a case, the law allows the
debtor to recover the interest paid in excess of that allowed by
the usury laws, with interest thereon from the date of payment
(Article 1413).
b. Payment of money or delivery of property for an illegal purpose,
where the party who paid or delivered repudiates the contract
before the purpose has been accomplished, or before any
damage has been caused to a third person. In such a case, the
courts may allow such party to recover what he ahs paid or
delivered, if the public interest will thus be subserved (Article
1414).
c. Payment of money or delivery of property by an incapacitated
person. In such a care, the courts may allow such person to
recover what he ahs paid or delivered, if the interest of justice so
demands (Article 1415).
d. Agreement or contract which is not illegal per se but is merely
prohibited by law, and the prohibition is designed to the
protection of the plaintiff. In such a case, such plaintiff, if public
policy is thereby enhanced, may recover what he has paid or
delivered (Article 1416).
e. Payment of any amount in excess of the maximum price of any
article or commodity fixed by law. In such a case, the buyer may
recover the excess (Article 1417).
f. Contract whereby a laborer undertakes to work longer than the
maximum number of hours fixed by law. In such a case, the
laborer may demand for overtime pay (Article 1418).
g. Contract whereby a laborer accepts a wage lower than the
minimum wage fixed by law. In such case, the laborer may
demand for the deficiency (Article 1419).
WHAT
IS THE RULE IF THE ACT IN WHICH THE UNLAWFUL OR FORBIDDEN CAUSE
CONSISTS DOES NOT CONSTITUTE A CRIMINAL OFFENSE?
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If the act in which the unlawful or forbidden cause consists does

not constitute a criminal offense, the following rules shall be observed:
(1)
When the fault is on the part of both contracting parties, neither
may recover what he has given by virtue of the contract, or demand
the performance of the other's undertaking;
(2)
When only one of the contracting parties is at fault, he cannot
recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not at
fault, may demand the return of what he has given without any
obligation to comply his promise. (Article 1412)
WHAT
IS THE RULE IF THE CONTRACT IS DIVISIBLE AND THE ILLEGAL TERMS CAN
BE SEPARATED FROM THE LEGAL ONES?
In case of a divisible contract, if the illegal terms can be

separated from the legal ones, the latter may be enforced (Article
1420).
WHO
CAN RAISE THE DEFENSE OF ILLEGALITY OF A CONTRACT?
The defense of illegality of contract is not available to third

persons whose interests are not directly affected (Article 1421).
TITLE III
NATURAL OBLIGATIONS
WHAT
ARE THE KINDS OF OBLIGATIONS?
DEFINE
EACH.
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 (Article 1423).
DEFINE
VOLUNTARY FULFILLMENT.
Voluntary fulfillment means that the debtor complied with the

same even if he knew that he could not have been legally forced to do
so. In the case of partial voluntary fulfillment, the balance cannot be
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recovered, since on said balance, there has not been created a legal
obligation.
HOW
IS UNDUE PAYMENT DISTINGUISHED FROM NATURAL OBLIGATION?
If a debt that has prescribed is paid not knowing it has

prescribed, the payor can recover on the ground of undue payment.
But if it is paid knowing that it has prescribed already, the payor
cannot recover for this would be a case of a natural obligation.
IS
THERE A JURIDICAL TIE IN MORAL OBLIGATIONS?
While there is a juridical tie in natural obligations, there is none

in moral obligations.
GIVE
EXAMPLES OF NATURAL OBLIGATIONS.
1. 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 (Article 1424).
2. When without the knowledge or against the will of the debtor, a
third person pays a debt which the obligor is not legally bound to
pay because the action thereon has prescribed, but the debtor
later voluntarily reimburses the third person, the obligor cannot
recover what he has paid (Article 1425).
3. 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, after the annulment of the contract
voluntarily returns the whole thing or price received,
notwithstanding the fact that he has not been benefited thereby,
there is no right to demand the thing or price thus returned
(Article 1426).
4. 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, voluntarily pays a sum of money or delivers a
fungible thing in fulfillment of the obligation, there shall be no
right to recover the same from the obligee who has spent or
consumed it in good faith (Article 1427).
5. When, after an action to enforce a civil obligation has failed the
defendant voluntarily performs the obligation, he cannot demand
the return of what he has delivered or the payment of the value
of the service he has rendered (Article 1428).
6. 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
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deceased, the payment is valid and cannot be rescinded by the

payer (Article 1429).
7. When a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the
intestate heirs, after the settlement of the debts of the deceased,
pays a legacy in compliance with a clause in the defective will,
the payment is effective and irrevocable (Article 1439).
TITLE IV
ESTOPPEL (N)
WHAT
IS ESTOPPEL?
Through estoppel an admission or representation is rendered

conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. (Article 1431) It is a
condition or state by virtue of which an admission or representation is
rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon.
WHAT
ARE THE KINDS OF ESTOppeL?
Estoppel may be:

a. Estopple in pais (by conduct or equitable estoppel);
This may be estoppel:
a)
b)
c)
d)
e)
by
by
by
by
by
conduct or acceptance of benefits;

representation or concealment;
silence;
omission;
laches.
b. Estoppel by deed (technical estoppel (Article 1433);

This may be estoppel:
a) by deed proper (written instrument may also be in the form
of a bond or mortage;
b) by judgment as a court record.
c. Estoppe by laches (Tijam vs. Sibonghanoy, 23 SCRA 29).
DEFINE
EACH KIND OF ESTOPPEL.
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a. Estoppel in pais or by conduct is that which arises when one by

his acts, representations or admissions, or by his silence when he
ought to speak out, intentionally or through culpable negligence,
induces another to believe that certain facts to exist and such
other rightfully relies and acts on such belief, as a consequence
of which he would be prejudiced if the former is permitted to
deny the existence of such facts.
b. Estoppel by deed is a type of technical estoppel by virtue of
which a party to a deed and his privies are precluded from
asserting as against the other party and his privies any right or
title in derogation of the deed, or from denying any material fact
asserted therein. On the other hand, estopel by record is a type
of technical estoppel by virtue of which a party and his privies
are precluded from denying the truth of matters set forth in a
record, whether judicial or legislative.
c. Laches, in general sense, is failure or neglect, for an
unreasonable and unexplained length of time, to do that which,
by exercising due diligence, could or should have been done
earlier; it is negligence or omission to assert a right within
reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert
it (Tijam vs. Sibonghanoy, supra; Heirs of Lacamen vs. Heirs of
Laruan, 65 SCRA 605). It is therefore, a type of equitable
estoppel which arises when a party, knowing his rights as against
another, takes no step or delays in enforcing them until the
condition of the latter, who has no knowledge or notive that the
former would assert such rights, has become so changed that he
cannot, without injury or prejudice, be restored to his former
state.
WHAT
IS THE BASIS OF THE DOCTRINE OF LACHES?
The doctrine of laches or of stale demands is based on public

policy which requires, for the peace of society, the discouragement of
stale claims and, unlike the statute of limitations, is not a mere
question of time but is principally a question of the inequity or
unfairness of permitting a right or claim to be enforced or asserted
(Tijam vs. Sibonghanoy, supra).
WHAT
ARE THE ESSENTIAL ELEMENTS OF LACHES?
The four (4) essential elements of laches are:

a. Conduct on the part of the defendant, or of one under whom he
claims, giving rise to the situation of which the complaint seeks a
remedy;
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b. Delay in asserting the complainants rights, the complainant

having had knowledge or notice of the defendants conduct and
having been afforded an opportunity to institute a suit;
c. Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit;
and
d. Injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held barred
(Miguel vs. Catalino, 26 SCRA 234 and cases cited therein).
DISTINGUISH
BETWEEN LACHES AND PRESCRIPTION.
The defense of laches applies independently of prescription.

Laches is different from the statute of limitations in that:
a) Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay.
b) Prescription is a matter of time; laches is principally a question of
inequity of permitting a claim to be enforced, this inequity being
founded on some change in the condition of the property or the
relation of the parties.
c) Prescription is statutory; laches is not.
d) Laches applies in equity; whereas prescription applies at law.
e) Prescription is based on fixed time, laches is not. 6
f) While prescription is unavailing against a holder of a valid certificate
of title, the equitable doctrine of laches may be applied against the
plaintiffs for failure to assert their ownership for such an
unreasonable length of time against its occupant. 7
WHAT
IS MEANT BY ESTOPPEL BY SILENCE?
Estoppel by silence or inaction refers to a type of estoppel in pais

which arises when a party, who has a right and opportunity to speak or
act as well as a duty to do so under the circumstanc4es, intentionally
or through culpable negligence, induces another to believe certain
facts to exist and such other relies and acts on such belief, as a
consequence of which he would be prejudiced if the former is
permitted to deny the existence of such facts.
Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 18 SCRA 1040,
December 17, 1966, per Zaldivar, J. See also Heirs of Batiog Lacamen v. Heirs of
Laruan, 65 SCRA 605, 609, July 31, 1975; Radio Communication of the Philippines,
Inc. v. NLRC, 223 SCRA 656; June 25, 1993; Jimenez v. Fernandez, 184 SCRA 190,
196, April 6, 1990; Santiago v. Court of Appeals, 278 SCRA 98, August 21, 1997, per
Hermosisima, Jr. J.
7
Republic vs. Court of Appeals, 204 SCRA 160 [1991].
6
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On the other hand, estoppel by acceptance of benefits refers to a

type of estoppel in pais which arises when a party, by accepting
benefits derived from a certain act or transaction, intentionally or
through culpable negligence, induces another to believe certain facts
to exist and such other relies and acts on such belief, as a
consequence of which he would be prejudiced if the former is
permitted to deny the existence of such facts.
GIVE
AN EXAMPLE OF ESTOPPEL BY SILENCE.
When in a contract between third persons concerning immovable

property, one of them is misled by a person with respect to the
ownership or real right over the real estate, the latter is precluded
from asserting his legal title or interest therein, provided all these
requisites are present:
(1)
There must be fraudulent representation or wrongful
concealment of facts known to the party estopped;
(2)
The party precluded must intend that the other should act upon
the facts as misrepresented;
(3)
The party misled must have been unaware of the true facts; and
(4)
The party defrauded must have acted in accordance with the
misrepresentation. (Article 1437)
One who has allowed another to assume apparent ownership of
personal property for the purpose of making any transfer of it, cannot,
if he received the sum for which a pledge has been constituted, set up
his own title to defeat the pledge of the property, made by the other to
a pledgee who received the same in good faith and for value. (Article
1438)
WHAT
IS MEANT BY ESTOPPEL BY JUDGMENT?
Estoppel by judgment is merely a type of estoppel by record. It

may be defined as the preclusion of a party to a case from denying the
facts adjudicated by a court of competent jurisdiction.
This type of estoppel must not be confused with res judicata.
Estoppel by judgment bars the parties from raising any question that
might have been put in issue and decided in a previous litigation,
whereas res judicata makes a judgment conclusive between the same
parties as to the matter directly adjudged (Phil. Natl. Bank vs. Barreto,
52 Phil. 818; NAMARCO vs. Macadaeg, 52 Off. Gaz. 182).
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WHAT
ALIENATES
IS THE EFFECT IF A PERSON WHO IS NOT THE OWNER OF A THING SELLS OR
AND
DELIVERS
IT
AND
LATER
THE
SELLER
OR
GRANTOR
ACQUIRES
TITLE
THERETO?
When a person who is not the owner of a thing sells or alienates

and delivers it, and later the seller or grantor acquires title thereto,
such title passes by operation of law to the buyer or grantee (Article
1434).
WHAT
IS THE EFFECT IF A PERSON IN REPRESENTATION OF ANOTHER SELLS OR
ALIENATES A THING VIZ A VIS THE BUYER OR GRANTEE?
If a person in representation of another sells or alienates a thing,

the former cannot subsequently set up his own title as against the
buyer or grantee (Article 1435).
CAN
A LESSEE OR BAILEE ASSERT TITLE TO THE THING LEASED OR RECEIVED?
A lessee or a bailee is estopped from asserting title to the thing

leased or received, as against the lessor or bailor (Article 1436).
WHO
ARE THE PERSONS BOUND BY ESTOPPEL?
Estoppel is effective only as between the parties thereto or their

successors-in-interest (Article 1439).
TITLE V
TRUSTS (N)
CHAPTER 1
GENERAL PROVISIONS
DEFINE
TRUST.
Trust may be defined as the legal relationship between one

person having an equitable ownership over a certain property and
another having the legal title thereto.
WHO
ARE THE PARTIES TO A TRUST?
A person who establishes a trust is called the trustor (or settler);

one in whom confidence is reposed as regards the property for the
benefit of another person is known as the trustee (he holds the
property in trust for the benefit of another); and the person for whose
benefit the trust has been created is referred to as the beneficiary or
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cestui que trust (Article 1440). The trustor may at the same time be
the beneficiary.
GIVE
AND DEFINE THE DIFFERENT KIND OF TRUSTS.
Trusts are either express or implied.

EXPRESS
parties.
TRUSTS
are created by the intention of the trustor or of the
IMPLIED TRUSTS come into being by operation of law (Article 1441).

They are those which, without being expressed, are deducible from the
nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of
equity, independently of the particular intention of the parties. They
are ordinarily subdivided into resulting and constructive trusts.
Implied trusts may be resulting or constructive.
A RESULTING TRUST (bare or passive trust), in its more restricted
sense, is a trust raised by implication of law and presumed always to
have been contemplated by the parties, the intention as to which is to
be found in the nature of the transaction, but not expressed in the
deed or instrument of conveyance.
A CONSTRUCTIVE TRUST, in its more restricted sense, as
contradistinguished from a resulting trust, is a trust not created by
words, either expressly or impliedly evincing a direct intention to
create a trust, but by the construction of equity in order to satisfy the
demands of justice. If a person obtains legal title to property by fraud
or concealment, courts of equity will impress upon the title a so-called
constructive trust in favor of the defrauded party (Ramos vs. Ramos,
61 SCRA 284). A constructive trust is not, therefore, a trust in the
technical sense (Article 1456).
DISTINGUISH
BETWEEN EXPRESS TRUST AND IMPLIED TRUST.
Express trust and implied trust may be distinguished from each

other in the following ways:
a) Express trust is one created by the intention of the trustor or of the
parties, while an implied trust is one that comes into being by
operation of law.
b) Express trusts are those created by the direct and positive acts of
the parties, by some writing, or deed, or will, or by words evidencing
an intention to create a trust. On the other hand, implied trusts are
those which, without being expressed, are deducible from the
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nature of the transaction by operation of law as matters of equity,

independently of the particular intention of the parties.
c) Thus, if intent to establish a trust is clear, the trust is express; if the
intent to establish a trust is to be taken from the circumstances or
other matters indicative of such intent, then the trust is implied
(Cuaycong vs. Cuaycong, 21 SCRA 1192).
d) No express trust concerning an immovable or any interest therein
may be proved by parol evidence (Article 1443), while the existence
of an implied trust may be proved by parol evidence.
e) Laches and prescription do not constitute a bar to enforce an
express trust, at least while the trustee does not openly repudiate
the trust, and make known such repudiation to the beneficiary,
while laches and prescription may constitute a bar to enforce an
implied trust, and no repudiation is required unless there is a
concealment of the facts giving rise to the trust (Fabian vs. Fabian,
21 SCRA 213).
WHAT
ARE THE CHARACTERISTICS OF TRUST?
a. It is a fiduciary relationship.
b. It is created by law or by agreement.
c. It is one where the legal title is held by one, and the equitable
title or beneficial title is held by another.
HOW
IS TRUST DISTINGUISHED FROM STIPULATION POUR AUTRUI?
a. A trust may exist because of a legal provision or because of an

agreement; a stipulation pour autrui can arise only in the case of
contracts.
b. A trust refers to specific property; a stipulation pour autrui refers
to specific property or to other things.
CHAPTER 2
EXPRESS TRUSTS
WHAT
ARE THE FORMALITIES OF EXPRESS TRUSTS?
No express trusts concerning an immovable or any interest

therein may be proved by parol evidence (Article 1443). Therefore:
a. The requirement that the express trust be in writing is only for
enforceability, not for validity between the parties. Hence, this
Article may by analogy be included under the Statute of Frauds.
b. By implication, for a trust over personal property, an oral
agreement is valid and enforceable between the parties.
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c. Regarding third persons, the trust must be in a public instrument

and registered in the Registry of Property, if it concerns real
property.
HOW
IS AN EXPRESS TRUST CREATED?
No particular words are required for the creation of an express

trust, it being sufficient that a trust is clearly intended (Article 1444).
An express trust is therefore created:
a. By conveyance to the trustee by an act inter vivos or mortis
causa (as in a will).
b. By admission of the trustee that he holds the property only as
trustee.
WHAT
IS
THE
EFFECT
OF
THE
EXPRESS
TRUST
IF
THE
TRUSTEE
APPOINTED
DECLINES THE DESIGNATION?
No trust shall fail because the trustee appointed declines the

designation, unless the contrary should appear in the instrument
constituting the trust. (Article 1445)
WHAT
IS REQUIRED IN ORDER TO CREATE AN EXPRESS TRUST?
Acceptance by the beneficiary is necessary. Nevertheless, if the

trust imposes no onerous condition upon the beneficiary, his
acceptance shall be presumed, if there is no proof to the contrary.
(Article 1446)
HOW
a.
b.
c.
d.
e.
f.
g.
h.
ARE EXPRESS TRUSTS ENDED?
Mutual agreement by all the parties

Expiration of the term
Fulfillment of the resolutory condition
Rescission or annulment (as in contracts)
Loss of the subject matter of the trust
Order of the court
Merger
Accomplishment of the purpose of the trust
CHAPTER 3
IMPLIED TRUSTS
WHAT ARE EXAMPLES OF RESULTING TRUSTS?

a) There is an implied trust when property is sold, and the legal estate
is granted to one party but the price is paid by another for the
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b)
c)
d)
e)
purpose of having the beneficial interest of the property. The former

is the trustee, while the latter is the beneficiary. However, if the
person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no trust is
implied by law, it being disputably presumed that there is a gift in
favor of the child. (Article 1448)
There is also an implied trust when a donation is made to a person
but it appears that although the legal estate is transmitted to the
donee, he nevertheless is either to have no beneficial interest or
only a part thereof. (Article 1449)
When land passes by succession to any person and he causes the
legal title to be put in the name of another, a trust is established by
implication of law for the benefit of the true owner. (Article 1451)
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. (Article 1452)
When property is conveyed to a person in reliance upon his
declared intention to hold it for, or transfer it to another or the
grantor, there is an implied trust in favor of the person whose
benefit is contemplated. (Article 1453)
WHAT
IS AN EXAMPLE OF CONSTRUCTIVE TRUST?
a. 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 it is paid. The latter may redeem the
property and compel a conveyance thereof to him. (Article 1450)
b. If an absolute conveyance of property is made in order to secure
the performance of an obligation of the grantor toward the
grantee, a trust by virtue of law is established. If the fulfillment
of the obligation is offered by the grantor when it becomes due,
he may demand the reconveyance of the property to him.
(Article 1454)
c. When any trustee, guardian or other person holding a fiduciary
relationship uses trust funds for the purchase of property and
causes the conveyance to be made to him or to a third person, a
trust is established by operation of law in favor of the person to
whom the funds belong. (Article 1455)
d. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the property
comes. (Article 1456)
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WHAT
IS THE PERIOD OF PRESCRIPTION OF AN ACTION FOR RECONVEYANCE OF
REAL PROPERTY BASED ON IMPLIED TRUST?
It depends:
a) If the action for reconveyance involves the annulment of a voidable
contract which became the basis for the fraudulent registration of
the subject property, then the period of prescription is 4 years from
the discovery of the fraud. This finds codal support in Article 1391,
par. 4 of the Civil Code (Gerona vs. De Guzman, 11 SCRA 153;
Fabian vs. Fabian, 22 SCRA 231; Carantes vs. Court of Appeals, 76
SCRA 514; Alarcon vs. Bidin, 120 SCRA 390).
b) If the action does not involve the annulment of a contract, but there
was fraud in the registration of the subject property, then the period
of prescription is 10 years from the discovery of the fraud. This finds
codal support in Article 1144, No. 2 (Bueno vs. Reyes, 27 SCRA
1179; Varsity Hills, Inc. vs. Navarro, 43 SCRA 503; Escay vs. Court
of Appeals, 61 SCRA 360; Jaramil vs. Court of Appeals, 78 SCRA
420; Vda. De Nacalaban vs. Court of Appeals, 80 SCRA 428; Duque
vs. Domingo, 80 SCRA 654).
c) If the action involves the declaration of nullity or inexistence of a
void or inexistent contract which became the basis for the
fraudulent registration of the subject property, then the action is
imprescriptible. This finds codal support in Article 1410 (Article
Tongoy vs. Court of Appeals, 123 SCRA 718).
d) If the action for reconveyance is in reality an action to quiet title
and the legitimate owner of the subject property which was
fraudulently registered in the name of another had always been in
possession thereof so that the constructive notice rule cannot be
applied, then the action is imprescriptible (Caragay-Lagno vs. Court
of Appeals, 133 SCRA 718).
CAN
A TRUSTEE ACQUIRE ABSOLUTE OWNERSHIP OVER THE PROPERTY HELD IN
TRUST BY ACQUISITIVE PRESCRIPTION?
Whether the trust is express or implied, as a general rule, the

trustee cannot acquire absolute ownership over the trust by acquisitive
prescription.
However, if (1) he repudiates the right of the beneficiary; and (2)
such act of repudiation is brought to the knowledge of the beneficiary,
and (3) the evidence thereon is clear and conclusive, he may be able
to acquire absolute ownership over the trust but only (4) after the
lapse of the period fixed by law.
HOW
MAY IMPLIED TRUST BE PROVED?
Page 165 of 165

K.P. Dela Serna
An implied trust may be proved by oral evidence. (Article 1457)
-o00o-

Notes On Prescription Obligations and Contracts

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Notes On Prescription Obligations and Contracts

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BOOK III

Prescription is a mode of acquiring (or losing) ownership and

ARE THE DIFFERENT CONCEPTS OF PRESCRIPTION?

Prescription is a legal term used to refer to

Acquisitive prescription -- the acquisition of right by the lapse

IS THE DIFFERENCE BETWEEN THE TWO CONCEPTS?

a. Acquisitive prescription is a mode of acquiring ownership while

1410). [Vide Morales vs. Court of First Instance of Misamis

ARE THE REQUISITES OF LACHES?

The following are the requisites of laches:

IS PRESCRIPTION DISTINGUISHED FROM LACHES?

a. Prescription is concerned with the fact of delay while laches is

e. Prescription is based on a fixed time; laches is not (Nielson &

ARE THE PERSONS CAPACITATED TO ACQUIRE PROPERTY BY PRESCRIPTION?

Under Article 1107, the following may acquire property by

ARE THE PERSONS AGAINST WHOM PRESCRIPTION MAY RUN?

Acquisitive and extinctive prescriptions run against certain

PRESCRIPTION RUN BETWEEN HUSBAND AND WIFE OR BETWEEN PARENTS AND

CHILDREN OR BETWEEN GUARDIAN AND WARD?

Prescription does not run between husband and wife, even

Alienation made by the husband without the wifes consent

IS THE EFFECT OF PRESCRIPTION OBTAINED BY A CO-PROPRIETOR OR A CO-

Prescription obtained by a co-proprietor or a co-owner shall

PRESCRIPTION RUN AGAINST CO-OWNERS?

CAN RENOUNCE PRESCRIPTION ALREADY OBTAINED?

Persons with capacity to alienate property may renounce

IS THERE TACIT RENUNCIATION?

Prescription is deemed to have been tacitly renounced when the

THINGS MAY BE SUBJECT OF PRESCRIPTION?

a. Movables possessed through a crime can never be acquired by

ARE THE RIGHTS OF CREDITORS AND ALL OTHER PERSONS INTERESTED IN

MAKING THE PRESCRIPTION EFFECTIVE?

Creditors and all other persons interested in making the

PRESCRIPTION AND SPECIFIC PROVISIONS IN THE SAME

The provisions of the present Title are understood to be without

ARE THE TRANSITIONAL RULES FOR PRESCRIPTION?

Prescription already running before the effectivity of this Code

ARE THE KINDS OF ACQUISITIVE PRESCRIPTION?

Acquisitive prescription of dominion and other real rights may be

ARE ORDINARY AND EXTRA-ORDINARY PRESCRIPTIONS?

Prescription where there is good faith is called ordinary

ARE THE ADDITIONAL REQUISITES IN ORDINARY PRESCRIPTION?

Aside from the basic requirements of acquisitive prescription

invalidates it (Article 526 in relation to Article 1128). Good faith

Just title means that the possessor obtained the possession of

ARE THE CHARACTERISTICS OF POSSESSION NEEDED FOR PRESCRIPTION?

Possession has to be in the concept of an owner, public, peaceful

IS POSSESSION INTERRUPTED FOR PURPOSES OF PRESCRIPTION?

Possession is interrupted for the purposes of prescription,

Possession is naturally interrupted when through any

b) If the plaintiff should desist from the

ARE THE CONSEQUENCES OF INTERRUPTION?

a. The old possession is not revived if a new possession should be

A TITLE RECORDED IN THE

PRESCRIPTION OF OWNERSHIP OR REAL RIGHTS TAKE PLACE TO THE PREJUDICE OF A THIRD

Against a title recorded in the Registry of Property, ordinary

IS THE PERIOD OF PRESCRIPTION OF MOVABLES?

a. The ownership of movables prescribes through

559 1 and 1505 2 of this Code shall be observed

IS THE PRESCRIPTIVE PERIOD FOR IMMOVABLE?

a. Ownership and other real rights over immovable property are

IS THE RULE WHEN THERE IS DISCREPANCY IN THE AREA POSSESSED AND IN

THE AREA EXPRESSED IN THE TITLE?