UST Golden Notes 2011

OBLIGATIONS
OBLIGATIONS
I.DEFINITION
Q:Whatisanobligation?
A:Itisajuridicalnecessitytogive,todo,ornotto
do.(Art.1156,NCC)
It is a juridical relation whereby a person

(creditor)maydemandfromanother(debtor)the
observance of a determinative conduct (giving,
doing, or not doing), and in case of breach, may
demandsatisfactionfromtheassetsofthelatter.
(AriasRamos)
Note:Art.1156refersonlytocivilobligationswhich
areenforceableincourtwhenbreached.Itdoesnot
cover natural obligations (Arts. 14231430, NCC)
because these are obligations that cannot be
enforcedincourtbeingbasedmerelyonequityand
natural law and not on positive law. (Pineda,
ObligationsandContracts,2000ed,p.3)
II.ELEMENTSOFANOBLIGATION
Q:Whataretheelementsofanobligation?
A:JAPOC
1. Juridicalorlegaltievinculumjuris;
2. Activesubjectobligeeorcreditor;
3. Passivesubjectobligorordebtor;
4. Objectprestation;and
5. Causeefficientcauseisthesamewith
vinculumjuris.
VINCULUMJURIS
Q:Whatisvinculumjuris?
A:Itistheefficientcauseorjuridicaltiebyvirtue
of which the debtor has become bound to
performtheprestation.
Q:Howisvinculumjurisestablished?
A:By:
1. law(i.e.relationofhusbandandwife
forsupport)
2. bilateralacts(i.e.contracts)
3. unilateral acts (i.e. crimes and quasi
delicts)(Tolentino, Civil Code Vol. IV, p.
59,1999ed)
ACTIVESUBJECT
Q:Whoisanactivesubject?
A:Onewhoisdemandingtheperformanceofthe
obligation.Itishewhoinhisfavortheobligation
isconstituted,establishedorcreated.Heiscalled
thecreditor(CR)orobligee.
PASSIVESUBJECT
Q:Whoisapassivesubject?
A: One bound to perform the prestation to give,

todo,ornottodo.Heiscalledthedebtor(DR)or
obligor. (Pineda, Obligations and Contracts, p. 2,
2000ed)
Note:Whenthereisarightthereisacorresponding
obligation.Rightistheactiveaspectwhileobligation
is the passive aspect. Thus, it is said that the
conceptsofcreditanddebtaretwodistinctaspects
ofunitaryconceptofobligation.(Pineda,Obligations
andContracts,p.2,2000ed)
OBJECT
Q:Whataretherequisitesofavalidobject?
A:Theobjectmustbe:
1. licitorlawful;
2. possible,physically&judicially;
3. determinateordeterminable;and
4. pecuniary value or possible equivalent
inmoney.
Note: Absence of either of the first three (licit,

possibleand/ordeterminate)makestheobjectvoid.
Form is not generally considered essential, though

sometimesitisaddedasthe5threquisite.Thereisno
particular form to make obligations binding, except
in certain rare cases. (Tolentino, Civil Code of the
Philippines,Vol.IV,2002ed.p.57)
III.DIFFERENTKINDSOFPRESTATION
Q:Whatisprestation?
A:Itisaconductthatmayconsistofgiving,doing,
ornotdoingsomething.
Note:Itistheconductthatmustbeobservedbythe
debtor/obligor.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the different kinds of prestation?

Distinguish.
A:
OBLIGATION
TOGIVE
OBLIGATIONTO
DO
Consistsinthe Coversallkinds
ofworksor
deliveryofa
Consistsin
services
movableor
refrainingfrom
whether
immovable
doingsomeacts
physicalor
thingtothe
mental
creditor
i.e.Sale,
deposit,
pledge,
donation,
antichresis
Q:Whataretherequisitesofavalidprestation?
A:
1. Possible,physicallyandjuridically;
2. Determinate, or at least determinable
according to preestablished elements
orcriteria;and
3. Has a possible equivalent in money
(Tolentino,CivilCodeVol.IV,p.58,1999
ed).
IV.CLASSIFICATIONOFOBLIGATIONS
Q:Whatarethekindsofobligation?
A:Fromtheviewpointof:
1. Sanction
a. Civil gives a right of action to
compeltheirperformance
b. Naturalnotbasedonpositivelaw
but on equity and natural law;
does not grant a right of action to
enforce their performance, but
after voluntary fulfillment by the
obligor,theyauthorizeretentionof
whathasbeendelivered/rendered
byreasonthereof.
c. Moral cannot be enforced by
actionbutarebindingontheparty
who makes it in conscience and
naturallaw.
Performance
a. Positivetogive;todo
b. Negativenottodo
3.
Subjectmatter
a. Personaltodo;nottodo
b. Realtogive
Object
a. Determinate/specific
particularlydesignatedor
physicallysegregatedfromall
othersofthesameclass.
b. Generic is designated merely by
itsclassorgenus.
c. Limited generic generic objects
confined to a particular class (e.g.
an obligation to deliver one of my
horses)(Tolentino,CivilCodeofthe
Philippines,Vol.IV,2002ed,p.91)
OBLIGATION
NOTTODO
i.e.Easement
prohibiting
building
proprietoror
i.e.Contract possessorfrom
forprofessional
committing
serviceslike
nuisance(Art.
painting,
682,NCC),
modeling,
restrainingorder
singing,etc.
orinjunction
(Pineda,
Obligationsand
Contracts,p.3,
2000ed)
2.
4.
5.
Personobliged
a. Unilateral only one party is
bound
b. Bilateralbothpartiesarebound
6.
Creation
a. Legalimposedbylaw(Art.1158,
NCC)
b. Conventional established by the
agreement of the parties like
contracts
7.
Susceptibilityofpartialfulfillment
a. Divisibleobligationissusceptible
ofpartialperformance
b. Indivisible obligation is not

susceptible
8.
Existenceofburdenorcondition
a. Pure is not burdened with any
conditionorterm.Itisimmediately
demandable.
b. Conditional is subject to a
conditionwhichmaybesuspensive
(happeningofwhichshallgiverise
to the obligation) or resolutory
(happening
terminates
the
obligation).
Characterofresponsibilityorliability
a. Joint each debtor is liable only
forapartofthewholeliabilityand
toeachcreditorshallbelongonlya
partofthecorrelativerights
b. Solidary a debtor is answerable
for the whole of the obligation
without prejudice to his right to
9.
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM
OBLIGATIONS
substitution of the first one (Art.
1206,NCC)
collect from his codebtors the

latters shares in the obligation
(Art.1207,NCC)
11. Impositionofpenalty
a. Simple there is no penalty

imposed for violation of the terms
thereof
b. Obligation with penalty
obligationwhichimposesapenalty
for violation (Art. 1226, NCC)
(Pineda,ObligationsandContracts,
2000ed,p.57)
10. Righttochooseandsubstitution
a. Alternative obligor may choose
to completely perform one out of
the several prestations(Art. 1199,
NCC)
b. Facultative only one prestation
has been agreed upon, but the
obligor may render one in
V.SOURCESOFOBLIGATIONS
Q:Whatarethesourcesofobligations?Distinguish.
A:LCQDQ
Sources
Obligations
Perfection
Law
exlege
Fromthetimedesignatedbythelawcreatingorregulatingthem.
GR:Fromthetimeoftheperfectionofthecontract(i.e.meetingof
theminds)
XPNs:
Contracts
excontractu
1. Whenthepartiesmadestipulationontherightofthecreditor
tothefruitsofthething
2. When the obligation is subject to a suspensive condition or
period;arisesuponfulfillmentoftheconditionorexpirationof
theperiod.
Quasi
exquasicontractu
contracts
exmaleficioorex
Fromthetimedesignatedbythelawcreatingorregulatingthem.
Delicts
delicto
Quasi
exquasimaleficioorex
delict
quasidelicto
Note:Theenumerationisexclusive.
A.OBLIGATIONEXLEGE
Q: What are the characteristics of a legal

obligationoranobligationexlege?
A:
1. Does not need the consent of the
obligor;
2. Must be expressly set forth in the law
creating it and not merely presumed;
and
3. Inorderthatthelawmaybeasourceof
obligation, it should be the creator of
theobligationitself.
Q:Whatgovernsobligationsarisingfromlaw?
A: These obligations shall be regulated by the

provisionsofthelawwhichestablishesthem.The
CivilCodeisapplicablesuppletorily.
B.OBLIGATIONEXCONTRACTU
Q:Whataretherequisitesforacontracttogive
risetoobligationsexcontractu?
A:
1. It must contain all the essential
requisitesofacontract
2. It must not be contrary to law, morals,
good customs, public order, and public
policy
Q:Whatiscomplianceingoodfaith?
A: It is performance in accordance with the

stipulation, clauses, terms and conditions of the
contract.
Note:Thecontractisthelawbetweentheparties.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q: May a party unilaterally evadehis obligation

inthecontract?
A:
GR:Neither party may unilaterally evade his
obligationinthecontract.
XPNs:Unilateralevasionisallowedwhenthe:
1. contractauthorizessuchevasion
2. otherpartyassentsthereto
Q:Istherealimitationontherightoftheparties
tofreelyenterintostipulations?
A: Yes. Parties may freely enter into any

stipulations provided such are not contrary to
law,morals,goodcustoms,publicorderorpublic
policy
Q: What governs obligations arising from

contracts?
A:
GR:These obligations shall be governed
primarily by the stipulations, clauses, terms
andconditionsofthepartiesagreements.
XPN: Contracts with prestations that are

unconscionableorunreasonable.
Note: In case of unconscionable penalty for

breachofcontract(Art.1229,NCC),orliquidated
damages (Art. 2226, NCC), the same may be
reduced by the court. (Pineda, Obligations and
Contracts,p.13,2000ed)
C.OBLIGATIONEXQUASICONTRACTU
Q:Whatisquasicontract?
A: It is a juridical relation arising from lawful,

voluntary and unilateral acts based on the
principle that no one should unjustly enrich
himselfattheexpenseofanother.
Q:Whatispresumptiveconsent?
A: Since a quasicontract is a unilateral contract

createdbythesoleactoractsofthegestor,there
is no express consent given by the other party.
The consent needed in a contract is provided by
law through presumption. (Pineda, Obligations
andContracts,p.15,2000ed)
Q: What are the principal forms of quasi

contracts?
A:
1.
2.
Negotiorium
gestio
(inofficious
manager) arises when a person
voluntarily takes charge of the
management of the business or
propertyofanotherwithoutanypower
fromthelatter.
Solutio indebiti (unjust enrichment)
takes place when a person receives
something from another without any
right to demand for it, and the thing
was unduly delivered to him through
mistake.
Note:Thedeliverymustnotbethroughliberalityor
someothercause.
NEGOTIORUMGESTIO
Q: Upon the declaration of martial rule in the

Philippines, X, together with his wife and
children, disappeared from his residence along
Ermita, Manila. Years passed without Y hearing
fromXandhisfamily.Ycontinuedtakingcareof
Xshouse,evencausingminorrepairstobedone
at his house to preserve it. In 1976, when
business began to perk up in the area, Z,
approached Y and proposed that they build
stores at the ground floor of the house and
convertitssecondfloorintoapensionhouse.Y
agreed to Zs proposal and together they spent
fortheconstructionofstoresatthegroundfloor
and the conversion of the second floor into a
pensionhouse.Whileconstructionwasgoingon,
fire occurred at a nearby house. The houses at
the entire block, including Xs, were burned.
After the EDSA revolution in February 1986, X
and his family returned from the United States
wheretheytookrefugein1972.
Uponlearningofwhathappenedtohishouse,X
suedYfordamages.Ypleadedasadefensethat
he merely took charge of his house under the
principleofnegotiorumgestio.Hewasnotliable
astheburningofthehouseisafortuitousevent.
IsYliabletoXfordamagesundertheforegoing
circumstance?
A:No.Yisnotliablefordamages,becauseheisa
gestor in negotiorum gestio(Art. 2144,
NCC).Furthermore, B is not liable to A for any
fortuitous event because he did not commit any
of the instances provided under Art. 2147 of the
CivilCode:
1. He did not undertake risky operation
which the owner was not accustomed to
embarkupon;
2. He has not preferred his own interest to
thatoftheowner;
CIVILLAWTEAM:
OBLIGATIONS
3.
4.
Hehasnotfailedtoreturnthepropertyor
businessafterdemandoftheowner;and
He has not assumed the management in
badfaith.(1993BarQuestion)
Q: In fear of reprisals from lawless elements

besieging his barangay, X abandoned his
fishpond, fled to Manila and left for Europe.
Seekingthatthefishinthefishpondwereready
for harvest, Y, who is in the business of
managingfishpondsonacommissionbasis,took
possession of the property, harvested the fish
andsoldtheentireharvesttoZ.
Thereafter,YborrowedmoneyfromWandused
themoneytobuynewsuppliesoffishfryandto
preparethefishpondforthenextcrop.
1. What is the juridical relation between

XandYduringX'sabsence?
2. Upon the return of X to the barangay,
what are the obligations of Y to X as
regardsthecontractwithZ?
3. Upon X's return, what are the
obligationsofXasregardsY'scontract
withW?
4. What legal effects will result if X
expressly ratifies Y's management and
what would be the obligations of X in
favorofY?
Explainallyouranswers.
A:
1. The juridical relation is that of the
quasicontractof"negotiorumgestio".Y
is the "gestor" or "officious manager"
andXisthe"owner"(Art.2144,NCC).
2. Y must render an account of his
operationsanddelivertoXthepricehe
received for the sale of the harvested
fish.(Art.2145,NCC).
3. XmustpaytheloanobtainedbyYfrom
W because X must answer for
obligations contracted with third
persons in the interest of the owner
(Art.2150,NCC).
4. Express ratification by X provides the
effects of an express agency and X is
liabletopaythecommissionshabitually
receivedbythegestorasmanager(Art.
2149,NCC).(1992BarQuestion)
SOLUTIONINDEBITI
X received his full retirement benefits including

those monetary benefits that were properly
disallowed by COA to be granted to public
officers. GSIS sought the restoration of the said

disallowedbenefitsbutthecourtruledthatsuch
restoration cannot be enforced against Xs
retirement benefits as this is expressly
prohibited by law under R.A. 8291. Is X obliged
to return the benefits improperly received by
himundertheprincipleofsolutioindebiti?
A:Yes.ItcannotbedeniedthatXwasarecipient
of benefits that were properly disallowed by the
COA. These COA disallowances would otherwise
have been deducted from his salaries. The GSIS
can no longer recover these amounts by any
administrative means due to the specific
exemption of retirement benefits from COA
disallowances. X resultantly retained benefits to
which he was not legally entitled which, in turn,
gaverisetoanobligationonhisparttoreturnthe
amounts under the principle of solutio indebiti.
(GSIS v. COA, G.R. No. 138381, Nov. 10, 2004;
GSIS v. Pineda, et. al., G.R. No. 141625, Nov. 10,
2004).
D.OBLIGATIONSEXDELICTO
Q:Whatisthebasisforcivilliabilityarisingfrom
delictsasaccordingtothepenalcode?
A: Art. 100 of the Revised Penal Code provides

that:Everypersoncriminallyliableforafelonyis
alsocivillyliable.
Q:Whatisdelict?
A:Itisanactoromissionpunishedbylaw.
E.OBLIGATIONSEXQUASIDELICTO
Q:Whatisquasidelictortort?
A: It is an act or omission arising from fault or

negligence which causes damage to another,
there being no preexisting contractual relations
betweentheparties.
Q:Whataretheelementsofaquasidelict?
A:
1. Actoromission;
2. Fault or negligence attributable to the
personcharged;
3. Damageorinjury;
4. Direct relation of cause and effect
between the act arising from
fault/negligence and the damage or
injury(proximatecause);and
5. No preexisting contractual relation
betweentheparties.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:Whatisthescopeofcivilliability?
A:RRI
1. Restitution;
2. Reparationfordamagecaused;and
3. Indemnityforconsequentialdamages.
F.NATURALOBLIGATIONS
Q:Whatarenaturalobligations?
A: They are real obligations to which the law

denies an action, but which the debtor may
performvoluntarily.
Q:Whataretheinstancesofnaturalobligations?
A:
1. Performance after the civil obligation
hasprescribed;
2. Reimbursement of a third person for a
debtthathasprescribed;
3. Restitutionbyminorafterannulmentof
contract;
4. Deliverybyminorofmoneyorfungible
thinginfulfillmentofobligation;
5. Performance after action to enforce
civilobligationhasfailed;
6. Payment by heir of debt exceeding
valueofpropertyinherited;and
7. Payment of legacy after will has been
declaredvoid.
Q:Distinguishnaturalfromcivilobligation.
A:
NATURALOBLIGATION
Basedonequityand
naturallaw
Cannotbeenforcedin
courtbecausethe
obligeehasnorightof
actiontocompelits
performance
CIVILOBLIGATION
Basedfromlaw,
contracts,quasi
contracts,delicts,and
quasidelicts
Canbeenforcedincourt
becausetheobligeehasa
rightofaction
(Pineda,Obligationsand
Contracts,2000ed,p.
636)
VI.NATUREANDEFFECTSOFOBLIGATIONS
A.OBLIGATIONTOGIVE
Q: In an obligation to deliver a thing, what are

theobligationsofthedebtor?
A:Itdependsuponthekindofobligation.
SPECIFIC
GENERIC
Deliverthethingwhichis
Deliverthethingagreed
neitherofsuperiornor
upon(Art.1165,NCC)
inferiorquality
Takecareofthething Specificperformancei.e.
withtheproperdiligence deliveryofanotherthing
withinthesamegenusas
ofagoodfatherofa
thethingpromisedif
familyunlessthelaw
suchthingisdamaged
requiresorparties
duetolackofcareora
stipulateanother
generalbreachis
standardofcare(Art.
committed
1163,NCC)
Deliverallaccessions,
accessoriesandfruitsof
thething(Art.1166,NCC)
Iftheobjectisgeneric,
butthesourceis
specifiedordelimited,
theobligationisto
preservethesource
Paydamagesincaseof
breachofobligationby
reasonofdelay,fraud,
negligence,
contraventionofthe
tenorthereof
Paydamagesincaseof
breachofobligationby
reasonofdelay,fraud,
negligence,
contraventionofthe
tenorthereof(Art.1170)
Fortuitousevent
extinguishesthe
obligation
Obligationisnot
extinguished(genus
nunquamperuitgenus
neverperishes)
Q: May natural obligations be converted into

civilobligations?
A:Yes,bywayofnovation.Thenaturalobligation
becomesavalidcauseforacivilobligationafterit
hasbeenaffirmedorratifiedanewbythedebtor.
(Pineda, Obligations and Contracts, 2000 ed, p.
634)
CIVILLAWTEAM:
OBLIGATIONS
Q: In failing to deliver a thing, what are the
remediesofthecreditor?
A:
SPECIFICOBLIGATION
GENERICOBLIGATION
Specificperformance
Specificperformance
(deliveryofanything
belongingtothesame
species)
Rescission(actionto
rescindunderArt.1380,
NCC)
Askthattheobligation
becompliedwithatthe
debtorsexpense
Resolution(actionfor
cancellationunderArt.
1191,NCC)
Resolutionor specific
performance,with
damagesineithercase
(Art.1191,NCC)
Damages,inbothcases(Art.1170,NCC)
Note:Maybeexclusiveorinadditiontotheabove
mentionedremedies(Pineda,Obligationsand
Contracts,2000ed,p.37)
Note: In obligation to deliver a specific thing, the

creditorhastherighttodemandpreservationofthe
thing,itsaccessions,accessories,andthefruits.The
creditor is entitled to the fruits and interests from
thetimetheobligationtodeliverthethingarise.
Q:Whatisthenatureoftherightofthecreditor
withrespecttothefruits?
A:
1. Beforedeliverypersonalright
2. Afterdeliveryrealright
Note: The creditor has a right to the fruits of the

thingfromthetimetheobligationtodeliveritarises.
However, he shall acquire no real right over it until
thesamehasbeendeliveredtohim(Art.1164,NCC).
Q:Distinguishpersonalrightfromrealright.
A:
PERSONAL
REAL
Jusadrem
Jusinre
Enforceableonlyagainst
adefiniteperson/group
ofpersons
Enforceableagainstthe
wholeworld
Righttodemandfrom
another,asadefinite
passivesubject,the
fulfillmentofthe
prestationtogive,todo
ornottodo.
Rightoveraspecific
thing,withoutadefinite
passivesubjectagainst
whomtherightmaybe
personallyenforced.
Hasadefinitepassive
subject
Nodefinitepassive
subject
Q: What is the principle of balancing of

equities as applied in actions for specific
performance?
A: In decreeing specific performance, equity

requires not only that the contract be just and
equitable in its provisions, but that the
consequencesofspecificperformance,islikewise
bejustandequitable.Thegeneralruleisthatthis
equitable relief will not be granted if, under the
circumstances of the case, the result of the
specific performance of the contract would be
harsh,inequitable,andoppressiveorresultinan
unconscionable advantage to the plaintiff
(Agcaoiliv.GSIS,G.R.No.30056,Aug.30,1988).
B.OBLIGATIONTODOORNOTTODO
Q:Whatarethetypesofpersonalobligations?
A:
1. positivetodo
2. negativenottodo
Q:Whataretheremediesinpersonal
obligations?
A:
1. positivepersonalobligations
a. notpurelypersonalactto
haveobligationexecutedat
debtor'sexpenseplus
damages
b. purelypersonalactdamages
only.
Note;sameruleappliesifobligationisdonein
contraventionofthetermsoftheobligation.
2.
Negative personal obligation to have

the prohibited thing undone plus
damages. However, if thing cannot be
physically or legally undone, only
damagesmaybedemanded.
Q:Isspecificperformancearemedyinpersonal
obligations?
A:No.Otherwisethismayamounttoinvoluntary
servitudewhichisprohibitedbytheConstitution.
Q:Whenmayathingbeorderedundone?
A:
1. ifmadepoorly
2. negativepersonalobligations
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
C.BREACHESOFOBLIGATIONS
Q:Whataretheformsofbreachofobligations?
A:
1. Voluntarydebtorisliablefordamages
ifheisguiltyof:
a. default(mora)
b. fraud(dolo)
c. negligence(culpa)
d. breach through contravention of
thetenorthereof
2. Involuntary debtor is unable to

performtheobligationduetofortuitous
eventthusnotliablefordamages
Q: What is the concept of a good father of the

family?
A:TheSupremeCourtdescribedagoodfatherof
afamilybyfirststatingwhoisnot.Heisnotandis
not supposed to be omniscient of the future;
rather, he is one who takes precautions against
anyharmwhenthereissomethingbeforehimto
suggest or warn him of the danger or to foresee
it(Picart v. Smith, G.R. No. L12406, Mar. 15,
1918).
1.COMPLETEFAILURETOPERFORM
Q:Whataretheeffectsofbreachofobligation?
A:Ifapersonobligedtodosomethingfailstodo
it,orifhedoesitincontraventionofthetenorof
the obligation, the same shall be executed at his
cost.Andwhathasbeenpoorlydone,beundone.
(Art.1167,NCC)
When the obligation consists in not doing, and

theobligordoeswhathasbeenforbiddenhim,it
shall also be undone at his expense. (Art.1168,
NCC)
Q: What are the instances where the remedy

underArt.1168isnotavailable?
A:
1. Where the effects of the act which is
forbidden are definite in character
even if it is possible for the creditor to
ask that the act be undone at the
expense of the debtor, consequences
contraryto theobjectoftheobligation
will have been produced which are
permanentincharacter.
2.
Where it would be physically or legally

impossible to undo what has been
undonebecauseof:
a. theverynatureoftheactitself;
b. aprovisionoflaw;or
c. conflictingrightsofthirdpersons.
Note:Ineithercase,theremedyistoseekrecovery
fordamages.
DEFAULT(MORA))
Q:Whendoesdelayordefaultarise?
A: Those obliged to deliver or to do something

incurindelayfromthetimetheobligeejudicially
or extrajudicially demands from them the
fulfillmentoftheirobligation.
In reciprocal obligations, neither party incurs in

delay if the other does not comply in a proper
manner with what is incumbent upon him. From
the moment one of the parties fulfills his
obligations,delaybytheotherbegins.(Art.1169,
NCC)
Q:Whataretherequisitesofdelay?
A:
1. Obligation must be due, demandable
andliquidated;
2. Debtor fails to perform his positive
obligationonthedateagreedupon;
3. Ajudicialorextrajudicialdemandmade
by the creditor upon the debtor to
fulfill, perform or comply with his
obligation;and
4. Failure of the debtor to comply with
suchdemand.
Note: In reciprocal obligations, the moment one

partyisreadytocomplywithhisobligation,delayby
theotherbegins.Thereisnoneedfordemandfrom
eitherparty.
2.DELAY
Q:Whatarethekindsofdelayordefault?
A:
1. Mora solvendi default on the part of
thedebtor/obligor
a. Ex re default in real obligations
(togive)
b. Ex personae default in personal
obligations(todo)
2. Moraaccipiendidefaultonthepartof
thecreditor/obligee
CIVILLAWTEAM:
OBLIGATIONS
3.
Compensatio morae default on the

part of both the debtor and creditor in
reciprocalobligations
MORASOLVENDI
Q:Whataretherequisitesofmorasolvendi?
A:
1. Obligationpertainstothedebtor;
2. Obligation is determinate, due and
demandable,andliquidated;
3. Obligation has not been performed on
itsmaturitydate;
4. Thereisjudicialorextrajudicialdemand
bythecreditor;
5. Failure of the debtor to comply with
suchdemand
Q: Does mora solvendi apply in natural

obligations?
A: No (Art. 1423, NCC), because performance is

optionalorvoluntaryonthedebtorspart.
Q: Does mora solvendi apply in negative

obligations?
A:Nobecauseonecanneverbelateinnotgiving
ordoingsomething.
Q:Whataretheeffectsofmorasolvendi?
A:
1. Debtor may be liable for damages or
interests;and
2. Whenithasforitsobjectadeterminate
thing, debtor may bear the risk of loss
of the thing even if the loss is due to
fortuitousevent(Art.1165,NCC).
Q:Maythedebtorsliabilitybemitigatedevenif
heisguiltyofdelay?
A: Yes. If the debtor can prove that loss would

neverthelesstranspireevenifhehadnotbeenin
default, the court may equitably mitigate his
liability. (Art. 2215 (4), NCC; Pineda, Obligations
andContracts,2000ed.,p.47)
MORAACCIPIENDI
Q:Whataretherequisitesofmoraaccipiendi?
A:
1. Offer of performance by a capacitated
debtor;
2. Offermustbetocomplyprestationasit
shouldbeperformed;and
3. Refusal of the creditor without just
cause.
Q:Whataretheeffectsofmoraaccipiendi?
A:
1. Responsibility of DR is limited to fraud
andgrossnegligence
2. DR is exempted from risk of loss of
thing;CRbearsriskofloss
3. Expenses by DR for preservation of
thingafterdelayischargeabletoCR
4. Iftheobligationbearsinterest,DRdoes
nothavetopayfromtimeofdelay
5. CRliablefordamages
6. DRmayrelievehimselfofobligationby
consigningthething
Q:Whataretherulesondefault?
A:
1. Unilateralobligations
GR: Default or delay begins from
extrajudicial or judicial demand mere
expiration of the period fixed is not
enough in order that DR may incur
delay.
XPNs:
a. Theobligationorthelawexpressly
sodictates;
b. Timeisoftheessence;
c. Demand would be useless, as DR
has rendered it beyond his power
toperform;or
d. DRhasacknowledgedthatheisin
default.
2. Reciprocalobligations
GR: Fulfillment by both parties should
besimultaneous.
XPN: When different dates for the

performance of obligation is fixed by
theparties.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:Whatarereciprocalobligations?
A: These are obligations created and established

at the same time, out of the same cause and
whichresultsinthemutualrelationshipbetween
theparties.
Q:Inreciprocalobligations,whendoesaparty
incurindelay?
A: In reciprocal obligations one party incurs in

delayfromthemomenttheotherpartyfulfillshis
obligation,whilehehimselfdoesnotcomplyoris
not ready to comply in a proper manner with
whatisincumbentuponhim.
Q: In reciprocal obligations, when is demand

necessaryinorderforapartytoincurindelay?
A:Onlywhentherespectiveobligationsaretobe
performedonseparatedates.
Q:Whatistheeffectofnoncomplianceofboth
partiesinreciprocalobligations?
A: If neither party complies with his prestation,

defaultofonecompensatesforthedefaultofthe
other.
Q: What may cause the cessation of the effects

ofmora?
A:
1. Renunciation(express/implied);or
2. Prescription.
3.FRAUD
Q:Whatisfraud?
A: It is an intentional evasion of the faithful

performanceoftheobligation(8Manresa72).
Q:Whattypeoffraudmustbepresentinorder
thattheobligormaybeheldliablefordamages?
A: The fraud must be incidental fraud, or that

which is present during the performance of the
obligation, and not causal fraud, or fraud
employed in the execution of a contract, which
vitiatesconsent.
WAIVEROFFUTUREFRAUD
Q:Mayanactionarisingfromfraudbewaived?
A: With respect to fraud that has already been

committed, the law does not prohibit
renunciationoftheactionfordamagesbasedon
the same. However, the law does prohibit any
waiver of an action for future fraud since the
sameiscontrarytolawandpublicpolicy.
Note:Waiverofpastfraudisvalidsincesuchcanbe
deemed an act of generosity. What is renounced is
the effect of fraud, particularly the right to
indemnity.
Q:Whatarethekindsoffraud?Distinguish.
A:
FRAUDDURINGTHE
FRAUDDURINGTHE
PERFECTIONOFTHE
PERFORMANCEOFTHE
CONTRACTORCAUSAL
OBLIGATIONOR
FRAUD
INCIDENTALFRAUD
(ART.1338)
(ART.1344)
WhenEmployed
Duringtheperformance
Beforeorduringthe
ofa
perfectionofacontract
preexistingobligation
PurposeofExecution
Toevadethenormal
Tosecuretheconsentof
fulfillmentofthe
anothertoenterintothe
obligation
contract
ResultantEffect
Vitiationofconsent
Breachofanobligation
StatusoftheContract
Voidable
Valid
RightorRemedyofAggrievedParty
Rightofinnocent
Rightofinnocentparty
party/creditortoclaim
toannulthecontract
fordamages
withdamages
Q: What are the remedies of the defrauded

party?
A:
1. Specificperformance(Art.1233,NCC)
2. Resolution of the contract (Art. 1191,
NCC)
3. Damages,ineithercase
CIVILLAWTEAM:
OBLIGATIONS
4.NEGLIGENCE
Q:Distinguishfraudfromnegligence.
A:
Fraud
Negligence
Thereisdeliberate
intentiontocause
damage
Thereisnodeliberate
intentiontocause
damageorinjuryevenif
theactwasdone
voluntarily
Liabilitycannotbe
mitigated
Liabilitymaybe
mitigated
GR:Waiverforfuture
negligencemaybe
allowedincertaincases
Waiverforfuturefraud
XPN:Natureofthe
isvoid
obligationorpublic
policyrequires
extraordinarydiligence
(e.g.commoncarrier)
Note:Whennegligenceissogrossthatitamountsto
wantonattitudeonthepartofthedebtor,thelaws
incaseoffraudshallapply.
Wherenegligenceshowsbadfaith(i.e.,deliberately
committed)itisconsideredequivalenttofraud.Any
waiverofanactionforfuturenegligenceofthiskind
isthereforevoid.(DeLeon,ObligationsandContract,
2003ed.,p.57)
Q: What are the effects of contributory

negligenceofthecreditor?
A:
GR:Itreducesormitigatesthedamageswhich
hecanrecover.
XPN:If the negligent act or omission of the

creditor is the proximate cause of the event
whichledtothedamageorinjurycomplained
of,hecannotrecover.
Q: Distinguish culpa contractual from culpa

aquiliana.
A:
CULPA
CULPACONTRACTUAL
AQUILIANA(QUASI
(CONTRACT)
DELICT)
Negligenceismerely
Negligenceis
anincidentinthe
substantiveand
performanceofan
independent
obligation
Thereisalwaysapre Theremayormaynotbe
existingcontractual
apreexisting
relation
contractualrelation
Thesourceof
obligationof
Thesourceofobligation
defendanttopay
isdefendants
damagesisthebreach
negligenceitself
ornonfulfillmentof
thecontract
Proofoftheexistence
ofthecontractandof
Thenegligenceofthe
itsbreachornon
defendantmustbe
fulfillmentissufficient
proved
primafacietowarrant
recovery
Proofofdiligencein
Proofofdiligenceinthe
theselection&
selection&supervision
supervisionofthe
oftheemployeesisa
employeesisnotan
defense
availabledefense
Q:Whatisthedegreeofdiligencerequired?
A:
1. Thatagreedupon
2. In the absence of such, that which is
requiredbythelaw
3. In the absence of the foregoing,
diligence of a good father of afamily
that reasonable diligence which an
ordinary prudent person would have
done under the same circumstances.
carriers
requiring
XPN:Common
extraordinary diligence (Arts. 1998
2002)
5.CONTRAVENTIONOFTENOROFOBLIGATION
(VIOLATIO)
Q: What is violation of the terms of the

contract?
A:Itistheactofcontraveningthetenororterms
or conditions of the contract. It is also known as
violatio,i.e.failureofcommoncarriertotakeits
passenger
to
their
destination.(Pineda,
Note: Under Art. 1170, NCC, the phrase in any

manner contravene the tenor of the obligation
includes any illicit act which impairs the strict and
faithfulfulfillmentoftheobligation,oreverykindof
defectiveperformance.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
6.FORTUITOUSEVENT
Q:Whatisfortuitousevent?
A: It is an occurrence or happening which could

notbeforeseen,orevenifforeseen,isinevitable
(Art.1174,NCC).
Q:Whataretherequisitesofafortuitousevent?
A:
1. Cause is independent of the will of the
debtor;
2. The event is unforeseeable or
unavoidable;
3. Occurrence renders it absolutely
impossible for the debtor to fulfill his
obligation in a normal manner;
impossibility must be absolute not
partial, otherwise not force majeure;
and
4. Debtor is freefrom any participation in
the aggravation of the injury to the
creditor.
Note: The fortuitous event must not only be the

proximate cause but it must also be the only and
sole cause. Contributory negligence of the debtor
renders him liable despite the fortuitous event.
(Pineda,ObligationsandContracts,2000ed,p.62)
Q: If the happening of an event is difficult to

foresee,isitafortuitousevent?
A: No. The mere difficulty to foresee the

happening is not impossibility to foresee the
same. (Republic v. Luzon Stevedoring Corp., G.R.
No.L21749,Sept.29,1967)
Q:DistinguishActofGodfromActofMan
A:
ACTOFGOD
Fortuitousevent
Eventwhichis
absolutelyindependent
ofhumanintervention
i.e.earthquakes,
storms,floods,
epidemics
ACTOFMAN
Forcemajeure
Eventcausedbythe
legitimateorillegitimate
actsofpersonsother
thantheobligor
i.e.armedinvasion,
robbery,war(Pineda,
Obligationsand
Contract,2000ed,p.60)
Note: There is no essential difference between

fortuitouseventandforcemajuere;theybothrefer
to causes independent of the will of the obligor.
(Tolentino,CivilCodeofthePhilippines,Vol.IV,2002
ed,p.127)
Q: Is there liability for loss due to fortuitous

event?
A:
GR: There is no liability for loss in case of
fortuitousevent.
XPNs:LaNSPCBaG
1. Law
2. Nature of the obligation requires the
assumptionofrisk
3. Stipulation
4. The debtor is guilty of dolo, malice or
badfaith,hasPromisedthesamething
to two or more persons who does not
havethesameinterest
5. ThedebtorContributedtotheloss(Tan
v.Inchausti&Co.,G.R.No.L6472,Mar.
7,1912)
6. ThepossessorisinBadfaith(Art.552)
7. TheobligorisGuiltyoffraud,negligence
or delay or ifhe contravened the tenor
of the obligation (Juan Nakpil v. United
Construction Co., Inc. v. CA, G.R. No. L
47851,Apr.15,1988)
Q: Philcomsat contends that expiration of the

RPUS Military Bases Agreement and non
ratification of the treaty is not a fortuitous
event.Decide.
A: No. The requisites for fortuitous events are

presentintheinstantcase.PhilcomsatandGlobe
hadnocontroloverthenonrenewaloftheterm
oftheRPUSMilitaryBasesAgreementwhenthe
sameexpiredin1991,becausetheprerogativeto
ratify the treaty belonged to the Senate. Neither
didthepartieshavecontroloverthesubsequent
withdrawal of the US military forces and
personnel from Cubi Point. The events made
impossible the continuation of the agreement
without fault on the part of either party. Such
fortuitous events rendered Globe exempt from
paymentofrentalsfortheremainderoftheterm
of the agreement. (Philippine Communications
Satellite Corp.v.Globe Telecom, Inc.,G.R. No.
147324,May25,2004)
Q: MIAA entered into acompromise agreement

with ALA. MIAA failed to pay within the period
stipulated. Thus, ALA filed a motion for
execution to enforce its claim. MIAA filed a
commentandattributedthedelaystoitsbeinga
government agency and the Christmas rush. Is
thedelayofpaymentafortuitousevent?
A:No.TheactofGoddoctrinerequiresallhuman
agencies to be excluded from creating the cause
CIVILLAWTEAM:
OBLIGATIONS
ofthemischief.Suchdoctrinecannotbeinvoked
to protect a person who has failed to take steps
toforestallthepossibleadverseconsequencesof
loss or injury. Since the delay in payment in the
present case was partly a result of human
participation whether from active intervention
orneglectthewholeoccurrencewashumanized
and was therefore outside the ambit of a caso
fortuito.
First, processing claims against the government

arecertainlynotonlyforeseeableandexpectable,
butalsodependentuponthehumanwill.Second,
the Christmas season is not a casofortuito, but a
regularly occurring event. Third, the occurrence
of the Christmas season did not at all render
impossible the normal fulfillment of the
obligation. Fourth, MIAA cannot argue that it is
freefromanyparticipationinthedelay.Itshould
have laid out on the compromise table the
problems that would be caused by a deadline
fallingduringtheChristmasseason.Furthermore,
it should have explained to ALA the process
involved for the payment of ALs claim. (MIAA v.
Ala Industries Corp., G.R. No. 147349, Feb. 13,
2004)
Q:JALcancelledallitsflighttoManiladuetothe
Mt. Pinatubo eruption and NAIA's indefinite
closure.Thepassengerswerethenforcedtopay
for their accommodations and meal expenses
from their personal funds. Thus, they filed an
action for damages against JAL. Can JAL avoid
liability by invoking that delays were caused by
forcemajeure?
A:Yes.TheMt.PinatuboeruptionpreventedJAL
from proceeding to Manila on schedule. Such
eventcanbeconsideredas"forcemajeure"since
the delayed arrival in Manila was not imputable
toJAL.
WhenJALwaspreventedfromresumingitsflight
to Manila due to the effects of Mt. Pinatubo
eruption,whateverlossesordamagesintheform
of hotel and meal expenses the stranded
passengers incurred, cannot be charged to JAL.
Indeed,intheabsenceofbadfaithornegligence,
JAL cannot be liable for the amenities of its
stranded passengers by reason of a fortuitous
event.(JapanAirlinesv.CA,G.R.No.118664,Aug.
7,1998).
Q:Whataretheeffectsoffortuitousevent?
A:
1. On determinate obligation the
obligationisextinguished
2.
Ongenericobligationtheobligationis
not extinguished (genus nun quam
peruitgenusneverperishes)
Q: AB Corp. entered into a contract with XY

Corp. whereby the former agreed to construct
the research and laboratory facilities of the
latter.Underthetermsofthecontract,ABCorp.
agreedtocompletethefacilityin18months,at
the total contract price of P10 million. XY Corp.
paid50%ofthetotalcontractprice,thebalance
to be paid upon completion of the work. The
work started immediately, but AB Corp. later
experienced work slippage because of labor
unrest in his company. AB Corp.s employees
claimed that they are not being paid on time;
th
hence, the work slowdown. As of the 17
month,workwasonly45%completed.ABCorp.
asked for extension of time, claiming that its
laborproblemsisacaseoffortuitousevent,but
this was denied by XY Corp. When it became
certain that the construction could not be
finished on time, XY Corp. sent written notice
cancellingthecontractandrequiringABCorp.to
immediatelyvacatethepremises.
Can the labor unrest be considered a fortuitous

event?
A:Laborunrestisnotafortuitouseventthatwill
excuse AB Corp. from complying with its
obligation of constructing the research and
laboratory facilities of XY Corp.The labor unrest,
whichmayevenbeattributedinlargeparttoAB
Corp. itself, is not the direct cause of non
compliance by AB Corp. It is independent of its
obligation. It is similar to the failure of a DBP
borrower to pay her loan just because her
plantation suffered losses due to the cadang
cadang disease. It does not excuse compliance
withtheobligation(DBPv.Vda.DeMoll).
Additional Answer: The labor unrest in this case

is not a fortuitous event. The requisites of
fortuitous event are: (1) the event must be
independent of human will or at least of the
debtorswill;(2)theeventcouldnotbeforeseen,
or if foreseen is inevitable; (3) the event must
haverenderedimpossibledebtorscomplianceof
the obligation in a proper manner; and (4) the
debtor must not be guilty of concurrent
negligence. All the requisites are absent in this
case. AB Corp. could have anticipated the labor
unrestwhichwascausedbydelaysinpayingthe
laborers wages. The company could have hired
additional laborers to make up for the work
slowdown.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
CanXYCorp.unilaterallyandimmediatelycancel
thecontract?
A: No. XY Corp. cannot unilaterally and

immediatelycancelthecontractbecausethereis
need for a judicial action of rescission. The
provisionsofArt.1191oftheCivilCodeproviding
forrescissioninreciprocalobligationscanonlybe
invokedjudicially.
Alternative Answer: Yes, XY Corp. may

unilaterally cancel the obligation but this is
subject to the risk that the cancellation of the
reciprocal obligation being challenged in court
and if AB Corp. succeeds, then XY Corp. will be
declaredindefaultandbeliablefordamages.
MustABCorp.returnthe50%downpayment?
A:No,undertheprincipleofquantummeruit,AB
Corp. had the right to retain payment
corresponding
to
his
percentage
of
accomplishment less the amount of damages
suffered by XY Corp. because of the delay or
default.(2008BarQuestion)
D.REMEDIES
Q:Whataretheremediesthatmaybeavailedof
incaseofbreach?
A:
1. Specific performance, or substituted
performance by a third person in case
of an obligation to deliver a generic
thing,andinobligationstodo,unlessit
isapurelypersonalact;or
2. Rescission (or resolution in reciprocal
obligations);
3. Damages,inanycase;
4. Subsidiaryremediesofcreditors:
a. Accionsubrogatoria
b. Accionpauliana
c. Acciondirecta
1.SPECIFICPERFORMANCE
Q: What are the remedies in connection with

specificperformance?
A:
1. Exhaustion of the properties of the
debtor (not exempt from attachment
underthelaw)
2. Accion subrogatoria (subrogatory
action) an indirect action brought in
thenameofthedebtorbythecreditor
toenforcetheformersrightsexcept:
a.
b.
3.
personalrightsofthedebtor
rightsinherentinthepersonofthe
debtor
c. properties exempt from execution
(e.g.familyhome)
Accionpauliana(rescissoryaction)an
actiontoimpugnorassailtheactsdone
orcontractsenteredintobythedebtor
infraudofhiscreditor;
Note: Must be a remedy of last resort,

availed of only after all other legal
remedies have been exhausted and have
beenprovenfutile.
Presupposesajudgmentandtheissuance
bythetrialcourtofawritofexecutionfor
the satisfaction of the judgment and the
failureoftheSherifftoenforceandsatisfy
thejudgmentofthecourt.
Note: Resort to the remedies must be in the order

statedabove.(Art.1177,NCC)
Q: Saturnino was the registered owner of two

parcelsofland.TheAdorableswerelesseesofa
portion of Lot No. 1. Saturnino and his son,
Francisco, obtained a loan from Salvador, in
considerationofwhichtheypromisedtotransfer
thepossessionandenjoymentofthefruitsofLot
No.2.SaturninosoldtoFranciscopartofLotNo.
1, which Francisco sold to Jose Ramos. The
portion of land being rented by Salvador was
includedintheportionsoldtoRamos.Thedeeds
of sale evidencing the conveyances were not
registered in the office of the register of deeds.
WhenSaturninoandFranciscofailedtopaytheir
loan,ademandletterwassenttoFrancisco,but
herefusedtopay.
When Salvador learned of the sale made by

Francisco to Ramos, Salvador filed a complaint
for the annulment or rescission of the sale on
the ground that the sale was fraudulently
prepared and executed. Can Salvador file an
action for the rescission or annulment of the
sale?
A: No. As creditor, Salvador does not have such

material interest as to allow him to sue for
rescission of the contract of sale. At the outset,
Salvadors right against Francisco and Ramos is
only a personal right to receive payment for the
loan; it is not a real right over the lot subject of
thedeedofsale.
Thesalewasnotmadeinfraudofcreditors.Art.
1177 of the Civil Code provides for successive
CIVILLAWTEAM:
OBLIGATIONS
measuresthatmustbetakenbyacreditorbefore
he may bring an action for rescission of an
allegedly fraudulent sale. Without availing of the
first and second remedies, Salvador simply
undertook the third measure and filed an action
forannulmentofthesale.Thiscannotbedone.
Anactionforrescissionisasubsidiaryremedy;it
cannot be instituted except when the party
suffering damage has no other legal means to
obtain reparation for the same. Considering
Article 1380 of the Civil Code, which states that
contractvalidlyagreeduponmayberescindedin
thecasesestablishedbylaw,Salvador,etal.have
not shown that they have no other means of
enforcingtheircredit.(Adorable,et.al.v.CA,G.R.
No.119466,Nov.25,1999)
Q:Whilethecasewaspending,Felixdonatedhis
of parcels of land in favor of his children.
JudgmentwasrenderedagainstFelix.Whenthe
sheriff, accompanied by counsel of Philam,
sought to enforce the alias writ of execution,
they discovered that Felix no longer had any
property and that he had conveyed the subject
properties to his children. Thus, Philam filed an
accionpauliana for rescission of the donations.
Felix countered that an action for rescission of
the donation had already prescribed since the
timeofprescriptionhastorunfromthedateof
registration. Has the action filed by Philam
prescribed?
A: No. Philam only learned about the unlawful

conveyancesmadebyFelixmorethanfouryears
after the donations were effected, when its
counselaccompaniedthesherifftoButuanCityto
attach the properties. There they found that he
nolongerhadanypropertiesinhisname.Itwas
onlythenthatPhilam'sactionforrescissionofthe
deedsofdonationaccruedbecausethenitcould
besaidthatPhilamhadexhaustedalllegalmeans
to satisfy the trial court's judgment in its favor.
Since Philam filed its complaint for accion
paulianaagainstpetitionersbarelyamonthfrom
its discovery that Felix had no other property to
satisfythejudgmentawardagainsthim,itsaction
forrescissionofthesubjectdeedsclearlyhadnot
yet prescribed.(Khe Hong Cheng v. CA,G.R. No.
144169,Mar.28,2000)
Q:Whatissubstituteperformance?
A: It is a remedy of the creditor in case of non

performancebythedebtor;whereanotherparty
performstheobligationorthesameisperformed
attheexpenseofthedebtor.
Q:Whenmaytherebesubstituteperformance?
A:
1. Positivepersonalobligation:
a. If not purely personal
substitute performance; the
obligation shall be executed
at debtors cost if he fails to
doit.(Art.1167,NCC)
b. Purelypersonalnosubstitute
performance
may
be
demanded because of the
personal qualifications taken
into consideration. The only
remedyisdamages.
2. Realobligation:
a. Generic thing substitute
performance;deliverymaybe
made by a person other than
the debtor since the object is
merelydesignatedbyitsclass
or genus. The creditor may
ask that the obligation be
complied with at the expense
ofthedebtor.(1165,NCC)
b. Specific
thing
specific
performance
may
be
demanded, that is, the
creditor may compel the
debtortomakethedelivery.
2.RESCISSION
Q:WhatisrescissionunderArticle1191?
A: It refers to the cancellation of the contract or

reciprocalobligationincaseofbreachonthepart
ofone,whichbreachisviolativeofthereciprocity
between the parties. This is properly called
resolution.
Note: The debtor is liable with all his property,

present and future, for the fulfillment of his
obligations, subject to the exemptions provided by
law (De Leon, Obligations and Contracts, 2003 ed,
p.71)
Q: To what kind of obligation is resolution

available?
A: Reciprocal obligation, since resolution is

impliedtherein.
Note: The rescission under Art. 1380 is rescission

basedonlesionorfrauduponcreditors.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:Whomaydemandresolution?
A:Injuredparty.
Q: May the injured party demand resolution

afterheelectsspecificperformance?
A:
GR:No.Hisrightisnotconjunctive,thus,hemay
not choose both remedies of resolution and
specificperformance.
XPN:Yes,ifspecificperformanceshouldbecome
impossible
Q:Whendoesliabilityfordamagesarise?
A:ThoseliableunderArt.1170shallpaydamages
onlyifasidefromthebreachofcontract,
prejudiceordamagewascaused.(Bergv.Teus,
G.R.No.L6450,Oct30,1954)
Q:Whatarethekindsofdamages?
A:
1. Moral
2. Exemplary
3. Nominal
4. Temperate
5. Actual
6. Liquidated4.SUBSIDIARYDEMEDIES
Q: What are the requisites of accion

subrogatoria?
A:
1. Thedebtorsassetsmustbeinsufficient
tosatisfyclaimsagainsthim
2. The creditor must have pursued all
properties of the debtor subject to
execution
3. The right of action must not be purely
personal
4. The debtor whose right of action is
exercised must be indebted to the
creditor.
Q:Whataretherequisitesofaccionpauliana?
A:
1. Defendantmustbeindebtedtoplaintiff
2. The fraudulent act performed by the
debtorsubsequent to the contractgives
advantagetoanother
3. Thecreditorisprejudicedbysuchact.
4. Thecreditormusthavepursuedall
propertiesofthedebtorsubjectto
execution
5. Thecreditorhasnootherlegalremedy.
Q:Whatisacciondirecta?
A:Itistherightofthelessortogodirectlyagainst
thesublesseeforunpaidrentsofthelessee.
Note: Under Art. 1652 of the Civil Code, the

sublessee is subsidiarily liable to the lessor for any
rentduefromthelessee.
VII.KINDSOFCIVILOBLIGATIONS
Q:Whatarethekindsofcivilobligations?
A:
1. Pureobligations;
2. Conditionalobligations;
3. Obligationswithaperiodorterm;and
4. AlternativeorFacultativeobligations
Q:Differentiateacivilobligationfromanatural
obligation.
A:
CIVILOBLIGATION
NATURALOBLIGATION
Astobindingforce
Arisesfromequityand
Arisesfrompositivelaw
justice
Astoenforcementincourt
Cannotbeenforcedin
court.Itdepends
Canbeenforcedbycourt
exclusivelyuponthe
action
goodconscienceofthe
debtor.
A.PUREOBLIGATIONS
Q:Whatispureobligation?
A:Onewhoseeffectivityorextinguishmentdoes
not depend upon the fulfillment or non
fulfillment of a condition or upon the expiration
ofaperiodandisdemandableatonce.(Art.1179,
NCC)
B.CONDITIONALOBLIGATIONS
Q:Whatisconditionalobligation?
A: It is an obligation subject to a condition and

the effectivity of which is subordinated to the
fulfillment or nonfulfillment of a future and
uncertain event, or upon a past event unknown
totheparties.
CIVILLAWTEAM:
OBLIGATIONS
Q: Ramon, the judicial administrator of the
estate of Juan, found out that Rodriguez had
enlarged the area of the land which he
purchased from Juan before his death. Thus,
Ramon demanded Rodriguez to vacate the
portion allegedly encroached by him. Rodriguez
refused and contested there was indeed a
conditional sale with the balance of the
purchase price payable within five years from
the execution of the deed of sale. Ramon then
filedanactionforrecoveryofpossessionofthe
disputedlot.Isthecontractofsaleaconditional
one?
A: No. The stipulation that the "payment of the

fullconsiderationbasedonasurveyshallbedue
and payable in 5 years from the execution of a
formal deed of sale" is not a condition which
affects the efficacy of the contract of sale. It
merely provides the manner by which the full
consideration is to be computed and the time
within which the same is to be paid. But it does
not affect in any manner the effectivity of the
contract. (Heirs of San Andresv.Rodriguez, G.R.
No.135634,May31,2000)
Q:Distinguishperiodfromcondition.
A:
PERIOD
CONDITION
AstoTime
Mayrefertopastevent
Referstothefuture
unknowntotheparties
AstoFulfillment
Itwillhappenatan
exactdateoratan
Mayormaynothappen
indefinitetime,butis
suretoarrive
AstoitsInfluenceontheObligationtobeFulfilledor
Performed
Maygiverisetoan
Noeffectorinfluence
obligation(suspensive)
upontheexistenceof
orthecessationofone
theobligationbutonlyin
alreadyexisting
itsdemandabilityor
(resolutory)
performance
1.SUSPENSIVECONDITION
Q:Whatisasuspensivecondition?
A: A condition the fulfillment of which will give

risetotheacquisitionofaright.
Q: Distinguish suspensive from resolutory

conditions.
A:
RESOLUTORY
CONDITION
EffectofFulfillment
Obligationarisesor
Obligationis
becomeseffective
extinguished
EffectofNonfulfillment
Ifnotfulfilled,no
Ifnotfulfilled,juridical
juridicalrelationis
relationisconsolidated
created
WhenRightsareAcquired
Rightsarenotyet
Rightsarealready
acquired,butthereis
acquired,butsubjectto
hopeorexpectancythat
thethreatordangerof
theywillsoonbe
extinction
acquired
SUSPENSIVECONDITION
Q: In cases of obligations with a suspensive

condition, what are the effects of loss,
deterioration, and improvements in real
obligations?
A:
WITHDRSFAULT
WITHOUTDRSFAULT
Loss
DRpaysdamages
Obligationextinguished
Deterioration
CR chooseb/w
rescissionofobligation
ImpairmentbornebyCR
orfulfillment(with
indemnityfordamagesin
eithercase)
Improvement
1. By the things nature or bytime inure to the
benefitoftheCR
2. AtthedebtorsexpenseDRshallhavenoright
otherthanthatgrantedtoausufructuary
Q:WhataretherequisitesforArt.1189toapply?
A:
1. Mustbearealobligation;
2. Objectisaspecific/determinatething;
3. Obligation is subject to a suspensive
condition;
4. Theconditionisfulfilled;and
5. There is loss, deterioration or
improvement of the thing during the
pendency of the happening of the
condition.
Note: The same conditions apply in case of an

obligorinobligationswitharesolutorycondition.In
suchcases,thethirdrequisitemustread,subjectto
aresolutorycondition.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:GSISapprovedtheapplicationofAgcaoilifor
the purchase of a house and lot in the GSIS
Housing Project; it is subject to the condition
that he should immediately occupy the house.
But he could not because the house was
uninhabitable. He paid the first installment and
otherfeesbutrefusedtomakefurtherpayment
until GSIS had made the house habitable. GSIS
refused and opted to cancel the award and
demand the vacation by Agcaoili of the
premises.CanGSIScancelthecontract?
A: No. There was a perfected contract of sale

betweentheparties;therehadbeenameetingof
the minds upon the purchase by Agcaoili of a
determinatehouseandlotatadefinitepriceand
fromthatmoment,thepartiesacquiredtheright
to reciprocally demand performance. Based on
their contact, it can only be understood as
imposing on GSIS an obligation to deliver to
Agcaoiliareasonablyhabitabledwellinginreturn
for his undertaking to pay the stipulated price.
Since GSISdid not fulfill that obligation, and was
notwillingtoputthehouseinhabitablestate,it
cannot invoke Agcaoili's suspension of payment
of amortizations as cause to cancel the contract
betweenthem.
Note: In reciprocal obligations, neither party incurs

indelayiftheotherdoesnotcomplyorisnotready
to comply in a proper manner with what is
incumbent upon him. (Agcaoili v. GSIS, G.R. No. L
30056,Aug.30,1988)
2.RESOLUTORYCONDITION
Q:Whatisaresolutorycondition?
A:Aconditionwheretherightsalreadyacquired
arelostuponfulfillmentofthecondition.
Q:Whataretheeffectsoffulfillmentof
resolutorycondition?
A:
1. Realobligations:
a. Thepartiesshallreturntoeach
otherwhattheyhavereceived.
b. Obligationisextinguished.
c. Incaseoftheloss,deteriorationor
improvementofthething,Art.
1189,withrespecttothedebtor,
shallbeappliedtothepartywhois
boundtoreturn.
2. Personalobligationsthecourtsshall
determine,ineachcase,theretroactive
effectoftheconditionthathasbeen
compliedwith.
Q:Xdonatedaparceloflandtothemunicipality
of Tarlac under a condition that a public school
shall be erected and a public park be made
within6monthsfromthedateoftheratification
of the donation by the parties. After the
registration of the said donation, X sold the
same land to Y. Thereafter, Ybrought an action
against the Province of Tarlac, alleging that the
conditions of the donation is a condition
precedent, thus, the municipality of Tarlac did
not acquire ownership over the land when it
failed to comply with the saidcondition. Is the
contentionofYcorrect?
A: No. In this case, the condition could not be

complied with except after giving effect to the
donation.TheMunicipalityofTarlaccouldnotdo
anyworkonthedonatedlandifthedonationhad
not really been effected, because it would be an
invasion of another's title, for the land would
havecontinuedtobelongtothedonorsolongas
the condition imposed was not complied with.
Thus,consideringthattheconditionitselfwasfor
apublicschooltobebuiltmeansthatownership
of the land was already with the Municipality.
(Parksv.ProvinceofTarlac,G.R.No.L24190,July
13,1926)
Q: The late Don Lopez, Sr., who was then a

member of the Board of Trustees of CPU,
executed a deed of donation in favor of the
latterofaparceloflandsubjecttothecondition
thatitshallbeutilizedfortheestablishmentand
use of a medical college. However, the heirs of
Don Lopez, Sr.,filed an actionfor annulment of
the donation, reconveyance and damages
againstCPUallegingthatCPUhadnotcomplied
withtheconditionsofthedonation.
Are the conditions imposed resolutory or

suspensive?
A: Under Art. 1181 of the Civil Code, on

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. Thus, when a person donates land to
another on the condition that the latter would
build upon the land a school, the condition
imposed was not a condition precedent or a
suspensive condition but a resolutory one. It is
notcorrecttosaythattheschoolhousehadtobe
constructed before the donation became
effective,thatis,beforethedoneecouldbecome
the owner of the land, otherwise, it would be
invading the property rights of the donor. The
donationhadtobevalidbeforethefulfillmentof
CIVILLAWTEAM:
OBLIGATIONS
the condition. If there was no fulfillment or
compliancewiththecondition,thedonationmay
now be revoked and all rights which the donee
mayhaveacquiredunderitshallbedeemedlost
andextinguished.(CentralPhilippineUniversityv.
CA,G.R.No.112127,July17,1995)
Q: What does a constructive fulfillment of a

conditionentail?
A:When the debtor actually prevents the

fulfillment of the condition, then said condition
shallbedeemedfulfilled.
2.POTESTATIVECONDITION
Q:Whenisaconditionsaidtobepotestative?
A: When the condition depends upon the will of

oneofthecontractingparties.
Q:Doesaconditionwhichdependsuponthewill
of the debtor invalidate both the condition and
the obligation? What about a condition which
dependsuponthewillofthecreditor?
A:Yes.Thisisbecauseitsvalidityandcompliance
is left to the will of the debtor, and cannot
therefore be easily demanded. But if the
conditionisapreexistingone,onlythecondition
isvoid,leavingtheobligationitselfvalid.Further,
if the condition is resolutory, it is valid because
whatislefttothesolewillofthedebtorisnotthe
existence or the fulfillment of the obligation but
merelyitsextinguishment.
If the fulfillment depends upon the will of the

creditor, in any case, both the condition and the
obligationarevalid.
Q: What are the effects of the fulfillment of a

suspensivecondition?
A:
1. Realobligations:
GR: Effects retroact to the day of
constitutionoftheobligation.
XPN:Noretroactivityasto;
a.fruits
b.interests
XPN to the XPN: There may be

retroactivity as to the fruits and
interestsinunilateralobligationsifsuch
intentionappears
2. Personal obligations the court

determinestheretroactiveeffectofthe
conditionfulfilled.
Q: What are the effects of the fulfillment of a

resolutorycondition?
A:
1. Realobligations:
a. obligationisextinguished
b. Parties shall return to each other
whattheyhavereceived.
2. Personal obligations the court
determinestheretroactiveeffectofthe
conditionfulfilled.
Q:Whataretheothertypesofconditions?
A:CaMPNIDCAPI
1. Casualtheperformanceorfulfillment
of the condition depends upon chance
and/orthewillofathirdperson
2. Mixed the performance or fulfillment
of the condition depends partly upon
thewillofapartytotheobligationand
partlyuponchanceand/orthewillofa
thirdperson
3. Positiveinvolvesthedoingofanact
4. Negative involves the omission of an
act
5. Divisible is susceptible of partial
performance
6. Indivisibleisnotsusceptibleofpartial
performance
7. Conjunctive there are several
conditions in an obligation all of which
mustbeperformed
8. Alternative there are several
conditionsinanobligationbutonlyone
mustbeperformed
9. Possible is capable of fulfillment
according to the nature, law, public
policyorgoodcustoms
10. Impossibleisnotcapableoffulfillment
according to nature, law, public policy
orgoodcustoms(Art.1183,NCC)
Q: What is the effect of an impossible or

unlawfulcondition?
A:
GR: Impossible conditions annul the
obligation which depends upon the parties
butnotofathirdperson.
XPNs:PDDoNT.
1. Preexistingobligation
2. ObligationisDivisible
3. InsimpleorremuneratoryDonations
4. In case of conditions Not to do an
impossiblething
5. InTestamentarydispositions
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Note: In the foregoing, the obligations remain

valid,onlytheconditionisvoidanddeemedto
havenotbeenimposed.Itisapplicableonlyto
obligations not to do and gratuitous
obligations.
Q: When will the effect of fulfillment of a

conditionretroact?
A:
1. Inanobligationtogiveitretroactsto
the day of the constitutionof the
obligation
2. Inanobligationtodoornottodothe
court may determine to what date
retroactivityshallbeallowed,oritmay
even refuse to permit retroactivity
(Tolentino,Civil CodeofthePhilippines,
Vol.IV,2002ed,p.166)
C.OBLIGATIONSWITHAPERIOD
Q:Whatisanobligationwithaperiodoraterm?
A: It is an obligation whose demandability or

extinguishment is subject to the expiration of a
periodoraterm.(Art.1193,NCC)
Q: What are the requisites of a valid period or

term?
A:
1. Future
2. Certain
3. Possible,legallyandphysically
Q:Isthestatementofadebtorthathewillpay
whenhismeanspermithimtodosorelatetoa
periodoracondition?Issuchastatementvalid
considering that the same is left to the will of
thedebtor?
A:Whenthedebtorbindshimselftopaywhenhis
means permit him to do so, the obligation is
deemed with a period or term. This is valid
because it is not the payment itself that is
dependent upon the will of the debtor, but the
momentofpayment.
As the time of payment is not fixed, the court

mustfixthesamebeforeanyactionforcollection
may be entertained, unless, the prior action of
fixing the term or period will only be a formality
andwillservenopurposebutdelay.
Q:Forwhosebenefitistheperiodconstituted?
A:
GR:Whenaperiodhasbeenagreeduponfor
the performance or fulfillment of an
obligation, it is presumed to have been
established for the benefit of both the
creditorandthedebtor.
XPN: When it appears from the tenor of the

period or other circumstances that it was
established for the benefit of one of the
parties.
Q: What is the effect of the term being for the

benefitofeithertheCRortheDR?
A:
1. WhenitisforthebenefitoftheCreditor
Creditor
may
demand
the
performance of the obligation at any
time but the DR cannot compel him to
accept payment before the expiration
oftheperiod(e.g.ondemand)
2. WhenitisforthebenefitoftheDebtor
Debtor may oppose any premature

demand on the part of the CR for
performance of the obligation, or if he
sodesires,hemayrenouncethebenefit
of the period by performing his
obligationinadvance.(Manresa)
Q:Whatistheeffectofafortuitouseventinan
obligationwithaperiod?
A:Itonlyrelievesthecontractingpartiesfromthe
fulfillment of their respective obligation during
thetermorperiod.
Q:Whenmaythecourtfixtheperiod?
A:
1. If the obligation does not fix a period,
butfromitsnatureandcircumstancesit
can be inferred that a period was
intendedbytheparties
2. If the duration of the period depends
uponthewilloftheDR
3. In case of reciprocal obligations, when
thereisajustcauseforfixingtheperiod
4. IftheDRbindshimselfwhenhismeans
permithimtodoso
CIVILLAWTEAM:
OBLIGATIONS
Q:Whenmayadebtorlosehisrighttomakeuse
oftheperiod?
A:
1. Insolvency of the DR, unless security is
provided
2. Didnotdeliversecuritypromised
3. Impaired security through his own acts
or through fortuitous event, unless he
givesanewsecurityequallysatisfactory
(if impairment is without the fault of
DR,heshallretaintheright)
4. Violatesundertakinginconsiderationof
extensionofperiod
5. DR attempts to abscond (Art. 1198,
NCC)
D.ALTERNATIVEOBLIGATION
Q: Distinguish facultative from alternative

obligations.
A:
FACULTATIVE
OBLIGATIONS
Fortuitouslossextinguishes
theobligation
Culpablelossobligesthe
debtortodeliversubstitute
prestationwithoutliability
todebtor
Choicepertainsonlyto
debtor
Onlyoneobjectisdue
Maybecompliedwithby
substitutionofonethatis
due
Ifprincipalobligationis
void,thecreditorcannot
compeldeliveryofthe
substitute
Ifthereisimpossibilityto
delivertheprincipalthingor
prestation,theobligationis
extinguished,evenifthe
substituteobligationisvalid
Lossofsubstitutebefore
thesubstitutionthroughthe
faultofthedebtordoesnt
makehimliable
ALTERNATIVE
OBLIGATIONS
Fortuitouslossofall
prestationwillnot
extinguishtheobligation
Culpablelossof
anyobjectduewillgive
risetoliabilitytodebtor
GR:Choicepertainto
debtor
XPN:Expresslygranted
tocreditororthird
person
Severalobjectsaredue
Maybecompliedwith
byfulfillinganyofthose
alternatelydue
Ifoneprestationisvoid,
theothersfreefrom
vicespreservethe
validityoftheobligation
Ifvariousprestationsare
impossibletoperform
exceptone,thisone
mustbedelivered.
Ifallprestationsare
impossibletoperform,
theobligationis
extinguished
Wherethechoiceis
giventothecreditor,the
lossofthealternative
throughthefaultofthe
debtorrendershim
liablefordamages
Q: In alternative obligations, when does the

choicemadetakeeffect?
A: The choice made takes effect only upon

communication of the choice to the other party
and from such time the obligation ceases to be
alternative(Art.1205,NCC).
Note:Thenoticeofselectionorchoicemaybeinany
formprovideditissufficienttomaketheotherparty
know that the election has been made. (Tolentino,
CivilCodeofthePhilippines,2002ed,p.205)
Q:DoesthechoicemadebytheDRrequirethe
concurrenceoftheCR?Whathappenswhen
throughtheCRsfault,selectionisdeemed
impossible?
A:No.Toholdotherwisewoulddestroythevery
natureoftherighttoselectgiventotheDR.Once
a choice is made, it can no longer be renounced
andthepartiesareboundthereto.
When choice is rendered impossible through the

CRsfault, theDRmaybringanactionto rescind
thecontractwithdamages(Art.1203,NCC).
Q: What are the limitations on the right of

choiceofthedebtor?
A:Debtorcannotchooseprestationswhichare:
1. Impossible;
2. Unlawful;and
3. could not have been the object of the
obligation.
Q: When is an alternative obligation converted

toasimpleobligation?
A:When:
1. thepersonwhohasarightofchoicehas
communicatedhischoice;or
2. onlyoneispracticable.(Art.1202,NCC)
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q: What are the effects of loss of objects of

alternativeobligations?
A:
Allare
lost
Some
butnot
allare
lost
Only
one
remains
Allare
lost
Some
butnot
allare
lost
Only
one
remains
DUETO
DUETODEBTORS
FORTUITOUS
FAULT
EVENT
ChoiceBelongstoDebtor
CRshallhavearight
toindemnifyfor
damagesbasedon
DRreleased
thevalueofthelast
fromthe
thingwhich
obligation
disappeared/service
whichbecome
impossible
DRshalldeliverthat
DRshalldeliver
whichheshallchoose
thatwhichhe
fromamongthe
shallchoose
remainderwithout
fromamong
damages
theremainder
Deliverthatwhichremains
ChoiceBelongstoCreditor
CRmayclaimthe
DRreleased
price/valueofanyof
fromthe
themwithindemnity
obligation
fordamages
CRmayclaimanyof
thosesubsisting
DRshalldeliver
withoutarightto
thatwhichhe
damagesOR
shallchoose
price/valueofoneof
fromamong
thoselostwithright
theremainder
todamages
Deliverthatwhichremains.Incaseof
faultofDR,CRhasarighttoindemnity
fordamages
VIII.JOINTANDSOLIDARYOBLIGATIONS
Q:Whatarejointobligations?
A:Itiswheretheentireobligationistobepaidor
performed proportionately by the debtors (Art.
1208,NCC).
Q:Whataresolidaryobligations?
A: It is where each of the debtors obliges to pay

theentireobligation,andwhereeachoneofthe
creditorshastherighttodemandfromanyofthe
debtors, the payment or fulfillment of the entire
obligation (Art. 1207, NCC; Pineda, Obligations
andContracts,2000ed,p.139).
Q:Distinguishjointfromsolidaryobligation.
A:
JOINTOBLIGATION
Presumedbylaw
SOLIDARYOBLIGATION
Notpresumed.Mustbe
expresslystipulatedby
theparties,orwhenthe
laworthenatureofthe
obligationrequires
solidarity.(Art.1207,
NCC)
Eachdebtorisliableonly
foraproportionatepart
oftheentiredebt
Eachdebtorisobligedto
paytheentireobligation
Eachcreditor,ifthereare
several,isentitledonly
toaproportionatepart
ofthecredit
Eachcreditorhasthe
righttodemandfrom
anyofthedebtors,the
paymentorfulfillmentof
theentireobligation
(Tolentino,CivilCodeVol
IV,1999ed.p.217)
Q: What is the rule as regards the joint or

solidarycharacterofanobligation?
A:
GR: When two or more creditors or two or
more debtors concur in one and the same
obligation, the presumption is that the
obligationisjoint.
XPNs: The obligation shall be solidary when:

ELNCJ
1. Expressly stipulated that there is
solidarity;
2. Lawrequiressolidarity;
3. Nature of the obligation requires
solidarity;
4. Charge or condition is imposed upon
heirs or legatees and the will expressly
makes the charge or condition in
solidum(Manresa);or
5. solidary responsibility is imputed by a
upon
several
final
Judgment
defendants.(Gutierrez v. Gutierrez, 56
Phil177)
Q:ChuaboughtandimportedtothePhilippines
dicalciumphosphate.Whenthecargoarrivedat
thePortofManila,itwasdiscoveredthatsome
wereinapparentbadcondition.Thus,Chuafiled
withSmith,Bell,andCo.,Inc.,theclaimagentof
First Insurance Co., a formal statement of claim
for the loss. No settlement of the claim having
been made, Chua then filed an action. Is Smith,
Bell, and Co., solidarily liable upon a marine
insurance policy with its disclosed foreign
principal?
CIVILLAWTEAM:
OBLIGATIONS
A: No. Article 1207 of the Civil Code clearly
provides that "there is a solidary liability only
whentheobligationexpresslysostates,orwhen
the law or the nature of the obligation requires
solidarity." The wellentrenched rule is that
solidary obligation cannot lightly be inferred. It
must be positively and clearly expressed. (Smith,
Bell & Co., Inc. v. CA,G.R. No. 110668, Feb. 6,
1997)
Q: The labor arbiter rendered a decision, the

fallo of which states that the following
respondents as liable, namely: FCMC, Sicat,
Gonzales, Chiu Chin Gin, Lo Kuan Chin, and
INIMACO. INIMACO questions the execution,
alleging that the alias writ of execution altered
and changed the tenor of the decision by
changingtheirliabilityfromjointtosolidary,by
the insertion of the words "AND/OR". Is the
liability of INIMACO pursuant to the decisionof
thelaborarbitersolidaryornot?
A: INIMACO's liability is not solidary but merely

joint. Wellentrenched is the rule that solidary
obligation cannot lightly be inferred. There is a
solidary liability only when the obligation
expressly so states, when the law so provides or
whenthenatureoftheobligationsorequires.In
the dispositive portion of the labor arbiter, the
word "solidary" does not appear. The said fallo
expressly states the following respondents
thereinasliable,namely:FilipinasCarbonMining
Corporation, Sicat, Gonzales, Chiu Chin Gin, Lo
Kuan Chin, and INIMACO. Nor can it be inferred
therefromthattheliabilityofthesixrespondents
in the case below is solidary, thus their liability
shouldmerelybejoint.(INIMACOv.NLRC,G.R.No.
101723,May11,2000)
A.JOINTOBLIGATIONS
Q: What are the legal consequences if the

obligationisjoint?
A:
1. Each debtor is liable only for a
proportionatepartoftheentiredebt;
2. Each creditor, if there are several, is
entitledonlytoaproportionatepartof
thecredit;
3. Thedemandmadebyonecreditorupon
onedebtor,produceseffectsofdefault
onlyasbetweenthem;
4. Interruption of prescription caused by
thedemandmadebyonecreditorupon
one debtor, will NOT benefit the co
creditorsorthecodebtors;
5.
Insolvencyofadebtorwillnotincrease
theliabilityofhiscodebtors;
6. Vicesofeachobligationemanatingfrom
a particular debtor or creditor will not
affecttheothers;and
7. In indivisible or joint obligation, the
defenseofresjudicataofonedoesnot
extendtotheothers.
B.JOINTINDIVISIBLEOBLIGATIONS
Q: What are the different permutations of joint

indivisibleobligations?Whataretheireffects?
A:
1. If there are two or more debtors,
compliancewiththeobligationrequires
the concurrence of all the debtors,
although each for his own share. The
obligation can be enforced only by
precedingagainstallofthedebtors.
2. If there are two or more creditors, the
concurrence or collective act of all the
creditors, although each of his own
share, is also necessary for the
enforcementoftheobligation.
3. Eachcreditisdistinctfromoneanother;
therefore a joint debtor cannot be
requiredtopayfortheshareofanother
withdebtor,althoughhemaypayifhe
wantsto.
4. In case of insolvency of one of the
debtors, the others shall not be liable
forhisshares.Toholdotherwisewould
destroy the joint character of the
obligation.
Q: What is the effect of breach of a joint

indivisibleobligationbyonedebtor?
A:Ifoneofthejointdebtorsfailstocomplywith
his undertaking, the obligation can no longer be
fulfilledorperformed.Itistheconvertedintoone
ofindemnityfordamages.InnocentjointDRshall
not contribute to the indemnity beyond their
correspondingshareoftheobligation.
C.SOLIDARYOBLIGATIONS
Q:Whatistheeffectofsolidaryobligation?
A: Each one of the debtors is obliged to pay the

entire obligation, and each one of the creditors
hastherighttodemandfromanyofthedebtors
thepaymentorfulfillmentoftheentireobligation
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:Joey,JovyandJojoaresolidarydebtorsunder
a loan obligation of P300, 000.00 which has
fallendue.Thecreditorhas,however,condoned
Jojo's entire share in the debt. Since Jovy has
becomeinsolvent,thecreditormakesademand
onJoeytopaythedebt.
1. How much, if any, may Joey be

compelledtopay?
2. To what extent, if at all, can Jojo be
compelled by Joey to contribute to
suchpayment?
A:
1. Joey can be compelled to pay only the
remainingbalanceofP200,000, inview
of the remission of Jojos share by the
creditor.(Art.1219,NCC)
2. Jojo can be compelled by Joey to
contribute P50,000. When one of the
solidary debtors cannot, because of his
insolvency, reimburse his share to the
debtorpayingtheobligation,suchshare
shall be borne by all his codebtors, in
proportion to the debt of each.(par. 3,
Art.1217,NCC)
Sincetheinsolventdebtor'ssharewhichJoey
paid was Pl00,000, and there are only two
remaining debtors namely Joey and Jojo
these two shall share equally the burden of
reimbursement.Jojomaythusbecompelled
by Joey to contribute P50,000. (1998 Bar
Question)
Q:Whatarethekindsofsolidaryobligation?
A:
1. Passive solidarity onthe part of the
debtors
2. Active solidarity on thepart of the
creditors
3. Mixedsolidarityonbothsides
Q:Distinguishsolidarityfromindivisibility.
A:
INDIVISIBILITY
SOLIDARITY
Referstothevinculum
existingbetweenthe
subjectsorparties
Referstotheprestation
orobjectofthecontract
Doesnotrequire
pluralityofsubjectsor
parties
Incaseofbreach,itis
convertedtooneof
indemnityfordamages
andtheindivisibilityof
theobligationis
terminated
Requiresthepluralityof
partiesorsubjects
Incaseofbreach,the
liabilityofthesolidary
debtorsfordamages
remainssolidary
Q:Whataretherulesinasolidaryobligation?
A:
1. Anyone of the solidary creditors may
collect or demand payment of whole
obligation; there is mutual agency among
solidarydebtors(Arts.1214,1215)
2. Any of the solidary debtor may be
required to pay the whole obligation; there
is mutual guaranty among solidary debtors
(Arts.1216,1217,1222)
3. Each one of solidary creditors may do
whatever maybe useful to the others, but
notanythingprejudicialtothem(Art.1212);
however, any novation, compensation,
confusion or remission of debt executed by
any solidary creditor shall extinguish the
obligation without prejudice to his liability
forthesharesoftheothersolidarycreditors.
Q:Incasesofsolidarycreditors,mayoneactfor
all?Whatarethelimitations?
A: Yes. However, while each one of the solidary

creditors may execute acts which may be useful
or beneficial to the others, he may not do
anything which may be prejudicial to them. (Art.
1212,NCC)
Note: Prejudicial acts may still have valid legal

effects,buttheperformingcreditorshallbeliableto
his cocreditors. (Pineda, Obligations and Contracts,
2000ed,p.157)
Q: What are the effects of assignment of rights

inasolidaryobligation?
A:
GR: Solidary creditor cannot assign his right
because it is predicated upon mutual
confidence,meaningpersonalqualificationof
each creditor had been taken into
consideration when the obligation was
constituted.(Art.1213,NCC)
XPNs:
1. Assignmenttococreditor;or
2. Assignment is with consent of co
creditor.
CIVILLAWTEAM:
OBLIGATIONS
Q: To whom must payment be made in a
solidaryobligation?
A:
GR:Toanyofthesolidarycreditors.
XPN: If demand, judicial or extrajudicial, has

been made by one of them, payment should
bemadetohim.(Art.1214,NCC)
D.DIVISIBLEANDINDIVISIBLEOBLIGATIONS
Q: What is the primary distinction between

divisibleandindivisibleobligations?
A:
DIVISIBLE
INDIVISIBLE
Susceptibilityofan
obligationtobe
performedpartially
Nonsusceptibility tobe
performedpartially
Partialperformanceis
tantamounttonon
performance
Q: What is the true test in determining

divisibility?
A:Whetherornottheprestationissusceptibleof
partial performance, not in the sense of
performance in separate or divided parts, but in
the sense of the possibility of realizing the
purposewhichtheobligationseekstoobtain.Ifa
thing could be divided into parts and as divided,
itsvalueisimpaireddisproportionately,thatthing
is indivisible. (Pineda, Obligations and Contracts,
2000ed,p.174)
Q:Whenmayanobligationtodeliveradivisible
thingbeconsideredindivisible?
A:
1. Whenthelawsoprovides;or
rd
2. By stipulation of the parties.(3 par.,
Art.1255,NCC)
Q: What is the effect of illegality of a part of a

contract?
A:
1. Divisible contract illegal part is void
and unenforceable. Legal part is valid
andenforceable.(Art.1420,NCC)
2. Indivisible contract entire contract is
indivisibleandunenforceable.
Q:Whatistheeffectofpartialperformancein
indivisibleobligation?
A:Itistantamounttononperformance.(Pineda,
E.OBLIGATIONSWITHAPENALCLAUSE
Q:Whatisapenalclause?
A: It is an accessory obligation attached to the

principal obligation to assure greater
responsibilityincaseofbreach.
Note: Proof of actual damages suffered by the

creditor is not necessary in order that the penalty
maybedemanded.(Art.1228,NCC)
Q: What is the effect of incorporating a penal

clauseinanobligation?
A:
GR: The penalty fixed by the parties is a
compensation or substitute for damages in
caseofbreach.
XPNs:Damagesshallstillbepaidevenifthere
isapenalclauseif:
1. thereisastipulationtothecontrary
2. the debtor refuses to pay the agreed
penalty
3. the debtor is guilty of fraud in the
fulfillmentoftheobligation.(Art.1126,
NCC)
Note:Thenullityofthepenalclausedoesnotcarry
withitthatoftheprincipalobligation.
The nullity of the principal obligation carries with it
thatofthepenalclause.(Art.1230,NCC)
Q:Whenmaypenaltybereducedbythecourts?
A:PIU
1. Partialperformanceoftheobligation;
2. Irregularperformanceoftheobligation;
or
3. PenaltyisUnconscionableevenifthere
hasbeennoperformance.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
IX.EXTINGUISHMENTOFOBLIGATIONS
Q:Whatarethemodesofextinguishmentofan
obligation?
A:
1. Paymentorperformance
2. Lossofthethingdue
3. Condonationorremissionofdebt
4. Confusionormerger
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillmentofaresolutorycondition
10. Prescription(Art.1231,NCC)
Note:Theenumerationisnotexclusive.
MUTUALDESISTANCE
Q:Ifthepartiesmutuallydisagreeasregardsthe
obligation,mayitbecancelled?
A: Yes. That is in the nature of mutual

desistance which is a mode of extinguishing
obligations. It is a concept that derives from the
principlethatsincemutualagreementcancreate
a contract, mutual disagreement by the parties
can cause its extinguishment.(Saura v.
Development Bank of the Phils., G.R. No. 24968,
Apr.27,1972)
A.PAYMENTORPERFORMANCE
Q: Is the term payment, as used in the Code,

limitedtoappreciablesumsofmoney?
A:No. Payment may consist not only in the

delivery of money but also the giving of a thing
(other than money), the doing of an act, or not
doingofanact.
Q:Whatistenderofpayment?
A: Tender of payment is the definitive act of

offering the creditor what is due him or her,
together with the demand that the creditor
acceptthesame.
Note: There must be a fusion of intent, ability and

capability to make good such offer, which must be
absoluteandmustcovertheamountdue.(FEBTCv.
DiazRealtyInc.,G.R.No.138588,Aug.23,2001)
Q: Is the creditor bound to accept payment or

performancebyathirdperson?
A:
GR:No,thecreditorisnot.
XPNs:
1. Whenmadebyathirdperson whohas
interest in the fulfillment of the
obligation
2. Contrarystipulation
Q: What are the rights of a third person who

paidthedebt?
A:
1. With knowledge and consent of the
debtor:
a. can recover entire amount paid
(absolutereimbursement)
b. can be subrogated to all rights of
thecreditor
2. Without knowledge or against the will
ofthedebtorcanrecoveronlyinsofar
as payment has been beneficial to the
debtor
(right
of
conditional
reimbursement)
NOTE: 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. (Art.
1238,NCC)
Q:Statetherequisitesofavalidpayment.
A:CCPAD
1. Capacityofthepayor
2. Capacityofthepayee
3. Proprietyofthetime,place,mannerof
payment
4. Acceptancebythecreditor
5. Delivery of the full amount or the full
performanceoftheprestation
Q:Whatarethecharacteristicsofpayment?
A:
1. Integrity;
2. Identity;and
3. Indivisibility.
CIVILLAWTEAM:
OBLIGATIONS
INTEGRITY
Q:Howshouldperformancebemade?
A:
GR:Performanceshouldalwaysbeinfull.
XPNs:
1. Substantial performance performed in
goodfaith
2. Creditor accepts the performance
knowing its incompleteness or
irregularitywithoutprotestorobjection
3. Debt is partly liquidated and partly
unliquidated, but the liquidated part of
thedebtmustbepaidinfull
IDENTITY
Q: What should be given as payment of an

obligation?
A:
GR:Thingpaidmustbetheverythingdueand
cannot be another thing even if of same
qualityandvalue.
XPNs:
1. Dationinpayment
2. Novationoftheobligation
3. Obligationisfacultative
INDIVISIBILITY
Q: Can the debtor or creditor be compelled to

perform/acceptpartialprestations?
A:
GR: Debtor cannot be compelled by the
creditor to perform obligation in parts and
neithercanthedebtorcompelthecreditorto
acceptobligationinparts.
XPNs:When:
1. partial performance has been agreed
upon
2. part of the obligation is liquidated and
partisunliquidated
3. torequirethedebtortoperforminfull
isimpractical
Q: Is the acceptance by a creditor of a partial

paymentanabandonmentofitsdemandforfull
payment?
A: No. When creditors receive partial payment,

they are not ipso facto deemed to have
abandonedtheirpriordemandforfullpayment.
Toimplythatcreditorsacceptpartialpaymentas
complete performance of their obligation, their
acceptance must be made under circumstances
that indicate their intention to consider the
performance complete and to renounce their
claimarisingfromthedefect.
Note:WhileArticle1248oftheCivilCodestatesthat
creditors cannot be compelled to accept partial
payments,itdoesnotprohibitthemfromaccepting
such payments. (Selegna Management and
Development Corp. v. UCPB, G.R. No. 165662, May
30,2006)
Q:Towhompaymentshouldbemade?
A:Paymentshallbemadetothepersoninwhose
favor the obligation has been constituted, or his
successorininterest,oranypersonauthorizedto
receiveit.(Art.1240)
Q:Ispaymenttoanunauthorizedpersonavalid
payment?
A:
GR:Paymenttoanunauthorizedpersonisnot
avalidpayment.
XPNs:
1. Paymenttoanincapacitatedpersonif:
a. hekeptthethingdelivered,or
b. ithasbeenbeneficialtohim
2. Payment to a third person insofar as it
redoundedtothebenefitoftheCR
3. Paymentingoodfaithtothepossessor
ofcredit
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
SPECIALFORMSOFPAYMENT
Q:Whatarethespecialformsofpayment?
A:
CONCEPT
DationinPayment
AlienationbytheDRofaparticularpropertyinfavor
ofhisCR,withthelattersconsent,forthe
satisfactionoftheformersmoneyobligationtothe
latter,withtheeffectofextinguishingthesaid
moneyobligation(Pineda,Obligationsand
ApplicationofPayment
Designationoftheparticulardebtbeingpaidbythe
DRwhohastwoormoredebtsorobligationsofthe
samekindinfavorofthesameCRtowhomthe
paymentismade(Pineda,ObligationsandContracts,
2000ed,p.229)
PaymentbyCession
DRcedeshispropertytohisCRssothelattermay
sellthesameandtheproceedsrealizedappliedto
thedebtsoftheDR
TenderofPayment
VoluntaryactoftheDRwherebyheofferstotheCR
foracceptancetheimmediateperformanceofthe
formersobligationtothelatter
Consignation
Actofdepositingtheobjectoftheobligationwith
thecourtorcompetentauthorityaftertheCRhas
unjustifiablyrefusedtoacceptthesameorisnotina
positiontoacceptitduetocertainreasonsor
circumstances
1.DATIONINPAYMENT
Q: What does dation in payment or dacion en

pagoentail?
A: Dacion en pago is the delivery and

transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent
of the performance of the obligation. The
propertygivenmayconsistnotonlyofathingbut
also of a real right. (Tolentino, Civil Code of the
Philippines,Vol.IV,2002ed,p.293)
Note:Theconsentofthecreditorisessential.
It is a special mode of payment where the debtor

offersanotherthingtothecreditorwhoacceptsitas
equivalentofpaymentofanoutstandingdebt.
Theundertakingpartakesofthenatureofsale,that
is,thecreditorisreallybuyingthethingorproperty
of the debtor, payment for which is to be charged
againstthedebtorsdebt.
Assuch,theessentialelementsofacontractofsale,
namely, consent, object certain, and cause or
considerationmustbepresent.
In its modern concept, what actually takes place in

dacion en pago is an objective novation of the
obligation where the thing offered as an accepted
equivalent of the performance of an obligation is
considered as the object of the contract of sale,
whilethedebtisconsideredasthepurchaseprice.In
any case, common consent is an essential
prerequisite, be it sale or novation, to have the
effectoftotallyextinguishingthedebtorobligation.
Q: Lopez obtained a loan in the amount of

P20,000.00 from the Prudential Bank. He
executedasuretybondinwhichhe,asprincipal,
and PHILAMGEN as surety, bound themselves
jointlyandseverallyforthepaymentofthesum.
Healsoexecutedadeedofassignmentof4,000
sharesoftheBaguioMilitaryInstitutioninfavor
ofPHILAMGEN.Isthestockassignmentmadeby
Lopezdationinpaymentorpledge?
A:Thestockassignmentconstitutesapledgeand
not a dacion en pago. Dation in payment is the
deliveryandtransmissionofownershipofathing
by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.
Lopezs loan has not yet matured when he
"alienated" his 4,000 shares of stock to
Philamgen. Lopez's obligation would arise only
when he would default in the payment of the
principal obligation which is the loan and
Philamgenhadtopayforit.Sinceitiscontraryto
thenatureandconceptofdationinpayment,the
same could not have been constituted when the
stockassignmentwasexecuted.Incaseofdoubt
astowhetheratransactionisapledgeoradation
inpayment,thepresumptionisinfavorofpledge,
the latter being the lesser transmission of rights
andinterests.(Lopezv.CA,G.R.No.L33157,June
29,1982)
Q: Cebu Asiancars Inc., with the conformity of

the lessor, used the leased premises as a
collateral to secure payment of a loan which
Asiancars may obtain from any bank, provided
thattheproceedsoftheloanshallbeusedsolely
for the construction of a building which, upon
the termination of the lease or the voluntary
surrender of the leased premises before the
expiration of the contract, shall automatically
become the property of the lessor. Meeting
financialdifficultiesandincurringanoutstanding
balance on the loan, Asiancars conveyed
ownership of the building on the leased
premises to MBTC, by way of "dacion en
CIVILLAWTEAM:
OBLIGATIONS
pago."IsthedacionenpagobyAsiancarsinfavor
ofMBTCvalid?
A: Yes. MBTC was a purchaser in good faith.

MBTChadnoknowledgeofthestipulationinthe
lease contract. Although the same lease was
registered and duly annotated, MBTC was
charged with constructive knowledge only of the
fact of lease of the land and not of the specific
provisionstipulatingtransferofownershipofthe
building to the Jaymes upon termination of the
lease.Whilethealienationwasinviolationofthe
stipulation in the lease contract between the
Jaymes and Asiancars, MBTCs own rights could
notbeprejudicedbyAsiancarsactionsunknown
to MBTC. Thus, the transfer of the building in
favor of MBTC was valid and binding. (Jayme v.
CA,G.R.No.128669,Oct.4,2002)
2.FORMOFPAYMENT
Q: What are the rules as regards payment in

monetaryobligations?
A:
1. Payment in cash all monetary
obligations shall be settled in the
Philippinecurrencywhichislegaltender
inthePhilippines.However,theparties
may agree that the obligations or
transactions shall be settled in any
othercurrencyatthetimeofpayment.
(Sec.1,R.A.8183)
Note: R.A. 8183 amended the first

paragraph of Art. 1249 of the Civil Code,
but the rest of the article remain
subsisting. (Pineda, Obligations and
2.
Payment in check or other negotiable

instrument not considered payment,
they are not considered legal tender
and may be refused by the creditor
exceptwhen:
a. thedocumenthasbeencashed;or
b. it had been impaired through the
faultofthecreditor.
PAYMENTINCASH
Q:NorthwestAirlines,throughitsJapanBranch,
entered into an International Passenger Sales
Agency Agreement with CF Sharp, authorizing
thelattertosellitsairtransporttickets.CFSharp
failed to remit the proceeds of the ticket sales,
thus, Northwest Airlines filed a collection suit
before the Tokyo District Court which rendered
judgment ordering CF Sharp to pay 83,158,195
Yenanddamagesforthedelayattherateof6%
per annum. Unable to execute the decision in
Japan,NorthwestAirlinesfiledacasetoenforce
said foreign judgment with the RTC of Manila.
What is the rate of exchange that should be
appliedforthepaymentoftheamount?
A: The repeal of R.A. 529 by R.A. 8183 has the

effect of removing the prohibition on the
stipulation of currency other than Philippine
currency, such that obligations or transactions
maynowbepaidinthecurrencyagreeduponby
the parties. Just like R.A. 529, however, the new
law does not provide for the applicable rate of
exchange for the conversion of foreign currency
incurred obligations in their peso equivalent. It
follows, therefore, that the jurisprudence
established in R.A. 529 regarding the rate of
conversion remains applicable. Thus, in Asia
World Recruitment, Inc. v. National Labor
RelationsCommission,theSC,applyingR.A.8183,
sustained the ruling of the NLRC that obligations
in foreign currency may be discharged in
Philippine currency based on the prevailing rate
at the time of payment. It is just and fair to
preserve the real value of the foreign exchange
incurredobligationtothedateofitspayment.
If the rate of interest is not stipulated, what

shouldbetherateofinterestthatshouldapply?
Whenshouldtheinterestbegintorun?
A:InEasternShippingLines,Inc.v.CA,itwasheld
that absent any stipulation, the legal rate of
interest in obligations which consists in the
paymentofasumofmoneyis12%perannumto
be reckoned from the time of filing of the
complaintthereinuntilthesaidforeignjudgment
is fully satisfied. (C.F. Sharp & Co., Inc. v.
NorthwestAirlines,Inc.,G.R.No.133498,Apr.18,
2002)
PAYMENTBYNEGOTIABLEINSTRUMENT
Q:Diaz&CompanyobtainedaloanfromPacific
BankingCorpwhichwassecuredbyarealestate
mortgageovertwoparcelsoflandownedbythe
plaintiffDiazRealty.ABCrentedanofficespace
in the building constructed on the properties
covered by the mortgage contract. The parties
then agreed that the monthly rentals shall be
paid directly to the mortgagee for the lessor's
account, either to partly or fully pay off the
aforesaid mortgage indebtedness. Thereafter,
FEBTC purchased the credit of Diaz & Company
in favor of PaBC, but it was only after 2 years
thatDiazwasinformedaboutit.Diazaskedthe
FEBTC to make an accounting of the monthly
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
rental payments made by Allied Bank. Diaz

tenderedtoFEBTCtheamountofP1,450,000.00
throughanInterbankcheck,inordertoprevent
the imposition of additional interests, penalties
and surcharges on its loan but FEBTC did not
acceptitaspayment,instead,Diazwasaskedto
deposittheamountwiththeFEBTCsDavaoCity
Branch Office. Was there a valid tender of
payment?
A:Yes.True,jurisprudenceholdsthat,ingeneral,
acheckdoesnotconstitutelegaltender,andthat
a creditor may validly refuse it. It must be
emphasized, however, that this dictum does not
prevent a creditor from accepting a check as
payment. In other words, the creditor has the
optionandthediscretionofrefusingoraccepting
it. (FEBTC v. Diaz Realty Inc., G.R. No. 138588,
Aug.23,2001)
Q:Whohastheburdenofprovingpaymentinan
actionforsumofmoney?
A:Thepartywhopleadspaymentasadefensehas
the burden of proving that such payment has, in
fact,beenmade.
Q: Are receipts the only evidence that can be

presentedtoprovepayment?
A: No. Receipts of payment, although not

exclusive, are deemed the best evidence of the
fact of payment. (Dela Pea and Villareal v. CA
andRuralBankofBolinao,Inc.,G.R.No.177828,
Feb.13,2009
EXTRAORDINARYINFALTIONORDEFLATION
Q: What is the rule in payment in case of an

extraordinaryinflationordeflation?
A: In case an extraordinary inflation or deflation

of the currency stipulated should supervene, the
value of the currency at the time of the
establishmentoftheobligationshallbethebasis
of payment, unless there is an agreement to the
contrary.(Art.1250,NCC)
Q: Does the exchange rate at the time of the

establishment of the obligation apply in all
cases?
A:No.Therule thatthevalueofthecurrencyat
the time of the establishment of the obligation
shall be the basis of payment finds application
only when there is an official pronouncement or
declaration of the existence of an extraordinary
inflationordeflation.
4.APPLICATIONOFPAYMENTS
Q: What does the concept of application of

paymentsmean?
A: It is the designation of the debt to which the

payment must be applied when the debtor has
several obligations of the same kind in favor of
thesamecreditor.
Q: What are the requisites of application of

payments?
A:
1. Onedebtorandonecreditor
2. Twoormoredebtsofthesamekind
3. Amountpaidbythedebtormustnotbe
sufficienttocoveralldebts
4. Debtsarealldue
5. Parties have not agreed previously on
theapplication
Q:Whatisthegoverningruleincasethedebtor
failstoascertainwhichdebthispaymentistobe
applied?
A:Thechoicemaybetransferredtothecreditor
aswhenthedebtormakespaymentanddoesnot
makeapplicationanddebtoracceptsareceiptin
whichtheapplicationismade.Insuchacase,the
debtor cannot complain of the application the
creditor has made unless there be a cause for
invalidatingthecontract.
Q: If both the creditor and the debtor fail to

applypayments,whatrulegoverns?
A:Legalapplicationofpaymentgovernswherein
thelawmakestheapplication.
The payment should be applied to the more

onerousdebts:
1. When a personis bound as principal in
oneobligationandassuretyinanother,
theformerismoreonerous.
2. When there are various debts, the
oldestonesaremoreburdensome.
3. Whereonebearsinterestandtheother
does not, even if the latter is the older
obligation, the former is considered
moreonerous.
4. Where there is an encumbrance, the
debt with a guaranty is more onerous
thanthatwithoutsecurity.
5. Withrespecttoindemnityfordamages,
thedebtwhichissubjecttothegeneral
rules on damages is less burdensome
CIVILLAWTEAM:
OBLIGATIONS
6.
7.
than that in which there is a penal

clause.
The liquidated debt is more
burdensomethantheunliquidatedone.
An obligation in which the debtor is in
default is more onerous than one in
whichheisnot.(Tolentino,CivilCodeof
thePhilippines,Vol.IV,2002ed,p.314
315)
Note:Ifthedebtshappentobeofsamenatureand
burden, the payment shall be applied
proportionately.
PAYMENTBYCESSION
Q: What are the circumstances evidencing

paymentbycession?
A: Debtor abandons all of his property for the

benefit of his creditors in order that from the
proceedsthereof,thelattermayobtainpayment
ofcredits.
Note: It presupposes insolvency of the debtor. All

the debtors creditors must be involved and the
consentofthelattermustbeobtained.
Q: What are the difference between Dation in

PaymentandPaymentinCession?
A:
DATIONINPAYMENT
Maybeonecreditor
Notnecessarilyinstate
offinancialdifficulty
Thingdeliveredis
consideredasequivalent
ofperformance
Paymentextinguishes
obligationtotheextent
ofthevalueofthething
deliveredasagreed
upon,provedorimplied
fromtheconductofthe
creditor
Ownershipistransferred
toCRupondelivery
Anactofnovation
Doesnotpresuppose
insolvency
PAYMENTINCESSION
Pluralityofcreditors
Debtormust bepartially
orrelativelyinsolvent
Universalityorproperty
ofdebtoriswhatis
ceded
Merelyreleasesdebtor
fornetproceedsof
thingscededor
assigned,unlessthereis
contraryintention
Ownershipisnot
transferred
Notanactofnovation
Presupposesinsolvency
5.TENDEROFPAYMENT
Q:Whatconstitutesavalidtenderofpayment?
A:Voluntaryactofthedebtorwherebyheoffers
to the creditor for acceptance the immediate
performance of the formers obligation to the
latter.(Pineda, Obligations and Contracts, 2000

ed,p.241)
Tender of payment is the manifestation by

debtors of their desire to comply with or to pay
their obligation. (Sps. Benosv.Sps.Lawilao, G.R.
No.172259,Dec.5,2006)
Note: If the creditorrefuses the tender ofpayment

withoutjustcause,thedebtorsaredischargedfrom
the obligation by the consignation of the sum due.
(Sps. Benosv.Sps.Lawilao, G.R. No. 172259, Dec. 5,
2006)
CONSIGNATION
Q:Whatisconsignation?
A: Act of depositing the object of the obligation

with the court or competent authority after the
CRhasunjustifiablyrefusedtoacceptthesameor
is not in a position to accept it due to certain
reasons or circumstances. (Pineda, Obligations
andContracts,2000ed,p.241)
Q:Whenandwhereisconsignationmade?
A:Consignationismadebydepositingtheproper
amount to the judicial authority, before whom
thetenderofpaymentandtheannouncementof
the consignation shall be proved. (Sps.
Benosv.Sps.Lawilao, G.R. No. 172259, Dec. 5,
2006)
Note: Once the consignation has been duly made,

the debtor may ask the judge to order the
cancellationoftheobligation.
Q: When will consignation produce effects of

payment?
A:
GR: Consignation shall produce effects of
payment only if there is a valid tender of
payment.
XPNs:When:ARTIT
1. Creditor is Absent or unknown,
ordoesntappearatplaceofpayment
2. Creditor Refuses to issue a receipt
withoutjustcause
3. Titleoftheobligationhasbeenlost
to
4. Creditor
is
Incapacitated
receivepaymentatthetimeitisdue
5. Twoormorepersonsclaimtherightto
collect
Note:Theexpensesofconsignation,whenproperly
made,shallbechargedagainstthecreditor.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:Whataretherequisitesofconsignation?
A:VPCPAS
1. Validexistingdebtwhichisalreadydue;
2. Prior valid tender except when prior
tenderofpaymentisdispensable;
3. Creditor unjustly refuses the tender of
payment;
4. Prior notice of consignation given to
persons interested in the fulfillment of
theobligation;
5. Amount or thing is deposited at the
disposalofjudicialauthority;and
6. Subsequent notice of the fact of
consignation to persons interested in
thefulfillmentoftheobligation.
Q:Canthedebtorwithdrawthething
deposited?
A:Before the creditor has accepted the
consignation,orbeforeajudicialdeclarationthat
the consignation has been properly made, the
debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in
force.(Art.1260,NCC)
NOTE: If, the consignation having been made, the

creditor should authorize the debtor to withdraw
the same, he shall lose every preference which he
mayhaveoverthething.Thecodebtors,guarantors
andsuretiesshallbereleased.(Art.1261,NCC)
Q: Distinguish tender of payment from

consignation.
A:
TENDEROFPAYMENT
CONSIGNATION
Nature
Principalor
Antecedentof
consummatingactfor
consignationor
theextinguishmentof
preliminaryactto
theobligation
consignation
Effect
Itextinguishesthe
Itdoesnotbyitself
obligationwhendeclared
extinguishthe
valid
obligation
Character
Judicialforitrequiresthe
filingofacomplaintin
court(Pineda,
Extrajudicial
Obligationsand
Contracts,2000ed,p.
242)
Q:Inanejectmentcase,Xrefusedtovacatethe
land alleging that Y had sold to him the
additionalarea,thepaymentofwhichwouldbe
effected five years after the execution of a
formaldeedofsale.However,thepartiesfailed
to execute a deed of sale. During the pendency
of the action, X deposited the payment for the
additiontothelotwiththecourt.Isthereavalid
consignation?
A: No. Under Art. 1257 of this Civil Code,

consignation is proper only in cases where an
existing obligation is due. In this case, the
contracting parties agreed that full payment of
purchasepriceshallbedueandpayablewithin5
yearsfromtheexecutionofaformaldeedofsale.
At the time Rodriguez deposited the amount in
court, no formal deed of sale had yet been
executed by the parties, and, therefore, the 5
year period during which the purchase price
shouldbepaidhadnotcommenced.Inshort,the
purchase price was not yet due and payable.
(HeirsofSanAndresv.Rodriguez,G.R.No.135634,
May31,2000)
Q:Underapactoderetrosale,XsoldtoYhislot
and the building erected thereon. They agreed
thathalfoftheconsiderationshallbepaidtothe
bank to pay off the loan of X. After paying the
firstinstallment,Y,insteadofpayingtheloanto
the bank, restructured it twice. Eventually, the
loanbecamedueanddemandable.Thus,Xpaid
the bank. On the same day, Y also went to the
bank and offered to pay the loan, but the bank
refusedtoacceptthepayment.
Y then filed an action for consignation without

notifyingX.IsthereavalidconsignationbyYof
thebalanceofthecontractprice?
A:No.Yfiledthepetitionforconsignationagainst
thebankwithoutnotifyingtheX,resultingtothe
formers failure to prove the payment of the
balance of the purchase price and consignation.
Infact,evenbeforethefilingoftheconsignation
case, Y never notified the X of their offer to
pay.(Sps. Benosv. Sps.Lawilao, G.R. No. 172259,
Dec.5,2006)
CIVILLAWTEAM:
OBLIGATIONS
Q: Because of Ligayas refusal to accept several
tendersof payment and notices ofconsignation
given by OSSA in its desire to comply with its
obligationtopayoninstallments,OSSAbrought
a complaint for consignation against Ligaya
before the RTC. The RTC allowed OSSA, among
others,todepositwithit,bywayofconsignation,
allfuturequarterlyinstallmentswithoutneedof
formaltendersofpaymentandserviceofnotices
ofconsignation.
Ligayaassailsthevalidityoftheconsignationon
the ground that there was no notice to her
regarding OSSA's consignation of the amounts
corresponding to certain installments. Is Ligaya
correct?
A: No. The motion and the subsequent court

order served on Ligaya in the consignation
proceedingssufficientlyservedasnoticetoLigaya
of OSSA's willingness to pay the quarterly
installments and the consignation of such
payments with the court. For reasons of equity,
the procedural requirements of consignation are
deemed substantially complied with in the
present case (De Mesa v. CA, G.R. Nos. 106467
68,Oct.19,1999).
B.LOSSOFTHETHINGDUE
Q:Whenisathingconsideredlost?
A:When:DOPE
1. It Disappears in such a way that its
existenceisunknown;
2. ItgoesOutofcommerce;
3. ItPerishes;or
4. ItsExistenceisunknownorifknown,it
cannotberecovered.
Q:Whatistheeffectoflossofthethingwhichis
theobjectoftheobligation?
A:Iftheobligationisa:
1. Determinateobligationtogive:
GR:The obligation is extinguished when

theobjectoftheobligationislost.
XPNs:LASCDPCG
a. Lawprovidesotherwise
b. Nature of the obligation requires
theAssumptionofrisk
c. Stipulationtothecontrary
d. DebtorContributedtotheloss
e. Loss the of the thing occurs after
thedebtorincurredinDelay
f.
g.
h.
When debtor Promised to deliver

the same thing to two or more
personswhodonothavethesame
interest
When the debt of a certain and
determinatethingproceedsfroma
Criminaloffense
WhentheobligationisGeneric
2.
Genericobligationtogive:
GR: The obligation is not extinguished

becauseagenericthingneverperishes.
XPN:In case of generic obligations

whose object is a particular class or
group with specific or determinate
qualities(limitedgenericobligation)
3.
An obligation to do the obligation is

extinguished when the prestation
becomes
legally
or
physically
impossible.
Q:Differentiatelegalfromphysicalimpossibility
toperformanobligationtodo.
A:
1. Legalimpossibilityactstipulatedtobe
performed is subsequently prohibited
bylaw.
2. Physical impossibility act stipulated
could not be physically performed by
the obligor due to reasons subsequent
to the execution of the contract.
(Pineda, Obligations and Contracts,
2000ed,p.261)
Q:Whatistheeffectofpartialloss?
A:
1. Due to the fault or negligence of the
debtor Creditor has the right to
demandtherescissionoftheobligation
or to demand specific performance,
plusdamages,ineithercase.
2. Duetofortuitousevent:
a. Substantial loss obligation is
extinguished.
b. Unsubstantial loss the CR shall
deliver the thing promised in its
impairedcondition.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:Whatistheeffectwhenthethingislostinthe
possessionofthedebtor?
A:
GR: It is presumed that loss is due to DRs
fault.
XPN:Presumptionshallnotapplyincaseloss
is due to earthquake, flood, storm or other
naturalcalamity.
XPNtotheXPN:Debtorstillliableevenifloss
isduetofortuitouseventwhen:
1. Debtorincurredindelay;or
2. Debtorpromisedtodeliverthethingto
two or more persons with different
interests(par.3,Art.1165,NCC)
Q:Whatdoesrebussicstantibusmean?
A: A principle in international law which means

that an agreement is valid only if the same
conditions prevailing at time of contracting
continuetoexistatthetimeofperformance.Itis
the basis of the principle of unforeseen difficulty
ofservice.
Note: However, this principle cannot be applied

absolutely in contractual relations since parties are
presumed to have assumed the risk of unfavorable
developments. (Pineda, Obligations and Contracts,
2000ed,p.264)
Q:Whataretherequisitesinordertorelievethe
debtor from his obligation, in whole or in part,
basedonunforeseendifficultyofservice?
A:
1. Event or change in circumstance could
not have been foreseen at the time of
theexecutionofthecontract;
2. Such event makes the performance
extremelydifficultbutnotimpossible;
3. Theeventmustnotbeduetotheactof
anyoftheparties;and
4. The contract is for a future prestation.
(Tolentino,Civil CodeofthePhilippines,
Vol.IV,2002ed,p.347)
C.CONDONATION
Q:Whatiscondonation?
A: It is an act of liberality by virtue of which the

creditor, without receiving any price or
equivalent, renounces the enforcement of the
obligation, as a result of which it is extinguished
initsentiretyorinthatpartoraspectofthesame
to which the condonation or remission refers.

267)
EXPRESSCONDONATION
Q:Whataretherequisitesofcondonation?
A:GAIDE
1. MustbeGratuitous;
2. Acceptancebythedebtor;
3. MustnotbeInofficious;
4. Formalities provided by law on
Donations must be complied with if
condonationisexpress;and
5. AnExistingdemandabledebt.
IMPLIEDCONDONATION
Q:Whatistheeffectofthedeliveryofaprivate
documentevidencingacredit?
A:Thedeliveryofaprivatedocumentevidencinga
credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action
whichtheformerhadagainstthelatter.
If in order to nullify this waiver it should be
claimedtobeinofficious,thedebtorandhisheirs
mayupholditbyprovingthatthedeliveryofthe
documentwasmadeinvirtueofpaymentofthe
debt.(Art.1271,NCC)
NOTE:Whenevertheprivatedocumentinwhichthe
debt appears is found in the possession of the
debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is
proved.(Art.1272,NCC)
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
ownsthething.(Art.1274,NCC)
Q:Whatistheeffectofinofficiouscondonation?
A: It may be totally revoked or reduced

depending on whether or not it is totally or only
partly inofficious. (Pineda, Obligations and
Q:Cantherebeaunilateralcondonation?
A:No.Sinceitisadonationofanexistingcredit,
considered a property right, in favor of the
debtor,itisrequiredthattheDRgiveshisconsent
thereto by making an acceptance. If there is no
acceptance, there is no condonation. (Pineda,
CIVILLAWTEAM:
OBLIGATIONS
D.CONFUSIONORMERGER
Q: When is there a confusion or merger of

rights?
A:Themeetinginonepersonofthequalitiesofa
creditoranddebtorofthesameobligation.
Q: What are the requisites of confusion of

rights?
A:
1. Merger in the same person of the
characters of both a creditor and d
debtor;
2. Must take place in the persons of a
principal creditor and a principal
debtor;and
3. Mergerisdefiniteandcomplete.
Q: What is the effect of confusion or merger of

rights?
A: The creditor and debtor becomes the same

personinvolvingthesameobligation.Hence,the
obligationisextinguished.(Art.1275,NCC)
Q:Cantherebepartialconfusion?
A:Yes.Itwillbedefiniteandcompleteuptothe
extentoftheconcurrentamountorvalue,butthe
remaining
obligation
subsists.
(Pineda,
Q:Whatistheeffectwhenconfusionormerger
isrevoked?
A: If the act which created the confusion is

revoked for some causes such as rescission of
contracts, or nullity of the will or contract, the
confusion or merger is also revoked. The subject
obligation is revived in the same condition as it
wasbeforetheconfusion.
Note: During such interregnum, the running of the

periodofprescriptionoftheobligationissuspended.
(Pineda,ObligationsandContracts,2000ed,p.279)
Q:Whatistheeffectofconfusionormergerin
relationtotheguarantors?
A:
1.
2.
Mergerwhichtakesplaceintheperson
of the principal debtor or principal
creditor benefits the guarantors. The
contractofguarantyisextinguished.
Confusion which takes place in the
person of any of the guarantors does
not extinguish the obligation. (Art.

1276,NCC)
Q: In a joint obligation, what is the effect of

confusionormergerinonedebtororcreditor?
A:
GR: Joint obligation is not extinguished since
confusion is not definite and complete with
regard to the entire obligation. A part of the
obligationstillremainsoutstanding.
XPN: Obligation is extinguished with respect

onlyto thesharecorrespondingtothe DRor
CR concerned. In effect, there is only partial
extinguishment of the entire obligation.
(Pineda, Obligations and Contracts, 2000 ed,
p.281)
E.COMPENSATION.
Q:Whatiscompensation?
A:Itisamodeofextinguishingtotheconcurrent
amount, the obligations of those persons who in
their own right are reciprocally debtors and
creditors of each other (Art. 1232, NCC). It
involves the simultaneous balancing of two
obligations in order to extinguish them to the
extentinwhichtheamountofoneiscoveredby
thatoftheother.
Q:Whataretherequisitesofcompensation?
A:
1. Bothpartiesmustbemutuallycreditors
and debtors in their own right and as
principals;
2. Both debts must consist in sum of
money or if consumable, of the same
kindorquality;
3. Bothdebtsaredue;
4. Both debts are liquidated and
demandable;
5. Neither debt must be retained in a
controversy commenced by third
person and communicated with debtor
(neitherdebtisgarnished);and
6. Compensation must not be prohibited
bylaw.
Note:WhenalltherequisitesmentionedinArt.1279
of the Civil Code are present, compensation takes
effectbyoperationoflaw,evenwithouttheconsent
orknowledgeofthecreditorsanddebtors.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
1.KINDSOFCOMPENSATION
Q:Whatarethekindsofcompensation?
A:
1. Legal compensation by operation of
law
2. Conventional by agreement of the
parties
3. Judicial by judgment of the court
when there is a counterclaim duly
pleaded, and the compensation
decreed
LEGALCOMPENSATION
Q: What are the debts not subject to

compensation?
A:
1. Debtsarisingfromcontractsofdeposit
2. Debts arising from contracts of
commodatum
3. Claims for support due by gratuitous
title
4. Obligations arising from criminal
offenses
5. Certain obligations in favor of
government (e.g. taxes, fees, duties,
andothersofasimilarnature)
Note: If a person should have against him several
debts which are susceptible of compensation, the
rules on the application of payments shall apply to
theorderofthecompensation.(Art.1289,NCC)
Q:DeLeonsoldanddeliveredtoSilahisvarious
merchandise. Due to Silahis' default, De Leon
filed a complaint for the collection of said
accounts.Silahisasserts,asaffirmativedefense,
a debit memo as unrealized profit for a
supposed commission that Silahis should have
received from De Leon. Was there legal
compensation?
A: Silahis admits the validity of its outstanding

accounts with De Leon. But whether De Leon is
liable to pay Silahis a commission on the subject
sale to Dole is disputed. This circumstance
prevents legal compensation from taking place.
(SilahisMarketingCorp.v.IAC,G.R.No.L74027,
Dec.7,1989)
Note: Compensation is not proper where the claim

ofthepersonassertingthesetoffagainsttheother
is not clear nor liquidated; compensation cannot
extendtounliquidated,disputedclaimexistingfrom
breachofcontract.(SilahisMarketingCorp.v.IAC,G.
R.No.L74027,Dec.7,1989)
CONVENTIONAL
Q:Whatisconventionalcompensation?
A:Itisonethattakesplacebyagreementofthe
parties.
JUDICIALCOMPENSATION
Q:Whatisjudicialcompensation?
A: One made by order of a court based on a

permissive counterclaim. Pleading and proof of
thecounterclaimmustbemade.
FACULTATIVECOMPENSATION
Q:Whatisfacultativecompensation?
A: One of the parties has a choice of claiming or

opposingthecompensation.
Q: What are the obligations subject to

facultativecompensation?
A:Whenoneofthedebtsarisesfrom:
1. Depositum
2. Obligationsofadepositary
3. Obligationsincommudatum
4. Claimofsupportduetogratuitoustitle
XPN:Futuresupport.
5. Civilliabilityfromacrime
Q:Distinguishcompensationfrompayment.
A:
COMPENSATION
Amodeofextinguishing
totheconcurrent
amount,theobligations
ofthosepersonswhoin
theirownrightare
reciprocallydebtorsand
creditorsofeachother
Capacityofpartiesnot
necessary
Reason:Compensation
operatesbylaw,notby
theactoftheparties
Therecanbepartial
extinguishmentofthe
obligation
Legalcompensation
takesplacebyoperation
oflawwithout
simultaneousdelivery
Partiesmustbemutually
debtorsandcreditorsof
eachother
PAYMENT
Paymentmeansnotonly
deliveryofmoneybut
alsoperformanceofan
obligation
Debtormusthave
capacitytodisposeof
thethingpaid;
creditormusthave
capacitytoreceive
payment
Theperformancemust
becompleteunless
waivedbythecreditor
Involvesdeliveryor
action
Itisnotnecessarythat
thepartiesbemutually
debtorsandcreditorsof
eachother
CIVILLAWTEAM:
OBLIGATIONS
Q:Distinguishcompensationfromconfusion.
A:
COMPENSATION
(Arts.12781279)
Twopersonswhoare
mutualdebtorsand
creditorsofeachother
Atleasttwoobligations
CONFUSION
(Arts.12751277)
Onepersonwhere
qualitiesofdebtorand
creditoraremerged
Oneobligation
Q: Atty. Laquihon, in behalf of Pacweld, filed a

pleading addressed to MPCC titled motion to
direct payment of attorney's fee, invoking a
decision wherein MPCC was adjudged to pay
Pacweld the sum of P10,000.00 as attorney's
fees. MPCC filed an opposition stating that the
said amount is setoff by a like sum of
P10,000.00,collectibleinitsfavorfromPacweld
also by way of attorney's fees which MPCC
recovered from the same CFI of Manila in
another civil case. Was there legal
compensation?
A:MPCCandPacweldwerecreditorsanddebtors
ofeachother,theirdebtstoeachotherconsisting
infinalandexecutoryjudgmentsoftheCFIintwo
separate cases. The two obligations, therefore,
respectively offset each other, compensation
having taken effect by operation of law and
extinguished both debts to the concurrent
amountofP10,000.00,pursuanttotheprovisions
of Arts. 1278, 1279 and 1290 of the Civil Code,
since all the requisites provided in Art. 1279 of
thesaidCodeforautomaticcompensation"even
though the creditors and debtors are not aware
of the compensation" were present. (Mindanao
Portland Cement Corp. v. CA,G.R. No. L62169,
Feb.28,1983)
Q: X, who has a savings deposit with Y Bank in

the sum of PI,000,000.00, incurs a loan
obligation with the said bank in the sum of
P800,000.00 which has become due. When X
triestowithdrawhisdeposit,YBankallowsonly
P200,000.00 to be withdrawn, less service
charges, claiming that compensation has
extinguished its obligation under the savings
accounttotheconcurrentamountofX'sdebt.X
contends that compensation is improper when
oneofthedebts,ashere,arisesfromacontract
of deposit. Assuming that the promissory note
signed by X to evidence the loan does not
provideforcompensationbetweensaidloanand
hissavingsdeposit,whoiscorrect?
A:Ybankiscorrect.AlltherequisitesofArt.1279,
Civil Code are present. Compensation shall take
placewhentwopersonsarereciprocallycreditor
and debtor of each other. In this connection, it
has beenheld that the relation existing between

a depositor and a bank is that of creditor and
debtor.Asageneralrule,abankhasarightofset
offofthedepositsinitshandsforthepaymentof
anyindebtednesstoitonthepartofadepositor"
(Gullas v. PNB, GR No. L43191, November 13,
1935). Hence, compensation took place between
themutualobligationsofXandYbank.(1998Bar
Question)
Q: Eduardo was granted a loan by XYZ Bank for

the purpose of improving a building which XYZ
leased from him. Eduardo executed the
promissory note in favor of the bank, with his
friend Ricardo as cosignatory. In the PN, they
both acknowledged that they are individually
andcollectivelyliableandwaivedtheneedfor
prior demand. To secure the PN, Ricardo
executed a real estate mortgage on his own
property. When Eduardo defaulted on the PN,
XYZstoppedpaymentofrentalsonthebuilding
on the ground that legal compensation had set
in.SincetherewasstillabalancedueonthePN
after applying the rentals, XYZ foreclosed the
real estate mortgage over Ricardos property.
Ricardo opposed the foreclosure on the ground
that he is only a cosignatory; that no demand
wasmadeuponhimforpayment,andassuming
he is liable, his liability should not go beyond
halfofthebalanceoftheloan.Further,Ricardo
said that when the bank invoked compensation
betweentherentalsandtheamountoftheloan,
itamountedtoanewcontractornovation,and
hadtheeffectofextinguishingthesecuritysince
he did not give his consent (as owner of the
property under the real estate mortgage)
thereto.
CanXYZBankvalidlyassertlegalcompensation?
A: XYZ Bank may validly assert the partial

compensation of both debts, but is should be
facultative compensation because not all of the
five requisites of legal compensation are present
(Art. 1279, NCC). The payment of the rentals by
XYZ Bank is not yet due, but the principal
obligation of loan where both Eduardo and
Ricardoareboundsolidarilyandthereforeanyof
themisboundprincipallytopaytheentireloan,is
due and demandable without need of demand.
XYZBankmaydeclareitsobligationtopayrentals
asalreadydueanddemandpaymentfromanyof
thetwodebtors.
Alternative Answer: Legal compensation can be

validly asserted between the bank, Eduardo and
Ricardo. This is a case of facultative obligation,
thus, the bank can assert partial compensation.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Banks have an inherent right to set off where

both obligations are due and demandable (Art.
1279,NCC).
CanRicardospropertybeforeclosedtopaythe
fullbalanceoftheloan?
A: No, because there was no prior demand on

Ricardo, depriving him of the right to reasonably
block the foreclosure by payment. The waiver of
prior demand in the PN is against public policy
and violates the right to due process. Without
demand,thereisnodefaultandtheforeclosureis
null and void. Since the mortgage, insofar as
Ricardo is concerned is not violated, a
requirement under Act 3135 for a valid
foreclosureofrealestatemortgageisabsent.
In the case of DBP v. Licuanan, it was held that:

the issue of whether demand was made before
the foreclosure was effected is essential. If
demand was made and duly received by the
respondentsandthelatterstilldidnotpay,then
theywerealreadyindefaultandforeclosurewas
proper.However,ifdemandwasnotmade,then
the loans had not yet become due and
demandable. This meant that the respondents
had not defaulted in their payment and the
foreclosurewaspremature.
Alternative Answer 1:No. Although the principal

obligationofloanisdueanddemandablewithout
need of further demand the foreclosure of the
accessorycontractofrealestatemortgage,there
isaneedofnoticeanddemand.
AlternativeAnswer2:Yes.Ricardospropertycan
beforeclosedtopaythefullbalanceoftheloan.
He is admittedly individually and collectively
liable. His liability is solidary. He and Eduardo
have waived notice for a prior demand as
providedinthepromissorynote.
DoesRicardohavebasisundertheCivilCodefor
claimingthattheoriginalcontractwasnovated?
A: None of the three kinds of novation is

applicable. There is no objective novation,
whether express or implied, because there is no
changeintheobjectorprincipalconditionsofthe
obligation. There is no substitution of debtors,
either. Compensation is considered as
abbreviated or simplified payment and since
Ricardo bound himself solidarily with Eduardo,
any facultative compensation which occurs does
not result in partial legal subrogation. Neither
Eduardo nor Ricardo is a third person interested
intheobligationunderArt.1302,NCC.(2008Bar
Question)
F.NOVATION
Q:Whatisnovation?
A: It is the change of an obligation by another,

resulting in its extinguishment or modification,
either by changing the object or principal
conditions,orbysubstitutinganotherintheplace
ofthedebtororbysubrogatingathirdpersonto
the rights of the creditor. (Pineda, Obligations
andContracts,2000ed,p.298)
Q:Whataretherequisitesofnovation?
A:
1. Previousvalidobligation;
2. Anagreementbythepartiestocreatea
newoneoramodifiedversion;
3. Extinguishment or modification of the
oldobligation;and
4. Validnewobligation.
Q:Isnovationpresumed?
A: No. Novation is never presumed, it must be
provenasafacteitherby:
1. Explicitdeclarationifitbesodeclared
inunequivocalterms;or
2. Material incompatibility that the old
and the new obligations be on every
point incompatible with each other.
(Art.1293,NCC)
Q: SDIC issued to Danilo a Diners Card (credit

card) with Jeannete as his surety. Danilo used
this card and initially paid his obligations to
SDIC. Thereafter, Danilo wrote SDIC a letter
requestingittoupgradehisRegularDinersClub
Card to a Diamond (Edition) one. As a
requirement of SDIC, Danilo secured from
Jeanette her approval and the latter obliged.
Danilo'srequestwasgrantedandhewasissued
aDiamond(Edition)DinersClubCard.Danilohad
incurredcreditchargedplusappropriateinterest
andservicecharge.However,hedefaultedinthe
paymentofthisobligation.Wastheupgradinga
novation of the original agreement governing
the use of Danilo Alto's first credit card, as to
extinguishthatobligation?
A: Yes. Novation, as a mode of extinguishing

obligations,maybedoneintwoways:byexplicit
declaration,orbymaterialincompatibility.
There is no doubt that the upgrading was a

novation of the original agreement covering the
CIVILLAWTEAM:
OBLIGATIONS
first credit card issued to Danilo Alto, basically
since it was committed with the intent of
cancelling and replacing the said card. However,
the novation did not serve to release Jeanette
fromhersuretyobligationsbecauseinthesurety
undertaking she expressly waived discharge in
case of change or novation in the agreement
governingtheuseofthefirstcreditcard.(Molino
v. Security Diners International Corp.,G.R. No.
136780,Aug.16,2001)
Q:Whataretheeffectsofnovation?
A:
1. Extinguishment of principal also
extinguishestheaccessory,except:
a. Mortgagor, pledgor, surety or
guarantor agrees to be bound by
thenewobligation(Tolentino,Civil
Code of the Philippines, Vol. IV,
1999ed,p.395)
b. Stipulationmadeinfavorofathird
person such as stipulation pour
atrui(Art. 1311, NCC), unless
beneficiary consents to the
novation.
2. Ifthenewobligationis:
a. Void old obligation shall subsist
since there is nothing to novate,
except when the parties intended
that the old obligation be
extinguishedinanyevent.
b. Voidable novation can take
place, exceptwhen such new
obligationisannulled.Insuchcase,
oldobligationshallsubsist.
c. Pureobligationconditionsofold
obligationdeemedattachedtothe
new, unless otherwise stipulated
(Tolentino, Civil Code of the
Philippines, Vol. IV, 1999 ed, p.
399)
d. Conditionalobligation:
i.
if resolutory valid until
the happening of the
condition
ii.
if suspensive and did
not materialize no
novation, old obligation
isenforced
3. If old obligation is conditional and the

newobligationispure:
a. if resolutoryand it occurred old
obligationalreadyextinguished;no
new obligation since nothing to
novate
b.
ifsuspensiveanditdidnotoccur
it is as if there is no obligation;
thus,thereisnothingtonovate
Did the assignment amount to payment by
cession?
A:No.There was only one creditor, the DBP.

Article1255contemplatestheexistenceoftwoor
morecreditorsandinvolvestheassignmentofall
thedebtor'sproperty.
Did the assignment constitute dation in

payment:
A: No. The assignment, being in its essence a

mortgage, was but a security and not a
satisfactionofindebtedness.(DBPv.CA,G.R.No.
118342,Jan.5,1998)
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
CONTRACTS
Q:Whatisacontract?
A: It is a meeting of the minds between two or

more persons whereby one binds himself, with
respect to the other, or where both parties bind
themselves reciprocally in favor of one another,
tofulfillaprestationtogive,todo,ornottodo.
328)
Q:Whatisthedifferencebetweenanobligation
andacontract?
A: While a contract is one of the sources of

obligations, an obligation is the legal tie or
relations itself that exists after a contract has
beenenteredinto.
Hence, there can be no contract if there is no

obligation. But an obligation may exist without a
contract. (De Leon, Obligations and Contracts,
2003ed,p.283284)
I.ESSENTIALREQUISITESOFACONTRACT
Q:Statetheessentialelementsofcontracts.
A:COC
1. Consent;
2. Objectorsubjectmatter;and
3. Causeorconsideration.
Q:Statethecharacteristicsofacontract.
A:ROMA
1. Relativity(Art.1311,NCC)
2. Obligatoriness and consensuality(Art.
1315,NCC)
3. Mutuality(Art.1308,NCC)
4. Autonomy(Art.1306,NCC)
CONSENT
Q:Whataretheelementsofconsent?
A:LMCR
1. Legal capacity of the contracting
parties;
2. Manifestation of the conformity of the
contractingparties;
3. PartiesConformitytotheobject,cause,
terms and condition of the contract
must be intelligent, spontaneous and
freefromallvicesofconsent;and
4. TheconformitymustbeReal.
Note:Wefollowthetheoryofcognitionandnotthe
theory of manifestation. Under our Civil Law, the
offer & acceptance concur only when the offeror
comes to know, and not when the offeree merely
manifestshisacceptance.
Q:Whataretherequisitesofavalidconsent?
A:Itshouldbe:
1. Intelligent, or with an exact notion of

themattertowhichitrefers;
Note:Intelligenceinconsentisvitiatedby
error; freedom by violence, intimidation
or undue influence; and spontaneity by
fraud.
2.
3.
Free;and
Spontaneous.
Q:Whatistheeffectonthevalidityofacontract
ifconsentisreluctant?
A: A contract is valid even though one of the

parties entered into it against his wishes and
desires or even against his better judgment.
Contracts are also valid even though they are
entered into by one of the parties without hope
ofadvantageorprofit(Martinezv.Hongkongand
Shanghai Banking Corp., GR No. L5496, Feb. 19,
1910).
Q:Whatarethekindsofsimulationofcontract?
A:
1. Absolute the contracting parties do
notintendtobeboundbythecontract
atall,thusthecontractisvoid.
2. Relativetherealtransactionishidden;
the contracting parties conceal their
true agreement; binds the parties to
their real agreement when it does not
prejudice third persons or is not
intended for any purpose contrary to
law, morals, etc. If the concealed
contract is lawful, it is absolutely
enforceable, provided it has all the
essential requisites: consent, object,
andcause.
As to third persons without notice, the

apparent contract is valid for purposes
beneficial to them. As to third persons
with notice of the simulation, they
acquirenobetterrighttothesimulated
contractthantheoriginalpartiestothe
same.
CIVILLAWTEAM:
CONTRACTS
Q:Tiroisaholderofanordinarytimberlicense
issuedbytheBureauofForestry.Heexecuteda
deedofassignmentinfavoroftheJaviers.Atthe
timethesaiddeedofassignmentwasexecuted,
Tirohadapendingapplicationforanadditional
forest concession. Hence, they entered into
anotheragreement.
Afterwards, the Javiers, now acting as timber

license holders by virtue of the deed of
assignment entered into a forest consolidation
agreement with other ordinary timber license
holders. For failure of the Javiers to pay the
balancedueunderthetwodeedsofassignment,
Tirofiledanactionagainstthem.Arethedeeds
ofassignmentnullandvoidfortotalabsenceof
consideration and nonfulfillment of the
conditions?
A:Thecontemporaneousandsubsequentactsof
Tiro and the Javiers reveal that the cause stated
inthefirstdeedofassignmentisfalse.Itissettled
that the previous and simultaneous and
subsequent acts of the parties are properly
cognizable indicia of their true intention. Where
thepartiestoacontracthavegivenitapractical
constructionbytheirconductasbyactsinpartial
performance, such construction may be
considered by the court in construing the
contract, determining its meaning and
ascertainingthemutualintentionofthepartiesat
the time of contracting. The first deed of
assignment is a relatively simulated contract
which states a false cause or consideration, or
one where the parties conceal their true
agreement. A contract with a false consideration
isnotnullandvoidperse.UnderArticle1346of
the Civil Code, a relatively simulated contract,
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.
(Javierv.CA,G.R.No.L48194,Mar.15,1990)
Q:Whatarecontractsofadhesion?
A: One party has already a prepared form of a

contract, containing the stipulations he desires,
and he simply asks the other party to agree to
themifhewantstoenterintothecontract.
Q: What are the elements of a valid offer and

acceptance?
A:
1. Definiteunequivocal
2. Intentional
3. Completeunconditional
Q:Whataretherequisitesofavalidoffer?
A:
1. Mustbecertain
2. Maybemadeorallyorinwriting,unless
thelawprescribesaparticularform
Q:Whendoesofferbecomeineffective?
A:
1. Death, civil interdiction, insanity or
insolvency of either party before
acceptanceisconveyed
2. Express or implied revocation of the

offerbytheofferee
3. Qualified or conditional acceptance of

theoffer,whichbecomescounteroffer
4. Subject matter becomes illegal or

impossible before acceptance is
communicated
Q:Whatistheruleoncomplexoffer?
A:
1.
2.
Offers are interrelated contract is

perfectedifalltheoffersareaccepted
Offers are not interrelated single
acceptance of each offer results in a
perfected contract unless the offeror
hasmadeitclearthatoneisdependent
upontheotherandacceptanceofboth
isnecessary.
Q:Whatistheruleonadvertisementsasoffers?
A:
1. Businessadvertisementsnotadefinite
offer, but mere invitation to make an
offer,unlessitappearsotherwise
2. Advertisement
for
bidders
onlyinvitation to make proposals and

advertiser is not bound to accept the
highest or lowest bidder, unless it
appearsotherwise.
Q:Whataretheeffectsofanoption?
A: Option may be withdrawn anytime before

acceptance is communicated but not when
supportedbyaconsiderationotherthanpurchase
priceoptionmoney.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q:Whataretherequisitesofavalidacceptance?
A:
1. Must be absolute; a qualified
acceptanceconstitutesacounteroffer
2. Nospecifiedformbutwhentheofferor
specifies a particular form, such must
becompliedwith
Note: Offer or acceptance, or both, expressed in

electronicform,isvalid,unlessotherwiseagreedby
theparties(electroniccontracts).
Q:Whatistheperiodforacceptance?
A:
1. Statedfixedperiodintheoffer
a. Must be made within the period
givenbytheofferor
i. Astowithdrawaloftheoffer:
GR: It can be made at any time

before acceptance is made, by
communicatingsuchwithdrawal
XPN: When the option is founded

upon a consideration, as something
paid or promised since partial
payment of the purchase price is
consideredasproofoftheperfection
ofthecontract
2.
Nostatedfixedperiod
a. Offerismadetoapersonpresent
acceptance must be made
immediately
b. Offerismadetoapersonabsent
acceptance may be made within
such time that, under normal
circumstances, an answer can be
receivedfromhim
Note: Acceptance may be revoked before it comes

totheknowledgeoftheofferor(withdrawalofoffer)
OBJECT
Q:Whataretherequisitesofanobject?
A:
1. Determinate as to kind (even if not
determinate, provided it is possible to
determine the same without the need
ofanewcontract);
2. Existing or the potentiality to exist
subsequenttothecontract;
3. Mustbelicit;
4. Withinthecommerceofman;and
5. Transmissible.
Note: The most evident and fundamental requisite

in order that a thing, right or service may be the
objectofacontract,itshouldbeinexistenceatthe
moment of the celebration of the contract, or at
least,itcanexistsubsequentlyorinthefuture.
Q: What are the thingswhichcanbe the object

ofcontracts?
A:
GR:Allthingsorservicesmaybetheobjectof
contracts.
XPNs:
1. Thingsoutsidethecommerceofmen;
2. Intransmissiblerights;
3. Future inheritance, except in cases
expresslyauthorizedbylaw;
4. Services which are contrary to law,
morals, good customs, public order or
publicpolicy;
5. Impossiblethingsorservices;and
6. Objects which are not possible of
determinationastotheirkind.
Q: A contract of sale of a lot stipulates that the

"payment of the full consideration based on a
surveyshallbedueandpayablein5yearsfrom
theexecutionofaformaldeedofsale".Isthisa
conditionalcontractofsale?
A:No,itisnot.Thestipulationisnotacondition
whichaffectstheefficacyofthecontractofsale.
It merely provides the manner by which the full
consideration is to be computed and the time
within which the same is to be paid. But it does
not affect in any manner the effectivity of the
contract. (Heirs of San Andresv.Rodriguez, G.R.
No.135634,May31,2000)
CAUSE
Q:Whataretherequisitesofacause?
A:Itmust:
1. exist
2. betrue
3. belicit
Q: What are the two presumptions in contracts

astocause?
A:
1. Every contract is presumed to have a
cause;and
2. Thecauseisvalid.
CIVILLAWTEAM:
CONTRACTS
Q:Whatarethekindsofcauses?
A:
1. Cause of onerous contracts the
prestation or promise of a thing or
servicebytheother
2. Cause of remuneratory contracts the
serviceorbenefitremunerated
3. Cause of gratuitous contracts the
mere liberality of the donor or
benefactor
4. Accessory identical with cause of
principal contract, the loan which it
derived its life and existence (e.g.:
mortgageorpledge)
Q:Distinguishcausefrommotive.
A:
CAUSE
Directandmost
proximatereasonofa
contract
Objectiveandjuridical
reasonofcontract
Legalityorillegalityof
causeaffectsthe
existenceorvalidityof
thecontract
Causeisalwaysthesame
foreachcontracting
party
MOTIVE
Indirectorremote
reasons
Psychologicalorpurely
personalreason
Legalityorillegalityof
motivedoesnotaffect
theexistenceorvalidity
ofcontract
Motivediffersforeach
contractingparty
Q: What is the effect of the error of cause on

contracts?
A:
1. Absenceofcause(wantofcause;there
is total lack or absence of cause)
Confers no right and produces no legal
effect
2. Failure of cause Does not render the
contractvoid
3. Illegalityofcause(thecauseiscontrary
to law, morals, good customs, public
orderandpublicpolicy)Contractisnull
andvoid
4. Falsityofcause(thecauseisstatedbut
the cause is not true)Contract is void,
unless the parties show that there is
anothercausewhichistrueandlawful
5. Lesion or inadequacy of cause Does
notinvalidatethecontract,unless:
a. there is fraud, mistake, or undue
influence;
b. when the parties intended a
donation
or
some
other
contract;or
c.
in cases specified by law

(e.g.contracts entered when ward
sufferslesionofmorethan25%)
II.KINDSOFCONTRACT
Q:Whatarethekindsofcontracts?
A:
1. Consensual contracts which are
perfected by the mere meeting of the
mindsoftheparties
2. Real contracts that require delivery for

perfection creation of real rights over
immovablepropertymustbewritten
3. Solemn contracts contracts which

mustappearinwriting,suchas:
a. Donations of real estate or of

movables if the value exceeding
P5,000;
b. Transferoflargecattle;
c. Stipulationtopayinterestinloans;
d. Saleoflandthroughanagent;
e. Partnership to which immovables
arecontributed;
f. Stipulationlimitingcarriersliability
to less than extraordinary
diligence;or
g. Contractsofantichresisandsaleof
vessels.
Q: What is the principle of relativity of

contracts?
A:
GR: A contract is binding not only between
partiesbutextendstotheheirs,successorsin
interest, and assignees of the parties,
provided that the contract involves
transmissible rights by their nature, or by
stipulationorbyprovisionoflaw.
XPNs:
1. Stipulation pour autrui (stipulation in
favor of a third person) benefits
deliberately conferred by parties to a
contractuponthirdpersons.
Requisites:
a. The stipulation must be part, not
wholeofthecontract;
b. Contracting parties must have
clearly and deliberately conferred
afavoruponthirdperson;
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
c.
2.
Third
person
must
have
communicatedhisacceptance;and
d. Neither of the contracting parties
bears the legal representation of
thethirdperson.
Whenathirdpersoninducesapartyto
violatethecontract
3.
4.
Requisites:
a. Existenceofavalidcontract
b. Third person has knowledge of
suchcontract
c. Third person interferes without
justification
Thirdpersonscomingintopossessionof
the object of the contract creating real
rights
Contracts entered into in fraud of

creditors
Q:Fieldmen'sInsuranceissued,infavorofMYT,
a common carrier, accident insurance policy.
50%ofthepremiumwaspaidbythedriver.The
policyindicatedthattheCompanywillindemnify
the driver of the vehicle or his representatives
upon his death. While the policy was in force,
the taxicab driven by Carlito, met with an
accident.Carlitodied.MYTandCarlito'sparents
filedacomplaintagainstthecompanytocollect
theproceedsofthepolicy.Fieldmensadmitted
theexistencethereof,butpleadedlackofcause
ofactiononthepartoftheparents.Decide.
A:Yes.Carlitosparentswho,admittedly,arehis
soleheirshaveadirectcauseofactionagainstthe
Company. This is so because pursuant to the
stipulations, the Company will also indemnify
third parties. The policy under consideration is
typical of contracts pour autrui, this character
being made more manifest by the fact that the
deceased driver paid 50% of the premiums.
(Coquia v. Fieldmens Insurance Co., Inc.,G.R. No.
L23276,Nov.29,1968)
Q:Whatistheobligatoryforceofcontracts?
A: The parties are bound not only by what has

been expressly provided for in the contract but
alsotothenaturalconsequencesthatflowoutof
suchagreement.(Art.1315,NCC)
Q: Villamor borrowed a large amount from

Borromeo,forwhichhemortgagedhisproperty
but defaulted.Borromeo pressed him for
settlement.Thelatterinsteadofferedtoexecute
a promissory note containing a promise to pay
hisdebtassoonasheisable,evenafter10years
and that he waives his right to prescription.
What are the effects of said stipulation to the
actionforcollectionfiledbyBorromeo?
A: None. The rule is that a lawful promise made

for a lawful consideration is not invalid merely
because an unlawful promise was made at the
same time and for the same consideration. This
rule applies although the invalidity is due to
violation of a statutory provision, unless the
statute expressly or by necessary implication
declarestheentirecontractvoid.Thus,evenwith
such waiver of prescription, considering that it
was the intent of the parties to effectuate the
terms of the promissory note, there is no legal
obstacle to the action for collection filed by
Borromeo. (Borromeo v. CA,G.R. No. L22962,
Sept.28,1972)
Note: Where an agreement founded on a legal

consideration contains several promises, or a
promisetodoseveralthings,andapartonlyofthe
thingstobedoneareillegal,thepromiseswhichcan
be separated, or the promise, so far as it can be
separated, from the illegality, may be
valid.(Borromeo v. CA,G.R. No. L22962, Sept. 28,
1972)
Q: What is the principle of mutuality of

contracts?
A: Contract must be binding to both parties and

itsvalidityandeffectivitycanneverbelefttothe
willofoneoftheparties.(Art.1308,NCC)
Q:Whatistheprincipleofautonomyof
contracts?
A:Itisthefreedomofthepartiestocontractand
includes the freedom to stipulate provided the
stipulationsarenotcontrarytolaw,morals,good
customs,publicorderorpublicpolicy.(Art.1306,
NCC)
A.CONSENSUALCONTRACTS
Q:Whatareconsensualcontracts?
A:Theyarecontractsperfectedbymereconsent.
Note:Thisisonlythegeneralrule.
B.REALCONTRACTS
Q:Whatarerealcontracts?
A:Theyarecontractsperfectedbydelivery
CIVILLAWTEAM:
CONTRACTS
C.FORMALCONTRACTS
Q:Whatareformalcontracts?
A: Contracts which require a special form for

perfection.
Q: What are the formalities required in the

followingcontracts?
A:
1. Donations:
a. personal property if value
exceeds 5000, the donation
andacceptancemustbothbe
written.
b. b.realproperty:
i. donation must be in a public
instrument, specifying therein the
property donated and value of
chargeswhichdoneemustsatisfy.
ii. acceptance must be written, either
inthesamedeedofdonationorina
separateinstrument.
iii. If acceptance is in a separate
instrument, the donor shall be
notified therof in authentic form,
andthisstepmustbenotedinboth
instruments.
Note: The acceptance in a separate
documentmustbeapublicinstrument.
2.
Partnership where real property

contributed:
i. there must be a public instrument
regardingthepartnership.
ii. the inventory of the realty must be
made, signed by the parties and
attachedtothepublicinstrument.
3.
Antichresistheamountoftheprincipal
andinterestmustbeinwriting.
4.
Agency to sell real property or an

interestthereinauthorityoftheagent
mustbeinwriting.
5.
Stipulation to charge interest interest

mustbestipulatedinwriting.
6.
Stipulation limiting common carrier's

duty of extraordinary diligence to
ordinarydiligence:
i. must be in writing, signed by
shipperorowner
ii. supportedbyvaluableconsideration
other than the service rendered by
thecomoncarrier
iii. reasonable,justandnotcontraryto
publicpolicy.
7.
Chattel mortgage personal property

must be recorded in the Chattel
MortgageRegister
III.FORMOFCONTRACTS
Q:Whatarerulesontheformofcontracts?
A:
1. Contracts shall be obligatory, in
whatever form they may have been
entered into, provided all essential
requisitesfortheirvalidityarepresent.
2. Contracts must be in a certain form

when the law requires that a contract
beinsomeformtobe:
a. valid;
b. enforceable;or
c. fortheconvenienceoftheparties.
3. The parties may compel each other to

reduce the verbal agreement into
writing.
Note:
GR:Formisnotrequiredinconsensualcontracts.
XPNs: When the law requires a contract be in

certainforits:
1. validity(formalcontracts);or
2. enforceability(underStatuteofFrauds).
Q: What are the acts which must appear in a

publicdocument?
A:
1. Donationofrealproperties(Art.719);
2. Partnership
where
immoveable
property or real rights are contributed
to the common fund (Arts. 1171 &
1773);
3. Actsandcontractswhichhavefortheir
object the creation, transmission,
modification or extinguishment of real
rights over immovable property; sales
ofrealpropertyorofaninteresttherein
is governed by Arts. 1403, No. 2, and
1405[Art.1358(1)];
4. The
cession,
repudiation
or
renunciation of hereditary rights or of
those of the conjugal partnership of
gains[Art.1358(2)]
5. The power to administer property or
anyotherpowerwhichhasforitsobject
an act appearing or which should
appear in a public document or should
prejudiceathirdperson[Art.1358(3)];
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
6.
The cession of actions or rights

proceeding from an act appearing in a
publicdocument[Art.1358(4)].
Q:Whatarecontractsthatmustberegistered?
A:
1. Chattelmortgages(Art.2140)
2. Sale or transfer of large cattle (Cattle
RegistrationAct)
REFORMATION
Q:Whatisreformationofinstruments?
A:Itisaremedytoconformtotherealintention
of the parties due to mistake, fraud, inequitable
conduct,accident.(Art.1359)
Note:Reformationisbasedonjusticeandequity.
Q: What are the requisites in reformation of

instruments?
A:
1. Meetingofthemindstothecontract
2. True intention is not expressed in the
instrument
3. ByreasonofMARFI:
a. Mistake,
b. Accident,
c. Relativesimulation,
d. Fraud,or
e. Inequitableconduct
4. ClearandconvincingproofofMARFI
Note: When there is no meeting of the minds, the

properremedyisannulmentandnotreformation.
Q: In what cases is reformation of instruments

notallowed?
A:
1. Simple, unconditional donations inter
vivos
2. Wills
3. Whentheagreementisvoid
4. When an action to enforce the
instrumentisfiled(estoppel)
Q:Whatistheprescriptiveperiodinreformation
ofinstruments?
A:10yearsfromthedateoftheexecutionofthe
instrument.
Q: Who may ask for the reformation of an

instrument?
A:Itmaybeorderedattheinstanceof:
1. ifthemistakeismutualeitherpartyor
hissuccessorsininterest;otherwise;
2. uponpetitionoftheinjuredparty;or
3. hisheirsandassigns.
Note:Whenoneofthepartieshasbroughtanaction
to enforce the instrument, no subsequent
reformationcanbeasked(estoppel).
Q: In case of reformation of contracts, is the

prescription period in bringing an action for
reformation run from the time the contract
becamedisadvantageoustooneparty?
A: In reformation of contracts, what is reformed

is not the contract itself, but the instrument
embodying the contract. It follows that whether
the contract is disadvantageous or not is
irrelevant to reformation and therefore, cannot
beanelementinthedeterminationoftheperiod
forprescriptionoftheactiontoreform.
IV.DEFECTIVECONTRACTS
Q:Whatmaybethestatusofcontracts?
A:
1. Valid
2. Void
3. Voidable
4. Rescissible
5. Unenforceable
6. Inexistent
A.RESCISSIBLECONTRACTS
Q:Whatarerescissiblecontracts?
A: Those which have caused a particular

economicdamageeithertooneofthepartiesor
to a third person and which may be set aside
even if valid. It may be set aside in whole or in
part, to the extent of the damage caused. (Art.
1381,NCC)
Q:Whichcontractsarerescissible?
A:
1. Entered into by persons exercising
fiduciarycapacity:
a. Enteredintobyguardianwhenever
ward suffers damage more than
ofvalueofproperty.
b. Agreed upon in representation of
absentees, if absentee suffers
lesion by more than of value of
property.
CIVILLAWTEAM:
CONTRACTS
c.
d.
e.
f.
Contractswhererescissionisbased
on fraud committed on creditor
(accionpauliana)
Objects of litigation; contract
enteredintobydefendantwithout
knowledge or approval of litigants
orjudicialauthority
Payment by an insolvent on
debts which are not yet due;
prejudicesclaimofothers
Provided for by law (Arts. 1526,
1534, 1538, 1539, 1542, 1556,
1560,1567&1659,NCC)
2.
Paymentsmadeinstateofinsolvency:
a. Plaintiff has no other means to
maintainreparation
b. Plaintiff must be able to return
whatever he may be obliged to
returnduetorescission
c. The things must not have been
passed to third persons in good
faith
d. Itmustbemadewithin4yrs.
Q: What are the requisites before a contract

entered into in fraud of creditors may be
rescinded?
A:
1. There must be credit existing prior to
thecelebrationofthecontract;
2. There must be fraud, or at least, the
intenttocommitfraudtotheprejudice
ofthecreditorseekingrescission;
3. Thecreditorcannotinanylegalmanner
collecthiscredit(subsidiarycharacterof
rescission);and
4. The object of the contract must not be
legallyinpossessionofathirdpersonin
goodfaith.
Q:Distinguishrescissionfromresolution.
RESOLUTION
RESCISSION
(ART.1191)
(ARTICLE1381)
Bothpresupposecontractsvalidlyenteredintoand
subsistingandbothrequiremutualrestitutionwhen
proper
Nature
Principalaction.
Subsidiaryremedy
retaliatoryincharacter
GroundsforRescission
5groundsunderArt.
1381.(lesionsorfraudof
Onlygroundisnon
creditors)
performanceof
Nonperformanceisnot
obligation
important
Applicability
Appliestobothunilateral
Appliesonlytoreciprocal
andreciprocal
obligations
obligations
PersonwhocanInitiatetheAction
Eventhirdpersons
Onlytheinjuredparty
prejudicedbythe
whoisapartytothe
contractmaybringthe
contract
action
FixingofPeriodbytheCourt
Courtmayfixaperiodor
grantextensionoftime
Courtcannotgrant
forthefulfillmentofthe
extensionoftime
obligationwhenthereis
sufficientreasonto
justifysuchextension
Purpose
Reparationfordamage
Cancellationofthe
orinjury,allowingpartial
contract
rescissionofcontract
Note:WhileArticle1191usesthetermrescission,
the original term which was used in the old Civil
Code, from which the article was based, was
resolution.(Ongv.CA,G.R.No.97347,July6,1999)
Q: What is the obligation created by the

rescissionofthecontract?
A: Mutual restitution of things which are the

objectsofthecontractandtheirfruitsandofthe
pricewithinterest.
Q:Whenismutualrestitutionnotapplicable?
A:
1. Creditor did not receive anything from
contract;or
2. Thing already in possession of third
persons in good faith; subject to
indemnityonly,iftherearetwoormore
alienationsliabilityoffirstinfractor.
Note: Rescission is possible only when the person

demanding rescission can return whatever he may
be obliged to restore. A court of equity will not
rescindacontractunlessthereisrestitution,thatis,
the parties are restored to the status quo
ante.(Article1385)
Q: Reyes (seller) and Lim (buyer) entered intoa

contract to sell of a parcel of land. Harrison
Lumber occupied the property as lessee. Reyes
offeredtoreturntheP10milliondownpayment
to Lim because Reyes was having problems in
removing the lessee from the property. Lim
rejectedReyesoffer.LimlearnedthatReyeshad
alreadysoldthepropertytoanother.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Trialcourt,inthiscase,directedReyestodeposit
the P10 million downpayment with the clerk of
court but Reyes refused. Does Reyes have the
obligation to deposit the P10 million
downpaymentinthecourt?
A: Yes. There is also no plausible or justifiable

reason for Reyes to object to the deposit of the
P10milliondownpaymentincourt.Thecontract
to sell can no longer be enforced because Reyes
himselfsubsequentlysoldtheproperty.BothLim
and Reyes are seeking for rescission of the
contract.
Byseekingrescission,asellernecessarilyoffersto
returnwhathehasreceivedfromthebuyer.Such
a seller may not take back his offer if the court
deemsitequitable,topreventunjustenrichment
and ensure restitution, to put the money in
judicialdeposit.
Note:Inthiscase,itwasjust,equitableandproper
forthe trialcourt to order the deposit ofthedown
payment to prevent unjust enrichment by Reyes at
theexpenseofLim.Depositingthedownpaymentin
courtensureitsrestitutiontoitsrightfulowner.Lim,
ontheotherhand,hasnothingtorefund,ashehas
not received anything under the contract to sell.
(Reyes v. Lim, Keng and Harrison Lumber, Inc., G.R.
No.134241,Aug.11,2003)
Q:Whatarethebadgesoffraudattendingsales,
asdeterminedbythecourts?
A:
1. Consideration of the conveyance is
inadequateorfictitious;
2. TransferwasmadebyaDRafterasuit
hasbeenbegunandwhileitispending
againsthim
3. SaleuponcreditbyaninsolventDR;
4. The presence of evidence of large
indebtednessorcompleteinsolvencyof
thedebtor;
5. Transfer of all his property by a DR
when he is financially embarrassed or
insolvent;
6. Transfer is made between father and
son, where there are present some or
anyoftheabovecircumstances;and
7. Failure of the vendee to take exclusive
possessionoftheproperty.
Q: What are the characteristics of the right to

rescind?
A:
1. Can be demanded only if plaintiff is
ready, willing and able to comply with
hisownobligationanddefendantisnot;
2. Notabsolute;
3. Needs judicial approval in the absence
of a stipulation allowing for extra
judicial rescission, in cases of non
reciprocalobligations;
4. Subject to judicial review if availed of
extrajudicially;
5. May be waived expressly or impliedly;
and
6. Impliedtoexistinreciprocalobligations
therefore need not be expressly
stipulatedupon.
Q:Mayaninjuredpartyavailofbothfulfillment
andrescissionasremedy?
A:
GR:The injured party can only choose
between fulfillment and rescission of
theobligation,andcannothaveboth.
Note: This applies only when the

obligationispossibleoffulfillment.
XPN: If fulfillment has become

impossible,Article1191,NCCallowsthe
injured party to seek rescission even
afterhehaschosenfulfillment.(Ayson
Simonv.Adamos,G.R.No.L39378,Aug.
281984)
Q: Vermen and Seneca entered into an

"offsettingagreement",whereSenecaisobliged
to deliver construction materials to Vermen,
who is obliged to pay Seneca and to deliver
possession of 2 condominium units to Seneca
uponitscompletion.Senecafiledacomplaintfor
rescission of the offsetting against Vermen
alleging that the latter had stopped issuing
purchase orders of construction materials
without valid reason, thus resulting in the
stoppage of deliveries of construction materials
on its part, in violation of the Offsetting
Agreement.Cantheagreementberescinded?
A: Yes, because the provisions of the offsetting

agreement are reciprocal in nature. Article 1191
of the Civil Code provides the remedy of
rescission (more appropriately, the term is
"resolution") in case of reciprocal obligations,
where one of the obligors fails to comply with
thatisincumbentuponhim.
CIVILLAWTEAM:
CONTRACTS
The question of whether a breach of contract is
substantial depends upon the attendant
circumstances. Seneca did not fail to fulfill its
obligation in the offsetting agreement. The
discontinuance of delivery of construction
materialstoVermenstemmedfromthefailureof
Vermen to send purchase orders to Seneca.
Vermen would never have been able to fulfill its
obligation in allowing Seneca to exercise the
optiontotransferfromPhaseItoPhaseII,asthe
construction of Phase II has ceased and the
subject condominium units will never be
available. The impossibility of fulfillment of the
obligation on the part of Vermen necessitates
resolution of the contract, for indeed, the non
fulfillment of the obligation aforementioned
constitutes substantial breach of the agreement.
(Vermen Realty Development Corp. v. CA and
Seneca Hardware Co., Inc., G.R. No. 101762, July
6,1993)
Q: Ong and spouses Robles executed an

"agreementofpurchaseandsale"of2parcelsof
land. Pursuant to the contract they executed,
Ongpartiallypaidthespousesthebydepositing
it with the bank. Subsequently, Ong deposited
sumsofmoneywiththeBPIinaccordancewith
their stipulation that Ong pay the loan of the
spousewithBPI.ToanswerforOngsbalance,he
issued 4 postdated checks which were
dishonored.Ongfailedtoreplacethechecksand
topaytheloaninfull.Canthecontractentered
intobyOngandthespousesberescinded?
A: No. The agreement of the parties in this case

maybesetaside,butnotbecauseofabreachon
the part of Ong for failure to complete payment
ofthepurchaseprice.Rather,hisfailuretodoso
brought about a situation which prevented the
obligation of the spouses to convey title from
acquiringanobligatoryforce.
Theagreementofpurchaseandsaleshowsthatit
isinthenatureofacontracttosell.Ongsfailure
to complete payment of the purchase price is a
nonfulfillment of the condition of full payment
which rendered the contract to sell ineffective
and without force and effect. The breach
contemplatedinArticle1191,NCCistheobligors
failuretocomplywithanobligation.Inthiscase,
Ongs failure to pay is not even a breach but
merely an event which prevents the vendors
obligation to convey title from acquiring binding
force.
In a contract to sell, the payment of the purchase

priceisapositivesuspensivecondition,thefailureof
which is not a breach, casual or serious, but a
situationthatpreventstheobligationofthevendor
to convey title from acquiring an obligatory force.
(Ongv.CA,G.R.No.97347,July6,1999)
Q: Goldenrod offered to buy a mortgaged

property owned by Barreto Realty to which it
paidanearnestmoneyamountingtoP1million.
It was agreed upon that Goldenrod would pay
the outstanding obligations of Barreto Realty
with UCPB. However, Goldenrod did not pay
UCPBbecauseofthebanksdenialofitsrequest
for the extension to pay the obligation.
Thereafter, Goldenrod, through its brocker,
informed Barreto Realty that it could not go
through with the purchase of the property and
alsodemandedtherefundoftheearnestmoney
it paid. In the absence of a specific stipulation,
maythesellerofrealestateunilaterallyrescind
the contract and as a consequence keep the
earnest money to answer for damages in the
event the sale fails due to the fault of the
prospectivebuyer?
A: No. Goldenrod and Barretto Realty did not

intend that the earnest money or advance
payment would be forfeited when the buyer
should fail to pay the balance of the price,
especially in the absence of a clear and express
agreementthereon.
Moreover, Goldenrod resorted to extrajudicial

rescission of its agreement with Barretto Realty.
Under Article 1385, NCC, rescission creates the
obligation to return the things which were the
object of the contract together with their fruits
and interest. Therefore, by virtue of the
extrajudicial rescission of the contract to sell by
Goldenrod without opposition from Barretto
Realty, which in turn, sold the property to other
persons, Barretto Realty, had the obligation to
return the earnest money which formed part of
the purchase price plus legal interest from the
date it received notice of rescission. It would be
most inequitable if Barretto Realty would be
allowed to retain the money at the same time
appropriate the proceeds of the second sale
madetoanother.(Goldenrod,Inc.v.CA,G.R.No.
126812,Nov.24,1998)
Note:Thecontractenteredintobythepartiesinthe
case at bar does not fall under any of those
mentioned by Article 1381. Consequently, Article
1383isinapplicable.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q: What is the prescriptive period of action for

rescission?
A:
1. Under Art. 1381, no.1 within 4 years
from the time the termination of the
incapacityoftheward;
2. Under Art. 1381, no. 2 within 4 years
from the time the domicile of the
absenteeisknown;or
3. UnderArt.1381,nos.3&4&Art.1382
within 4 years from the time of the
discoveryoffraud.
B.VOIDABLECONTRACTS
Q: What are the characteristics of a voidable

contract?
A:
1. Effectiveuntilsetaside;
2. May be assailed or attacked only in an
actionforthatpurpose;
3. Canbeconfirmed;and
4. Canbeassailedonlybythepartywhose
consent was defective or his heirs or
assigns.
Q:Whenisthereavoidablecontract?
A:When:
1. one of the parties is incapacitated to
giveconsent;or
2. consentwasvitiated.
Q: Who are the persons incapacitated to give

consent?
A:DIM
1. Deafmutes who do not know how to
readandwrite(illiterates)
2. Insaneordementedpersons,unlessthe
contractwasenteredintoduringalucid
interval
3. Minorsexcept:
a. Contractsfornecessaries
b. Contracts by guardians or legal
representatives&thecourthaving
jurisdictionhadapprovedthesame
c. When
there
is
active
misrepresentation on the part of
theminor(minorisestopped)
d. Contracts of deposit with the
Postal Savings Bank provided that
theminorisover7yearsofage
e. Upon reaching age of majority
theyratifythesame
Q:Whatarethevicesofconsent?
A:MIVUF
1. Mistake substantial mistake and not
merely an accidental mistake; must
refertothe:
a. substanceofthethingwhichisthe
subjectofthecontract;or
b. to those conditions which have
principally moved one or both
partiestoenterthecontract.
Note: Mistake as to identity or

qualifications of one of the parties
will vitiate consent only when such
identity or qualifications have been
theprincipalcauseofthecontract.
2.
3.
4.
5.
Intimidation An internal moral force

operating in the will and inducing
performanceofanact.
Violence An external, serious or
irresistible physical force exerted upon
a person to prevent him from doing
something or to compel him to do an
act.
UndueinfluenceAnymeansemployed
upon a party which, under the
circumstancescouldnotberesistedand
hastheeffectofcontrollinghisvolition
andinducinghimtogivehisconsentto
the contract, which otherwise, he
wouldnothaveenteredinto.
Fraud Use of insidious words or
machinations in inducing another party
to enter into the contract, which
without them, he would not have
agreed.
Q:Whatarethekindsofmistake?
A:
1. Mistake of fact When one or both of
the contracting parties believe that a
factexistswheninrealityitdoesnot,or
that such fact does not exist when in
realityitdoes.
2. MistakeoflawWhen1orbothparties
arrive at erroneous conclusion or
interpretation of a question of law or
legal effects of a certain act or
transaction.
Note:
GR: Mistake as a vice of consent refers to
mistakeoffactsandnotoflaw.
CIVILLAWTEAM:
CONTRACTS
XPN:Whenmistakeoflawinvolveserrorasto
the effect of an agreement when the real
purpose of the parties is frustrated (Art. 1334,
NCC).
Todeterminetheeffectofanallegederror,boththe
objectiveandsubjectiveaspectsofthecasewhichis
the intellectual capacity of the person who
committedthemistake.
Q:Whenwillmistakeinvalidateconsent?
A:Mistake,inordertoinvalidateconsent,should
refer to the substance of the thing which is the
object of the contract, or to those conditions
whichhaveprincipallymovedoneorbothparties
to enter into the contract.(Leonardo v. CA, G.R.
No.125485,Sept.13,2004)
Q: Leonardo is the only legitimate child of the

late spouses Tomasina and Balbino. She only
finished Grade three and did not understand
English. The Sebastians, on the other hand, are
illegitimate children. She filed an action to
declarethenullityoftheextrajudicialsettlement
of the estate of her parents, which she was
made to sign without the contents thereof,
which were in English, explained to her. She
claimsthatherconsentwasvitiatedbecauseshe
was deceived into signing the extrajudicial
settlement. Is the extrajudicial settlement of
estateofTomasinavalid?
A:No.Whenoneofthepartiesisunabletoread,
orifthecontractisinalanguagenotunderstood
by him, and mistake or fraud is alleged, the
personenforcingthecontractmustshowthatthe
terms thereof have been fully explained to the
former. (Art. 1332, NCC) Leonardo was not in a
position to give her free, voluntary and
spontaneous consent without having the
document,whichwasinEnglish,explainedtoher.
Therefore, the consent of Leonardo was
invalidated by a substantial mistake or error,
rendering the agreement voidable. The
extrajudicial partition between the Sebastians
and Leonardo should be annulled and set aside
on the ground of mistake. (Leonardo v. CA, G.R.
No.125485,Sept.13,2004)
Note: Contracts where consent is given by mistake

or because of violence, intimidation, undue
influenceorfraudarevoidable.Thesecircumstances
are defects of the will, the existence of which
impairs the freedom, intelligence, spontaneity and
voluntariness of the party in giving consent to the
agreement.
Art. 1332 was intended to protect a party to a

contract disadvantaged by illiteracy, ignorance,
mental weakness or some other handicap. It

contemplates a situation wherein a contract is
entered into but the consent of one of the
contracting parties is vitiated by mistake or fraud
committed by the other.(Leonardo v. CA, G.R. No.
125485,Sept.13,2004)
Q: What are the requisites that ignorance of or

erroneousinterpretationoflaw(mistakeoflaw)
mayvitiateconsent?
A:
1. Mistake must be with respect to the
legaleffectoftheagreement;
2. Itmustbemutual;and
3. Real purpose of the parties must have
beenfrustrated.
Q:Whataretherequisitesofintimidation?
A:
1. One of the parties is compelled to give
his consent by a reasonable and well
groundedfearofanevil;
2. Theevilmustbeimminentandgrave;
3. Itmustbeunjust;and
4. Theevilmustbethedeterminingcause
forthepartyuponwhomitisemployed
inenteringintothecontract.
Q:Whataretherequisitesofviolence?
A:Itmustbe:
1. seriousorirresistible;and
2. the determining cause for the party
upon whom it is employed in entering
intothecontract.
Q:Whatarethekindsoffraud?
A:
1. Fraudintheperfectionofthecontract
a. Causalfraud(dolocausante)
b. Incidentalfraud(doloincidente)
2. Fraud in the performance of an

obligation(Art.1170,NCC)
Requisites:
a. Fraud, insidious words or
machinations must have been
employed by one of the
contractingparties;
b. Itmusthavebeenserious;
c. Itinducedtheotherpartytoenter
intoacontract;and
d. Shouldnothavebeenemployedby
bothcontractingpartiesorbythird
persons.
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
Q: Distinguish dolo causante from dolo

incidente.
A:
DOLOCAUSANTE
(ART.1338)
Referstofraudwhichis
seriousincharacter
Itisthecausewhich
inducesthepartyto
enterintoacontract
Rendersthecontract
voidable
DOLOINCIDENTE
(ART.1344)
Referstofraudwhichis
notseriousincharacter
Itisnotthecausewhich
inducesthepartyto
enterintoacontract
Rendersthepartyliable
fordamages
Note:Incontracts,thekindoffraudthatwillvitiate
consent is one where, through insidious words or
machinations of one of the contracting parties, the
other is induced to enter into a contract which,
withoutthem,hewouldnothaveagreedto.Thisis
known as dolo causante or causal fraud which is
basicallyadeceptionemployedbyonepartypriorto
or simultaneous to the contract in order to secure
the consent of the other. (Samson v. CA, G.R. No.
108245,Nov.25,1994)
Q: Santos lease contract was about to expire

butitwasextendedandhecontinuedtooccupy
theleasedpremisesbeyondtheextendedterm.
Samson offered to buy Santos store and his
right to the lease. Santos stated that the lease
contract between him and the lessor was
impliedly renewed and that formal renewal
thereof would be made upon the arrival of a
certain Tanya Madrigal, based on the letter to
himgivenbythelessor.WhenSamsonoccupied
the premises, he was forced to vacate for
Santos failure to renew his lease. He filed an
actionfordamagesagainstSantosforfraudand
bad faith claiming that the misrepresentation
induced him to purchase the store and the
leaseholdright.Decide.
A:No,Santoswasnotguiltyoffraudnorbadfaith
inclaimingthattherewasimpliedrenewalofhis
contractof leasewithhislessor.Thelettergiven
by the lessor led Santos to believe and conclude
thathisleasecontractwasimpliedlyrenewedand
thatformalrenewalthereofwouldbemadeupon
the arrival of Tanya Madrigal. Thus, from the
start,itwasknowntobothpartiesthat,insofaras
the agreement regarding the transfer of Santos
leasehold right to Samson was concerned, the
object thereof relates to a future right. It is a
conditional contract, the efficacy of which
dependsuponanexpectancytheformalrenewal
oftheleasecontractbetweenSantosandlessor.
The efficacy of the contract between the parties
wasthusmadedependentuponthehappeningof
thissuspensivecondition.(Samsonv.CA,G.R.No.
108245,Nov.25,1994)
Q:Whatarethecausesofextinctionofactionto
annul?
A:
1. Prescription the action must be
commenced within 4 years from the
timethe:
a. incapacity ends; guardianship
ceases;
b. violence, intimidation or undue
influenceends;or
c. mistakeorfraudisdiscovered
2. Ratificationcleansesthecontractofits
defects from the moment it was
constituted
Requisites:
a. there must be knowledge of the
reason which renders the contract
voidable;
b. suchreasonmusthaveceased;and
c. the injured party must have
executedanactwhichexpresslyor
impliedly conveys an intention to
waivehisright
3. By loss of the thing which is the object

ofthecontractthroughfraudorfaultof
thepersonwhoisentitledtoannulthe
contract
Q:Whomayinstituteactionforannulment?
A: By all who are thereby obliged principally or

subsidiarily.
Note: He who has capacity to contract may not
invoketheincapacityofthepartywithwhomhehas
contracted.
A third person who is a stranger to the contract

cannotinstituteanactionforannulment.
Q:Whataretheeffectsofannulment?
A:
1. If contract not yet consummated
parties shall be released from the
obligationsarisingtherefrom.
2. If contract has already been
consummated rules provided in Arts.
13981402,NCC,shallgovern.
CIVILLAWTEAM:
CONTRACTS
Q:Whatisconfirmation?
A: It is an act by which a voidable contract is

curedofitsviceordefect.
Q:Whatisrecognition?
A:Itisanactwherebyadefectofproofiscured
such as when an oral contract is put into writing
orwhenaprivateinstrumentisconvertedintoa
publicinstrument.
Q:Whatisratification?
A:Itisanactbywhichacontractenteredintoin
behalf of another without or in excess of
authorityiscuredofitsdefect.
Q:Whatarethemodesofratification?
A:
1. For contracts infringing the Statute of
Frauds:
a. expressly
b. impliedly by failure to object to
the presentation of oral evidence
to prove the contract, or by the
acceptance of benefits under the
contract.
2. If both parties are incapacitated,
ratificationbytheirparentsorguardian
shallvalidatethecontractretroactively
C.UNENFORCEABLECONTRACTS
Q:Whatareunenforceablecontracts?
A: The following contracts are unenforceable

unlesstheyareratified:
1. Thoseenteredintowithoutorinexcess
ofauthority;
2. Those that do not comply with the
StatuteofFraudsi.e.,arenotinwriting
nor subscribed by the party charged or
byhisagent;or
3. Those where both contracting parties
areincapableofgivingconsent.
Q:WhatisStatuteofFrauds?
A: The Statute of Frauds [Article 1403, (2)]

requirescertaincontractsenumeratedthereinto
be evidenced by some note or memorandum in
order to be enforceable. The term "Statute of
Frauds" is descriptive of statutes which require
certain classes of contracts to be in writing. The
Statute does not deprive the parties of the right
to contract with respect to the matters therein
involved, but merely regulates the formalities of

the contract necessary to render it enforceable.
Evidence of the agreement cannot be received
withoutthewritingorasecondaryevidenceofits
contents. (Swedish Match, AB v. CA, G.R. No.
128120,Oct.20,2004)
Note: The Statute of Frauds applies only to

executorycontracts,nottothosethatarepartiallyor
completely fulfilled. Where a contract of sale is
alleged to be consummated, it matters not that
neitherthereceiptfortheconsiderationnorthesale
itself was in writing. Oral evidence of the alleged
consummatedsaleisnotforbiddenbytheStatuteof
Fraudsandmaynotbeexcludedincourt.(Victoriano
v.CA,G.R.No.87550,Feb.11,1991)
Q:WhatisthepurposeoftheStatuteofFrauds?
A: It is to prevent fraud and perjury in the

enforcement of obligations depending for their
evidenceontheunassistedmemoryofwitnesses,
by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed
bythepartytobecharged.(SwedishMatch,ABv.
CA,G.R.No.128120,Oct.20,2004)
Q: What are the contracts or agreements

coveredbytheStatuteofFrauds?
A:
1.
2.
3.
4.
5.
Anagreementthatbyitstermsisnotto
be performed within a year from the
makingthereof;
A special promise to answer for the
debt,defaultormiscarriageofanother
Anagreementmadeinconsiderationof
marriage, other than a mutual promise
tomarry;
An agreement for the sale of goods,
chattels or things in action, at a price
not lower that 500 pesos, unless the
buyeracceptsandreceivespartofsuch
goodsandchattels,ortheevidences,or
someofthem,ofsuchthingsinaction,
or pay at the time some part of the
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
sufficientmemorandum
An agreement for the leasing for a
longer period than one year, or for the
sale of real property or of an interest
therein;
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
6.
Arepresentationtothecreditofathird
person
Q:Cenido,asanheirofAparatoandclaimingto
be the owner of a house and lot, filed a
complaint for ejectment against spouses
Apacionado. On the other hand, spouses
Apacionado allege that they are the owners
whichareunregisteredpurchasedbythemfrom
its previous owner, Aparato. Their claim is
anchored on a 1page typewritten document
entitled "Pagpapatunay," executed by Aparato.
IsthePagpapatunayenteredintobyBonifacio
andspouseApacionadovalidandenforceable?
A: It is valid but unenforceable. Generally,

contracts are obligatory, in whatever form such
contracts may have been entered into, provided
all the essential requisites for their validity are
present.When,however,thelawrequiresthata
contract be in some form for it to be valid or
enforceable, that requirement must be complied
with.
Thesaleofrealpropertyshouldbeinwritingand
subscribed by the party charged for it to be
enforceable.The"Pagpapatunay"isinwritingand
subscribed by Aparato, hence, it is enforceable
under the Statute of Frauds. Not having been
subscribed and sworn to before a notary public,
however, the "Pagpapatunay" is not a public
document, and therefore does not comply with
par.1,Art.1358,NCC.
Moreover,therequirementofapublicdocument
in Article 1358 is not for the validity of the
instrument but for its efficacy. Although a
conveyance of land is not made in a public
document, it does not affect the validity of such
conveyance.Theprivateconveyanceofthehouse
and lot is therefore valid between Aparato and
the spouses. (Cenidov.Spouses Apacionado,G.R.
No.132474,Nov.19,1999)
Q:Whatarethetwowaysofratifyingcontracts
whichinfringetheStatuteofFrauds?
A:
1. Failure to object during the trial to the
admissibility of parol evidence to
support a contract covered by the
StatuteofFrauds.
2. Acceptance of benefits when the
contract has been partly executed
because estoppel sets in by accepting
performance.
D.VOIDCONTRACTS
Q:Whatarethekindsofvoidcontracts?
A:
1. Thoselackinginessentialelements:
Noconsent,noobject,nocausesomeor
allelementsofavalidcontractareabsent
a. Thosewhichareabsolutelysimulated
orfictitious:nocause
b. Thosewhosecauseorobjectdidnot
exist at the time of the transaction:
nocauseorobject
c. Those whose object is outside the
commerceofman:noobject
d. Those which contemplate an
impossibleservice:noobject
e. Those where the intention of parties
relative to principal object of the
contractcannotbeascertained
2. Contractsprohibitedbylaw
a. Pactum commisorium the creditor
appropriates to himself the things
given by way of pledge or mortgage
tofulfillthedebt
b. Pactum de non alienando an
agreement prohibiting the owner
from alienating the mortgaged
immovable
c. Pactum leonina a stipulation in a
partnership
agreement
which
excludes one or more partners from
anyshareintheprofitsorlosses
3. Illegalorillicitcontracts(e.g.contractto
sellmarijuana)
Q: On July 6, 1976, Honorio and Vicente

executed a deed of exchange. Under this
instrument,Vicenteagreedtoconveyhis64.22
squaremeter lot to Honorio, in exchange for a
500squaremeter property. The contract was
entered into without the consent of Honorios
wife.Isthedeedofexchangenullandvoid?
A:Thedeedisvaliduntilandunlessannulled.The
deedwasenteredintoonJuly6,1976,whilethe
Family Code took effect only on August 3, 1998.
Lawsshouldbeappliedprospectivelyonly,unless
alegislativeintenttogivethemretroactiveeffect
is expressly declared or is necessarily implied
fromthelanguageused.Hence,theprovisionsof
theCivilCode,nottheFamilyCodeareapplicable.
According to Article 166 of the Civil Code, the
husband cannot alienate or encumber any real
property of theconjugal partnership without the
wifes consent. This provision, however, must be
CIVILLAWTEAM:
CONTRACTS
read in conjunction with Article 173 of the same
Code.Thelatterstatesthatanactiontoannulan
alienation or encumbrance may be instituted by
thewifeduringthemarriageandwithintenyears
fromthetransactionquestioned.Hence,thelack
of consent on her part will not make the
husbands alienation or encumbrance of real
property of the conjugal partnership void, but
merelyvoidable.(Villarandav.Villaranda,G.R.No.
153447,Feb.23,2004)
Q: Judie sold onehalf of their lot to Guiang

under a deed of transfer of rights without the
consentandovertheobjectionofhiswife,Gilda
and just after the latter left for abroad. When
Gilda returned home and found that only her
son, Junie, was staying in their house. She then
gatheredherotherchildren,JojiandHarrietand
went to stay in their house. For staying in their
alleged property, the spouses Guiang
complained before the barangay authorities for
trespassing.
Is the deed of transfer of rights executed by

Judie Corpuz and the spouses Guiang void or
voidable?
A:
Itisvoid.Gildasconsenttothecontractofsaleof
their conjugal property was totally inexistent or
absent. Thus, said contract properly falls within
theambitofArticle124oftheFC.
The particular provision in the old Civil Code

which provides a remedy for the wife within 10
years during the marriage to annul the
encumbrance made by the husband was not
carried over to the Family Code. It is thus clear
that any alienation or encumbrance made after
theFamilyCodetookeffectbythehusbandofthe
conjugal partnership property without the
consent of the wife is null and void. (Spouses
Guiangv.CA,G.R.No.125172,June26,1998)
Q: Distinguish void contract from voidable

contract.
A:
VOID
Absenceofessential
element/sofacontract
Noeffectevenifnotset
aside
Cannotberatified
Nullitycanbesetup
againstanyperson
assertingrightarising
fromit,andhissuccessors
VOIDABLE
Consentisvitiatedor
thereisincapacityto
giveconsent
Validcontractuntilset
aside
Canberatified
Nullitycanbesetup
onlyagainstaparty
thereto
ininterestnotprotected
bylaw
Actiontodeclarenullity
doesnotprescribe
Actiontoannul
contractprescribesin4
years(Pineda,
Obligationsand
Contracts,2000ed,p.
606)
Q:Distinguishvoidcontractfromrescissible
contract.
A:
VOID
Defectisinherent
inthecontract
itself
Nullityisamatter
oflawandpublic
interest
Nolegaleffects
evenifnoactionis
filedtosetitaside
Actiontodeclare
itsnullitydoesnot
prescribe(Art.
1410,NCC)
RESCISSIBLE
Defectisinitseffects,either
againstoneofthepartiesora
thirdperson
Basedonequityandmatterof
privateinterest
Produceslegaleffectsand
remainsvalidifnoactionis
filed
Actiontorescindprescribes
within4years(Art.1389,NCC;
Pineda,Obligationsand
Q: Distinguish void contract from inexistent

contract.
A:
VOIDCONTRACT
Thosewhereallthe
requisitesofacontract
arepresent,butthe
cause,objectorpurpose
iscontrarytolaw,
morals,goodcustoms,
publicorderorpublic
policyorthecontract
itselfisprohibitedor
declaredprohibited.
Principleofinpari
delictoisapplicable.
INEXISTENTCONTRACT
Thosewhereoneor
someoftherequisites
whichareessentialfor
validityareabsolutely
lacking
Principleofinpari
delicto
isnotapplicable.
V.EFFECTOFCONTRACTS
Q:Betweenwhomdocontractstakeeffect?
A:Contractstakeeffectonlybetweentheparties,
andtheirassignsandheirs,thelatterbeingliable
only to the extent of the property received from
thedecedent.
Q: What are the instances when the heirs may

be liable for the obligation contracted by the
decedent?
V
ICE
C
HAIRFOR
A
DMINISTRATIONAND
F
INANCE
:
J
EANELLE
C.
L
EE
A: When the rights and obligations arising from

thecontractaretransmissible:
1. Bytheirnature;or
2. Bystipulation;or
3. Byprovisionoflaw.
Q: What are the requisites in order that a third

person may demand the fulfillment of the
contract?
A:
1. The contracting parties must have
clearly and deliberately conferred a
favoruponthethirdperson;
2. Thethirdpersonsinterestorbenefitin
such fulfillment must not be merely
incidental;and
3. Such third person communicated his
acceptance to the obligor before the
stipulationsinhisfavorarerevoke.
CIVILLAWTEAM:

UST Golden Notes 2011 - Obligations and Contracts-Libre PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

UST Golden Notes 2011 - Obligations and Contracts-Libre PDF

Uploaded by

Copyright:

Available Formats

OBLIGATIONS

It is a juridical relation whereby a person

A: One bound to perform the prestation to give,

Note: Absence of either of the first three (licit,

Form is not generally considered essential, though

Q: What are the different kinds of prestation?

b. Indivisible obligation is not

collect from his codebtors the

a. Simple there is no penalty

Q: What are the characteristics of a legal

A: These obligations shall be regulated by the

A: It is performance in accordance with the

UST GOLDEN NOTES 2011

Q: May a party unilaterally evadehis obligation

A: Yes. Parties may freely enter into any

Q: What governs obligations arising from

XPN: Contracts with prestations that are

Note: In case of unconscionable penalty for

A: It is a juridical relation arising from lawful,

A: Since a quasicontract is a unilateral contract

Q: What are the principal forms of quasi

Q: Upon the declaration of martial rule in the

Q: In fear of reprisals from lawless elements

1. What is the juridical relation between

X received his full retirement benefits including

officers. GSIS sought the restoration of the said

A: Art. 100 of the Revised Penal Code provides

A: It is an act or omission arising from fault or

UST GOLDEN NOTES 2011

A: They are real obligations to which the law

Q: In an obligation to deliver a thing, what are

Q: May natural obligations be converted into

Note: In obligation to deliver a specific thing, the

Note: The creditor has a right to the fruits of the

Q: What is the principle of balancing of

A: In decreeing specific performance, equity

Negative personal obligation to have

UST GOLDEN NOTES 2011

2. Involuntary debtor is unable to

Q: What is the concept of a good father of the

When the obligation consists in not doing, and

Q: What are the instances where the remedy

Where it would be physically or legally

A: Those obliged to deliver or to do something

In reciprocal obligations, neither party incurs in

Note: In reciprocal obligations, the moment one

Compensatio morae default on the

Q: Does mora solvendi apply in natural

A: No (Art. 1423, NCC), because performance is

Q: Does mora solvendi apply in negative

A: Yes. If the debtor can prove that loss would

XPN: When different dates for the

UST GOLDEN NOTES 2011

A: These are obligations created and established

A: In reciprocal obligations one party incurs in

Q: In reciprocal obligations, when is demand

A: If neither party complies with his prestation,

Q: What may cause the cessation of the effects

A: It is an intentional evasion of the faithful

A: The fraud must be incidental fraud, or that

A: With respect to fraud that has already been

Q: What are the remedies of the defrauded