You are on page 1of 116

[ C 2011 ] [ UP COLLEGE OF LAW ] 1

OBLIGATIONS & A More Complete Definition:

CONTRACTS A juridical relation whereby a person
(Disini) (called the creditor) may demand from
another (called the debtor) the
observance of a determinate conduct
TITLE I. OBLIGATIONS (or behaviour) and in case of non-
observance, may obtain satisfaction
CHAPTER I. GENERAL PROVISIONS from the assets of the latter.

I. Concept
B. Elements of an Obligation
A. Definition- Article 1156 (CC)
1. Active Subject
Art. 1156. An obligation is a
a. Also known as the obligee,
juridical necessity to give, to do or
or creditor. He possesses a
not to do.
right or credit.
b. He has the right to demand
Sanchez-Roman Definiton:
an object.
An obligation is the creation of a
juridical relation, created by virtue of c. Reyes-Puno: A person
certain facts, between two or more endowed with the optional
persons, whereby one of them, power to demand the
known as the creditor or obligee, observance of a certain
may demand of the other, known as behaviour (activity) by
the debtor or obligor, a definite another, and if necessary,
prestation. coerce such behaviour,
directly or indirectly
Criticism of Definition 2. Passive Subject
a. Also known as the
According to J.B.L. Reyes, this obligor, or debtor
definition is incomplete. It is one- b. He has the duty of
sided because it views obligations giving, doing or not doing.
only from the side of the debts. It is c. The debt is the duty to
imperfect because it only applies to give, to do or not do
all kinds of legal duty. d. Reyes-Puno: A person
who must behave (act or
There is no debt without a credit, not act) in a determined
and the credit is an asset in the way for the satisfaction of
patrimony of the creditor just as the the creditor’s private
debt is a liability of the obligor. interest.
“Also, the new code separates 3. Prestation or Object
responsibility from other elements The object of an obligation is
of the obligation and only establishes the prestation (the conduct, to
its existence way near the end, in give, to do or not to do) that
article 2236.” (Tolentino) the debtor should observe. The
obligation represents a
Finally, this definition only applies to restraint on the liberty of
civil obligations, not natural another, but a restraint limited
obligations. (See C. Distinction in its extent. The object of an
Between Natural and Civil obligation is always a
Obligations) prestation. It must be possible,
determinate and have a
pecuniary value.

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 2
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by
4. Efficient Cause/Vinculum/ law; and
Juridical Tie (5) Quasi-delicts.
a. The efficient cause or
vinculum is the reason A. Law (Art. 1158)
why the obligation exists.
b. The juridical/legal tie or Art. 1158. Obligations derived
sanction allows the party from law are not presumed. Only
who is prejudiced by the those expressly determined in this
debtor’s refusal to observe Code or in special laws are
the requisite conduct, to demandable, and shall be regulated
resort to the State by the precepts of the law which
authorities for a remedy. establishes them; and as to what has
c. It is a relation established not been foreseen, by the provisions
by law, by bilateral acts of this Book.
(contracts giving rise to
obligations, stipulations) -Reyes-Puno: It does not
or require concurrence of any act
unilateral acts (crimes and of the creditor or debtor, nor is
quasi-delicts) (See II. the obligation necessarily in
Sources of Obligations) accord with their intention. It is
an involuntary source of
C. Distinction Between Natural obligations. (obligation to
and Civil Obligations support or pay taxes)

1) As to enforceability:
B. Contracts (Art. 1159, 1305)
Civil Obligations: Those which give
a rise to a right of action. They can Art. 1159. Obligations arising from
be enforced by court action. contracts have the force of law
between the contracting parties and
Natural Obligations: Those which should be complied with in good
cannot be enforced by legal action, faith.
but which are binding on the party
who makes them in conscience and Art. 1305. A contract is a meeting
according to equity and natural of the minds between two persons
justice. They are enumerated in whereby one binds himself, with
Articles 1423-1430 of the Civil respect to the other, to give
Code. They depend exclusively on something or to render some service.
the good conscience of the debtor.
-Reyes-Puno: Contracts are
2) As to basis: characterized by a previous
accord of wills or intention.
Civil Obligations: Civil obligations This determines the nature and
derive their binding force from extent of the resulting
positive law. obligation, within legal limits.

Natural Obligations: Natural C. Quasi-Contracts

obligations derive their binding effect (Art. 1160, 2142)
from equity and natural justice.
Art. 1160. Obligations derived from
II. Sources of Obligations quasi-contracts shall be subject to
Article 1157 (CC) provisions of Chapter 1, Title XVII, of
this Book. (n)
Obligations arise from:

(1) Law;
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 3
Art. 2142. Certain lawful, Art. 2154. If something
voluntary and unilateral acts give is received when there is no
rise to the juridical relation of quasi- right to demand it, and it was
contract to the end that no one shall unduly delivered through
be unjustly enriched or benefited at mistake, the obligation to
the expense of another. return it arises.

-In quasi-contracts, no c. Other kinds of Quasi-

previous agreement exists Contracts
between the parties. It is
created by the voluntary and Enumerated in Articles
lawful act of one party, who 2164-2175 of the CC
usually becomes the creditor.
-Obligations arising from D. Acts or Omissions
quasi-contracts are designed Punishable by Law (Delicts)
to avoid unjust enrichment,
and have the character of
Art. 1161. Civil obligations
arising from criminal offenses shall
be governed by the penal laws,
subject to the provisions of Article
2177, and of the pertinent provisions
a. Negostiorum gestio
of Chapter 2, Preliminary Title, on
Art. 2144 . Whoever Human Relations, and of Title XVIII
voluntarily takes charge of of this Book, regulating damages.
the agency or management
of the business or property -These consist in voluntary but
of another, without any punishable acts, including
power from the latter, is criminal negligence, under
obliged to continue the criminal law. The creditor is the
same until the termination offended party.
of the affair and its
incidents, or to require the
E. Acts or Omissions
person concerned to
substitute him, if the owner
Punishable by Law (Delicts)
is in a position to do so.
This juridical relation does Art. 1162. Obligations derived
not arise in either of these from quasi-delicts shall be governed
instances: by the provisions of Chapter 2, Title
XVII of this Book, and by special
(1) When the property or laws. (1093a)
business is not neglected or
abandoned; -These are voluntary but
negligent acts that are not
(2) If in fact the manager punishable under criminal law.
has been tacitly authorized The same negligent act may
by the owner. give rise to an action based on
delict or on quasi-delict, but the
In the first case, the party is free to choose his
provisions of Articles 1317, remedy. (Art. 2177, 32, 33,
1403, No. 1, and 1404 34.)
regarding unauthorized
contracts shall govern. BARREDO vs. GARCIA & ALMARIO

In the second case, the FACTS: Petitioner is the sole proprietor of the
rules on agency in Title X of Malate Taxi Cab driven by Pedro Fonatilla,
this Book shall be who figured in a head on collision with a
applicable. carratela driven by Pedro Dimapiling. This
resulted in the death of one of the carratela’s
b. Solutio Indebiti passengers, 16 year old Faustino Garcia.
Garcia’s parents filed a case before the CFI of
Manila against Barredo, who employed
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 4
Fontanila. Fontanilla had already been
caught several times in violation of the RATIO:
Automobile Law. Petitioner maintains that, 1) Article 31 of the Civil Code states that
since it was Fontanilla’s negligence that led when the civil action is based on an obligation
to the the death of Garcia, petitioner’s not arising from the act or omission
liability was governed by the RPC, and was complained of as a felony, such a civil action
therefore subsidiary to Fontanilla’s. may proceed independently of the criminal
However, Garcia’s parents, as maintained by proceedings and regardless of the result of
the CA, held that Barredo was liable under the latter.
Art. 1903 of the old Civil Code, which states
that employees, owners or directors are A civil action under quasi-delict may proceed
equally liable for damages caused by their independently of criminal proceedings for
employees. No civil case was filed against criminal negligence, and may prosper
Fontanilla. regardless of the result.

ISSUE: WON Barredo may be charged as 2) The trial court ruled that the collision
the person liable for the negligence of his between Salazar and Mendoza’s vehicles was
employee. YES. a result of the truck hitting Salazar’s jeep in
the rear. It is believed that Salazar cannot be
RATIO: Culpa aquiliana or quasi-delicts held liable for damages sustained by
anchor the responsibility of employers, Mendoza’s car. Petitioner Mendoza based his
under Article 1903 of the old Civil Code. cause of action against Salazar on culpa
There is a distinction between civil liability criminal (under Article 100 of the RPC) and
arising from criminal negligence (governed not under culpa aquiliana (Article 2177 of the
by Article 100 and 103 of the RPC) and CC).
responsibility under Art. 1902-1910 of the
old Civil Code. The employers are primarily PSBA vs. CA, BAUTISTA & BAUTISTA
and directly responsible under Article 1903.
Quasi-delicts are a more expedient way of FACTS: PSBA student Carlitos Bautista was
seeking redress than seeking damages only stabbed by assailants who were not students
by virtue of the civil responsibility arising of the said school) on August 30, 1985. His
from a criminal action. parents filed a case for damages in the RTC of
Manila. Then-respondent (now petitioner)
PSBA and its officials asked that the case be
MENDOZA vs ARRIETA (Judge of dismissed on the grounds that since they
CFI were presumably sued under Article 2180 of
Mla), TIMBOL & SALAZAR the Civil Code, no cause of action exists since
jurisprudence showed that academic
FACTS: Petitioner assails the decision of the institutions such as PSBA, are beyond the
CFI of Manila, dismissing his complaints ambit of the rule. The RTC denied them twice,
against jeepney driver Salazar, and truck as did respondent CA. The CA ruled that
owner Timbol, seeking indemnification for Article 2180 should apply to all institutions of
damages sustained by his Mercedes Benz. learning. Also, the school must prove they
Petitioner, prior to filing the case, actively observed diligence in order to prevent
participated in the criminal prosecution damages.
against Salazar, which was dismissed by the
CFI of Bulacan. Truck driver Montoya was ISSUE:
found guilty of damages to Salazar. No
damages were granted to Mendoza, since he 1) WON petition of PSBA was rightfully
was not a complainant against Montoya, but dismissed by the CA. YES
against Salazar. Petitioner’s cause of action 2) WON CA’s ruling was founded on
was based on quasi-delict, which was a appropriate legal premises. NO.
negligent act causing damages creating a
civil liability arising from a crime. RATIO:
1) Article 2180 establishes the rule of in loco
1) WON petitioner had a cause of action parentiis, which states that damage caused or
against Timbol. YES. inflicted by pupils or students of an education
institution were liabilities of said institution
2) WON petitioner had a cause of action while in its custody. Remember, Carlito’s
against Salazar. NO. assailants were not from PSBA.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 5
plaintiff airline forced private respondent to
2) Upon enrolment of Carlitos to PSBA, a abandon his seat because a “white man” had
contract existed between them, resulting in a “better right” to the seat. In the course of a
bilateral obligations. This includes an fracas or commotion, respondent reluctantly
implicit obligation by the school to provide gave up his seat. Petitioner asserts that the
their student with an atmosphere of learning first class ticket given to respondent did not
and safety. represent their complete and full
The rule on quasi-delicts does not apply. intent/agreement, since the respondent knew
The trial court proceedings must continue in that he did not have continued reservation s
order to determine that there was a breach for first class on any specific flight. To them,
of contract between the school and Bautista. it was no guarantee that he would be
accommodated in the first class
AMADORA vs CA, COLEGIO DE SAN compartment. Said ticket was supposedly
JOSE RECOLETOS subject to confirmation in Hong Kong. This
was held by petitioner, despite the ‘written
FACTS: Student Alfredo Amadora was shot evidence’ and the exhibits presented by
by his classmate Pablito Daffon, resulting in private respondent, confirming the payment
his death. Both were students of and receipt of said ticket. Respondent court
respondent school Amadora came to school affirmed the CFI’s award of damages to
to submit a requirement for his physics private respondent, on the basis of private
class. Amadora’s parents, the petitioners in respondent, suffering inconvenience,
this case, were able to win in its case with humiliation, and embarrassment, mental
the CFI of Cebu. The school’s rector, anguish and other conditions which resulted
principal, dean of boys, and physics teacher in moral damages. Petitioner claims that
were ordered to indemnify the parents, since respondent claimed action on the basis
granting them damages. The CA reversed of breach of contract, authorizing such an
the decision, on the basis that Article 2180 award would need to show averment of fraud
of the CC was not applicable since the or bad faith. Petitioner claims respondent
school was not a school of arts and trade, Court of Appeals’ ruling did not show a finding
but an academic institution of learning. of bad faith.
Also, the school claimed the said students
were not in the custody of the school since ISSUE: WON CA failed to show bad faith in
the semester had already ended. They also breach of contract between respondent and
claimed that they exercised necessary petitioner. NO.
diligence in preventing the injury.
Petitioners contend that Amadora was in RATIO: Petitioner entered into a contract
school to submit a physics experiment, and with respondent, wherein respondent was
thus was under their care. entitled to a first class seat on their air
carriage. Granted, there is no mention of bad
ISSUE: WON CA was correct in dismissing faith in the ruling of the CA. But the inference
the petition of Amadora. YES. of bad faith is to be drawn from the facts and
circumstances presented. Said bad faith was
RATIO: The rector, principal and dean of to be drawn based on evidence, which
boys were not liable because none of them petitioner did not object to.
was the teacher-in-charge, who was the one
considered liable under Article 2180. The Liability from tort may exist even if there is a
school itself cannot be held liable; only the contract, for that act breaks the contract and
“teacher-in-charge” or head of the school may also be a tort.
would be liable. The dean of boys would
have been liable, but the evidence regarding
the gun does not link him to the shooting.


FACTS: Petitioner issued a ticket for a “first

class” seat to private respondent. From
Manila to Bangkok, plaintiff travelled in first
class, but in Bangkok, the manager of
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 6
Conditional Obligations

Art. 1181. In conditional obligations,

the acquisition of rights, as well as the
extinguishment or loss of those
III. Classification of Obligations already acquired, shall depend upon
the happening of the event which
A. Primary Classification Under the constitutes the condition.
Civil Code
-Its demandability or extinction
depends upon a future and
Peculiarities of Prestation uncertain event

-The time of the event may be

Pure and Conditional (Arts. 1179- uncertain, but it must happen
-The condition imposed by the
Pure Obligations will of the parties must not be a
necessary legal requisite of the
Art. 1179. Every obligation whose act
performance does not depend upon a
future or uncertain event, or upon a Types of Conditions
past event unknown to the parties, is
demandable at once. -Suspensive – gives rise to an
Every obligation which contains a
resolutory condition shall also be -Resolutory – extinguishes
demandable, without prejudice to the already existing rights
effects of the happening of the
With a period or term (Arts. 1193-
– Not subject to a condition or 1198)
period; demandable at
creditor’s will
Art. 1193. Obligations
for whose
-When said obligation fulfillment a day certain has been
contains no term or condition fixed, shall be demandable only when
upon which depends the that day comes.
fulfilment of the obligation
contracted by the debtor Obligations with a resolutory period
take effect at once, but terminate
-It is immediately upon arrival of the day certain.
A day certain is understood to be that
-No exemptions as to its which must necessarily come,
compliance although it may not be known when.

-Cancellation by both parties, If the uncertainty consists in whether

by mutual agreement of the day will come or not, the
period originally given or non- obligation is conditional, and it shall be
fulfillment of a condition regulated by the rules of the preceding
resolves the period stipulated; Section. (1125a)
the obligation is now
considered pure
-When some space of time
-A demand note, for instance, suspends the demandability or
in absence of other produces the extinction of the
restrictions, is a pure obligation

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 7
Penal Clause – an accessory
undertaking (dependent upon some
other obligation to exist) to assume
greater liability in case of breach

Prestations to be Rendered -Generally, it is a sum of money, but

can be any other thing stipulated by
Alternative and Facultative (Arts. parties, including an action or
1199-1206) abstention

Alternative Obligations – Where B. Secondary Classification

only one of several prestations due
has to be fulfilled
1. Legal (Art. 1158 )
Conventional (Art, 1159)
Facultative Obligations –
Penal (Art. 1161)
Where one
prestation is due but may be
substituted with another by the
2. Real - to give
Personal - to do or not to do
debtor at the latter’s discretion

According to Number of 3. Determinate - certain,

distinguishable and specific in terms
of character and quantity. It is
individualized or distinguished from
Joint and Solidary (Arts. 1207- others of its kind. Ex: a white pony to
1222) be delivered to my house at 8 AM
Generic - indeterminate in terms of
Joint (“mancommunada”) – specific quantity, characteristics or
One in which each of the debtors is quality; may be substituted for an
liable only for a proportionate part of object that has similar qualities or
the credit quantity. It is indicated only by its
kind. Ex: money, a horse
Solidary (“joint and several”)
– When each party is liable for the 4. Positive (to give, to do)
entire obligation, and each creditor is a. Action for Substituted
entitled to demand the whole Performance
obligation. Each creditor enforces the b. Damages (Equivalent
whole obligation Performance)
c. If improperly executed, may be
Qualities of the Object decreed that what was poorly
done be undone
Divisible and Indivisible (Arts. 1223-
1225) Negative (not to give, not to do)
a. No specific or substituted
Divisible – when it may be partially Performance
performed, or susceptible of partial b. If obligor does what is
performance; debtor can legally forbidden him, it shall be
perform the obligation by parts and undone at his expense
the creditor cannot demand a single
performance of the entire obligation 5. Unilateral - Where the obligation
involves one creditor and one debtor
Indivisible – when it cannot be Bilateral - Where each party is the
validly performed in parts, or is not creditor of a prestation and promises
susceptible of partial performance. another in return; also known as
Divisibility of the obligation is not the reciprocal obligations. Both
same as divisibility of the thing. obligations arise from the same
With a penal clause (Arts. 1226-
1230) 6. Single – Unipersonal or individual
Collective – Joint or solidary
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 8

7. Principal – The obligation can ii. To preserve the thing

alone Art. 1163. Every person obliged to
Accessory – Depends on some give something is also obliged to take
other care of it with the proper diligence of a
obligation in order to exist. good father of a family, unless the law
or the stipulation of the parties
8. As to object or prestation: requires another standard of care.
Simple - one prestation
Multiple – several prestations -The diligence required is that
Conjunctive – all prestations are of a good father of a family.
due and demandable This is the legal standard or
Alternative – when only one of model of diligence. The
several prestations due has to be diligence must be determined
performed based on considering all
Facultative – one prestation is concurrent circumstances.
due, but may be substituted by the
debtor at the latter’s discretion iii. To deliver the accessions
and accessories
9. Possible – by law or nature
Impossible – cannot be Art. 1166. The obligation to give a
determinate thing includes that of
delivering all its accessions and
accessories, even though they may
CHAPTER 2: not have been mentioned.
-Accessories - things which
I. Kinds of Prestations are made or ‘destined’ for the
use, preservation of
embellishment of another thing
A. Obligation to give
of greater importance. They
have for their object the
1. A specific or determinate completion of the latter for
object or which they are indispensable or
thing convenient. (Examples include
machinery in a factory, or keys
A. Duties of the obligor with respect to a house)

i. To deliver thing itself -Accessions – include

everything produced by a thing
Art. 1244. The debtor of a thing or which is incorporated or
cannot compel the creditor to receive attached theret, either
a different one, although the latter naturally or artificially.
may be of the same value as, or
more valuable than that which is -Even when accessories and
due. accessions have been
separated temporarily, they
In obligations to do or not to do, an must still be delivered.
act or forbearance cannot be
substituted by another act or iv. To deliver the fruits
forbearance against the obligee's
will. Art.1164. The creditor has a right to
the fruits of the thing from the time
-Upon agreement or consent the obligation to deliver it arises.
of the creditor, the debtor However, he shall acquire no real right
may deliver a different thing over it until the same has been
or perform a different delivered to him.
prestation in lieu of that
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 9
-The creditor is entitled to the A. Concept
fruits from the time the
obligation to deliver it comes. -A non-justifiable non-performance of
a pre-existing obligation, or the failure
-Delivery constitutes a to perform it in the manner that is
necessary and indispensable required by the obligation, which
requisite for purposes of causes injury to the other party
acquiring the ownership of the
same by virtue of a contract. SONG FO vs HAWAIIAN PHILIPPINE CO.

2. A generic thing FACTS: Appellant and defendant Hawaiian

Philippine Co appealed a decision by the CFI
Art. 1246. When the obligation of Iloilo, which obliged them to pay P35,
consists in the delivery of an 317.93 to plaintiff Song Fo. According to the
indeterminate or generic thing, defendant, plaintiff company defaulted in the
whose quality and circumstances payment of molasses that was delivered to
have not been stated, the creditor them. The appellant defendant Hawaiian Phil.
cannot demand a thing of superior Co was compelled to cancel and rescind their
quality. Neither can the debtor contracts. Both plaintiff and defendant agreed
deliver a thing of inferior quality. The upon the time of payment and the date, and
purpose of the obligation and other the defendant said that Song Fo’s failure to
circumstances shall be taken into pay the said amount upon presentation of
consideration. bills for each delivery constituted sufficient
grounds to rescind the contract agreed upon.
-Delivery of an indeterminate ISSUE: WON Hawaiian Philippine Co had a
or right to rescind the contract, based on the
generic thing, whose quality breach of contract committed by Song Fo.
and circumstances have not NO.
been stated, the creditor RATIO: The general rule is that rescission or
cannot demand a thing of termination of a contract will not be permitted
superior quality, nor can the for a slight or causal breach of contract. Only
debtor deliver a thing of breaches which are so substantial and
inferior quality. fundamental as to defeat the object of the
parties in making the agreement. A delay in
-The purpose of the obligation payment for a small quantity of molasses for
and attendant circumstances some 20 days is not a violation of an essential
must have been taken into condition of the contract as to warrant
consideration in delivering rescission for non-performance. Not only
and deciding on the generic this, but the defendant Hawaiian Phil Co.
thing. waived the condition when it arose by
accepting the payment of the overdue
-In times of disagreement, account and continuing with the contract.
the court decides whether the
quality of the thing complies VELARDE vs. CA, RAYMUNDO &
with the obligation itself. RAYMUNDO
FACTS: Private petitioner Avelina Velarde and
private respondent David A. Raymundo
B. Obligation to do entered into a deed of sale with assumption
C. Obligation not to do of mortgage for a parcel of land and a house
in Makati. Petitioner delivered P800,000 to
respondent and vendee was also tasked an
Art. 1244, par. 2. In obligations to do contractually obliged to pay the mortgage
or not to do, an act or forbearance obligations on the property amounting to P1.8
cannot be substituted by another act or M. The plaintiff-petitioners then applied for
forbearance against the obligee's will. the assumption of the mortgage obligations
on the property. Their application was denied
by BPI, and they then stopped paying the
loan. Respondents informed plaintiffs that
II. Breach of Obligation their failure to pay the interest of the loan
constituted non-performance of their

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 10
obligation. The plaintiff-petitioners then RATIO: Defendant appellant received the
told respondents that that they would delayed payment of plaintiffs-appellees on
resume payment of the interest of the loan several occasions. They have then waived
provided that the property was delivered to and are now estopped from exercising their
Avelina Velarde not later than January 15, alleged right to rescind the contract. Article
1987, and the release of the title and 1234 of the Civil Code also says that if an
mortgage from BPI to make the title free obligation has been substantially performed in
from all liens and encumbrances, as well as good faith, the obligor may recover as though
the execution of a deed of absolute sale in there had been a strict and complete
favour of Avelina. The defendants then sent compliance and fulfilment.
plaintiffs a notarial notice cancelling or
rescinding the intended sale of the property. DELTA MOTOR CORP vs. GENUINO & CA
Petitioners filed a complaint with the RTC of
Makati, where the case was initially FACTS: Petitioner entered into a contract of
dismissed. A motion for reconsideration was sale with private respondents. Genuino
filed, which ruled in favour of the agreed to enter into the contract, and made
petitioners. The CA then overturned the the first two payments, for initial fulfilment of
decision, resulting in its dismissal and this the two contracts. Delta did not deliver the
case before the court. iron pipes. Genuino did not make subsequent
ISSUE: WON CA erred in dismissing the payments, and did not execute the
complaint of the petitioners, on the basis of promissory notes, due to trouble in forming
the non-payment of the mortgage obligation the ice plant which was the reason they
of the petitioners, upholding the rescission entered into the contract with Delta. The
of the contract. NO. condition was that delivery for the stipulation
RATIO: The failure of the petitioners to fulfil of payment were ‘ex-stock subject to prior
the P1.8 M obligation constituted a sales’. For Delta, the price offer indicated
substantial breach of contract that would was within 30 days from the date thereof. 3
justify rescission on the part of the years after approving the contract, Genuino
defendant. They stoopped paying both the asked for the delivery of the iron pipes, but
mortgage obligations and the remaining Delta said they would not be able to sell the
balance of the purchase price. The pipes at the same prices from 3 years ago.
conditions imposed by petitioner were not The Genuinos then filed a case against the
mutually approved and cannot be enforced. company with the CFI of Rizal, which ruled in
There was a justifiable rescission the said favour of Delta. The CA reversed the
contract by Raymundo, since they violated decision, citing Delta’s failure to include a
the need for reciprocity in the contract of deadline in the contract, and the unjust
sales. enrichment of the company. Delta claims
that the Genuinos’ failure to make the
ANGELES vs. CALASANZ payments constituted a substantial breach of
contract, which allowed them, under article
FACTS: Plaintiffs-appellees and defendants- 1191 of the CC, to rescind the contract.
appellants entered into a contract to sell a ISSUE: WON Genuino’s actions constituted a
piece of land located in Rizal for the amount substantial breach of contract. NO.
of P3, 920 plus 7% interest per annum. The RATIO: The power to rescind is not absolute.
plaintiffs-appellees paid in monthly The act of a party in treating a contract as
instalments and defendants-appellants told cancelled or resolved must be made known to
plaintiffs-appellants to remit past due the other, and is always provisional, being
accounts. On January 28, 1967, defendants- subject to scrutiny and review. In the
appellants Calasanz cancelled the contract contract, Genuinos approved the price within
on the basis of failure of Angeles to secure the 30 day period. They were subject to ‘prior
payment. Plaintiff-appellant Angeles filed a sales’, hence the company cannot change the
case with the CFI of Rizal on the basis that price.
they had discovered they already paid P4, Delta should have indicated a deadline,
533.38, including all surcharges and knowing the condition of the ice plant of the
expenses. The lower court ruled in favour of Genuinos.
plaintiffs. The CA then brought the case for
decision before the SC. VELMEN REALTY DEV’T CO. vs CA &
ISSUE: WON the contract was validly SENECA
cancelled by the defendant-appellants
Calasanz. NO. FACTS: Petitioner entered into a contract
denominated as an offsetting agreement with
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 11
respondent Seneca Corp. The respondent the party who suffered injury had
corporation desired to buy two condominium been aware of, he would not have
units from petitioner, while petitioner entered into the obligation in the
bought construction materials from the said first place. It is causal fraud that is
corporation. The respondent made a a ground for annulment of the
payment and delivered construction contract. It is fraud that affects the
materials, and petitioner paid as well. In consent of the parties.
1982, petitioner repossessed one of the
condominium units, claiming respondent
had failed to complete the balance. WOODHOUSE vs HALILI
Consequently, the loan application fro
constructing Phase II of the condominium FACTS: Plaintiff Woodhouse led defendant
units was denied, resulting in the stoppage Halili to believe he was the exclusive
of its construction. The said condominium distributor for Mission Soft Drinks. This led to
units were supposed to be part of the deal defendant investing 30% into the net profits
that petitioner would give to respondent on of their partnership. Plaintiff claims his
the basis of their offsetting agreement. Part principal obligation was to secure the
of the agreement was Seneca’s option to franchise for their partnership, which he was
move to Phase II. able to do, but only for one month. Defendant
ISSUE: WON a breach of the agreement realized that plaintiff Woodhouse was not the
was committed by petitioner. YES. exclusive distributor. Plaintiff now seeks
RATIO: Petitioner would never be able to damages.
fulfil their obligation in allowing private ISSUE: WON defendant may recover
respondent to exercise the option to transfer damages. YES.
to Phase II, since its construction has RATIO: Since defendant did not actually have
ceased. The impossibility of the obligation the exclusive rights to the franchise, which
on the part of the petitioner constitutes a led plaintiff to invest in the partnership.
substantial breach of the offsetting However, the plaintiff was able to secure the
agreement. A reciprocal obligation took franchise, and he is thus entitled to 30% of
place in this case. the net profits, which defendant claims
plaintiff Woodhouse cannot recover.
B. MODES OF BREACH Defendant actually committed fraud by
reducing the amount to be given to plaintiff.
1. Fraud
a. Concept: the voluntary GERALDEZ vs CA & KENSTAR TRAVEL
execution of a wrongful act or a
wilful omission, knowing and FACTS: Petitioner sued respondent travel
intending the effects which agency on the basis of fraud they committed
naturally and necessarily arise in the course of her experience under their
from such act or omission tour package to Europe. This included giving
them an inexperienced tour guide,
misrepresenting the people who would assist
i. Dolo vs. dolo incidente
them, and failing to bring their group to the
Italian leather factory. She sought to recover
-fraud committed in the course of damages, which the CA denied her, ruling in
the performance of an obligation, favour of Kenstar.
which the party who was injured ISSUE: WON petitioner is entitled to
by the fraud would still have damages. YES.
wilfully entered into even with the RATIO: Kenstar fraudulently made claims
existence or awareness of such that led Geraldez to avail of their tour
fraud package. Whether the fraud was dolo
incidente or dol causante, petitioner is
EFFECT: renders the party guilty entitled to damages.
of fraud for damages, pursuant to SIR JJ: In this case, the court was unable to
Article 1344 of the Civil Code determine what type of fraud was committed
by Kenstar. They just ruled that Geraldez was
ii. Dolo vs. dolo causante entitled to damages.

-fraud that is rooted in the

realization or formation of the b. Nonwaiver
obligation, an obligation which, if
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 12

Art. 1171. Responsibility arising ii. Culpa Aquiliana vs.

from fraud is demandable in all Culpa
obligations. Any waiver of an Contractual
action for future fraud is void.
(1102a) Culpa aquiliana:
negligence to fulfil an
obligation that is
independent of any contract
c. Effects
Culpa contractual: failure,
1. Damages may be or negligence to perform an
recovered obligation that arises from a
2. The contract or obligation contract
may be annulled.
2. Negligence
FACTS: An automobile accident took place,
where an automobile driven by Bonifacio
a. Concept- Absence of due Gutierrez collided with a truck driven by
care required by the obligation. Velasco, where Narciso Gutierrez was injured.
In each case, it is a question of ISSUE: WON both Velasco and Gutierrez are
facts taking into consideration liable for damages to Narciso Gutierrez. YES.
what a reasonable man would RATIO: Gutierrez is guilty of culpa aquiliana
have done under the to
circumstances Narciso, because he is liable for the damage
done to Narciso, and it was independent of
Art. 1173. The fault or any contract. Velasco, as the driver of the
negligence of the obligor consists truck where Narciso was a passenger, was
in the omission of that diligence liable based on culpa contractual, since
which is required by the nature of Velasco and Narciso entered into a contract of
the obligation and corresponds carriage as driver and passenger,
with the circumstances of the respectively. Velasco is guilty of negligence,
persons, of the time and of the by failing to exercise the due care needed to
place. When negligence shows drive the truck.
bad faith, the provisions of
Articles 1171 and 2201, VASQUEZ vs BORJA
paragraph 2, shall apply.
FACTS: Defendants Vasquez and Busuego
If the law or contract does not obligated themselves to sell 4000 cavans of
state the diligence which is to be palay to Borja. Borja delivered the money to
observed in the performance, pay for the rice to them, but only 2,488
that which is expected of a good cavans of rice were delivered by Vasquez.
father of a family shall be When Borja sought to recover in court,
required. Vasquez claimed that the agreement made
was with Natividad Vasquez Sabani Dev’t Co.
(NVSDC), which he was acting manager at
i. Culpa vs Dolo the time, hence he is not liable for damages.
ISSUE: WON Vasquez is guilty of negligence.
-Negligence replaces NO.
intent RATIO: The action is a contract, and based
When one commits dolo, on the facts, it is NVSDC which is liable, and
he is liable for all not Vasquez. The said company is not a party
damages. When one in the suit. The corporation is an artificial
commit culpa, he is only being imbued with its own personality,
entitled to answer for separate and distinct from its stockholders
damages that were and managers. They are not personally liable
foreseeable in the course for contracts duly entered into. However,
of his actions that led to Vasquez’s counterclaim is also invalid, since
the injury.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 13
he failed in his moral duty to fulfil the RATIO: There is definitely care or diligence
contract. required of the company both in preventing
injury to its passengers and the general
b. Standard of Care Required public. As a motorman, Barias should have
checked the front of the car, in order to see
Art. 1173, par 2. If the law or that nobody was in front of it.
contract does not state the SIR JJ: Just because there was injury or in
diligence which is to be observed this case, death, does not mean that Barias
in the performance, that which is did not exercise due diligence. What if the car
expected of a good father of a was designed in such a way that it would
family shall be required. have been difficult for him to see beyond a
certain field of vision from inside the vehicle?
-A good father of a
family means a person SARMIENTO vs SPS CABRIDO
of ordinary or average
diligence. We must use FACTS: Petitioner Sarmiento brought a pair
as basis the abstract of diamond earrings to the jewelry shop
average standard owned by respondent spouses. She came to
corresponding to a rest a pair of diamond rings into a pair of gold
normal orderly person. rings. The job offer was accepted for P400.
Anyone who uses The diamond was broken by Zenon Santos in
diligence below the the process of the job. Petitioner asked
standard is guilty of respondents to replace the diamond.
negligence. ISSUE: WON respondents performed due
care or diligence. NO.
RATIO: Respondents’ defense that Zenon
Santos was not their employee does not hold
DE GUIA vs MERALCO water, because petitioner was charged P400
FACTS: Plaintiff boarded a street car as a for a job order they readily accepted, and the
passenger for the city of Manila. An accident conduct of Santos constituted negligence.
took place, and plaintiff suffered bruises and The fault or negligence of the obligor
possible internal injuries. Meralco tried to consisted in the omission of the due diligence
prove that they had exercised due care in needed in the circumstances present in the
selecting and instructing the motorman. case.
ISSUE: WON Meralco is guilty of
RATIO: The relationship between De Guia FACTS: Petitioner availed of services of
and Meralco was one of a contractual respondent Caravan Travel Agency. She
nature, and the duty of the carrier is to be received the travel documents and was told
determined with reference to the principles to be at NAIA on Saturday, when actually, her
of contract law. The company was bound to flight was scheduled for a Friday. She was
convery and deliver plaintiff safely and then offered a new package, but she still sued
securely. to recover damages from respondent,
Meralco cannot avail of the defense that because she claimed that the agency refused
culpa aquiliana took place, since a to perform the extraordinary diligence which
contractual relation existed. led her to miss her flight.
ISSUE: WON respondent failed to observe
US v BARIAS due diligence and care required by law. NO.
RATIO: First, the contract was one for
FACTS: Defendant is a motorman of a services and not for transport. The object of
street car which ran over and killed Fermina the contract did not require the extraordinary
Jose, a two year old girl. He started his car diligence purported by petitioner, since their
from a standstill, without looking to see if contractual relation consisted in arranging
the track was clear. and facilitating petitioner’s travel
ISSUE: WON evidence shows carelessness arrangements. Hence, respondents were not
of defendant, thus showing that he did not obliged to the same standard of extraordinary
execute the ordinary care or diligence diligence expected in a contract of transport
required by law. YES. or carriage. Also, the test as to whether the
defendant used reasonable care and caution
is reasonably applicable in this case, since
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 14
they fulfilled their responsibility to secure -The obligation must be:
the petitioner’s travel arrangements. The due, demandable and
petitioner should have also checked her liquidated
travel documents.
-The performance may
c. Effects be delayed by fraud
(malice) or negligence
-damages, either in culpa (culpa).
aquiliana or culpa contractual
For Culpa Contractual: -The creditor should
rescission/nullity of contract demand performance of
and indemnification the debtor, with the
For Culpa Aquiliana: exception of those
damages circumstances present in
Article 1169.

Article 1169 (par. 2) However,

3. Delay (Mora)
the demand by the creditor shall not
be necessary in order that delay may
a. Concept exist:
It is the non-fulfillment of an
obligation with respect to time (1) When the obligation or the
of fulfilment of said obligation law expressly so declare; or
-It involves the beginning of a
special condition, which exists (2) When from the nature and
only in positive obligations, the circumstances of the
and not in negative obligation it appears that the
obligations designation of the time when
the thing is to be delivered or
Art. 1169 (par 1). Those the service is to be rendered
obliged to deliver or to do was a controlling motive for the
something incur in delay from establishment of the contract;
the time the obligee judicially or
or extrajudicially demands
from them the fulfillment of (3) When demand would be
their obligation. useless, as when the obligor
has rendered it beyond his
power to perform.
b. Kinds

1. Mora solvendi
(delay of the
Petitioner Cetus Dev’t demanded payment of
Requisites: the rentals when the obligation matured.
Coupled with the fact that no collector was
sent, the private respondents cannot be guilty
1) A prestation that is
of mora solvendi o delay in the payment of
due and enforceable
rentals. Petitioner failed to show that id not
2) A civil obligation
have to demand from private respondents,
3) Arises only when
under any of the conditions presented in
the delay is due to
Article 1169 of the Civil Code. Petition
causes imputable to
the debtor
Reyes-Puno: Delay of
the obligor may only
come about as a result
Respondent required petitioner to ship out the
of a positive act or
sulphuric acid as agreed, otherwise petitioner
would be charged for consequential damages.
Respondent made a categorical demand.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 15
Respondent, on August 6, informed Requisites:
petitioner of charges of 2,000/day.
Petitioner is guilty of delay after private 1) That the obligation should
respondent made the necessary require an act of
extrajudicial demand by requiring petitioner cooperation of the creditor
to lift the cargo at its designated ports. Its for its fulfilment
failure to comply led to its liabilities. Since 2) That the debtor has done all
petitioners made an advance payment for that is incumbent upon him
the unlifted acid, it is lawful to offset the and has made tender of
amount against the rental expenses performance or payment
incurred by respondent. Petition denied. 3) That the creditor refuses to
CA decision affirmed. accept payment or fails to
carry out an act incumbent
Art. 1268. When the debt of a thing certain
Respondent’s right to damage is based on and determinate proceeds from a criminal
delay. The payment as stated in the offense, the debtor shall not be exempted
Compromise Agreement, must be made from the payment of its price, whatever may
within 2 years. The compromise was made be the cause for the loss, unless the thing
by the parties to avoid litigation. When having been offered by him to the person who
demand was made on October 28, 1992, should receive it, the latter refused without
the obligation was already due and justification to accept it. (1185)
demandable. It was an extrajudicial demand
done in compliance with the law. Petition VDA DE VILLARUEL vs MANILA MOTOR
denied. CORP

VASQUEZ v AYALA CORP By their improper refusal to accept the

current rents tendered by their lessess, the
Ayala Corp was not guilty of delay, because lessors incurred in fault (mora) and they must
the letters sent prior to April 23, 1984 were shoulder the subsequent accidental loss of the
not categorical demands. The Vasquez premises leased. The exemption of the less to
spouses also waived their right claim Ayala’s pay is derived from the deprivation of
delay, since the letter to their agent was a enjoyment and possession of said land.
concession that the lots would be finished 3 SIR JJ: This is not exactly a good case to
years after the termination of the case by illustrate this law, because one is depriving
Lancer. Petition denied. the lessor of his right to collect the rent that
he has a right to collect.

3. Compensation Morae
The period was an essential element of the
obligation. The local court rightly Requisites:
considered that period was essential in an 1) It must be a bilateral
option to purchase the lots. Decision of obligation
CFI Rizal affirmed. 2) With reciprocal prestations

DE LA CRUZ vs LEGASPI & SAMPEROY ARTICLE 1169 (3): In reciprocal

obligations, neither party incurs in
At most, defendants have a right to demand delay if the other is not ready or does
interest. Also, there was no indication that not comply in a proper with what is
payment on time was essential. Even if the incumbent upon him. From the
contract of sale explicitly provided for the moment one of the parties fulfills his
automatic rescission, the trial court could obligation, delay by the other begins.
allow plaintiff to enforce. Plaintiff may pay
before demand is made upon him. One party cannot demand
performance by the other without
2. Mora accipendi offering to comply with his own
prestation. In reciprocal obligations,
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 16
the general rule is that the fulfillment in a proper manner and for the cost of the
of the parties should be missing part.
simultaneous. Where both are in
default, their respective liability for TELFAST COMMUNICATION vs CASTRO
damages shall be offset equitably.
When defendant’s daughter sent a telegram
to their relatives in the States informing them
of his wife’s death, they did not receive it and
they were shocked to discover his wife’s
CENTRAL BANK vs CA death when his daughter went to the US and
told them. He then sued Telfast
A reciprocal obligation took place. The Communication. Petitioner and defendant
obligation or promise of each party o each entered into a contract to deliver the said
other is in consideration for that of the telegram. Petitioner did not fulfil his part,
other. When one party has performed, the despite performance by private respondent in
non-performing party incurs in delay. fulfilling his part in the contract.
Pecuniary inability to pay does not rescind Contravention of the tenor took place, and
or discharge the obligation of the contract. Castro is entitled to recover damages by
Tolentino is entitled to specific performance virtue of Article 2217 of the Civil Code.
or rescission with damages. Due to the
prohibition of the land, rescission is the only ARRIETA vs NARIC
option. But the promissory note signed by
Tolentino obligates him to pay P17,000. His It was NARIC’s actions or inaction which
failure to pay makes him a party in default. singularly delayed the opening of the letter of
Hence, he is not entitled to rescission. There credit, which resulted in the delay and
was a default in both of their reciprocal plaintiff Arrieta’s losses of $286,000 in
obligations, hence they are both liable for unrealized profit. Therefore, they are bound
damages. to indemnify her for losses and damages
caused by the delay.
c. Effects of Delay
1) Cessation/Renunciation of
creditor Magat is entitled to damages, since Guerrero
2) Prescription committed a breach of contract, which
resulted in Magat suffering the loss of his
expected profits. The loss comes into being at
4. Contravention of the Tenor the very moment of breach. Such a loss is
real, fixed and vested, and therefore,
-Non-performance recoverable under the law.
-Any illicit act or omission which
impairs the strict and faithful III. Remedies of Creditor in Case
fulfilment of the obligation and every of Breach
kind of defective performance.
A. Action for performance
Art. 1170. Those who in the
performance of their
1. Action for specific performance
obligations are guilty of fraud, in obligation to give a specific thing-
negligence, or delay, and
those who in any manner Art. 1165 (par 1). When what is to be
contravene the tenor thereof, delivered is a determinate thing, the creditor,
are liable for damages. in addition to the right granted him by Article
1170, may compel the debtor to make the

It is clear that defendant-appellant Gonzales Revised Rules of Court, Rule 39:

contravened the tenor of his obligation
because he not only failed to repair the Sec. 10. Execution of judgments for
typewriter, but it was returned in shambles. specific act.
He is liable for the cost of executing the cost
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 17
(a) Conveyance, delivery of officer shall not destroy, demolish or
deeds, or other specific acts; remove said improvements except
vesting title. - If a judgment directs upon special order of the court issued
a party who execute a conveyance of upon motion of the judgment obligee
land or personal property, or to after due hearing and after the former
deliver deeds or other documents, or has failed to remove the same within a
to perform any other specific act in reasonable time fixed by the court.
connection therewith, and the party
fails to comply within the time (e) Delivery of personal property.-
specified, the court may direct the In judgments for the delivery of
act to be done at the cost of the personal property, the officer shall
disobedient party by some other take possession of the same and
person appointed by the court and forthwith deliver it to the party entitled
the act when so done shall have like thereto and satisfy any judgment for
effect as if done by the party. If real money as therein provided.
or personla property is situated
within the Philippines, the court in
-When what is to be delivered is a
lieu of directing a conveyance thereof
determinate thing, the creditor, in
may be an order divest the title of
addition to the right granted him in
any party and vest it in others, which
article 1178, may compel the debtor to
shall have the force and effect of a
make the delivery.
conveyance executed in due form of
-To obtain compliance of the
(b) Sale of real or personal
property.— If the judgment be for
the sale of real or personal property, -Creditor has the right to ask
to sell such property, describing it, that the same be performed
and apply the proceeds in conformity
with the judgment. -Its implied basis is a
contractual relation between
(c) Delivery or restitution of real plaintiff and defendant
property.- The officer shall demand
of the person against whom the 2. Action for substituted performance
judgment for the delivery or in obligation to give a generic thing-
restitution of real property is
rendered and all person claiming Art.1165 par. 2 If the thing is
rights under him to peaceably vacate indeterminate or generic, he may ask that the
the property within three (3) working obligation be complied with at the expense of
days, and restore possession thereof the debtor.
to the judgment obligee; otherwise,
the officer shall oust and such -The creditor may ask that the
persons therefrom with the obligation be complied with by
assistance, if necessary of others at the expense of the
appropriate peace officers, and debtor
employing such means as may be
reasonably necessary to retake -The substituted performance
possession, and place the judgment satisfies the needs of the
obligee in possession of such creditor
property. Any costs, damages, rents
or profits awarded by the judgment -Delivery of anything belonging
shall be satisfied in the same manner to the same species is sufficient
as a judgment for money.
3. Action for substituted performance
(d) Removal of improvements on or undoing of poor work in obligation
property subject of execution.-
to do - Art. 1167
When the property subject of the
execution contains improvements
constructed or planted by the
judgment obligor or his agent, the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 18
Art. 1167. If a person obliged to do
something fails to do it, the same shall be Art. 1191. The power to
executed at his cost. rescind obligations is
implied in reciprocal ones,
This same rule shall be observed if he does in case one of the obligors
it in contravention of the tenor of the should not comply with
obligation. Furthermore, it may be decreed what is incumbent upon
that what has been poorly done be undone. him.

-The creditor is entitled to The injured party may

have the thing done in a choose between the
proper manner, by himself or fulfillment and the
a third person rescission of the obligation,
with the payment of
-The court cannot award damages in either case. He
damages when the act can be may also seek rescission,
done in spite of the refusal or even after he has chosen
failure of the debtor to do so. fulfillment, if the latter
should become impossible.
-breach may be excused by The court shall decree the
fortuitous event rescission claimed, unless
there be just cause
-This does not exclude the authorizing the fixing of a
right to indemnify for period.
damages causes by the
debtor who has done what This is understood to be
has been forbidden him. Aside without prejudice to the
from doing what is in violation rights of third persons who
of the prohibition, he is liable have acquired the thing, in
for damages. accordance with Articles
1385 and 1388 and the
The sole remedy is Mortgage Law.
indemnification for damages
caused when the effects of -The action for rescission is
the act prohibited are definite given to the injured party
in character and will not cease
even if the thing prohibited is -Where the other party is
undone, if it is physically or the one who did not
legally impossible to do the perform, he is not entitled
thing, to insist upon performance
of the contract by the
B. Action for damages defendant or to recover
Art. 1170 Those who in the
performance of their -The other party has the
obligations are guilty of fraud, right to demand
negligence, or delay, and performance or ask the
those who in any manner resolution or termination of
contravene the tenor thereof, the contract
are liable for damages.
Rescission – the power
-In damages, the that does not require
plaintiff is entitled to previous declaration by the
the value of the use of courts
his property from the
time it was taken to -If the obligation is not
the time of restoration. yet performed, extra-
judicial rescission would
suffice. But if one has
C. Action for rescission
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 19
already committed his 3) existence of credit (not
part in the reciprocal anterior to debtor’s credit)
obligation, he cannot 4) credit must be due and
by extrajudicial demandable
declaration rescind the 5) exhaustion of assets
contract. Court action
must be taken.
Exceptions: Art. 772: inherent
-the extrajudicial rights are only those with a
declaration of the right to legitime and heirs and
creditor, electing successors of interest.
rescission produces
legal effect 2. Accio Pauliana (Rescissory
-However, the injured
party cannot resolve Creditors may impugn acts which the
the obligation himself debtor may have done to defraud
-The mere failure of
one party to perform Requisites:
does not ipso jure
produce the resolution 1) prior existence of credit
of the contract (must be anterior to
fraudulent act)
IV. Subsidiary Remedies of 2) credit must be due and
Creditors demandable
3) fraudulent intent of debtor if
transaction rescinded is
These are actions that take place as onerous
a result of the right of creditors to 4) complicity/bad faith
reach all present and future property 5) exhaustion or insufficiency
of the creditor. of assets
6) prejudice to the creditor
1. Accion subrogatoria
(Action in subrogation) - Accio Pauliana Accio Subrogatoria
a) After exhausting all the property The credit must exist
of the debtor, the creditor may before the fraudulent
exercise all the rights and bring all act
the actions of the debtor for the
same purpose. -The rescinded -No fraudulent intent
contract is onerous is required
b) “The debtor of my debtor is also
my debtor” – Creditors have the -The intent must be
right to bring into the patrimony of fraudulent
his debtor everything that should
properly enter and form part of it.
It must take place No period of
c) subject of the action within 4 years of the prescription is
-all rights and actions of discovery of the needed.
debtor fraud
It must be the last
means, and all other
means must have
been exhausted.
1) interest of creditor who
brings the action
Respondent Philam only learned about
2) inaction of the debtor,
unlawful conveyances in January 1997. It was
wilful or not
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 20
only then that respondents’ action for
rescission accrued because respondent had (2) Renunciation by the contractor of any
exhausted all legal means. Accion pauliana amount due him from the owner.
is a last resort. The date of the decision of
the trial court is immaterial. This article is subject to the provisions of
special laws. (1597a)

Art. 1893. In the cases mentioned in Nos. 1

SIGUAN vs LIM and 2 of the preceding article, the principal
may furthermore bring an action against the
Petitioner still had other legal remedies to substitute with respect to the obligations
make claims. The requisite for filing accion which the latter has contracted under the
pauliana was not met, and no fraud was substitution.
committed. The respondent still had the
property in her name in 1989, therefore, the
credit was not fraudulent. Victoria Suarez is
not a party to the accion pauliana. V. Extinguishment of Liability in
Therefore, the petitioner cannot invoke the
Case of Breach Due to Fortuitous
credit of Suarez to justify rescission of the
subject deed of donation. Event –

Art. 1174. Except in cases expressly

D. Other Specific Remedies specified by the law, or when it is
otherwise declared by stipulation, or
Art. 1608. The vendor may bring his when the nature of the obligation
action against every possessor whose right requires the assumption of risk, no
is derived from the vendee, even if in the person shall be responsible for those
second contract no mention should have events which could not be foreseen, or
been made of the right to repurchase, which, though foreseen, were
without prejudice to the provisions of the inevitable.
Mortgage Law and the Land Registration
Law with respect to third persons. A. Concept of Fortuitous Event
Fortuitous Event - an unforeseen
Art. 1652. The sublessee is subsidiarily or unexpected occurrence
liable to the lessor for any rent due from the
lessee. However, the sublessee shall not be -it must be impossible to foresee
responsible beyond the amount of rent due the event
from him, in accordance with the terms of
the sublease, at the time of the extrajudicial -occurrence renders it impossible for
demand by the lessor. debtor to fulfill his obligation in a
normal manner
Payments of rent in advance by the
sublessee shall be deemed not to have been -obligor must be free from any
made, so far as the lessor's claim is participation in aggravation of injury
concerned, unless said payments were resulting to the creditor
effected in virtue of the custom of the place.
1. Act of God (natural)
Caso Fortuito – “an event which
Art. 1729. Those who put their labor upon takes place by accident and could
or furnish materials for a piece of work not have been foreseen
undertaken by the contractor have an action -circumstances independent of the will
against the owner up to the amount owing of the obligor
from the latter to the contractor at the time -earthquakes, storms, floods,
the claim is made. However, the following epidemics, fires
shall not prejudice the laborers, employees
and furnishers of materials: 2. Act of Man
-armed invasion, attack by bandits,
(1) Payments made by the owner to the governmental provisions, robbery
contractor before they are due;
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 21
-unavoidable accidents
Despite the typhoon constituting an act of
God, Napocor cannot escape liability because
B. Requisites its negligence was the proximate cause of the
1. Effect of Concurrent Fault loss and damage. Petitioner was negligent
because it knew of the need to open the
gates gradually and earlier, not to open them
NAKPIL & SONS vs UNITED quickly at the height of the typhoon.
The wanton negligence of the defendant and TUMBOY
the third party defendants in effecting the
plans, designs, specifications and A common carrier, in this case Tumboy et al
construction was equivalent to bad faith in who operated the bus whose tire blew which
the performance of their respective tasks. led to Yubido’s death, cannot be absolved
Other buildings in the vicinity were not from liability in case of force majeure; it must
affected by the earthquake. It was not just still prove that it was not negligent in causing
an Act of God that was responsible for the the death or injury resulting from the
destruction of the building. accident. The mere fact that Tumboy claimed
that the tire was new did not imply that it was
free from manufacturing defects.
Defendant stresses precautions it took on GATUSLAO
the day of the accident in question.
However, said precautions adopted by The closure of any portion of the railroad
appellant prove that the possibility of track was foreseeable and inevitable.
danger was not only foreseeable, but Petitioner took a calculated risk thinking all
actually foreseen, and not by caso fortuito. landowners would renew their contract.
They were indeed negligent and liable for Unfortunately, the termination of the
damages. contractual relationships of sugar plantation
of Angela Estate could not be foreseen as an
DIOQUINO vs LAUREANO act of God, nor could it constitute force
The boy threw stones at the window, which
led to the breaking of the windshield. What PHILCOMSAT vs GLOBE TELECOM
happened was clearly unforeseen. It was a
fortuitous event resulting in a loss which Article 1174 exempts an obligor from liability
must be borne by the owner of the car. in case of fortuitous events, for those which
Article 1174 of the Civil Code guards against are foreseeable but inevitable. Section 8 of
the possibility of being reproached for such the agreement entered into by Philcomsat
a fortuitous event. and Globe Telecom provided for events that
were either unforeseeable, foreseeable but
beyond the control of the parties. No
AUSTRIA vs CA contrary definition exists between Article
1174 and Section 8 of the contract exists.
It is not necessary that persons responsible The date they ceased using the Earth station
for the occurrence or the robbery of Austria was not established. On December 31 1992,
should be found of punished. It would only the US left and rendered ineffective said
be sufficient that the unforeseeable event communication facility. Hence, Globe is liable
did take place without concurrent fault on for payment of rentals until December 1,
the debtor’s part, and this can be done by 1992.
preponderant evidence. To require the
conviction of the culprits, in order to C. Extinguishment of Liability –
establish a fact, would be to demand proof Exceptions
beyond reasonable doubt. The robbery
constitutes a fortuitous event, despite the Art. 1174. Except in cases expressly
lack of conviction of guilty parties. specified by the law, or when it is
otherwise declared by stipulation, or
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 22
when the nature of the obligation
requires the assumption of risk….

Art. 1165, par. 3 If the obligor

delays, or has promised to deliver
the same thing to two or more Art. 1979. The depositary is liable
persons who do not have the same for the loss of the thing through a
interest, he shall be responsible for fortuitous event:
any fortuitous event until he has
effected the delivery. (1) If it is so stipulated;

(2) If he uses the thing without

Art. 552, par. 2 A possessor in the depositor's permission;
bad faith shall be liable for
deterioration or loss in every case, (3) If he delays its return;
even if caused by a fortuitous event.
(4) If he allows others to use it,
even though he himself may
have been authorized to use
Art. 1942. The bailee is liable for the same.
the loss of the thing, even if it should
be through a fortuitous event: Art. 2001. The act of a thief or
robber, who has entered the hotel is
(1) If he devotes the thing to not deemed force majeure, unless it is
any purpose different from done with the use of arms or through
that for which it has been an irresistible force.

(2) If he keeps it longer than Art. 2147. The officious manager

the period stipulated, or after shall be liable for any fortuitous event:
the accomplishment of the
use for which the (1) If he undertakes risky
commodatum has been operations which the owner
constituted; was not accustomed to embark
(3) If the thing loaned has
been delivered with appraisal (2) If he has preferred his own
of its value, unless there is a interest to that of the owner;
stipulation exemption the
bailee from responsibility in (3) If he fails to return the
case of a fortuitous event; property or business after
demand by the owner;
(4) If he lends or leases the
thing to a third person, who is (4) If he assumed the
not a member of his management in bad faith.

(5) If, being able to save VI. Usurious Transactions

either the thing borrowed or
his own thing, he chose to
Art. 1175. Usurious transactions
save the latter.
shall be governed by special laws.

Art. 1413. Interest paid in excess of

the interest allowed by the usury laws
may be recovered by the debtor, with

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 23
interest thereon from the date of the and the debtor incurs in delay, the
payment. indemnity for damages, there being no
stipulation to the contrary, shall be the
Art. 1961. Usurious contracts shall payment of the interest agreed upon,
be governed by the Usury Law and and in the absence of stipulation, the
other special laws, so far as they are legal interest, which is six per cent per
not inconsistent with this Code. annum.

Usury – defined as contracting for or

receiving something in excess of the Rule:
amount allotted by law for the loan 1) When the obligation is breached
or forbearance of money, goods or and it consists in the payment of
chattels. It is the taking of more money (loan or forbearance),
interest for the use of money, goods, interest is either that which is
chattels or credits than the law stipulated in writing or, in absence
allows. Forbearance is the refraining of stipulation, 12% per annum
from enforcement of debt, right, or from time of judicial or
obligation that is due. extrajudicial demand. Interest
Interest is the income produced by itself, when stipulated, shall itself
money in relation to its amount and earn legal interest from the time it
the time it cannot be utilized by its is demanded.
2) When the obligation not involving
money is breached, an interest on
PD 858 the amount of damages may be
The Monetary Board is authorized to imposed at the discretion of the
prescribe the maximum rate or rates court at the rate of 6% per
of interest for the loan or renewal annum. No interest shall be
thereof of the forbearance… adjudged on unliquidated claims or
damages except when or until the
PD 1685 demand can be established with
Foreign loans obtained by the Central reasonable certainty. When
Bank may be guaranteed. They may demand is established reasonably,
exercise/prescribe higher maximum interest shall begin to run from the
rates for loans of low priority. time the claim is made, judicially
or extrajudicially, if not interest
Circular Bank Circular 416: shall begin to run from the date
There is a reduction in the risk the court makes its judgment.
weight of multilateral development Actual base for computation of
banks to 0% legal interest shall be the amount
-it removes loans to exporters to finally adjudged.
extent guaranteed by the guarantee
fund for small and medium
enterprises 3) When judgment awarding sum of
money becomes final and
Monetary Board Circular 905 executory, the rate of legal
It empowers the Central Bank to interest, whether it is either one of
prescribe maximum rates. It also the aforementioned conditions,
states that the rate of interest, on a shall be 12% per annum from such
loan or forbearance of money shall finality until its satisfaction, this
not be subject to any ceiling interim period being deemed to be
prescribed under or pursuant to the by then an equivalent to a
Usury Law. It did not repeal or forbearance of credits.
amend the Usury Law, but simply
suspended its effectivity.


Art. 2209. If the obligation consists Cases are rendered moot and academic
in the payment of a sum of money, by virtue of the repeal of CB 416.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 24

VII. Fulfillment of Obligations VIII. Transmissibility of Rights

(See Chapter 4
Art. 1231: Obligations are Art. 1178. Subject to the laws, all
rights acquired in virtue of an
obligation are transmissible, if there
has been no stipulation to the
1) by payment or contrary.
… -When there is no stipulation in
the assignment of an
Art 1232… not only the obligation, all rights acquired
delivery of money, but also by virtue of an obligation are
performance of any transmissible.
-An instrument evidencing
credit may be transferred or
B. Presumption in payment of
assigned and the transferee will
interest and instalments. be considered in lawful
possession unless the contrary
is proven
Art. 1176. The receipt of the
principal by the creditor without
reservation with respect to the
interest, shall give rise to the
presumption that said interest has DIFFERENT KINDS OF OBLIGATIONS
been paid.
I. Pure & Conditional Obligations
The receipt of a later installment of a A. Pure – no term or condition
debt without reservation as to prior whatever depends upon which
installments, shall likewise raise the depends the fulfilment of the
presumption that such installments obligation contracted by the debtor.
have been paid.
- immediately demandable at
-The failure of the creditor to creditor’s will
make reservation in these
cases extinguished the -no exemptions as to its
obligation to pay the interest compliance (ex. Promissory
or the prior instalments, but note with no condition stated)
under the present article,
there arises only a rebuttable Art. 1179, par. 1 Every
presumption of such obligation whose performance
extinguishment. does not depend upon a future
or uncertain event, or upon a
Art. 1253. If the debt produces past event unknown to the
interest, payment of the principal parties, is demandable at once.
shall not be deemed to have been
made until the interests have been B. Conditional Obligations
Art. 1181. In conditional
obligations, the acquisition of
rights, as well as the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 25
extinguishment or loss of and uncertain event. There is no
those already acquired, shall “uncertainty” that the payment will have to
depend upon the happening be made, since the “the balance will be paid
of the event which constitutes out from the opening of the first letter of
the condition. credit…” To subordinate the obligation to pay
the remaining 65,000 pesos to the sale or
shipment of the ore is tantamount to leaving
payment at the discretion of the debtor.

1. Condition GONZALES vs HEIRS of THOMAS

A. Concept – a future and The transfer of the TCT was precisely needed
uncertain event upon which by petitioner to ensure that he would own the
an obligation depends land free of legal encumbrance. Only when
securing the right to dispose of the land for
-dependent on future or the petitioner to give down payment in
uncertain event upon which fulfilment of the contract.
an obligation or provision is
dependent on (the use of “or” 2. Kinds of Conditions
is actually a mistake)
a. As to effect on obligation -
-the acquisition or resolution Art. 1181. In conditional
of rights depend on a future obligations, the acquisition of
and uncertain event, by virtue rights, as well as the
of those who execute the extinguishment or loss of those
juridical act already acquired, shall depend
upon the happening of the
B. Vs. Term event which constitutes the
Period/Term – an event
which is not uncertain, but (see Gonzales vs Heirs of
must necessarily happen (ex. Tomas)
death of a person)
i. Suspensive (condition
Condition Term/Period
-If the suspensive condition
A future and Not uncertain but
happens, the obligation arises.
uncertain event must necessarily
In other words, if the condition
does not happen, the obligation
There is uncertainty It must necessarily
does not come into existence.
as to when the day come.
will come; uncertain
-retroactive effect when
when it will happen
obligation is fulfilled –
Ex. Death of A ahead Ex. Until A dies;
of B; “when I pass “when my means
the bar” permit” Art. 1187. The effects of a
conditional obligation to give,
Note: A past event unknown to the parties once the condition has been
cannot be a condition for the knowledge of fulfilled, shall retroact to the
the parties cannot prevent the obligation day of the constitution of the
from being demandable. obligation. Nevertheless, when
the obligation imposes
reciprocal prestations upon the
GAITE vs FONACIER parties, the fruits and interests
during the pendency of the
The shipment or local sale of iron ore is not condition shall be deemed to
a condition to the payment of the balance of have been mutually
65,000 pesos. It is a period or term. A compensated. If the obligation
conditional obligation’s obligatory force is is unilateral, the debtor shall
subordinated to the happening of a future appropriate the fruits and
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 26
interests received, unless
from the nature and
circumstances of the
obligation it should be
inferred that the intention of
the person constituting the
same was different.

CORONEL vs CA & ALCARAZ ii. Resolutory (condition

The suspensive condition of the “Receipt of
- Where the obligation is
Down Payment” was the transfer of the title
from petitioners’ deceased father to them. immediately effective, but its
subsistence and
On February 6, 1985, the condition took
place, and the petitioners were obliged to extinguishment depend upon
the fulfilment of the condition
present a deed of absolute sale to
respondent, as well as full payment by
correspondent. The element of consent is
present, which is not present in a contract PARKS vs TARLAC CIRER & HILL
to sell. The sellers made no express
reservation of ownership or title to subject Appellant claims that the condition that one of
the parcels be used exclusively and absolutely
parcel of land.
for erection of a school was not complied
with, constitutes a precedent condition. Since
-rights of creditor and
debtor before fulfilment of it was not followed, appellant claims that the
contract is invalidated. However, this is not a
precedent condition but an imposed one. Its
compliance cannot be effected until the right
FULFILLMENT OF THE is deemed acquired. Beginning work on the
school could not be complied with, except
-preservation of right after giving effect to the donation. Also,
provided that subsequent condition’s non-
(prevent loss or deterioration
of things, prevent resolution renders the contract ineffective,
the action for revocation of donation has
concealment of debtor’s
property). Creditor is allowed prescribed. The period to bring revocation for
action is ten years.
to take appropriate steps
which preserve his right and
prevent events which might
render his right void or CENTRAL PHILIPPINE UNIVERSITY v CA
When petitioner accepted the donation, it
bound itself to comply with the condition
-If non-fulfillment is due to
the fault of creditor, debtor thereof. Since the time within which the
condition should be fulfilled depended upon
may not ask that the fruits
received by creditor be the exclusive will of CPU, it has been held
that its absolute acceptance and
returned to debtor.
acknowledgment of obligation were sufficient
Art. 1188. The creditor
to prevent the statute of limitations from
may, before the fulfillment of
barring the action of private respondents
the condition, bring the
regarding prescription. Also, more than a
appropriate actions for the
reasonable period of 50 years has passed,
preservation of his right.
wherein petitioner should have complied with
the condition to make the donation in its
The debtor may recover what
favour forever valid. Under Article 1191, of
during the same time he has
CC, the oblige may seek rescission and the
paid by mistake in case of a
court shall decree the same, and fix the
suspensive condition.
period. In this case, fixing the number of
years cannot be applied since more than a
reasonable period of time has lapsed.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 27
conformity with the provisions
DAVIDE (dissent): of this code.
1) There is confusion as to the
nature of the contract, based on
the writing of the ponente. First,
it was onerous, or it placed a
burden on the donee. Then it
became gratuitous, given by
virtue of liberality.

2) It is improper to say that it is a

resolutory condition since upon i. Potestative Condition
fulfilment of the obligation or -one which depends upon the
condition, the right to the thing is will of the debtor. The
now extinguished pursuant to conditional obligation is void.
Article 1181 of the Civil Code. To allow conditions whose
fulfilment depends exclusively
3) The period was actually on debtor’s will is to sanction
contemplated by Lopez; he did illusory obligations. For purely
not expect the land to remain idle potestative conditions, the
for ever. whole obligation is void, not
just the condition.
4) Onerous donations are covered
under the rule on contracts, Debtor’s promise to pay is
pursuant to Art. 733 of the Civil not a conditional obligation
Code. The Court must determine (period)
which donee must comply with
conditions or obligations. Art. 1180. When the debtor
binds himself to pay when his
QUEJADA vs CA & MONDEJARETAL means permit him to do so, the
obligation shall be deemed to
A resolutory condition exists only until the be one with a period.
time it is capable of fulfilment. At that time,
the donation is still valid and effective. Such -Creditor should file an
period became irrelevant when donee- action to fix the a period
municipality manifested its inability to for the payment
comply with the condition. When the non- of the obligation
fulfillment of the resolutory condition was
brought to the donor’s knowledge, then -Only if it is suspensive
ownership reverted to the donor.
Ownership was then reverted to petitioners; LAO LIM vs CA & DY
consequently, ownership is transferred to
respondents pursuant to Article 1434 of the The condition is not resolutory but
CC: “Title passes by operation of law to the potestative. It leaves effectivity and
buyer.” Sale, as a contract, is perfected at enjoyment of rights to the sole and exclusive
the moment there is a meeting of the minds will of the lessee. It is suspensive because
upon the thing which is the object of the renewal depends upon said condition. If this
sale and upon the price. The sale is still defense were allowed, so long as defendants
valid. could pay the lease, owners would never be
able to discontinue their occupancy.
b. As to cause or origin Conversely, lessees would terminate the
contract simply through non-payment. A
Art. 1182. When the lease that gives the lessee the right to
fulfilment of the condition perpetual renewal is not favored by the
depends upon the sole will of courts. Any option can be revoked as long as
the debtor, the conditional it is potestative.
obligation shall be void. If it
depends upon chance or upon ii. Causal Condition
the will of a third person, the -One which depends exclusively
obligation shall take effect in upon chance or other factors as

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 28
well as the will of a third
person/stranger TAYLOR vs UY TIENG PIAO

The cancellation of Taylor’s contract was

valid, because Article 1256 of the old CC
includes no impediment to the insertion in a
contract for personal service of a resolutory
condition permitting the cancellation of the
contract by one of the parties. Uy Tieng Piao
et al had no positive obligation to cause the
machinery needed to arrive in Manila. Since
the machinery did not arrive, this led to the
NAGA TELEPHONE CO. vs CA valid cancellation of the said contract.

The term or period of this contract shall be SMITH BELL vs MATTI

as long as the party of the first part has
need for electric light posts is potestative. When the fulfilment of the condition does not
The stipulation that “it being understood depend upon the will of the obligor, but that
that this contract shall terminate…are when of a third person or any other cause, and the
for any reason whatsoever, the party of the obligor has done all he can to ensure
second part is forced to stop, abandon its compliance with the obligation, ordering the
operation…” is causal. It depends on other party to comply with his part is also not
chance, hazard or the will of a third person. contrary to law.
It is a mixed condition, and the provision is
therefore not invalidated. RUSTAN PULP vs IAC

iii. Mixed A purely potestative condition such as that

- Depends upon the will of wherein resumption of delivery of
one of the contracting parties respondents to the petitioner being purely
and other circumstances, such dependent on the latter’s will must be
as chance or will of a obliterated. Such a clause is inoperative.

-“I will buy you a house if you ROMERO vs CA

marry my daughter.”
The condition of the private respondents’
OSMENA vs RAMA undertaking is a mixed condition dependent
on the will of the third persons, like the
The acknowledgement by defendant- squatters, government agencies and the
appellant of indebtedness led her to impose vendor. The ejectment is a condition, the
the condition that she would pay the operative act of which sets the motion of
obligation if she sold her house. The compliance by petitioner, of his obligation to
acknowledgement was an absolute pay the balance. The failure of respondents
acknowledgement of obligation, and was gives petitioner the right to refuse to proceed
sufficient to prevent the statute of with the argument or waive that condition.
limitations from barring the action upon the
original contract. At this point, the old c. As to possibility
Civil Code rendered the defense null
and void as it was dependent solely Art. 1183. Impossible
upon her will. conditions, those contrary to
good customs or public policy
HERMOSA v LONGARA and those prohibited by law
shall annul the obligation which
The condition given by Hermosa was a depends upon them. If the
mixed one, depending partly upon the will of obligation is divisible, that part
Hermosa and partly upon chance, such as thereof which is not affected by
the presence of a buyer and under the impossible or unlawful
conditions desired by intestate. The condition shall be valid.
obligation is a suspensive one, as well, and
upon happening of the condition, became The condition not to do an
due and demandable. impossible thing shall be
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 29
considered as not having been soon as the time expires or if it
agreed upon. has become indubitable that
the event will not take place.
i. Possible
-The condition must be
ii. Impossible fulfilled within the period
stipulated, but the
- either judicially obligation is
impossible or extinguished as soon as
physically impossible. the time expires or it
becomes indubitable
Physical – contrary to (certain) that the event
law of nature will take place/

Juridical - contrary ii. Negative –

to law, good customs
and public policy Art. 1185. The condition that
-Impossible obligations some event will not happen at
annul the obligation a determinate time shall render
dependent upon them. the obligation effective from
the moment the time indicated
-ex. Condition that a has elapsed, or if it has become
person shall not evident that the event cannot
contract marriage, occur.
unless she changes her
religion. If no time has been fixed, the
(Violation of Bill of condition shall be deemed
Rights in freedom of fulfilled at such time as may
religion) have probably been
contemplated, bearing in mind
-One who promises an the nature of the obligation.
impossible condition
and knows that it
cannot be fulfilled has -If the condition is negative,
manifested his lack of the condition becomes effective
intention to be bound. from the moment
Hence, the nullity of the time (period) indicated has
the promise follows. elapsed, or it becomes evident
that the event cannot occur.
MANILA vs CA 3. Rules in case of loss, deterioration or
improvement pending in the happening
The condition that 100 years from the date of the condition.
of execution, said land must not be sold
disposed of, constitutes an essential Art. 1189. When the
condition necessary for the fulfilment of the conditions have been imposed
deed of donation. The court finds that such with the intention of
a condition is impossible. It is an undue suspending the efficacy of an
restriction. obligation to give, the following
SIR JJ: It is actually still possible. A rules shall be observed in case
hundred years is finite, and it is still a of the improvement, loss or
definite period of time. deterioration of the thing
during the pendency of the
d. As to mode condition:

i. Positive – (1) If the thing is lost without

the fault of the debtor, the
Art. 1184. The condition obligation shall be
that some event happen at a extinguished;
determinate time shall
extinguish the obligation as
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 30
(2) If the thing is lost through Loss: - when the thing
the fault of the debtor, he perishes, goes out of
shall be obliged to pay commerce, or disappears and
damages; it is understood cannot be recovered
that the thing is lost when it
perishes, or goes out of Deterioration – any reduction
commerce, or disappears in or impairment in the substance
such a way that its existence value of a thing which does not
is unknown or it cannot be amount to a loss. The thing still
recovered; exists but it is no longer intact.

(3) When the thing Improvement – anything

deteriorates without the fault added to, incorporated in, or
of the debtor, the impairment attached to the thing that is
is to be borne by the creditor; due.

(4) If it deteriorates through Inure – use, put into

the fault of the debtor, the practice, to become of
creditor may choose between advantage.
the rescission of the
obligation and its fulfillment, HEIRS OF TIMOTEO MORENO vs MACTAN
with indemnity for damages in INTL AIRPORT AUTHORITY
either case;
There is no need for petitioners to pay for
(5) If the thing is improved by improvements; nor shall the value of the lot
its nature, or by time, the over time be subject to restitution.
improvement shall inure to Improvements done on the lot may be paid
the benefit of the creditor; for by petitioner, in case petitioners wish to
purchase them and respondent decides to
(6) If it is improved at the sell. If petitioners do not wish to purchase,
expense of the debtor, he said improvements may be removed without
shall have no other right than petitioners needing to pay.
that granted to the
usufructuary. (1122)
b. Effect of loss or
Art. 1190. When the deterioration
conditions have for their
purpose the extinguishment i. Without debtor’s fault
of an obligation to give, the
parties, upon the fulfillment of Loss: 1189, pars 1 and 3:
said conditions, shall return to (1) If the thing is lost without
each other what they have the fault of the debtor, the
received. obligation shall be
In case of the loss, extinguished;
deterioration or improvement
of the thing, the provisions (3) When the thing deteriorates
which, with respect to the without the fault of the debtor,
debtor, are laid down in the the impairment is to be borne
preceding article shall be by the creditor
applied to the party who is
bound to return. ii. With debtor’s fault

As for the obligations to do Deterioration: 1189, par 2

and not to do, the provisions and 4:
of the second paragraph of (2) If the thing is lost through
Article 1187 shall be observed the fault of the debtor, he shall
as regards the effect of the be obliged to pay damages; it
extinguishment of the is understood that the thing is
obligation. lost when it perishes, or goes
out of commerce, or disappears

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 31
in such a way that its submit collateral to GSIS, non-payment of the
existence is unknown or it mortgage debt and not making an earnest
cannot be recovered; effort to redeem the property. Petitioner did
not validly and fully comply with the
(4) If it deteriorates through conditions in their contract.
the fault of the debtor, the
creditor may choose between
the rescission of the TEEHANKEE (DISSENT): Leviste failed to
obligation and its fulfillment, complete all the necessary steps to inform
with indemnity for damages in GSIS and arrange conformity of Herrera’s
either case; assumption of the mortgage obligation.
Herrera was informed that he could not
c. Effect of Improvement assume payment of the mortgage until a final
i. by nature or deed of sale was submitted. But GSIS still
time: 1189, received payments.
par 5
(5) If the thing is While it is true that under paragraph 11 of
improved by its the contract, failure to fulfil would result in a
nature, or by time, the cancellation of the contract, and all payments
improvement shall being kept by vendor, Herrera was prevented
inure to the benefit of from fulfilling the condition of assuming the
the creditor; GSIS mortgage because of Leviste’s own non-
compliance with its obligation of securing the
consent of GSIS. Leviste made no effort,
ii. at the despite clear stipulations in the contract.
debtor’s Despite payment by Herrera of remaining
expense: price to Leviste, Leviste still refused to
1189, par. 6 execute the final deed of sale in favour of
Herrera as required by GSIS.
(6) If it is improved at
the expense of the
debtor, he shall have II. RECIPROCAL OBLIGATIONS
no other right than
that granted to the
4. Effect of prevention of the fulfilment Art. 1191. The power to rescind
of the condition by the obligor obligations is implied in reciprocal
ones, in case one of the obligors
Art. 1186. The condition should not comply with what is
shall be deemed fulfilled when incumbent upon him.
the obligor voluntarily
prevents its fulfillment. The injured party may choose between
the fulfillment and the rescission of the
Constructive fulfilment obligation, with the payment of
-a condition which, although damages in either case. He may also
not exclusively within the will seek rescission, even after he has
of the debtor, may in some chosen fulfillment, if the latter should
way be prevented for the become impossible.
debtor from happening.
The court shall decree the rescission
2 requisites: claimed, unless there be just cause
1) Intent of obligor to prevent authorizing the fixing of a period.
fulfilment of the condition
This is understood to be without
2) actual prevention of prejudice to the rights of third persons
fulfilment who have acquired the thing, in
accordance with Articles 1385 and
HERRERA vs LEVISTE 1388 and the Mortgage Law. (1124)

Herrera may not redeem the property. Art. 1192. In case both parties have
Petitioner’s loss was due to his failure to committed a breach of the obligation,
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 32
the liability of the first infractor shall fault or fraud of
be equitably tempered by the courts. defendant, creating
If it cannot be determined which of liability for damages and
the parties first violated the contract, entitling other party to
the same shall be deemed ask for rescission
extinguished, and each shall bear his
own damages. a. one single breach
except in contrary
1. Concept stipulation, or sale in
Reciprocal Obligations
– those which arise from
the same cause and in
which each party is a b. an action must be
debtor and a creditor of filed or a notarial
the other, such that the demand made
obligation of one is
dependent upon the -damages must be
obligation of the other. adjudicated in the
They are to be performed same action for
simultaneously, so that rescission
the performance of one is
conditioned upon the -rescission may
simultaneous fulfilment. not be for slight or
casual breach, but only
2. Alternative for breaches so
Remedies substantial as to defeat
Of Injured Party in case the object of the parties
of Breach in making the
a. Action for
Fulfillment ii. How made
-ask for specific
performance of the -rescission takes place
obligation upon declaration of the
injured party
-payment for damages
-party should apply to
-if fulfilment is no courts for a decree of
longer possible, rescission or resolution
rescission with
damages to injured -when injured party has
party may be fulfilled. already performed,
judicial action must be
-it does not affect third undertaken.
iii. Effects
-no partial rescission
and partial fulfilment/ -extinguished obligatory
no simultaneous relation as if it never
specific performance existed
and rescission
-equivalent to unmaking
b. Action for Rescission and invalidating the
juridical tie
-a power, by
declaration of the -it is the duty of the
injured party court to require both
parties to surrender
i. Requisites what they have
1) breach must be by respectively received
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 33
violated may act as if contract were
-rescission abrogates rescinded, but proceeds at its own risk.
the contract in all parts Although only the final judgment may
determine the correctness of the action,
-defendant’s sole duty judicial action is needed to ascertain the final
is to return what he award and resolution. The court erred in
has received, with punishing UP for simply protecting its own
legal interest (no interest.
attorney’s fees);
return to plaintiff as SIR JJ: This case changes the rule
well regarding rescission.

-no partial rescission DE ERQUIAGA vs CA & REYNOSO

and resolution
In rescission of contracts of reciprocal
-no judgment rendered obligations, there should be simultaneous
declaring rescission, restitution of the principal object of the
creditor may change contract to sell and the consideration paid.
his mind and ask for Despite the unfinished accounting for the
fulfilment fruits, the restitution must still take place. But
defendant is ordered to finish the accounting.
-no availment of
pledge IRINGAN vs CA

-in rescission, Rescission took place upon filing of JCR in

purchaser is only RTC. Judicial notice is needed before one
entitled to interest on party can unilaterally affect a rescission.
amount he paid Rescission did not take place with the letter,
but with Palao’s filing of the judicial notice of
-damages are only rescission.
those compatible with ONG vs CA
the idea of rescission
Petitioner entered into contract with
-parties may choose to respondents on the basis that issuance of
waive rescission in deed of absolute sale would be granted upon
reciprocal obligations full payment of 2M pesos. This was a
suspensive condition, and a contract to sell
BOYSAW vs INTERPHIL PROMOTIONS took place. No breach took place, but a
situation took place that prevented the
This occasion led to a reciprocal obligation. obligation of the vendor to convey title from
Boysaw violated the contract when he acquiring an obligatory force.
engaged in a boxing match in Las Vegas.
Also, the change of management, without
consent or knowledge of defendant VISAYAN SAW MILL vs CA
constituted another violation. Such
violations allowed defendant the right to What took place in this case was a contract to
rescind and repudiate the contract sell wherein the failure of respondent to
altogether. ensure the opening of the letter of credit prior
to May 15 1983 led to the inability of
petitioner to fulfil its obligation. It was not a
UP vs HON. DE LOS ANGELES contract of sale, where implied delivery took
place. No breach took place, but the failure
In the “Acknowledgement of Debt & to comply with a positive suspensive
Proposed Manner of Payment,” upon default condition. Also the letter of credit did not
by debtor ALUMCO, creditor had “the right involve respondent RJH but another company
and power to consider logging agreement and it was set to expire on July 24, 1983.
dated December 2,1960 may be considered Therefore, no obligation arose on the part of
rescinded without necessity of a juridical petitioner; Article 1597 should apply, which
suit. The party who deems the contract allows for rescission by providing notice. Also,
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 34
the implied delivery is a mere sanctioning infringement of a contractual
accommodation. obligation.

ROMERO (dissent): SURIA vs IAC

1) Time was not explicitly provided as Petitioner and respondents entered into a
essential to the contract. It was an absolute contract of sale. The vendor obligates himself
contract of sale. to transfer ownership and to deliver a
determinate thing to the buyer, who in turn,
2) Delivery did take place. is obliged to pay a price in money or its
equivalent. Both parties fulfilled their
Article 1191 obligation. It became a contract between
In all mortgagor and mortgagee, and is a perfected
contracts contract of sale. Rescission is not a principal
involving action retaliatory in character, but becomes
reciprocal subsidiary when it is available only in absence
obligations, of any legal remedy. Foreclosure here is a
Article 1191 specific provision found in the contract
is ALWAYS between the parties. Mortgage has the
applied. option of seeking fulfilment or suing for
breach, If the contract is rescinded, property
DEIPARINE vs CA & CARUNGAY & reverts to mortgagee.

Article 1191 is predicated on breach of faith Art. 1786. Every partner is a

by one of them that violates reciprocity debtor of the partnership for
between them. Deiparine’s failure has given whatever he may have
the Carungay spouses the right to rescind or promised to contribute thereto.
cancel, since he did not follow their
stipulated plans and specifications. Article He shall also be bound for
1191 imposes upon petitioner to build the warranty in case of eviction
structure and private respondents to pay for with regard to specific and
it. Therefore, the contract was valid under determinate things which he
Art 1191. may have contributed to the
partnership, in the same cases
GRACE PARK ENGG CO vs DIMAPORO and in the same manner as the
vendor is bound with respect to
When a contract is resolved or rescinded, it the vendee. He shall also be
is the duty of the court to require the liable for the fruits thereof from
parties to surrender that which they have the time they should have been
severally received. It has the effect of delivered, without the need of
abrogating the contract in all parts. It any demand.
would contradict the very notion of
rescission the very notion of rescission
under Article 1385 of the CC. The contract
is deemed extinguished, and no interest
may be claimed by both of the contracting

ROQUE vs LAPUZ & CA Art. 1788. A partner who has

undertaken to contribute a sum
The respondent’s failure to pay the of money and fails to do so
succeeding monthly instalments was a becomes a debtor for the
failure to comply with the suspensive interest and damages from the
condition which is the full payment of the time he should have complied
price. There was clear bad faith and malice with his obligation.
on the part of respondent, making
inapplicable and unwarranted the benefits of The same rule applies to any
Article 1191, paragraph 3. To do so would amount he may have taken
be tantamount to excusing his bad faith and from the partnership coffers,

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 35
and his liability shall begin Obligations with a resolutory
from the time he converted period take effect at once, but
the amount to his own use. terminate upon arrival of the
day certain.
Art. 1484. In a contract of
sale of personal property the A day certain is understood to
price of which is payable in be that which must necessarily
installments, the vendor may come, although it may not be
exercise any of the following known when.
If the uncertainty consists in
(1) Exact fulfillment of the whether the day will come or
obligation, should the vendee not, the obligation is
fail to pay; conditional, and it shall be
regulated by the rules of the
(2) Cancel the sale, should preceding Section.
the vendee's failure to pay
cover two or more Art. 1180. When the debtor
installments; binds himself to pay when his
means permit him to do so, the
(3) Foreclose the chattel obligation shall be deemed to
mortgage on the thing sold, if be one with a period, subject to
one has been constituted, the provisions of Article 1197.
should the vendee's failure to
pay cover two or more -Obligations for whose
installments. In this case, he fulfilment a day certain
shall have no further action has been fixed, shall be
against the purchaser to demandable only when
recover any unpaid balance of that day comes (ex die)
the price. Any agreement to
the contrary shall be void. Obligations with a
resolutory period take
Art. 1485. The preceding effect at once, but
article shall be applied to terminate upon arrival
contracts purporting to be of day certain (in diem)
leases of personal property
with option to buy, when the -A day certain is to be
lessor has deprived the lessee understood to be that
of the possession or which must necessarily
enjoyment of the thing. come, although it may
not be known when
Art. 1486. In the case
referred to in two preceding -If uncertainty consists
articles, a stipulation that the in whether the day will
installments or rents paid come or not, it is a
shall not be returned to the conditional obligation
vendee or lessee shall be
valid insofar as the same may A. Period or term
not be unconscionable under 1. Concept
the circumstances. (n) -space of time which,
exerting an influence on
obligations as a consequence
II. OBLIGATION WITH A PERIOD of a juridical act, suspends
demandability or determines
Art. 1193. Obligations for extinguishment
whose fulfillment a day
certain has been fixed, shall vs
be demandable only when
that day comes. Period/Term Condition

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 36
Must necessarily uncertain
Influence 3. As to definiteness
No effect on Gives rise to an a. Definite – when
obligation but only obligation or period is fixed
on its demandability extinguishes one b. Indefinite – when
or performance already existing period is not fixed,
Time as in Art. 1180.
Future May refer to a past Usually, court
event unknown to renders a definite
both parties period.
Will of debtor
Empowers court to Annuls obligation
fix record (exclusively
dependent on
debtor’s will)
4. As to source
Requisites a. Voluntary:
1. future Fixed or stipulated
2. certain by will of the
3. possible parties
b. Legal: Fixed by
B. Kinds of Periods/Terms c. Judicial: Fixed or
1. As to effect allowed by the
-Suspensive court
C. Rules in case of loss,
Suspensive (ex die) deterioration or
– Art. 1193, par 1. improvement before arrival
must lapse before of period.
performance of
obligation can be (See Article 1189, 1194)
demanded (from a day
certain) Art. 1194. In case of loss,
deterioration or improvement
Resolutory ( in of the thing before the arrival
diem) of the day certain, the rules in
Art 1193 par. 2 – Article 1189 shall be observed.
period after which
performance must D. Effect of payment in
terminate advance

2. As to expression Art. 1195. Anything

a. Express: paid or delivered before
specifically the arrival of the period,
stated, or when the obligor being
period is unaware of the period or
specified in the believing that the
obligation or by obligation has become
law due and demandable,
b. Implied: may be recovered, with
When from the the fruits and interests.
nature and
circumstances of Art. 1197, par 3.
obligation, it can
be inferred that a In every case, the
period was courts shall determine
intended (Art. such period as may
1197) under the circumstances
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 37
have been probably sudden decline in purchasing power of
contemplated by the currency, especially at a time of uncertainty.
parties. Once fixed by
the courts, the period PARAS (dissent): If by early payment of
cannot be changed by obligation, the creditor would not lose any
them. part of stipulated interest, payment must be

PADILLA: Creditor should not be allowed to

exact and impose unfair terms and
conditions, such as that of barring debtor
from paying principal of loan prior to agreed

E. Benefit of Period BUCE vs CA & SPOUSES TIONGCO

1. For whose benefit In a reciprocal contract like a lease, the

a. creditor – antichresis period must be deemed to have been agreed
b. debtor – “within: upon by and for the benefit of both parties.
c. both – generally, when It was not specifically indicated who may
a period is designated, exercise the option to renew, neither was it
it stated that the option was given for
is presumed to be for petitioner’s benefit. After termination of the
the benefit of both lease, petitioner became subject to ejectment
creditor and debtor from the premises. But no prayer was
included for possession or restoration of
-unless from tenor or leased properties.
other circumstances, it
appears that the 4. When debtor loses right
period has been to make use of period
established in favour of
one or the other Art. 1198. The debtor
shall lose every right to
2. Effects make use of the period:
1. Creditor cannot compel
debtor to pay in (1) When after the
advance of fixed date, obligation has been
nor can debtor compel contracted, he becomes
creditor to receive insolvent, unless he
payment in advance gives a guaranty or
2. Effect of antichresis: security for the debt;
Compulsion of debtor
to retake possession
and pay balance of (2) When he does not
debt (beneficial for furnish to the creditor
creditor) the guaranties or
securities which he has
3. Presumption promised;

PONCE DE LEON vs SYJUCO INC (3) When by his own

acts he has impaired
Syjuco is allowed to refuse payment said guaranties or
tendered by De Leon. The period is set for securities after their
the benefit of both the creditor and the establishment, and
debtor. Syjuco has nothing to lose, but when through a
interest is not the only reason why period is fortuitous event they
fixed. Creditor may want to keep his money disappear, unless he
safely invested, or wants to avoid the immediately gives new
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 38
The issue was not the court fixing the time of
(4) When the debtor performance but determining whether or not
violates any the parties agreed that Araneta should have
undertaking, in reasonable time to perform its part in the
consideration of which bargain. In no case can the court hold that
the creditor agreed to under the plea mentioned, the intervention of
the period; the court to fix the period of performance was
warranted. No basis is stated to support the
(5) When the debtor court’s intervention, or the period of two
attempts to abscond. years it granted.

Article 1197 has a 2 step process. It has to be

determined that the obligation does not fix a
period; then, it has to determine the period
probably contemplated by the parties. The
F. When Court May Fix Period
period contemplated was the performance of
the eviction of the squatters.
Art. 1197. If the
obligation does not fix a DEUDOR vs JM TUASON CO
period, but from its nature
and the circumstances it When the court exercises the power to fix the
can be inferred that a period, it does not modify or alter but merely
period was intended, the enforces period. It can be inferred that a
courts may fix the period was intended by the parties thereto.
duration thereof. The period within which delivery was made
sprang from the agreement between Deudor
The courts shall also fix and JM Tuason.
the duration of the
period when it depends
upon the will of the

In every case, the courts A. Concept –

shall determine such Art. 1199. A person alternatively
period as may under the bound by different prestations shall
circumstances have been completely perform one of them.
probably contemplated by The creditor cannot be compelled to
the parties. Once fixed by receive part of one and part of the
the courts, the period other undertaking.
cannot be changed by
them. -several objects being due, the
fulfilment of one is sufficient,
1. Period is implied determined by the choice of the debtor
2. Period depends who generally has the right of election.
solely on will of
debtor -The obligation is extinguished by
performance of only one of the
LACHICA vs ARANETA prestations.

A term is fixed and presumed to have been B. Right of Choice

established for the benefit of both creditor
and debtor, unless from its tenor, it should Art. 1200. The right of choice
appear that the term was established for the belongs to the debtor, unless it
sale. The contract did not prohibit payment has been expressly granted to
before the fixed date. Although defendant the creditor.
holds that the reason for the dates is for
stipulated interest. -Proper election does
not require assent.

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 39
C. Effect of Notice of Choice Damages other than the value
of the last thing or service may
-Expressed by election also be awarded. (1135a)
or choice; once made,
election is irrevocable Art. 1205. When the choice
has been expressly given to the
-Election ceases to be creditor, the obligation shall
alternative from the cease to be alternative from
time creditor’s choice the day when the selection has
is made, when he is been communicated to the
expressly allowed to debtor.
do so. Until then the responsibility of
the debtor shall be governed by
the following rules:

(1) If one of the things

D. When Notice Produces Effect – is lost through a
fortuitous event, he
Art. 1201. The choice shall shall perform the
produce no effect except from obligation by delivering
the time it has been that which the creditor
communicated. should choose from
among the remainder,
E. Effect of loss or impossibility or that which remains if
of one or all prestations- Art. only one subsists;
1202 to 1205
(2) If the loss of one of
Art. 1202. The debtor shall the things occurs
lose the right of choice when through the fault of the
among the prestations debtor, the creditor may
whereby he is alternatively claim any of those
bound, only one is subsisting, or the price
practicable. (1134) of that which, through
the fault of the former,
has disappeared, with a
Art. 1203. If through the right to damages;
creditor's acts the debtor
cannot make a choice (3) If all the things are
according to the terms of the lost through the fault of
obligation, the latter may the debtor, the choice
rescind the contract with by the creditor shall fall
damages. (n) upon the price of any
one of them, also with
Art. 1204. The creditor shall indemnity for damages.
have a right to indemnity for
damages when, through the The same rules shall be
fault of the debtor, all the applied to obligations to
things which are alternatively do or not to do in case
the object of the obligation one, some or all of the
have been lost, or the prestations should
compliance of the obligation become impossible.
has become impossible.
F. Facultative Obligation-
The indemnity shall be fixed
Art. 1206 When only
taking as a basis the value of
one prestation has been
the last thing which
agreed upon, but the
disappeared, or that of the
obligor may render
service which last became
another in substitution,
the obligation is called
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 40
creditor or a third discretion and choice
The loss or person. of the debtor.
deterioration of the
thing intended as a 3. Effect of Substitution
substitute, through the Substitute: the thing or
negligence of the service owed to the creditor
obligor, does not instead of the original or
render him liable. But main obligation
once the substitution
has been made, the -before substitution:
obligor is liable for the substitution is at debtor’s
loss of the substitute option and cannot be
on account of his compelled by the creditor,
delay, negligence or nor may the creditor refuse
fraud. the substitution

1. Concept – in facultative
obligations, only one thing is IV. JOINT AND SOLIDARY
due. But the debtor has
reserved the right to
substitute it with another. In
a facultative obligation, loss of A. Joint Obligations
that which may be given as
substitute does not affect the 1. Concept: A joint obligation
delay. is one in which each of the
debtors is liable only for a
-In facultative proportionate part of the debt
obligations, the choice and each of the creditors is
never falls on the entitled only to a proportionate
creditor. The creditor part of the debt. Each creditor
can never refuse or can only recover his share of
reject the substitution the obligation and each debtor
can be made to pay only his
2. Distinguished from part.
Alternative Obligation
-Obligations existing between
several persons, among whom
the benefit or the burden of the
1. Several 1. Only one principal
obligation is divided.
prestations due; prestation due, but
many constitute accessory only as
prestations that are means to facilitate A. Requisites
part of the payment. 1. Plurality of
obligation. Subjects: More
2. Nullity of one 2. The nullity of the than one creditor or
prestation does not principal prestation debtor or both
invalidate the invalidates the
obligation which is obligation and the 2. Determination of
still in force. creditor cannot shares in the
demand the demandability or
substitute even when the fulfilment of
this is valid.
the obligation:
3. Loss of one 3. Loss of the
Shares may be
alternative substitute due to
unequal, but the
prestation due to debtor’s fault does
presumption is that
debtor’s fault not render him liable
shares are equal, if
renders him liable if for damages
from the law, the
the choice is by the
nature or the
wording of the
4. Choice may be 4. Substitution is obligation, the
granted to the always at the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 41
contrary does not
appear. -When two persons are
liable under a contract
Shares shall be or under a judgment,
considered distinct and no words appear
from one another in the contract or
subject to rules of judgment to make
court governing each liable for the entire
multiplicity of suits obligation,
the presumption is that
B. Words used to their obligation is joint
indicate and each debtor is liable
Joint Obligations only for a proportionate
-“We promise to pay” part of the obligation.
used by two or more
signers -It is not necessary that
the agreement should
use precisely the word
2. Presumption- Art. 1207, 1208 “solidary” for an
obligation to do so.
When a final judgment
Art. 1207. The does not specify that it
concurrence of two or is solidary liability, it is
more creditors or of presumed joint.
two or more debtors in
one and the same
3. Effects- Art. 1207, 1208
obligation does not
imply that each one of
a. Extent of liability of
the former has a right
to demand, or that
b. Extent of right of creditor
each one of the latter
is bound to render,
1. The demand by one creditor upon
entire compliance with
one debtor, produces the effects of
the prestation. There is
default only with respect to the
a solidary liability only
creditor who demanded and the debtor
when the obligation
on whom the demand was made, but
expressly so states, or
not with respect to the others.
when the law or the
nature of the
2. The interruption of prescription by
obligation requires
the judicial demand of one creditor
upon a debtor, does not benefit other
creditors nor interrupt the prescription
Art. 1208. If from as to other debtors. Partial payment or
the law, or the nature acknowledgment made by one of the
or the wording of the debtors does not stop the running of
obligations to which the statute of limitations against the
the preceding article others.
refers the contrary
does not appear, the 3. The vices of each obligation arising
credit or debt shall be from the personal defect of a
presumed to be particular debtor or creditor does not
divided into as many affect the obligation or rights of the
shares as there are others.
creditors or debtors,
the credits or debts 4. The insolvency of a debtor does not
being considered increase responsibility of his co-
distinct from one debtors nor does it authorize a creditor
another, subject to the to demand anything from his co-
Rules of Court creditors.
governing the
multiplicity of suits.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 42
5. Res judicata is not extended from equivalent, the creditor
one debtor to another in a joint renounces the
divisible obligation. enforcement of the
obligation, which is
Divisible- each creditor may extinguished in its
independently demand and entirety or in that part
compel performance of his or aspect of the same to
share of the credit which the remission
c. In case of novation, refers. It is gratuitous.
compensation, confusion
(Art. 1277), remission

Art. 1215. Novation, B. Solidary Obligations

compensation, confusion or 1. Concept: One in which
remission of the debt, made each debtor is liable for the
by any of the solidary entire obligation
creditors or with any of the
solidary debtors, shall
a. Requisites - solidary
extinguish the obligation,
liability exists only when
without prejudice to the
the obligation expressly so
provisions of Article 1219.
states or when the law or the
nature of the obligation
Novation - extinguishment
requires solidarity
of an obligation by
substitution or change of the
i. use of the term
obligation by a subsequent
“solidary” is not required
one which extinguishes or
modifies the first.
-plurality of subjects
shares unity of
Compensation –
capacity to dispose of
the thing paid and
ii. intention to establish
capacity to receive
solidary liability must
payment is not
clearly appear
necessary. It results
in a partial
iii. Philippine doctrine
extinguishment of an
requires express
provision. There exists a
presumption against
Confusion – the
solidarity and a
meeting in one person
presumption of joint
of the qualities of
creditor and debtor of
the same obligation.
b. Words used to indicate
Art. 1277. Confusion solidary obligations
does not extinguish a
joint obligation except “joint and several” or “in
as regards the share solidum”
corresponding to the
creditor or debtor in -“I promise to pay” with two or
whom the two more persons
characters concur.
-“use of the words individually
Remission – without and collectively”
receiving any

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 43
2. Kinds for the purpose of
a. As to source enforcing neutrality.

Art. 1208. If from the law,

or the nature or the wording
of the obligations to which the ii. Conventional
preceding article refers the
contrary does not appear, the iv. Real – from the
credit or debt shall be nature of the
presumed to be divided into obligation, such
as many shares as there are as mortgage of
creditors or debtors, the one object by its
credits or debts being co-owners
considered distinct from one
another, subject to the Rules
of Court governing the
multiplicity of suits.

i. Legal
b. As to parties bound
Art. 1915. If two or i. Active: solidarity of
more persons have creditors, each having
appointed an agent for the right to collect from
a common transaction the common debtor
or undertaking, they
shall be solidarily liable -its essence consists of
to the agent for all the the authority to claim
consequences of the and enforce the rights of
agency. all, with the resulting
-co-principals to obligation of paying
a common anyone what belongs
agent to him.

Art. 1945. When -the credit and its

there are two or more benefits are equally
bailees to whom a divided among the
thing is loaned in the creditors
same contract, they
are liable solidarily. ii. Passive: solidarity
-of bailees of debtors, where each
is liable to pay the
Art. 2194. The whole
responsibility of two or to the common creditor
more persons who are
liable for quasi-delict is -its essence is that each
solidary. debtor can be made to
-of tortfeasors answer for the others
with the right on the
part of the debtor –
Art. 119, RPC: The payor to recover from
penalty of prision the others their
correctional shall be respective shares
inflicted upon any one
who, on the occasion iii. Mixed:
of a war, in which the simultaneously
government is not active and passive
involved, violates any
regulation issued by c. As to uniformity
competent authority
i. Uniform: with the

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 44
same terms and can be sued, despite the SEC order, since the
conditions for all said order only affects PBM and not Ching.
When an obligation states solidary liability,
-debtors are bound concurrence of 2 or more creditors or 2 or
by same conditions or more debtors in one obligation implies that
clauses one of the former can demand or that each of
the latter is bound to render entire
ii. Varied/Non- compliance of the prestation.
uniform- Art. 1211
Art. 1211. Solidarity CEMENT
may exist although the
creditors and the The fact that the liability sought against
debtors may not be respondent Continental Cement is solely for
bound in the same tort does not negate the solidary nature of
manner and by the their liability.
same periods and

3. Effects
-with different periods a. Solidary creditor in
and conditions for each relation to:
1. common debtor –
effects right to demand

-only the portion due Art. 1215. Novation,

at the time is compensation, confusion
collectible from any or remission of the debt,
one of the debtors or made by any of the
by any one of the solidary creditors or with
creditors. any of the solidary
debtors, shall extinguish
YNCHAUSTI vs YULO the obligation, without
prejudice to the
The obligation being solidary, the remission provisions of Article
of any part of the debt made by a creditor in 1219.
favor of one or more of the solidary debtors
necessarily benefits the others and The creditor who may
therefore, there can be no doubt that all have executed any of
debtors have a right to enjoy the benefits of these acts, as well as he
the partial remission granted by the who collects the debt,
creditor. Only the 225,000 in the second shall be liable to the
contract can be recovered, on the basis of others for the share in
the remission of the 3 debtors. the obligation
corresponding to them.
INCIONG vs CA (1143)

The promissory note expressly states three Art. 1216. The

signatories as jointly and severally liable. creditor may proceed
Any one, some or all of them may be against any one of the
proceeded against for the entire obligation. solidary debtors or some
The choice is left to the solidary creditor to or all of them
determine against whom he will enforce simultaneously. The
collection. demand made against
one of them shall not be
RCBC vs CA an obstacle to those
which may subsequently
The ‘Comprehensive Surety Agreement’ the be directed against the
parties entered into expressly consider others, so long as the
Ching as a surety. Liability may not be
restricted or extended by implication. He
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 45
debt has not been fully - in case of novation,
collected. (1144a) compensation, confusion,
Art. 1217 (par 1).
Payment made by one Art. 1215 par. 2. The
of the solidary debtors creditor who may have
extinguishes the executed any of these
obligation. If two or acts, as well as he who
more solidary debtors collects the debt, shall
offer to pay, the be liable to the others
creditor may choose for the share in the
which offer obligation corresponding
to accept. to them.

-Other creditors may

recover their respective
shares in the obligation
from creditors who
effected novation,
compensation, confusion
or remission.
Effects of acts of novation,
compensation, confusion - prejudicial acts
of the debt prohibited-
-These are considered from
two aspects: Art. 1212. Each one of
the solidary creditors
1) the relation between the may do whatever may
creditors on one hand and be useful to the others,
the debtors on the other but not anything which
and may be prejudicial to
2) the relations among co- the latter.
debtors themselves
-A solidary creditor
Between Creditors & cannot do anything
Debtors prejudicial to the co-
-any of these acts will creditors. The act of
extinguish the obligation extinguishment will be
valid so as to extinguish
Between Creditors: claim against debtors,
-extinguishment of obligation but not with respect to
does not prejudice the right of co-creditors whose
the other creditors to recover rights subsist and can
their share in obligation from be enforced against
creditor who effected any of creditor who performed
the above the act alone.

Between Debtors: Co-

debtor to whom obligation - assignment of
was extinguished cannot rights not allowed-
recover from his co-debtors
more than their respective Art. 1213. A solidary
shares in whatever he may creditor cannot assign
have given up or lost as his rights without the
consideration for consent of the others.
extinguishment of other
obligation -the solidary creditor is
an agent of the others,
2. solidary co-creditor/s hence he cannot assign
that agency to a third
person without the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 46
consent of other Novation,
creditors. Mutual compensation, confusion
agency, the essence of or remission of the debt,
active solidarity, made by any of the
implies mutual solidary creditors or with
confidence; hence, it is any of the solidary
just to require consent debtors, shall extinguish
of others. Take note: the obligation, without
the power of the prejudice to the
creditor to extinguish provisions of Article
the obligation justifies 1219.
this rule.

b. Solidary debtor in
relation to: ii. solidary co-debtor

i. common creditor - in case of payment

by a co-debtor- Art.
- obligation to 1217-1220

Art. 1207. The Art. 1217. Payment

concurrence of two or made by one of the
more creditors or of solidary debtors
two or more debtors in extinguishes the
one and the same obligation. If two or
obligation does not more solidary debtors
imply that each one of offer to pay, the creditor
the former has a right may choose which offer
to demand, or that to accept.
each one of the latter
is bound to render, He who made the
entire compliance with payment may claim
the prestation. There is from his co-debtors only
a solidary liability only the share which
when the obligation corresponds to each,
expressly so states, or with the interest for the
when the law or the payment already made.
nature of the If the payment is made
obligation requires before the debt is due,
solidarity. no interest for the
intervening period may
- in case of be demanded.
compensation, When one of the
confusion, solidary debtors cannot,
remission by a because of his
creditor- Art. insolvency, reimburse
1215 par. 1 his share to the debtor
paying the obligation,
such share shall be
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 47
borne by all his co- After one solidary debtor
debtors, in proportion has paid the entire
to the debt of each. obligation, it is
extinguished and there
-Payment by one is nothing to remit, even
solidary debtor partially.
extinguishes the
obligation. He who Art 1220. The
made payment may remission of the whole
claim from his co- obligation, obtained by
debtors only the share one of the solidary
which corresponds to debtors, does not entitle
each, with interest of him to reimbursement
payment already from his co-debtors.

-He cannot claim

entire amount, but
only that share
pertaining to each with
interest on the amount

in case of fortuitous
Art. 1218. Payment event- Art. 1221
by a solidary debtor
shall not entitle him to Art. 1221. If the thing
reimbursement from has been lost or if the
his co-debtors if such prestation has become
payment is made after impossible without the
the obligation has fault of the solidary
prescribed or become debtors, the obligation
illegal. shall be extinguished.

-It is no longer due, If there was fault on the

and none of the part of any one of them,
solidary debtors may all shall be responsible
be compelled to pay. If to the creditor, for the
one does pay, he does price and the payment
not revive the of damages and
obligation. interest, without
prejudice to their action
Art. 1219. The against the guilty or
remission made by the negligent debtor.
creditor of the share
which affects one of If through a fortuitous
the solidary debtors event, the thing is lost
does not release the or the performance has
latter from his become impossible after
responsibility towards one of the solidary
the co-debtors, in case debtors has incurred in
the debt had been delay through the
totally paid by anyone judicial or extrajudicial
of them before the demand upon him by
remission was the creditor, the
effected. provisions of the
preceding paragraph
-Exemption of co- shall apply.
debtor in such a case
will give way to fraud.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 48
-If anyone was at personally belong to the
fault, all shall be others, he may avail
responsible to the himself thereof only as
creditor. In case of regards that part of the
fortuitous event, the debt for which the latter
things lost or are responsible.
impossible due to
delay, provision of a. Types
preceeding paragraph i. those derived from the
shall apply. nature of the obligation

JAUCIAN vs QUEROL -defenses which may

contribute to or weaken
Article 1144 of the old Civil Code states that or destroy vinculum
a creditor may sue any of the joint and juris
several debtors or all of them
simultaneously. Rogero was liable -nullity due to capacity
absolutely for the full amount of the or consent of all
obligation. Her position so far as the debtors; mistake, fraud,
creditor was concerned was exactly the violence
same as if she had been the principal
debtor. -invalidate original

-death of principal
debtor only bars
execution against
debtor’s estate, not
nature of obligation
RFC vs CA itself
ii. personal defenses
The obligation to pay the balance had -partial or total defense
already been assumed by RFC. With no
other conditions other than the title first be -those which annul
conveyed to Dominguez and the lien consent
iii. defenses pertaining to
QUIOMBING vs CA his share

It did not matter who between the -special terms or

petitioners would file the complaints since conditions affecting his
the respondents were liable to either of part of the obligation
them as a solidary creditor for the full
amount of the debt. iv. those personally
belonging to the other co-
4. Defenses available to a debtors
solidary debtor against the
creditor- Art. 1222 -those which exempt
him from payment
Art. 1222. A solidary or obligation pertaining
debtor may, in actions to other debtors who
filed by the creditor, have personal defense
avail himself of all
defenses which are b. Effects
derived from the
nature of the ALIIPIO vs CA
obligation and of those
which are personal to The debt to be demanded is accountable to
him, or pertain to his the couple’s conjugal partnership of gains.
own share. With Hence, an ordinary proceeding for a money
respect to those which claim in the settlement of the estate of the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 49
decedent. Upon death of Alipidio, the CPG latter should be insolvent,
was dissolved, and debts chargeable to it the others shall not be liable
are paid in accordance with the settlement for his share.
of estate proceedings. In this case, the
spouses did not jointly and severally claim 2. Indivisibility vs.
the debt to respondent. The obligation Solidarity
assumed in this case is joint. Also, no
stipulation was present to render the Art. 1210. The
obligation solidary. indivisibility of an obligation
does not necessarily give
C. Joint Indivisible Obligations rise to solidarity. Nor does
solidarity of itself imply
1. Concept indivisibility.
-Necessity of collective
fulfilment and the action -in solidary obligations,
must be against all each creditor may demand
debtors. the full prestation and each
debtor has the duty to
-When there are several comply.
debtors or creditors, but
the prestation is -in indivisible joint
indivisible, the obligation obligations, each creditor
is joint. cannot demand more than
his share and each debtor is
-midway between joint not liable for more than his
and solidary obligations share

-its fulfilment requires solidarity – legal tie or

concurrence of all debtors vinculum juris defining
-ex: delivery of a house extent of liability

Distinguished from indivisibility - -prestation

joint obligations: which is not capable of
partial performance
1) No creditor can do
an act prejudicial 3. Effects
to others (Art. 1209)
2) No debtor can be a. Liability for
made to answer for damages in case of
others breach
3) Collective action is
expressly required Art. 1224. A joint
4) Various creditors indivisible obligation
gives rise to indemnity
Distinguished from for damages from the
solidary obligations: time anyone of the
debtors does not comply
1) requires plurality of with his undertaking.
subjects The debtors who may
2) not required in have been ready to fulfill
indivisibility their promises shall not
contribute to the
indemnity beyond the
Art. 1209. If the division corresponding portion of
is impossible, the right of the price of the thing or
the creditors may be of the value of the
prejudiced only by their service in which the
collective acts, and the obligation consists.
debt can be enforced only
by proceeding against all
the debtors. If one of the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 50
rendered, as the case
may be.

-identity: very thing or

service due

-integrity: fulfilled

B. Indivisible Obligations
1. Concept: when it cannot be
validly performed in parts

a. Distinguished from
solidary obligations

solidarity: vinculum juris and

refers to subject of obligation

indivisibility: prestations
or object of the obligation


a. Natural- Art. 1225 par. 1
Art. 1225 par. 1. For
A. Divisible Obligations the purposes of the
1. Concept: When each of the preceding articles,
parts into which it is divided obligations to give
is divided forms a definite things and
homogenous and analogous those which are not
object to the other parts as susceptible of partial
well as the thing itself. performance shall be
deemed to be
2. Effects- Art. 1223, 1233 indivisible.
Art. 1223. The -when the object
divisibility or is, by nature,
indivisibility of the indivisible,
things that are the so that it could
object of obligations in never be due
which there is only one without being
debtor and only one indivisible
creditor does not alter
or modify the b. Legal- Art. 1225 par. 3
provisions of Chapter 2 However, even though
of this Title. the object or service
may be physically
divisible, an obligation is
Art. 1233. A debt indivisible if so provided
shall not be by law or intended by
understood to have the parties.
been paid unless the
thing or service in c. Conventional- Art. 1225 par. 3
which the obligation (intended by the parties)
consists has been
completely delivered or 3. Presumptions
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 51
a. Of indivisibility-
Art. 1225 par. 1 1. Principal Obligations:
For the purposes of those that can stand alone,
the preceding independently of the
articles, obligations existence of other obligations
to give definite things and have individual and
and those which are independent purpose.
not susceptible of
partial performance
shall be deemed to
be indivisible.
Accessory obligations:
b. Of divisibility- Those attached to a
Art. 1225 par. 2 principal obligation in order
When the obligation to complete the same or
has for its object the take their place in case of
execution of a certain breach.
number of days of
work, the VS Conditional Obligations:
accomplishment of -in conditional obligations, no
work by metrical units, obligation exists before
or analogous things suspensive condition happens;
which by their nature it is the fulfilment that gives
are susceptible of rise to the obligation
partial performance, it
shall be divisible.
Penal Clause: an existing
obligation (the principal) exists
4. Divisibility and indivisibility in from the very beginning
obligations not to do-
Art. 1225 par. 3 Conditional: principal
-determined by the character obligation dependent on
of the prestation in each case Uncertain event

5. Effects- Art. 1223, 1233, 1224 Penal Clause: accessory

- see Joint Indivisible Obligations dependent on principal

6. Cessation of indivisibility VS Alternative Obligations:

A. Natural Indivisibility: by Alternative: 2 or more
conversion of the obligation obligations are due, but
into an obligation to pay fulfilment of one is sufficient
Penal: Only one prestation and
B. Conventional or Legal only in its non-performance is
Indivisibility penal clause enforceable
-by novation of the obligation
-by death of creditor or Alternative: impossibility of
debtor (heirs may pursue) one makes other obligations
CLAUSE Penal: impossibility of principal
obligation extinguishes penalty

A. Concept: an accessory Alternative: debtor chooses

undertaking to assume greater obligation
liability in case of breach. It is
attached to an obligation in Penal: debtor cannot choose
order to insure performance. It payment of penalty to address
may be a sum of money, or principal obligation absent
anything stipulated by parties, express right
including acts and abstentions.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 52
VS Facultative Obligations: b. Complementary: when
Facultative: power of debtor both the principal obligation
to make substitution is and the penalty may be
absolute enforced

Penal: power granted only 2. As to source

by a. Conventional: produced
express stipulation by agreement
b. Legal: provided by law
Facultative: creditor can
never demand both
Penal: such right may be 3. As to purpose
granted to him a. Punitive: where damages
may be collected
Penal Clause vs Guaranty
-guaranty: contract by virtue b. Reparatory: where the
of which a 3rd person called penalty substitutes
the guarantor binds himself to indemnification for damages
fulfil the obligations to
principal in case debtor fails C. Demandability of Penalty-
to do so Art. 1226 par. 2 The
penalty may be enforced
SAME: Both insure only when it is
performance of principal demandable in
obligation accordance with the
provisions of this Code.
-Both accessory and
subsidiary obligations
D. Effects of Penal Clause
1. Substitute for
1) Penal: obligation to pay indemnity for damages and
penalty is different from payment of interest-
principal obligation Art. 1226. . In
obligations with a penal
Guaranty: object of clause, the penalty shall
obligation of principal debtor substitute the indemnity
and guarantor is the same for damages and the
payment of interests in
2) Penal: principal obligation case of noncompliance,
of penalty can be assumed by if there is no stipulation
same person to the contrary.
Nevertheless, damages
Guaranty: Guarantor can shall be paid if the
never be the principal debtor. obligor refuses to pay
the penalty or is guilty
3) Penal: penalty is of fraud in the fulfillment
extinguished by nullity of of the obligation.
principal obligation
The penalty may be
Guaranty: guaranty subsists enforced only when it is
even when principal obligation demandable in
is void or unenforceable or is accordance with the
a natural one. provisions of this Code.

B. Kinds of Penal Clause -Unless the contrary is

stipulated, the penalty
1. As to effect
shall substitute the
a. Subsidiary: when only
indemnity and the
the penalty may be enforced
payment of interests in
case of non-compliance
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 53
by lessee’s violation is a valid penal clause.
a. Exception- Art. 1226 The undertaking assumed by Country Bankers
-Damages shall be Insurance refers to all such damages vas
paid if the obligor such party may sustain by reason of the
refuses to pay the injunction if the court should finally decide
penalty or is guilty of that the plaintiffs were not entitled thereto.
fraud in the fulfillment There is a stipulation in the contrary in this
of the obligation. case.

-When purpose is 2. Not exempt debtor from

punishment, question performance-
of indemnity for Art. 1227The debtor cannot
damages is not exempt himself from the
resolved, but is performance of the obligation by
subsisting. paying the penalty…

-When purpose is a. Exception-

reparation, damages
Art. 1227…save in the
are generally resolved.
case where this right
has been expressly
reserved for him.

MKTI DEV’T CORP vs EMPIRE 3. Creditor cannot demand both

INSURANCE performance and penalty at the
same time-
The ‘special condition’ was, in fact, a penal Art. 1227 …Neither
clause. According to Article 1229 of the Civil can the creditor demand
Code, the judge shall reduce the penalty the fulfillment of the
when the principal obligation has been obligation and the
partly or irregularly complied with by the satisfaction of the
debtor. Since there was a partial penalty at the same
performance of the obligation, courts are time…
called to apply strictly against enforcement
a. Exceptions-
of penalty in its entirety. Also, nothing in
the deed of sale restricted Anda’s right to
Art. 1227… unless
this right has been
sell the lot within the two year period.
clearly granted him.
TAN vs CA 4. Creditor cannot collect other
damages in addition to penalty-
The promissory note clearly makesv the Art. 1226
stipulation of payment of interest. Penalty a. Exceptions- Art. 1226:
clauses can be in the form of penalty or 1) express provision to that
compensatory interest. It was through the effect
fault of the defendant that said default had 2) debtor refuses to pay the
taken place. However, petitioner had made penalty
several payments and the continued
3) debtor is guilty of fraud
monthly accrual of the 2% penalty was
deemed unconscionable by the court, led to
a reduction to 12% total. E. When penalty shall be equitably
Art. 1229 The judge
A provision for forfeiture of the remaining shall equitably reduce
deposit still in possession of the lessor in the the penalty when the
event of the cancellation of the agreement principal obligation has
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 54
been partly or public order or public
irregularly complied policy
with by the debtor.
Even if there has been -if principal obligation is
no performance, the valid, it exists
penalty may also be
reduced by the courts
if it is iniquitous or

-In any case where

there has been partial
or irregular
compliance with
provisions of a contract
with a penal clause,
courts apply strictly
against enforcement of
penalty in its entirety

F. Nullity of Principal Obligation or

Art. 1230 The nullity
of the penal clause I. Modes of Extinguishment-
does not carry with it
that of the principal Art. 1231. Obligations are
obligation. extinguished:

The nullity of the (1) By payment or

principal obligation performance:
carries with it that of
the penal clause. (2) By the loss of the thing
-exception: when
penalty undertaken by (3) By the condonation or
3rd person precisely for remission of the debt;
obligation that is
unenforceable, void or (4) By the confusion or merger
natural, it assumes the of the rights of creditor and
form of a guaranty debtor;

-when nullity of a (5) By compensation;

principal obligation
itself gives rise to a (6) By novation.
liability of debtor for
damages Other causes of extinguishment
of obligations, such as
2. Rationale annulment, rescission,
fulfillment of a resolutory
-if it is contrary to law, condition, and prescription, are
morals, good customs, governed elsewhere in this
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 55
ii. effects- Art. 1302[3] It is
II. Payment or Performance presumed that there is legal
A. Concept- subrogation:

Art. 1232. Payment (3) When, even without the

means not only the knowledge of the debtor, a
delivery of money but person interested in the
also the performance, fulfillment of the obligation
in any other manner, pays, without prejudice to the
of an obligation. effects of confusion as to the
latter's share.
- it is the fulfillment of
the prestation due, a -subrogation transfers to the
fulfillment that third person or new creditor the
extinguishes the entire credit, with all the
obligation by corresponding rights
realization of the
purpose for which it c. third person who is not an
was constituted/ interested party but with
consent of debtor
-Payment, and i. effects-
fulfillment are Art. 1302[2], When a
identical. third person, not
interested in the
obligation, pays with the
express or tacit approval
of the debtor;

B. Requisites
1. the person who pays
2. the person to whom 1236 par. 1 The
payment is made creditor is not bound to
3. the thing to be paid accept payment or
4. the manner, time and performance by a third
place of payment, etc. person who has no
interest in the fulfillment
1. Who can pay of the obligation, unless
a. in general: the debtor or there is a stipulation to
his duly authorized agent the contrary.

-the debtor’s heir or successor -This is because

in interest whenever a third
person who has
-any person interested in the no interest in the
fulfillment of obligation obligation pays,
there is a
b. third person who is an modification of a
interested party prestation that is
i. meaning of “interested due. A creditor
party” - the persons who should not be
have an interest in the compelled to
fulfillment of the obligation accept payment
are those who would be from a third
benefited by the person whom he
extinguishment of the may dislike or
obligation (co-debtors, distrust.
sureties, guarantors)
d. third person who is not
an interested party and
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 56
without knowledge or 1427 under the Title on
against the will of the "Natural Obligations."
i. effects- Art. 1236, -when the person
par. 1; par. 2. paying has no capacity
Whoever pays for to make the payment,
another may demand the creditor cannot be
from the debtor what compelled to accept it;
he has paid, except in case he accepts it,
that if he paid without the payment will not be
the knowledge or valid, except in the case
against the will of the of Article 1427.
debtor, he can recover
only insofar as the Art. 1427. When a minor
payment has been between eighteen and twenty-
beneficial to the one years of age, who has
debtor. entered into a contract without
the consent of the parent or
Art. 1237 Whoever guardian, voluntarily pays a
pays on behalf of the sum of money or delivers a
debtor without the fungible thing in fulfillment of
knowledge or against the obligation, there shall be no
the will of the latter, right to recover the same from
cannot compel the the obligee who has spent or
creditor to subrogate consumed it in good faith.
him in his rights, such
as those arising from a
mortgage, guaranty,
or penalty.

i. effect of incapacity

e. third person who does

not intend to be g. in case of active solidarity-
reimbursed- Art. 1214. The debtor
Art. 1238. .Payment may pay any one of the
made by a third person solidary creditors; but if
who does not intend to any demand, judicial or
be reimbursed by the extrajudicial, has been
debtor is deemed to be made by one of them,
a donation, which payment should be
requires the debtor's made to him.
consent. But the
payment is in any case -equality of
valid as to the creditor rights of solidary
who has accepted it. creditors by
virtue of mutual
-no one should representation
be compelled to lasts only until
accept the one of therm
generosity of goes ahead of
another the others and
sues the debtors.
f. in obligation to give- 2. To whom payment may be made
Art. 1239. In obligations to a. in general-
give, payment made by one Art. 1240. Payment
who does not have the free shall be made to the
disposal of the thing due and person in whose favor
capacity to alienate it shall the obligation has been
not be valid, without prejudice constituted, or his
to the provisions of Article successor in interest, or
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 57
any person authorized
to receive it. i. requisites
1. if the payee has
-The repayment kept the thing
of debt must be delivered, or
made to the 2. insofar as the
person in whose payment has been
favor the beneficial to him
obligation is 3. payment made to a
constituted or creditor after debtor
to another has been judicially
authorized to ordered to retain the
receive the debt.
payment in his c. third person-
name. Art. 1241 par. 2
Payment made to a third
-at the time of person shall also be
payment. valid insofar as it has
redounded to the benefit
-also to a of the creditor. Such
person not benefit to the creditor
authorized to need not be proved in
receive the following cases:
payment , by
law or (1) If after the payment,
stipulation the third person
acquires the creditor's

(2) If the creditor

ratifies the payment to
the third person;
b. incapacitated person-
Art. 1241 par. 1 (3) If by the creditor's
Payment to a person conduct, the debtor has
who is incapacitated to been led to believe that
administer his property the third person had
shall be valid if he has authority to receive the
kept the thing payment.
delivered, or insofar as i. requisites (same as prior)
the payment has been
beneficial to him. ii. when proof of benefit not
-when the Art. 1241 par. 3.
creditor is Art. 1242 Payment
incapacitated to made in good faith to
receive any person in
payment, this possession of the credit
must be made shall release the debtor.
to his legal
representative -the person in
if there is one. possession of the
credit is neither
-the debtor the creditor nor
may pay again one authorized
to the by him, to
incapacitated receive payment,
person when he but appears,
attains under the
capacity. circumstances

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 58
of the case, to circumstances have not
be been stated, the creditor
the creditor. cannot demand a thing
of superior quality.
d. in case of active solidarity- Neither can the debtor
Art. 1214. The debtor deliver a thing of inferior
may pay any one of quality. The purpose of
the solidary creditors; the obligation and other
but if any demand, circumstances shall be
judicial or taken into consideration.
extrajudicial, has been
made by one of them, -Quality in cases
payment should be of disagreement
made to him. as to quality, the
court should
3. What is to be paid (“Identity”) decide whether
a. in general: the very thing or said quality
service due complies with the
b. in obligations to: obligation, with
i. give a specific thing- the attendant
Art. 1244 The debtor circumstances.
of a thing cannot
compel the creditor to iii. pay money-
receive a different one,
although the latter Art. 1249. The payment of
may be of the same debts in money shall be made
value as, or more in the currency stipulated, and
valuable than that if it is not possible to deliver
which is due. such currency, then in the
currency which is legal tender
in the Philippines.

In obligations to do or The delivery of promissory

not to do, an act or notes payable to order, or bills
forbearance cannot be of exchange or other mercantile
substituted by another documents shall produce the
act or forbearance effect of payment only when
against the obligee's they have been cashed, or
will. when through the fault of the
creditor they have been
-there is a impaired.
novation when,
upon In the meantime, the action
agreement or derived from the original
consent of the obligation shall be held in the
creditor, the abeyance.
debtor delivers
a different thing Legal tender- currency
or performs a which in a given
different jurisdiction can be used
prestation in for payment of debts
lieu of that
stipulated -other currency, if there
ii. give a generic thing- is a stipulation to that
Art. 1246 When the Art. 1250. In case an
obligation consists in extraordinary inflation or
the delivery of an deflation of the currency
indeterminate or stipulated should supervene,
generic thing, whose the value of the currency at the
quality and time of the establishment of
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 59
the obligation shall be the 4. several guarantors invoke
basis of payment, unless benefit of division
there is an agreement to the 5. death of debtor, wherein
contrary. each heir answers only for his
PAL vs CA 6. when work is done by parts,
and there is no contrary
A negotiable instrument is only a substitute stipulation.
for money. The payment was not in cash,
but in checks. b. substantial performance in
good faith-
Art. 1234. If the obligation has
c. payment of interest- been substantially performed in
Art. 1956. No interest shall good faith, the obligor may
be due unless it has been recover as though there had
expressly stipulated in been a strict and complete
writing. fulfillment, less damages
4. How is payment to be made suffered by the obligee.
a. in general- -an attempt in good
Art. 1233. A debt shall not faith to perform without
be understood to have been any wilful or intentional
paid unless the thing or departure; deviation
service in which the obligation must be slight, and
consists has been completely omission or defect must
delivered or rendered, as the be technical and
case may be. unimportant.
-prestation must be
fulfilled completely c. estoppel-
Art. 1235. When the obligee accepts
the performance, knowing its
incompleteness or irregularity, and
without expressing any protest or
General Rule: objection, the obligation is deemed
Partial payment is not allowed- fully complied with.
-Estoppel of creditor: a
Art. 1248 par. 1. Unless creditor cannot object because
there is an express stipulation of defects in performance
to that effect, the creditor resulting from his own acts or
cannot be compelled partially directions.
to receive the prestations in
which the obligation consists. Art. 1431. Through estoppel
Neither may the debtor be an admission or representation
required to make partial is rendered conclusive upon the
payments. person making it, and cannot
be denied or disproved as
Exceptions:- against the person relying
Art. 1248 par. 2. However, thereon.
when the debt is in part
liquidated and in part
unliquidated, the creditor may d. presumptions in payment of
demand and the debtor may interests and installments-
effect the payment of the Art.1176. . The receipt of the
former without waiting for the principal by the creditor without
liquidation of the latter. reservation with respect to the
interest, shall give rise to the
1. express stipulation presumption that said interest
2. partial liquidation and has been paid.
3. compensation The receipt of a later
installment of a debt without
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 60
reservation as to prior -payment is his duty,
installments, shall likewise and it is his duty, and
raise the presumption that it inures to his benefit
such installments have been that he is discharged
paid. from the burden of the
5. When payment is to be made
a. in general: C. Application of Payments
Art. 1169. . Those obliged to 1. Concept-
deliver or to do something Art. 1252. . He who has
incur in delay from the time various debts of the same kind
the obligee judicially or in favor of one and the same
extrajudicially demands from creditor, may declare at the
them the fulfillment of their time of making the payment, to
obligation. which of them the same must
b. see Chapter 2: Delay be applied. Unless the parties
so stipulate, or when the
application of payment is made
6. Where payment is to made- by the party for whose benefit
Art. 1251 par. 1. Payment the term has been constituted,
shall be made in the place application shall not be made
designated in the obligation. as to debts which are not yet

If the debtor accepts from the

a. if no place is expressly creditor a receipt in which an
designated- application of the payment is
Art. 1251 par. 2 to par. 4. made, the former cannot
There being no express complain of the same, unless
stipulation and if the there is a cause for invalidating
undertaking is to deliver a the contract.
determinate thing, the
payment shall be made -designation of the debt
wherever the thing might be which is being paid by a
at the moment the obligation debtor who has several
was constituted. obligations of the same
kind in favour of the
In any other case the place of creditor to whom
payment shall be the domicile payment is made.
of the debtor.
If the debtor changes his UNIVERSAL DEEPSEA
domicile in bad faith or after
he has incurred in delay, the Under Articles 1252-1254, application may be
additional expenses shall be done by a persn owing several debts of the
borne by him. same kind to a single creditor. Obligation
included payment. The 10,000 could not be
These provisions are without construed in favour of the debt.
prejudice to venue under the
Rules of Court. PACULDO vs REGALADO

7. Expenses of making payment- If the debtor does not declare to which debts
Art. 1247. . Unless it is the payment is to be applied, no payment is
otherwise stipulated, the to be made to a debt that is not yet due. All
extrajudicial expenses payments are to be made and applied to the
required by the payment shall Fairview Wet Market. Consent of the debtor
be for the account of the must be clear and definite. That which is
debtor. With regard to judicial most onerous to the debtor must be applied
costs, the Rules of Court shall to first.
2. Requisites of Application
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 61
6. liquidated debt >
1. There are several debts owed. unliquidated
2. They are owed by the same debtor 7. default
to the same creditor
3. That the debts be of the same D. Payment by Cession
kind 1. Concept-
4. That the debts are due (or the Art. 1255. The debtor
term may cede or assign his
was for the benefit of the party property to his creditors
making the application in payment of his debts.
5. That the payment made is not This cession, unless
sufficient to cover all the debts. there is stipulation to
3. Rules in application of the contrary, shall only
payments- Art. 1252, release the debtor from
Art. 1253. If the debt responsibility for the net
produces interest, payment of proceeds of the thing
the principal shall not be assigned. The
deemed to have been made agreements which, on
until the interests have been the effect of the cession,
covered. are made between the
debtor and his creditors
a. if rules inapplicable and shall be governed by
application cannot be inferred- special laws.
Art. 1254. When the
payment cannot be applied in
accordance with the preceding
rules, or if application can not
be inferred from other
circumstances, the debt which
is most onerous to the debtor,
among those due, shall be
deemed to have been
satisfied. 2. Requisites
i. Plurality of Debts
If the debts due are of the ii. Plurality of Creditors
same nature and burden, the iii. Partial/relative insolvency
payment shall be applied to iv. Abandonment of the totality
all of them proportionately. of the debtor’s properties for
the benefit of the creditors
i. meaning of “most onerous to v. Acceptance by the creditor
-it is assumed that if the 3. Effects
debtor had chosen the debt 1. Assignment liberates the
to be paid, he could have debtor up to the amount of the
relieved himself first of the net proceeds of the sale of his
more burdensome debt. assets.

-it is relative and is 2. Assignment does not vest

fundamentally a question of title to the property of the
fact. creditors, who are only
authorized to sell it.
More/Most Onerous:
1. principal > accessory E. Dation in Payment
2. oldest > newest 1. Concept-
3. debts with interest > Art. 1245. . Dation in
debts w/o interest payment, whereby property is
4. unsecured debt with alienated to the creditor in
interest > no security, satisfaction of a debt in money,
with interest shall be governed by the law of
5. guaranty>without sales.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 62
-the delivery and -merely involves a change of object of
transmission of obligation
ownership of a thing
by the debtor to the -in effect, it is a sale.
creditor as an accepted
equivalent of the
performance of the FILINVEST vs PHIL ACETYLENE
The consent of appellee is not stipulated or
a. distinguished from presented. No transfer of ownership is
Payment by Cession possible without clear consent of appellee ot
DATION CESSION the preferred special mode of payment.
1. transfer 1. only possession
ownership of thing and administration F. Tender of Payment and
alienated to the are transferred with Consignation
creditor an authorization to 1. Tender of Payment
convert property into a. Concept: the manifestation
cash made by the debtor to the
2. may totally 2. only extinguishes creditor of his desire to
extinguish obligation credits to the extent comply with his obligation
of amount realized with the offer of immediate
from properties performance
3. cession of only 3. involves all b. Requisites
some specific thing property of the 1. made in lawful currency
debtor 2. include interest due
4. one creditor to 4. various creditors 3. unconditional
satisfy a debt 4. unaccepted offer in writing
5. novatory 5. not novatory to pay is equivalent to
6. no presumption of 6. there exists a actual production and
insolvency presumption of tender of money and
insolvency property

DBP vs CA 2. Consignation
a. Concept: the deposit of the
What took place was not cession because object of the obligation in a
Article 1255 presupposes a plurality of debts competent court in accordance
and creditors. Nor was it dation because a with rules prescribed by law
mortgage is a security, and not a after the tender of payment
satisfaction of indebtedness. It was not has been refused or because of
pactum commissoriu, because the obligation circumstances which render
to pay a sum of money remained because direct payment to the creditor
the assignment merely served as security impossible or inadvisable.
for the loans covered by the promissory
notes. Tender of payment is a
preparatory act which precedes
2. Requisites consignation. Consignation
Completes the extinguishment
-not a money debt of the obligation if done after
-consent, object certain, cause tender of payment.

3. Effects i. purpose: to avoid delay

-extinguishes the obligation to the b. Requisites
extent of the value of thing delivered i. there was a debt due
either as agreed upon or as may be ii. the consignation of the
proved. obligation was made because
of some legal cause
-does not involve plurality of iii. that previous notice of the
creditors consignation has been given to
the persons interested in the
performance of the obligation
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 63
iv. that the amount or thing the lack of notice does not invalidate
due was placed at the the consignation but simply makes the
disposal of the court. debtor liable for the expenses
v. that after the consignation
had been made the persons That said, notice of consignation
interested were notified is ALWAYS required.
vi. valid tender of payment c. Effects-
(or no need) Art. 1260 par. 1. .
Once the consignation
i. when tender and refusal has been duly made, the
not required- debtor may ask the
judge to order the
Art. 1256 par. 2. cancellation of the
Consignation alone shall obligation.
produce the same effect in
the following cases: -Debtor is released in
the same manner as if
(1) When the creditor is he had performed the
absent or unknown, or does obligation at the time of
not appear at the place of the consignation
payment; because this produces
the same effect as a
(2) When he is incapacitated valid payment.
to receive the payment at the
time it is due; -the accrual of interest
on the obligation is
(3) When, without just cause, suspended from the
he refuses to give a receipt; moment of consignation

(4) When two or more -the deteriorations or

persons claim the same right loss of the thing or
to collect; amount consigned
occurring without fault
(5) When the title of the of the debtor must be
obligation has been lost. borne by the creditor
because the risks of the
ii. two notice requirement- thing are transferred to
Art. 1257 par. 1, In order the creditor from the
that the consignation of the moment of the deposit
thing due may release the
obligor, it must first be -any increment or
announced to the persons increase in value of the
interested in the fulfillment of thing after the
the obligation. consignation inutes to
-must be given to all the benefit of the
interested, passive or creditor
active subjects

Art. 1258 par. 2. The

consignation having been d. Withdrawal by debtor before
made, the interested parties acceptance by creditor or
shall also be notified thereof. approval by court; effects-
-the requirement is
fulfilled by the service Art.1260 par. 2. Before the
of the summons upon creditor has accepted the
the defendant together consignation, or before a
with a copy of the judicial declaration that the
complaint consignation has been properly
made, the debtor may
- effects of noncompliance: withdraw the thing or the sum
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 64
deposited, allowing the may withdraw the thing or sum deposited.
obligation to remain in force. The case was dismissed before the amount
was accepted by creditor or the court’s
-debtor is still owner of approval. Respondent judge should have
the thing or amount allowed the withdrawal by peititioner.
deposited, and other
parties have no right MCLAUGHLIN vs CA
to oppose withdrawal
of such thing or There was substantial compliance with the
amount compromise agreement because respondent
made a valid tender of payment. But
e. Withdrawal by debtor after respondent failed to consign the the sum due
proper consignation- with the court. He remains liable for payment
Art. 1261. . If, the of obligation after December 31, 1980.
consignation having been
made, the creditor should SOCO vs MILITANTE
authorize the debtor to
withdraw the same, he shall In order that consignation of the thing due
lose every preference which may release the obligor, it must first be
he may have over the thing. announced to the persons interested in the
The co-debtors, guarantors an fulfillment of the obligation. The letter does
sureties shall be released. not constitute a valid tender of payment
because it does not indicate what month and
i. with creditor’s approval; intention there is to deposit the rental with
effects: a revival of the the court. It is no proof of tender of payment
obligation takes place, as well of other or subsequent monthly rentals.
as a restoration of the debtor- Respondent failed to prove the second notice
creditor relationship as well, based on the testimony of COMTRUST
-guarantors and co-debtors comptroller.
are freed
ii. without creditor’s
approval; effects To deposit the amount in the court is a right
obligation subsists, without given to the debtor exclusively. Consignation
change in the obligation of is a facultative remedy; he may or may not
the gurantors, co-debtors or avail of it. If debtor has the right of
the creditor’s right or withdrawal, he has the right to refuse to
preference make the deposit as well.

f. Expenses of consignation- RURAL BANK vs CASTRO

Art.1259. The expenses of At the time of consignation, the Bank had

consignation, when properly already foreclosed the mortgage and the sale
made, shall be charged of the lot was already extrajudicially
against the creditor. determined. It was useless of her to make a
tender of payment.
-when consignation is
properly made. LICUANAN vs DIAZ

DE GUZMAN vs CA Consignation must be made with the court

and/or the bank, not the Office of Civil
The court ruled that respondent had Relations of the AFP.
substantially complied with the compromise
agreement by validly consigning the amount CHAN vs CA
of 3,000 pesos with the cashier.
The validity of the consignation was not
TLG INTL vs CONTINENTAL ENGG raised before the Court of Appeals.

Before creditor accepts consignation, or MEAT PACKING CORP vs

before a judicial declaration that SANDIGANBAYAN
consignment has been made, the debtor
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 65
There was prior tender of payment by of a determinate thing
PCGG. The acceptance of payment negates shall be extinguished if
rescission of lease-purchased agreement. it should be lost or
destroyed without the
III. LOSS OR IMPOSSIBILITY fault of the debtor, and
before he has incurred
A. Loss of thing due in delay.

1. Concept: When by law or

stipulation, the obligor is
(1) If the thing is lost without liable even for fortuitous
the fault of the debtor, the events, the loss of the
obligation shall be thing does not
extinguished; extinguish the
obligation, and he shall
(2) If the thing is lost through be responsible for
the fault of the debtor, he damages. The same rule
shall be obliged to pay applies when the nature
damages; it is understood of the obligation
that the thing is lost when it requires the assumption
perishes, or goes out of of risk.
commerce, or disappears in
such a way that its existence -it must occur
is unknown or it cannot be without the fault
recovered of the debtor,
before the debtor
-non-existence in incurs delay, and
the hands of the after the
obligor obligation is

2. Kinds 4. Presumption-
a. As to extent Art. 1265. Whenever
i. Total the thing is lost in the
ii. Partial – not imputable possession of the
to the fault or negligence debtor, it shall be
of the debtor but to fortuitous presumed that the loss
events or circumstances was due to his fault,
beyond his control unless there is proof to
the contrary, and
-does not extinguish without prejudice to the
obligation, but the portion provisions of article
lost, if the obligation would 1165. This presumption
not have been constituted does not apply in case of
without it, thus extinguishing earthquake, flood,
the obligation storm, or other natural
-intention of parties is Art. 1165
a controlling factor
a. when not applicable
-courts determine these This presumption does not
apply in case of earthquake,
3. Requisites- flood, storm or other natural
Art. 1262. An calamity, EXCEPT FIRE.
obligation which
consists in the delivery 5. Effects
a. in obligation to give a specific
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 66
thing- Art. 1262 the obligation 1. Concept-
shall Art. 1266. The debtor
be extinguished if it should be in obligations to do shall
destroyed without fault of the also be released when
debtor and before he has the prestation becomes
incurred in delay legally or physically
, impossible without the
Art. 1268. When the debt of fault of the obligor.
a thing certain and Art.1267. When the
determinate proceeds from a service has become so
criminal offense, the debtor difficult as to be
shall not be exempted from manifestly beyond the
the payment of its price, contemplation of the
whatever may be the cause parties, the obligor may
for the loss, unless the thing also be released
having been offered by him to therefrom, in whole or in
the person who should receive part.
it, the latter refused without
justification to accept it. -includes not only legal
or physical
impossibility, but also
impracticability because
of extreme difficulty,
b. in obligation to give a generic manifestly beyond the
thing- contemplation of the
parties, must be
Art. 1263. The loss or subsequent to execution
destruction of anything of contract to extinguish
of the same kind does obligation.
not extinguish the

2. Kinds
a. As to extent
i. Total
c. in case of partial loss- ii. Partial: The rule in Art.
1264 may be applied if at the
Art. 1264. The courts time performance becomes
shall determine impossible, the debtor has
whether, under the already fulfilled part of the
circumstances, the obligation, the creditor must
partial loss of the pay the part done so long as he
object of the obligation benefits from such partial
is so important as to compliance
extinguish the
obligation b. As to source
i. legal: when the act by
d. action against third persons- reason of a subsequent law
Art. 1269. The is prohibited
obligation having been
extinguished by the ii. physical: when the act by
loss of the thing, the reason of its nature cannot be
creditor shall have all accomplished
the rights of action
which the debtor may 3. Requisites- Art. 1266 (same_
have against third 4. Effects: releases the debtor from
persons by reason of his obligation. Because the obligation
the loss. is legitimate in origin, the supervening
impossibility of the prestation,
B. Impossibility of Performance independent of will of the obligor,
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 67
cannot render the latter liable
beyond restitution of what he may Respondents may be released from said
have received in advance from contract, because article 1267 allows one to
creditor, it be released from the difficulty of the “service”
cannot make him liable for damages or “performance” of the obligation.
Also, the courts are authorized to release the
-where, however, it is not the oblgor in whole or in part.
prestation that has become
impossible but the act to be PNCC vs CA
performed after the fulfillment of the
prestation, the obligation is not 1266 is only applicable in obligations “to do”
extinguished. not “to give”. Also, prior to November 18,
1985, when contract was entered into, Ninoy
a. in obligations to do- Aquino had been assassinated and the
Art. 1266. The debtor political climate was such. Despite these,
in obligations to do petitioner still entered into the contract.
shall also be released These unforeseen events did not render the
when the prestation performance of lease contract impractical and
becomes legally or inimical to corporate survival.
physically impossible
without the fault of the b. in case of partial
obligor. impossibility- Art. 1264

Art. 1267. When the Art. 1264. The courts shall

service has become so determine whether, under the
difficult as to be circumstances, the partial loss
manifestly beyond the of the object of the obligation is
contemplation of the so important as to extinguish
parties, the obligor the obligation.
may also be released
therefrom, in whole or -partial loss determines
in part. whether or not the obligation
is sustained or is extinguished
Art. 1262 par. 2 based on the extent of the
(by analogy). When loss. The intention of the
by law or stipulation, parties is the controlling factor
the obligor is liable in the solution of each case of
even for fortuitous partial loss.
events, the loss of the
thing does not IV. Condonation or Remission
extinguish the A. Concept:
obligation, and he shall Art. 1270. Condonation or
be responsible for remission is essentially
damages. The same gratuitous, and requires the
rule applies when the acceptance by the obligor. It
nature of the may be made expressly or
obligation requires the impliedly.
assumption of risk.
i. “impossibility” One and the other kind shall be
distinguished from subject to the rules which
“difficulty” govern inofficious donations.
Express condonation shall,
OCCENA vs CA furthermore, comply with the
forms of donation.
Respondent may not cite Article 1267 to
modify the existing contract, because Article -an act of liberality, by
1267 is not the difficulty contemplated that virtue of which, without
would allow them to modify their said receiving any
contract. equivalent, the creditor
renounces the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 68
enforcement of the Remission did not take place because Article
obligation, which is 1270 paragraph 2 requires that express
extinguished in its condonation must comply with forms of
entirety or in that part donation. It must be made in writing,
or aspect of the same pursuant to Article 748. Reduction or
to which the remission condonation of P266, 146. 88 was not
refers. reduced in writing. Also, the voucher was not
B. Kinds a receipt.
1. As to extent
a. Total D. Presumptions-
b. Partial: refers to amount of Art. 1271 The delivery of a
indebtedness, or to an private document evidencing a
accessory obligation only, credit, made voluntarily by the
or to some other aspect of creditor to the debtor, implies
the obligation only (such as the renunciation of the action
pledge or interest or to which the former had against
some other aspect of the the latter.
obligation (such as
solidarity) If in order to nullify this waiver
it should be claimed to be
2. As to form- inofficious, the debtor and his
Art. 1270 par. 1 heirs may uphold it by proving
that the delivery of the
a. Express: made formally
document was made in virtue
b. Implied: it can be inferred of payment of the debt.
through the acts of the
Art. 1272. Whenever the
private document in which the
debt appears is found in the
possession of the debtor, it
shall be presumed that the
creditor delivered it voluntarily,
unless the contrary is proved.

Art. 1274. It is presumed

that the accessory obligation of
C. Requisites pledge has been remitted when
i. debt must be existing the thing pledged, after its
and demandable at the delivery to the creditor, is
time of the remission found in the possession of the
debtor, or of a third person who
ii. the renunciation must owns the thing.
be gratuitous without any
equivalent or consideration E. Effects
1. in general: extinguishes
iii. debtor must accept the obligation in its entirety
a. when formalities 2. in case of joint or solidary
required- obligations: when obligation is joint,
Art. 1270 par. 2. One and the presumption of remission can refer
the other kind shall be subject only to the portion of the debt in
to the rules which govern possession of the instrument
inofficious donations. Express evidencing possession of debt.
condonation shall,
furthermore, comply with the
forms of donation. F. Governing Rules- Art. 1270.
-express condonation must
YAM vs CA comply with forms of donation,

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 69
which requires express Art. 1277. Confusion does not
acceptance. extinguish a joint obligation
except as regards the share
G. Renunciation of Principal or corresponding to the creditor or
Accessory Obligation debtor in whom the two
1. effects- characters concur.
Art. 1273. The
Solidary obligations: total
renunciation of the principal
extinction in a merger of the
debt shall extinguish the
creditor with one solidary
accessory obligations; but the
debtor or of one solidary
waiver of the latter shall leave
creditor and debtor
the former in force.
2. rationale: This applies the rule D. Confusion in Principal or
that accessory obligation Accessory Obligation-
simply follows the principal
Art. 1276. Merger which takes
V. Confusion or Merger of Rights place in the person of the
principal debtor or creditor
A. Concept benefits the guarantors.
-Merger or confusion is the meeting Confusion which takes place in
in one person of the qualities of the the person of any of the latter
creditor and debtor with respect to does not extinguish the
the same obligation. obligation.

-extinguishment of the
principal obligation
through confusion
releases the guarantor
because the obligation
of the latter is merely

VI. Compensation
A. Concept-
B. Requisites Art. 1278.
Compensation shall take
i. must take place between creditor place when two persons,
and principal debtor in their own right, are
creditors and debtors of
ii. the very same obligation must each other.
be involved (if debtor acquires rights
from creditor, but not obligation in Distinguished from Confusion:
question, no merger takes place) In Confusion/Merger, only
one obligation is involved.
iii. the confusion must be total or as
regards the entire obligation. In compensation, there must
always be two obligations.

C. Effects Confusion: one person in

1. in general- whom the character of creditor
Art. 1275. The obligation is and debtor meet.
extinguished from the time
the characters of creditor and Compensation: two persons
debtor are merged in the mutually debtors and creditors
same person. of each other, each arising from
a different cause.
2. in case of joint (Art. 1277) or
solidary obligations

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 70
B. Kinds
1. As to extent (5) That over neither of them
a. Total: if debts are of the same there be any retention or
amount controversy, commenced by
b. Partial: if one debt is larger third persons and
than the other communicated in due time to
the debtor.
2. As to origin
a. Legal: takes place by operation Art. 1280. Notwithstanding
of law, because all requisites the provisions of the preceding
are present. article, the guarantor may set
b. Conventional: when parties up compensation as regards
agree to compensate their what the creditor may owe the
mutual obligations, even if principal debtor.
some requisites are lacking,
such as those in Article 1282.
Art. 1279 inapplicable, 1282 a. “due” distinguished from
c. Judicial- “demandable”
Art. 1283. If one of
the parties to a suit GAN TION vs. CA
over an obligation has
a claim for damages Legal compensation did not prevent Gan Tion
against the other, the from having to pay attorney’s fees. In this
former may set it off case, it is the litigant who is owed the
by proving his right to attorney’s fees, not Ong Wan Sieng. They are
said damages and the not principally bound either.
amount thereof.
d. Facultative: it can be claimed BPI vs. REYES
by one of the parties who,
however, has the right to Respondent Reyes is not entitled to
object to it, such as when one restitution because legal compensation
of the obligations has a period already took place. Both are creditors and
for the benefit of one party debtors of each other. There is a sum of
alone, who renounces that money involved. It was due, liquidated and
period so as to make the demandable, and was not claimed by a third
obligation due. person.

C. Legal Compensation PNB vs. SAPPHIRE SHIPPING

1. Requisites-
Art. 1279. In order that PNB had no right to intercept the sum of
compensation may be proper, money from private respondent, because PNB
it is necessary: had to transmit the money transfer to
Citibank. PNB, as NCB’s correspondent bank,
(1) That each one of the was tasked with this obligation. Legal
obligors be bound principally, compensation had not taken place.
and that he be at the same
time a principal creditor of the CKH vs CA
Article 1279 requires that the parties be
(2) That both debts consist in principal contracting parties. CKH and
a sum of money, or if the Century were not principal contracting
things due are consumable, parties. Corporations have personalities
they be of the same kind, and separate from stockholders. Choi and Kev are
also of the same quality if the only stockholders, and not parties in the sale.
latter has been stated;
(3) That the two debts be
due; In this case, the parties are not mutual
creditors and debtors. The claim is still
(4) That they be liquidated subject to litigation and cannot be liquidated.
and demandable; Therefore, compensation did not take place.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 71
iii. period of prescription
ASSOCIATED BANK vs TAN stops with respect to
The relationship between banks and obligation or part
depositor is creditor-debtor. The bank’s extinguished
premature withdrawal of amount led Tan’s
account debit. Also, there was a grave error iv. all accessory
in the lack of notice. Hence, petitioner had obligations of
no right to debit Tan’s account for a extinguished principal
dishonored check. obligation are also
Art. 1289. If a person should
Without an express admission of have against him several debts
indebtedness, no compensation takes place. which are susceptible of
PEREZ vs CA compensation, the rules on the
application of payments shall
For amounts rolled over on September 9, apply to the order of the
1974 or October 3, 1974, legal compensation.
compensation took place, because this was
due and demandable. But bills and D. When Compensation is Not Allowed-
principals were rolled over to other dates,
not September 9, 1974 or October 3, 1974, Art. 1287. Compensation shall
namely those on October 4 and October 11 not be proper when one of the
were not subject to legal compensation debts arises from a depositum
since they were not yet due and or from the obligations of a
demandable. depositary or of a bailee in
Art 1288. Neither shall there
Compensation is not proper because the be compensation if one of the
22,000 did not offset the indebtedness, and debts consists in civil liability
the amount was still subject to a claim by a arising from a penal offense.
third party.
Depositum: contract by
virtue of which a person
2. Effects- receives personal
Art. 1290. When all the property belonging to
requisites mentioned in Article another with the
1279 are present, obligation of safely
compensation takes effect by keeping it and returning
operation of law, and the same
extinguishes both debts to the
concurrent amount, even Commodatum:
though the creditors and gratuitous contract by
debtors are not aware of the virtue of which one of
compensation. the parties delivers to
other a non-consumable
--it takes effect the personal property
moment that articles
1278 and 1279 co- -civil liability due to a
exist penal offense must be
served and honoured
i. both debts are imperatively.
extinguished to
concurrent amount E. Compensation of Debts Payable
in Different Places-
ii. interests stop
accruing on Art. 1286. Compensation
extinguished obligation takes place by operation of law,
or part extinguished even though the debts may be
payable at different places, but
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 72
there shall be an indemnity that which pertains to
for expenses of exchange or the debtor
transportation to the place of
payment. 3. without knowledge of debtor-
Art. 1285 par. 3 If the
assignment is made
F. Effect of Nullity of Debts to be without the knowledge
Compensated- of the debtor, he may
Art. 1284. . When one or set up the compensation
both debts are rescissible or of all credits prior to the
voidable, they may be same and also later
compensated against each ones until he had
other before they are knowledge of the
judicially rescinded or assignment.
G. Effects of Assignment of Credit a. rationale: to prevent
one party from being
1. with consent of debtor- fraudulently deprived of
Art. 1285 par. 1 The debtor the benefits of
who has consented to the compensation
assignment of rights made by
a creditor in favor of a third
person, cannot set up against
the assignee the
compensation which would
pertain to him against the
assignor, unless the assignor
was notified by the debtor at
the time he gave his consent,
that he reserved his right to
the compensation.

-compensation takes
place before
assignment, there had
already been an
extinguishment of one VII. Novation
of the obligations. A A. Concept-
subsequent Art. 1291. Obligations may be
assignment of an modified by:
extinguished obligation
cannot produce any (1) Changing their object or
effect against debtor. principal conditions;

2. with knowledge but without (2) Substituting the person of

consent of debtor- the debtor;
Art. 1285 par. 2. If the
creditor communicated the (3) Subrogating a third person
cession to him but the debtor in the rights of the
did not consent thereto, the creditor.
latter may set up the
compensation of debts - extinguishment of an
previous to the cession, but obligation by substitution or
not of subsequent ones. change of the obligation by a
subsequent one which
-if debtor was notified extinguishes or modifies the
he did not give his first.
consent, the credit
assigned to a 3rd - a juridical act of dual function
person matures after in that at the time it

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 73
extinguishes one obligation, it The mere reduction of the amount due in no
creates a new one in lieu of sense constitute a sufficient indicion of
the old one. incompatibility. There was no express nor
implied novation. The deed of chattel
B. Kinds mortgage simply specified how much Gabriel
1. As to form still owed Millar.
a. Express: when parties declare
that the old obligation is DORMITORIO vs. FERNANDEZ
extinguished by the new
obligation The presence of animus novandi is
b. Implied: when there is such undeniable. When after judgment has become
an incompatibility between final, facts and circumstances transpire which
the old and new obligation render its execution impossible or unjust, the
that they cannot stand interested party may ask the court to modify
together or alter the judgment to harmonize the same
with justice and facts.
2. As to origin
b. Legal
The fact that Magdalena accepted the
3. As to object subsequent surety agreement without
a. Objective or Real providing for accruing interest does not imply
-change of obligation by novation. The mere fact that a person
substitution or changing the receives a guaranty does not constitute a
object with another or novation.
changing the principal
conditions REYES vs CA
b. Subjective or Personal
-modification of obligation by No new agreement for substitution of creditor
change of subject; passive was forged among the parties concerned
when a debtor is substituted, which would take the place of the preceding
active when a third person is contract. In the second case, no evidence was
subrogated in the rights of the presented to show that AFP intended to
creditor. release Reyes from her obligation to pay. In
C. Requisites- novation by substitution of debtor, the
Art. 1292. In order that an creditor must always consent.
obligation may be
extinguished by another BROADWAY CENTRUM vs TROPICAL HUT
which substitute the same, it
is imperative that it be so The agreement did not extinguish or alter the
declared in unequivocal obligations of Tropical, as it was expressly
terms, or that the old and the stated that it should not be interpreted as an
new obligations be on every amendment to the lease contract.
point incompatible with each

i. a previous valid obligation The upgrading was a novation of the original

ii. agreement of all parties agreement of the first credit card. But, the
to the new contract novation did not release Molino because she
iii. extinguishment of the old expressly waived discharge in case of change
contract or novation in the Surety Undertaking.
iv. validity of the new contract
Requisites imply that parties
had the capacity for new contract There is no incompatibility between the note
and intend to bring about the and the check. In fact, the note evidences the
novation (animus novandi) loan obligation, which the check answers for.
Hence, no novation took place.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 74
-no obligation, no
The restructuring agreement did not novate novation
the promissory notes. The agreement shows 2. nullity or voidability of new
hat the parties did not expressly stipulate obligation-
that the restructuring agreement novated Art. 1297. If the new
the promissory notes. Also, no obligation is void, the original
incompatibility was present, because the one shall subsist, unless the
two can stand together. parties intended that the
former relation should be
BABST vs. CA extinguished in any event.
-if new obligation is
BPI did not object to the substitution of voidable, the novation
debtors, only to the payment formula of becomes effective
DBP. BPI’s conduct evinced a clear and 3. suspensive or resolutory
unmistakable consent of DBP for Eliscon as condition of original obligation-
debtor. There was a valid extinctive Art. 1299. . If the original
novation, releasing Eliscon from its obligation was subject to a
obligation to BPI. suspensive or resolutory
condition, the new obligation
D. Effects shall be under the same
1. in general- condition, unless it is otherwise
Art. 1296. When the principal stipulated.
obligation is extinguished in -novation is also
consequence of a novation, conditional, and its efficacy
accessory obligations may depends upon whether the
subsist only insofar as they condition which affects the
may benefit third persons who former is complied with or not.
did not give their consent.
F. Objective Novation
-extinguishment of 1. meaning of “principal
principal obligation conditions”: making the debt
releases pledges, absolute instead of conditional or vice
mortgages, guarantors versa)
and sureties

G. Subjective Novation
2. when accessory obligation 1. By change of debtor
may subsist- Art. 1296 a. Expromision
-except in reference to a i. requisites-
stipulation in favor of a third Art. 1293. . Novation which
person, which is subordinated consists in substituting a new
to the principal obligation. It debtor in the place of the
is in reality a distinct original one, may be made
obligation in favor of a third even without the knowledge or
person and cannot be against the will of the latter,
extinguished by novation but not without the consent of
without consent of the latter. the creditor. Payment by the
new debtor gives him the rights
E. Effect of the Status of the mentioned in Articles 1236 and
Original or New Obligation 1237.
1. nullity or voidability of
original obligation- i. consent of two
Art. 1298. The novation is parties – creditor and
void if the original obligation new debtor.
was void, except when ii. knowledge or consent
annulment may be claimed of old debtor is not
only by the debtor or when required
ratification validates acts ii. effects-
which are voidable.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 75
Art. 1294. If the substitution 2. By change of creditor:
is without the knowledge or
against the will of the debtor, Subrogation of a third person in
the new debtor's insolvency the rights of the creditor-
or non-fulfillment of the Art. 1300. Subrogation
obligations shall not give rise of a third person in the
to any liability on the part of rights of the creditor is
the original debtor. either legal or
conventional. The
i. the old debtor is r former is not presumed,
released from the except in cases
obligation expressly mentioned in
this Code; the latter
ii. insolvency of the must be clearly
new debtor does not established in order that
revive the old it may take effect.
-subrogation is transfer
b. Delegacion of all the rights of the
i. requisites- (vs. Art. 1293) creditor to a 3rd person
i. consent of: who substitutes him in
-the old debtor all his rights
-the new debtor
-necessarily, of the
old creditor, which a. Conventional subrogation
may be given -requires agreement by the
at any time, or parties, consent and
implied in any intervention of the original
form creditor, the new creditor and
the debtor
i. requisites-
ii. effects- Art. 1301. Conventional
Art. 1295. . The insolvency of subrogation of a third person
the new debtor, who has been requires the consent of the
proposed by the original original parties and of the third
debtor and accepted by the person.
creditor, shall not revive the -original creditor’s right
action of the latter against the is extinguished,
original obligor, except when new creditor becomes a
said insolvency was already part of the new relation
existing and of public and consent of the
knowledge, or known to the debtor is necessary
debtor, when the delegated because the old
his debt. obligation is
extinguished and he
-insolvency of new becomes liable under
debtor revives the old the new obligation
obligation if it was
anterior and public
or anterior and known ii. distinguished from
to the two debtors Assignment of Credit
-consent is necessary
QUINTO vs PEOPLE -extinguishes an obligation
and gives rise to anew one
The changes consist only in the manner of
payment. There really was no substitution of Assignment of credit requires
debtors since Aurelia merely acquiesced to consent, and it
the payment but did not give her consent to refers to the same right which
the contract. passes from one person to

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 76
iii. effects- effects of confusion as to the
Art. 1303. Subrogation latter's share.
transfers to the persons
subrogated the credit with all iii. effects- Art. 1303, 1304
the rights thereto
appertaining, either against ASTRO PHIL vs PHIL EXPORT
the debtor or against third
person, be they guarantors or Philguarantee has the right to proceed
possessors of mortgages, against the petitioner, since it already paid
subject to stipulation in a 70% of the loan, subject to the condition that
conventional subrogation. upon payment, Philguarantee shall be
proportionally subrogated. Legal subrogation
Art 1304. . A creditor, to took place, and consent or knowledge of
whom partial payment has debtor Astro was not needed. Now,
been made, may exercise his Philguarantee received Philtrust’s right to
right for the remainder, and proceed against Roxas and Astro.
he shall be preferred to the
person who has been
subrogated in his place in
virtue of the partial payment
of the same credit.


The Memorandum of Agreement provided

for the need to get the bank’s consent.
Therefore, conventional subrogation, which
required the consent of the third party, took
place. The failure to get the agreement of
the bank prevented the agreement from
becoming effective, much less a source of
cause of action for both parties.


b. Legal subrogation
i. requisites:
not presumed except: CHAPTER I: GENERAL PROVISIONS

ii. when presumed- A. Definition –

Art. 1302. It is presumed Art. 1305. A contract is a
that there is legal meeting of minds between two
subrogation: persons whereby one binds
himself, with respect to the
(1) When a creditor pays other, to give something or to
another creditor who is render some service.
preferred, even without the
debtor's knowledge; Sanchez-Roman:
“A juridical convention
(2) When a third person, not manifested in legal
interested in the obligation, form, by virtue of which
pays with the express or tacit one or more persons
approval of the debtor; bind themselves in favor
of another or others, or
(3) When, even without the reciprocally, to vthe
knowledge of the debtor, a fulfillment of a
person interested in the prestation to give, to do,
fulfillment of the obligation or not to do.”
pays, without prejudice to the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 77
-an agreement on the 2. Mutuality – Arts. 1308-1310
declaration of a (see also Art. 1473)
common will
Art. 1309. The determination
-a bilateral legal of the performance may be left
transaction to create, to a third person, whose
modify, or terminate a decision shall not be binding
legal tie between the until it has been made known
parties to both contracting parties.

-A contract is the Art. 1310. The determination

accord of two or more shall not be obligatory if it is
persons (with evidently inequitable. In such
previously diverging case, the courts shall decide
interests) for the what is equitable under the
purpose of creating a circumstances.
juridical relation
between them -mutuality between
parties based on
B. Elements essential equality

1. Essential elements (see -no unilateral

Chapter II, infra) cancellation
a. Consent
b. Object/Subject Matter Art. 1473. The fixing of the
c. Cause price can never be left to the
discretion of one of the
2. Natural elements: those which contracting parties. However, if
exist as part of the contract the price fixed by one of the
even if the parties do not parties is accepted by the
provide for them because other, the sale is perfected.
the law creates them
(warranty in sales)

3. Accidental elements (see D., GSIS vs CA

3., infra): exist only when
stipulated, or agreed upon by parties The purchase price mutually agreed upon by
and cannot exist without being the parties was P19, 740. The respondent
stipulated or predetermined spouses did not give their consent for
stipulation petitioner to make a unilateral upward
adjustment of this purchase price. Also, it
C. Characteristics/Basis of was established that the said notation was
Binding Effect not in the original deed agreed upon by the
1. Obligatory force – parties. Also, petitioner is bound for the
admission the omission of said notation was
Art. 1308. The contract must an honest mistake, thus solidifying the
bind both contracting parties; contention that the said notation was not
its validity or compliance present in the signed Deed of Conditional
cannot be left to the will of Sale.
one of them.
-validity and
performance cannot Punzalan’s letter did not cancel the first MOA.
be left to the will of It only signified the suspension of the
one of the parties acceptance of new applications. No unilateral
cancellation or rescission of the first MOA
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 78
took place. Once a contract is entered into, Co must pay Mla Railroad, and Steamship Co
no party can renounce it unilaterally or must recover the same amount from Atlantic.
without the consent of the other, based on
the principle of mutuality it contains DKC HOLDINGS vs CA, BARTOLOME
embodied in Article 1308.
Heirs are bound by contracts entered into by
3. Relativity: Contracts take effect their predecessors in interest, except in
only between the parties, their stipulations, nature or provisions that make
assigns and heirs. said rights or obligations intransmissible. The
character of the contract is such that its
Art. 1311. Contracts take obligation may be performed by promissor’s
effect only between the personal representatives.
parties, their assigns and
heirs, except in case where b. No one may contract in the name
the rights and obligations of another –
arising from the contract are
not transmissible by their Art. 1317. No one may contract in
nature, or by stipulation or by the name of another without being
provision of law. The heir is authorized by the latter, or unless he
not liable beyond the value of has by law a right to represent him.
the property he received from
the decedent. A contract entered into in the name of
another by one who has no authority
If a contract should contain or legal representation, or who has
some stipulation in favor of a acted beyond his powers, shall be
third person, he may demand unenforceable, unless it is ratified,
its fulfillment provided he expressly or impliedly, by the person
communicated his acceptance on whose behalf it has been executed,
to the obligor before its before it is revoked by the other
revocation. A mere incidental contracting party.
benefit or interest of a person
is not sufficient. The
contracting parties must have
clearly and deliberately
conferred a favor upon a third
-contracts produce
effect only as between Duran sold Orense’s land to Hermanos
the parties who despite the lack of legal authority to do so.
execute them Normally, the contract entered into by Duran
with plaintiff Hermanos is void. But the sale
MLA RAILROAD vs LA COMPANIA became valid by the verbal confirmation given
by Orense in the trial where plaintiff filed a
There was an express contractual relation case against Duran for estafa. The defendant
between Atlantic Co and Steamship Co. conferred agency or implied said power to
Atlantic Co was bound by its undertaking to Duran. His consent to Duran’s selling the
use due care. That said, Atlantic Co cannot property must hold.
assume the double responsibility to both
Steamship Co and Mla Railroad since it is a D. Parties
general rule that an implied contract never 1. Auto-contracts:
arises where an express contract has been Where one contracts with
made. If Atlantic refused to carry out its himself; it is valid because
agreement to discharge, plaintiff could not the existence of a contract is
have enforced the action. Hence, Mla not determined by the
Railroad has no right to recover damages number of persons who
from Atlantic Co for the wrongful act, which intervene in it, but by the
constituted the violation of said contract. number of parties thereto.
The Mla Railroad can only be made effective
through the Steamship Co with whom the 2. Freedom to contract –
contract was made. Hence, the Steamship
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 79
Art. 1306. The contracting (1) When a separation of
parties may establish such property was agreed upon in
stipulations, clauses, terms the marriage settlements; or
and conditions as they may
deem convenient, provided (2) When there has been a
they are not contrary to law, judicial separation or property
morals, good customs, public under Article 191. (1458a)
order, or public policy
Art. 1491. The following
persons cannot acquire by
GABRIEL vs MONTE DE PIEDAD purchase, even at a public or
judicial auction, either in
The contract which calls for petitioner to pay person or through the
P14, 679.07 does not in any way militate mediation of another:
against the public good. Despite petitioner’s
claim of deceit, said contract does not (1) The guardian, the property
contravene the policy of the law nor the of the person or persons who
established interests of society. may be under his guardianship;

PAKISTAN INTL AIRLINES vs OPLE (2) Agents, the property whose

administration or sale may
The contracts of employment violated the have been entrusted to them,
freedom of contracts. Pakistan Intl may not unless the consent of the
contract away applicable provisions of law, principal has been given;
especially provisions impressed with public
interest. The law relating to labor and (3) Executors and
employment is such a concern. Parties are administrators, the property of
not at liberty to insulate themselves and the estate under
their relationship from the impact of labor administration;
laws and regulations.
SIR JJ: The reasoning of the Supreme
Court is wrong. They should have based
their reasoning on the fact that there
are substantial contacts between
contracts and the Philippines, not on
the violation of freedom to contract.
Also, what is wrong with the stipulation (4) Public officers and
that the contracts be tried in Pakistani employees, the property of the
territory? State or of any subdivision
thereof, or of any government-
a. Special disqualifications owned or controlled
1) Art. 87, Family Code corporation, or institution, the
Every donation or grant of administration of which has
gratuitous advantage, direct been intrusted to them; this
or indirect, between the provision shall apply to judges
spouses during the marriage and government experts who,
shall be void, except in any manner whatsoever,
moderate gifts which the take part in the sale;
spouses may give each other
on the occasion of any family (5) Justices, judges,
rejoicing. The prohibition shall prosecuting attorneys, clerks of
also apply to persons living superior and inferior courts,
together as husband and wife and other officers and
without a valid marriage. employees connected with the
administration of justice, the
2) Arts. 1490 and 1491, CC property and rights in litigation
Art. 1490. The husband and or levied upon an execution
the wife cannot sell property before the court within whose
to each other, except: jurisdiction or territory they
exercise their respective
functions; this prohibition
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 80
includes the act of acquiring freedom of a person (promise not to
by assignment and shall apply engage in work, a promise to vote,
to lawyers, with respect to the to do something at risk of life)
property and rights which
may be the object of any d. Contrary to public order
litigation in which they may -public order: public, social and
take part by virtue of their legal interest in private law, that
profession. which is permanent and essential
in institutions, which, even if favoring
(6) Any others specially some individual to whom the right
disqualified by law. pertains, cannot be left to his own will.
3) Art. 1782, CC
-the public weal, peace, safety and
Art. 1782. Persons who are health of the community
prohibited from giving each
other any donation or e. Contrary to public policy
advantage cannot enter into -public policy: the idea of variable
universal partnership. content, depending on the stage of
social culture in the community
3. What they may not stipulate –
Art. 1306 -has a tendency to injure the publicis
a. Contrary to law, e.g.: against the public good, or
1) pactum contravenes some established
commissorium interest of society or is inconsistent
Art. 2088. The with sound policy and good morals, or
creditor cannot tends to clearly to undermine the
appropriate the things security of individual rights
given by way of pledge
or mortgage, or CUI vs ARELLANO UNIVERSITY
dispose of them. Any
stipulation to the The stipulation that Cui can only recover his
contrary is null and transcript after he reimburses the funds he
void. received during his scholarship is one that is
contrary to public policy. Scholarships are
2) pactum leonina awarded in recognition of merit, not to keep
Art. 1799. A stipulation outstanding students in order to bolster the
which excludes one or more school’s prestige.
partners from any share in
the profits or losses is void. SIR JJ: There must be some lawful
motivation for granting scholarships.
3) pactum de non alienado Going against these lawful motivations is
Art. 2130. A stipulation violative of public policy.
forbidding the owner from
alienating the immovable ARROYO vs BEARWIN
mortgaged shall be void.
An agreement by the owner of stolen goods
b. Contrary to morals: to stifle prosecution of the accused for a
morals may be considered as those pecuniary or some other valuable
generally accepted principles of consideration is contrary to public policy and
morality which have received some due administration of justice. It is in the
kind of social and practical interest of the public that criminals be
confirmation prosecuted.

-morals have particular reference to FILIPINAS COMPANIA vs MANDANAS

standards of justice (right and
wrong) and decency acknowledged Article 22 of the Constitution of the Philippine
by society Rating Bureau is lawful. Its purpose is not to
eliminate competition but to promote ethical
c. Contrary to good customs practices in duly registering with the Bureau.
-contracts which limit in an excessive It eliminates unfair competition. It is not
manner the personal or economic violative of public policy.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 81
pay indebtedness of Dizon to DBP and PNB,
SIR JJ: Territorial jurisdiction and Gaborro was given the possession until
determines public policy. petitioner can fully reimburse the respondent.
Thus, the agreement was an innominate
BUSTAMANTE vs ROSAL contract under Article 1307 of the Civil Code.

The stipulation in the loan contract was not CORPUS vs CA

valid and enforceable, Because the sale of
the collateral is an obligation with a There was an implied agreement for payment
suspensive condition. The event did not of Attorney’s fees. Petitioner’s act of giving
occur. Petitioner did not fail in tendering the 2,000 check indicates petitioner’s
payment. Therefore, respondents have no commitment to pay the fees. The innominate
right to demand the purchase of the contract of facio ut des applies.
collateral. The stipulation is pactum
commissorium, which involves the 1) do ut des – I give and you give
automatic appropriation of property that -A will give one thing to B, so that B
was mortgaged by way of security of will give another thing to A.
payment of principal obligation.
2) do ut facias – I give and you do
SIR JJ: This was not pactum -A will give something to B, in order
commissorium. No automatic that B may do something for A.
appropriation took place. Technically, it
was a forced sale.
3) facio ut facias (I do and you give)
E. Classification -A binds himself to do something for
1. According to subject-matter B so that B will give something to A.
a. Things
b. Services 4) facio ut des (I do and you do)
2. According to name -A is to do something for B, so that
B will render some service for A.
a. Nominate: where the law
gives the contract a special 3. According to perfection
designation or particular a. By mere consent
name. (consensual) –
-those with particular names Art. 1315. Contracts are
(purchase and sale, lease, perfected by mere consent, and
agency) from that moment the parties
are bound not only to the
fulfillment of what has been
b. Innominate – expressly stipulated but also to
Where the contract has no all the consequences which,
special name according to their nature, may
Art. 1307. Innominate be in keeping with good faith,
contracts shall be usage and law.
regulated by the -perfection is the
stipulations of the moment from which it
parties, by the exists, the juridical tie
provisions of Titles I between the parties
and II of this Book, by arise from that time.
the rules governing the
most analogous -from the moment the
nominate contracts, parties are bound
and by the customs of
the place. b. By delivery of the object (real)

DIZON vs GABORRO Art. 1316. Real contracts, such
as deposit, pledge and
The true intention of the parties, presented Commodatum, are not
in the Deed of Sale with Assumption of perfected until the delivery of
Mortgage and Option to Purchase Real the object of the obligation.
Estate was that Gaborro would assume and
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 82
- a real contract is not 9. According to risk
perfected by mere a. Commutative – fulfillment is
consent; delivery of predetermined in advance
the thing is also -lease
required b. Aleatory – fulfillment is
dependent upon chance
-not arbitrary nor -insurance
formulistic, but is
demanded by the very
nature of real F. Stages
contracts and their 1. Preparation: when negotiations
purpose are in process; bargaining;
ends at the moment of
Solemn – formal, special agreement of the parties

4. According to its relation to

other contracts (dependence) 2. Perfection: the moment when
a. Preparatory – where the parties come to agreement
contract looks forward to other
future transactions 3. Consummation or death:
b. Principal - where the contract the fulfillment or performance
may exist alone of the terms agreed upon in
c. Accessory – where the contract the contract; when said
depends upon some other contract is fully executed
contract for its existence
G. As distinguished from a
5. According to form perfected promise and an
a. Common or informal imperfect promise (policitacion)
- a loan
b. Special or formal -perfect promise: tends only
-where the law requires to assure and pave the way
certain formality (usually for the celebration of a
some writing) to perfect the contract in the future; until
contract and make it binding said contract is actually
in addition to consent made, rights and obligations
are not yet determined.

6. According to purpose -imperfect promise: a

a. Transfer of ownership, mere unaccepted offer
e.g., sale
b. Conveyance of use, e.g., H. With respect to third persons
commodatum 1. Stipulations in favor of third
c. Rendition of services, persons (stipulations pour autrui)
e.g., agency –
7. According to the nature of the Art. 1311, 2nd par. If a
vinculum produced contract should contain
a. Unilateral – where only one of some stipulation in favor
the parties is bound by a prestation of a third person, he
b. Bilateral – where both parties may demand its
are fulfillment provided he
bound to reciprocal prestations communicated his
c. Reciprocal acceptance to the
obligor before its
8. According to cause revocation. A mere
a. Onerous – where there is an incidental benefit or
exchange of equivalent values interest of a person is
b. Gratuitous or lucrative – not sufficient. The
where no equivalent prestation is contracting parties must
received by one party have clearly and
deliberately conferred a
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 83
favor upon a third land was to supply the water requirements of
person. Marmont.


The stipulation for the fruits of the land An existing agreement between petitioner and
paying for the expenses of the Church Bankard existed where petitioner shall honor
festivities is a stipulation pour autrui. It is credit cards by Bankard, provided the
in favor of a third person, the Church. The expiration date had not elapsed. Private
Church did accept the stipulation pour respondent may not be a party to the
autrui. The enjoyment of the benefits contract between Mandarin and Bankard, but
flowing from the land for 17 years without the stipulation confers upon him a favor,
question can be construed as an implied constituting a stipulation pour autrio. De
acceptance by the Church of the stipulation Jesus may then demand its fulfillment under
pour autrui. Article 1311.

COQUIA vs FIELDMEN’S INSURANCE 2. Possession of the object of

contract by third persons –
The stipulation pour autrui is explicit in its Art. 1312. . In contracts
mention that Fieldmen’s Insurance will creating real rights, third
insure and indemnify the personal relatives persons who come into
of the deceased, in this case Coquia’s possession of the object of the
relatives. The 3rd party in this case are the contract are bound thereby,
heirs of the insured. subject to the provisions of the
Mortgage Law and the Land
CONSTANTINO vs ESPIRITU Registration Laws.
-a real right directly
The inclusion of the beneficiary under the affects the property
contract and as co-plaintiff would allow the subject to it; hence,
court to adjudicate. This is a stipulation pour whoever comes into
autrui and the third person whose benefit possession of such
the contract was entered into may demand property must
its fulfillment. respect that real right

SIR JJ: In this case, the entire contract

is for the benefit of Constantino’s son,
not just a stipulation. This is a trust,
not a stipulation pour autrui.

YOUNG vs CA 3. Creditors of the contracting

parties –
Young was not a party in the case. She
cannot enforce a compromise agreement Art. 1313. Creditors are
which she clearly was not a part of. Also, protected in cases of contracts
she did not communicate her acceptance intended to defraud them.
whether expressly or impliedly. However,
her contention that said stipulation has not -when a debtor enters
yet been revoked, the sale of said property into a contract in
effectively revoked Young’s right of first fraud of his creditors,
refusal. the creditor, although
not parties to such
MARMONT RESORT vs GUIANG contract of alienation,
may ask for its
It was clear that Marmont was to benefit rescission
from the second MOA, an a stipulation pour
autrui was present. The purpose and intent 4. Interference by third persons
of stipulating parties Maris Trading and the
Guiang spouses was to benefit petitioner Art. 1314. Any third person
Marmont. Albeit Marmont was not a party, who induces another to violate
the sole purpose of Maris entering into the his contract shall be liable for

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 84
damages to the other contract, in such a case, is
contracting party presumed to have been entered
into in the place where the
-inducement by a offer was made.
3rd person of a party
to the contract to - counter offer
violate the terms is a rejection of
thereof may hold him the first offer
liable for damages
-conformity of
DAYWALT vs. CORP the parties on
The cause of action here is based on a the terms of the
liability derived from a the wrongful contract
interference of defendant in the
performance of a contract between plaintiff requisites:
and Endencia. However, the extent of the
liability for breach must be determined in i. plurality of subjects
light of the situation in existence. ii. capacity
iii. intelligence and free
SO PING BUN vs CA will
Tort interference consists of the existence of iv. express or tacit
a valid contract, knowledge of the third manifestation of the will
person and the interference of the third v. conformity of the will
person without legal justification. For that, and its manifestation
petitioner is guilty for damages.
a. Must be manifested by
LAGON vs CA the concurrence of the offer
and acceptance
The petitioner conducted his own
investigation and exercised all due diligence.
The record also shows that he did not ROSENSTOCK vs. BURKE
induce his heirs to sell. Thus, he is not
liable for tortuous interference. The letter is not a definite offer to purchase
because the use of the word “entertain”. This
is not tantamount to a resolution to perform
said act. Said letter was written in
defendant’s presence. Plaintiff was not in a
position to make a definite offer.

DISSENT: There was a completed contract

CHAPTER II: ESSENTIAL REQUISITES FOR by Elser, since the sailboat was already in his
CONTRACTS possession and nothing remained to be done
except the payment of the purchase price.
A. Consent
1. Requisites – MALBAROSA vs CA
Art. 1319. Consent is
manifested by the meeting of An offer that is not accepted does not give
the offer and the acceptance rise to consent. Respondent required
upon the thing and the cause petitioner to accept by making his signature
which are to constitute the on the space indicated, which foreclosed any
contract. The offer must be implied acceptance or any other mode of
certain and the acceptance acceptance for that matter.
absolute. A qualified
acceptance constitutes a SAN LORENZO DEVT CORP vs CA
The acts of the spouses Lu indicated that they
Acceptance made by letter or never intended to transfer ownership to
telegram does not bind the Babasanta. That said, SLDC is a purchaser in
offerer except from the time it good faith because at the time of the sale of
came to his knowledge. The
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 85
property to SLDC, the vendors were still the perfection prevents the
registered owners. contractual tie from
being performed.
e) Business advertisements of
The contract between MMDA and JANCOM is things for sale –
binding because there was a clear signing Art. 1325. . Unless it appears
and execution of the contract by an otherwise, business
authorized representative, in this case, the advertisements of things for
DENR Secretary who is authorized by law to sale are not definite offers, but
enter into publicly bidded contracts. mere invitations to make an

1) Offer f) Advertisements for bidders –

a) Must be certain – Art. 1326. Advertisements for
Art. 1319. bidders are simply invitations
- an offer is a unilateral to make proposals, and the
proposition which one party advertiser is not bound to
makes to another for the accept the highest or lowest
celebration of a contract bidder, unless the contrary

b) What may be fixed by the 2) Acceptance

offeror – a) Must be absolute –
Art. 1321. . The person Art. 1319
making the offer may fix the b) Kinds
time, place, and manner of i. Express – Art. 1320
acceptance, all of which must ii. Implied – Art. 1320
be complied with. iii. Qualified – Art. 1319
-a counter offer

c) If made by letter or telegram –

c) When made through an Art. 1319, 2nd par.
Art. 1322. An offer made i. Four theories on when the
through an agent is accepted contract is perfected:
from the time acceptance is
communicated to him. 1. Manifestation theory
2. Expedition thory
3. Reception theory
d) Circumstances when offer 4. Cognition theory –
becomes ineffective Art. 1319, 2nd par.
Art. 1323. An offer becomes
ineffective upon the death, d) Period of acceptance –
civil interdiction, insanity, or Art. 1324. When the offerer
insolvency of either party has allowed the offeree a
before acceptance is certain period to accept, the
conveyed. offer may be withdrawn at any
time before acceptance by
-the contract is not communicating such
perfected except by withdrawal, except when the
the option is founded upon a
concurrence of two consideration, as something
wills paid or promised.
which exist and
continue -the law permits the
until the moment that offerror to withdraw
they occur, hence, the the offer at any time
disappearance of before acceptance.
either party or the loss of his This does not mean
capacity before the that he can exercise
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 86
this right absolutely qualifications of one of the
without the regard of parties will vitiate consent
others. a. as to substance of
the object
SANCHEZ vs RIGOS -nature of the
Both parties entered into a perfected
contract of sale. Since Rigos’ offer to sell b. as to principal
was accepted by Sanchez before she could conditions
withdraw her offer, a bilateral reciprocal -those key conditions or
contract to sell and buy was generated. considerations which
produced consent;
e) Contract of option – Art. conditions that are of
1324 essential or substantial
b. Necessary legal capacity
of the parties c. as to identity or
1) Who cannot give consent – qualifications of
one of the parties
Art. 1327. The following -where confidence,
cannot give consent to a individual
contract: skill or qualities are
(1) Unemancipated minors; (error in persona)
(2) Insane or demented
persons, and deaf-mutes who d. as to quantity, as
do not know how to write. distinguished
from a simple mistake
2) When offer and/or of account: in the first
acceptance is made case, there is a real
a) during a lucid interval mistake with respect to
b) in a state of drunkenness one of the principal
c) during a hypnotic spell conditions, of the thing,
thus the contract is
Art. 1328. Contracts entered vitiated. In the second,
into during a lucid interval are that is not the case
valid. Contracts agreed to in a
state of drunkenness or
during a hypnotic spell are
c. The consent must be
intelligent, free, spontaneous, Asiain is not allowed to recover the amount
and real – Arts. 1330-1346 from Jalandoni because the phrase “more or
less” can only be considered as covering
1) Effect – small or excusable differences. There was a
Art. 1330. A contract where mutual mistake as to the quantity. There was
consent is given through a gross mistake of fact that may make the
mistake, violence, contract rescindable.
intimidation, undue influence,
or fraud is voidable. HEIRS of WILLIAM SEVILLA vs SEVILLA

At the time of the execution of the deed of

2) Vices of consent extrajudicial partition, Felisa was no longer
a) Mistake or error the owner of the contested land, since she
i. kinds donated said land to respondent Leopold
1. Mistake of fact Sevilla who accepted the donation in the
- a ground for same deed. She did not possess the capacity
annulling the contract to give consent or execute the said deed,
-mistake as to the hence, there is no consent.
identity or
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 87
parties is unable to
Although FACETS has outstanding debt to read – Art. 1332.
petitioner, the contract of petitioner was When one of the parties
with FACETS and FACETS alone. The is unable to read, or if
contract for transmittal of dollars from the the contract is in a
US to petitioner was with FNSB. Petitioner language not
was not privy to the contract. There was a understood by him, and
mistake in the name written on the check. mistake or fraud is
This is a case of solutio indebiti, where if alleged, the person
something is received when there is no right enforcing the contract
and it was unduly delivered by mistake, the must show that the
obligation to return it arises. Hence, private terms thereof have been
respondent may recover the $10,000 from fully explained to the
petitioner, who has no right to apply it to former.
the account of FACETS.
THEIS vs CA, TAGAYTAY, CALSONS It is evident that said document was not the
instrument of debt which Dumasug signed.
The mistake or error on the subject of the Dumasug signed without understanding the
sale in question is substantial, as to the contents. The consent given by Dumasug
object land of the same transaction is was given by mistake and is null andd void.
different from that intended by the parties.
There was an honest mistake by the HEMEDES vs CA
surveyor, which respondent tried to remedy.
Hence, the contract of sale is voidable on Strong, clear and unconvincing evidence to
the ground of mistake. overcome the value of the Deed is present.
The deed was written in English, which
petitioner did not understand.


Petitioner had no knowledge that the contract

she signed was indeed a deed of sale. The
contents were not read nor explained to her,
hence, her consent was given by mistake.

2. Error of law
Petitioners made use of undue influence in
a. General rule: making Katipunan sign a contract he thought
Ignorantia legisneminem was a labor contract, when it was actually a
excusat – Deed of Absolute Sale.
Art. 3 Ignorance of
the law excuses no one LEONARDO vs CA
from compliance
therewith. The presumption of mistake was not
addressed by private respondent. Petitioner
b. Exception: Mutual error did not understand English, but the document
of law – was not interpreted to her.

Art. 1334. Mutual iii. Inexcusable mistake –

error as to the legal Art. 1333. . There is no
effect of an agreement mistake if the party alleging it
when the real purpose knew the doubt, contingency or
of the parties is risk affecting the object of the
frustrated, may vitiate contract.

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 88
-to invalidate claimed. Also, she benefited from the
consent, error contract.
SIR JJ: Just because she had access to
b) Violence and intimidation – legal counsel and family and friends’
Art. 1335. There is violence advice, no violence was done unto her?
when in order to wrest That is weak reasoning.
consent, serious or irresistible
force is employed. LEE vs CA

There is intimidation when There is a need to make a distinction where a

one of the contracting parties person gives his consent reluctantly and one
is compelled by a reasonable where he acts against his will under pressure.
and well-grounded fear of an She was able to move freely about in the
imminent and grave evil upon office, and she was not barred from leaving.
his person or property, or She refused to sign the note, which showed a
upon the person or property lack of immediate and continuous threat.
of his spouse, descendants or
ascendants, to give his c) Undue influence –
consent. Art. 1337. There is
undue influence when a
To determine the degree of person takes improper
intimidation, the age, sex and advantage of his power
condition of the person shall over the will of another,
be borne in mind. depriving the latter of a
reasonable freedom of
A threat to enforce one's choice. The following
claim through competent circumstances shall be
authority, if the claim is just considered: the
or legal, does not vitiate confidential, family,
consent. spiritual and other
relations between the
-violence: external, parties, or the fact that
generally done to the person alleged to
prevent an act from have been unduly
being done; influenced was suffering
intimidation is done from mental weakness,
internally on the or was ignorant or in
person, in order to financial distress.
change the will and
induce action Undue influence:
no unlawful act
done; any means
i. Effect – Art. 1336. employed upon a party
Violence or intimidation shall which, under the
annul the obligation, although circumstances, he could
it may have been employed not well resist which
by a third person who did not controlled his volition
take part in the contract. and induced him to give
his consent
d) Fraud or dolo –
Attendant circumstances show that no Art. 1338. There is fraud
violence was done upon Martinez and her when, through insidious words
person. The contract she entered into is or machinations of one of the
valid, even though it may have been contracting parties, the other is
entered into against her will and desire. induced to enter into a contract
She sought the compromise and she had which, without them, he would
attendant counsel. She also had time to not have agreed to.
solicit advice from her friends and family.
Hence, no violence or duress may be i. Kinds
1. dolo causante –
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 89
Art 1338. There is there is a duty to reveal
fraud when, through them, as when the
insidious words or parties are bound by
machinations of one of confidential relations,
the contracting parties, constitutes fraud.
the other is induced to
enter into a contract TUASON vs MARQUEZ
which, without them, The innocent non-disclosure of a fact does not
he would not have affect the formation of the contract or operate
agreed to. to discharge the parties from their
-fraud in the
conception or RURAL BANK vs CA
realization of the
obligation/contract, Respondents had no duty to disclose the real
which vitiates consideration of the sale between them and
consent: if defrauded Behir. The bank had other means to
party had been aware determine the financial capacity of the
of, he would not have respondents. Also, said land was security for
entered into the the debt, and it remained unimpaired
contract or given his regardless of the consideration of the sale.
iii. Usual exaggerations in
2. dolo incidente – trade; opportunity to
Art. 1344, 2nd par. know the facts –
Incidental fraud only Art. 1340. The usual
obliges the person exaggerations in trade,
employing it to pay when the other party
damages. had an opportunity to
know the facts, are not
-fraud in the in themselves
performance of the fraudulent.
obligation, which
does not vitiate -tolerated fraud or
consent: which, even dolus bonus:
if defrauded party considerable latitude is
were still aware of, he given to seller’s
would have still statement or dealer’s
entered into the talk
contract or given his
consent AZARRAGA vs GAY
HILL vs VELOSO The law allows dealer’s talk, which is risky by
Deceit takes place when by words or nature. Defendant had ample opportunity to
machinations, one of the contracting parties appraise the condition of the land, and
induces another to execute a contract. plaintiff did nothing to prevent her from
Franco, is not one of the contracting parties. making the investigation.
It would have been deceit by a third party,
which does not annul the consent of the TRINIDAD vs IAC
Petitioner, herself a real estate broker, was
SIERRA vs. CA given ample opportunity to examine the land,
and was given considerable warning of the
The mere assertion that said note was not flooding prior to her purchase.
notarized in their presence does not
constitute fraud, for a promissory note does iv. Mere expression of an
not need to be notarized to be binding. opinion –
Art. 1341. A mere
ii. Failure to disclose facts; expression of an opinion
duty to reveal them – does not signify fraud,
Art. 1339. Failure to unless made by an
disclose facts, when expert and the other
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 90
party has relied on the
former's special
knowledge. SUNTAY vs CA

1. Effects – Suntay refused to assert his rights of

Art. 1344. In order ownership over the land and rice mill. He did
that fraud may make a not even intend to take exclusive possession.
contract voidable, it The claim that it was a valid sale was
should be serious and incongruous to since he never considered the
should not have been land one of his assets.
employed by both
contracting parties. PANGADIL vs CFI

SONGCO vs SELLNER The simulation here is only relative.

Petitioners admit that they were bound; their
A misrepresentation upon a mere matter of sole contention was that it was based on an
opinion is not an actionable deceit. Said oral contract of mortgage, when in fact it was
representation was merely an opinion an oral contract of sale.
regarding the cane in the field, and the
potential quantity of sugar to produce. UMALI vs CA

e) Misrepresentation Since Santiago received the tractor subject

matter of the sales agreement, it shows that
i. By a third person – petitioners intended to fulfill their obligations.
Art. 1342 Misrepresentation
by a third person does not i. Kinds –
vitiate consent, unless such Art. 1345. Simulation
misrepresentation has created of a contract may be
substantial mistake and the absolute or relative. The
same is mutual. former takes place when
the parties do not intend
ii. Made in good faith – to be bound at all; the
Art. 1343. latter, when the parties
Misrepresentation conceal their true
made in good faith is agreement.
not fraudulent but may
constitute error.

iii. Active/passive 1. Absolute: when parties do

not intend to be bound at all;
MERCADO & MERCADO vs ESPIRITU want of true consent. The
contract does not legally exist;
The sale of real estate made by minors it is illusory, a mere phantom.
pretending to be of legal age is valid. This is 2. Relative: when parties
an active misrepresentation. conceal their true agreement


Plaintiffs did not specifically state that they
were of legal age, when they were minors at The fact that the deed of sale between
the time of the celebration of the contract. respondents did not accurately reflect the
This is passive misrepresentation. true consideration is not cause for declaration
of nullity. When parties intend to be bound,
f) Simulation of Contracts but the contract does not reflect the actual
purchase price, it is only a relative simulation
RODRIGUEZ vs RODRIGUEZ subject to reformation.
ii. Effects –
The two contracts of sale were not Art. 1346. An
simulated, but were real and intended to be absolutely simulated or
fully operative, since they were the means fictitious contract is
to achieve the result desired, which was the void. A relative
ownership of the fishponds. simulation, when it does
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 91
not prejudice a third possible to determine
person and is not the same, without the
intended for any need of a new contract
purpose contrary to between the parties.
law, morals, good
customs, public order 3. What may not be the objects of
or public policy binds contracts
the parties to their real a. Future inheritance, except
agreement. when authorized by law –
Art. 1347. All things
B. Object of Contracts which are not outside
1. What may be the objects of the commerce of men,
contracts – including future things,
Art. 1347. All things may be the object of a
which are not outside contract. All rights which
the commerce of men, are not intransmissible
including future things, may also be the object
may be the object of a of contracts.
contract. All rights No contract may be
which are not entered into upon future
intransmissible may inheritance except in
also be the object of cases expressly
contracts. authorized by law.
No contract may be
entered into upon All services which are
future inheritance not contrary to law,
except in cases morals, good customs,
expressly authorized public order or public
by law. policy may likewise be
the object of a contract.
All services which are
not contrary to law, -outside the
morals, good customs, commerce of men:
public order or public all kinds of things and
policy may likewise be interests whose
the object of a alienation or free
contract. exchange is restricted
by law or stipulation,
which parties cannot
modify at will

-all intransmissible
a. All things not outside the rights, including strictly
commerce of man personal rights such
b. All rights not parental or marital
intransmissible authority
c. All services not contrary to
law, morals, good customs, -in order to be a future
public, or public policy inheritance:
1) succession must not
2. Requisite - must be have been opened
determinate as to its kind – 2) the object of the
Art. 1349. The object contract forms part of
of every contract must the inheritance
be determinate as to 3) that the promissory
its kind. The fact that has an expectancy of a
the quantity is not right which is purely
determinate shall not hereditary of nature.
be an obstacle to the
existence of the
contract, provided it is BLAS vs SANTOS
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 92
the understanding or the
Exhibit A is not a contract on future promise of a thing or service by
inheritance. It refers to existing property the other party
that she will receive by operation upon her
husband’s death. It existed at the time of b. In remuneratory
its celebration on December 26, 1936. contracts
where a party gives something
JLT AGRO vs. BALANSAG to another because of some
service or benefit, where such
Article 1080 of the Civil Code authorizes a service or benefit was no due
testator to execute an instrument of special as a legal obligation
character which is revocable at any time
during his lifetime. Because of this, Lot 63 c. In contracts of pure
is not a future inheritance, since it was beneficence
conveyed. gratuitous contracts are
essentially agreements to give
b. Impossible things or services – donations
Art. 1348. Impossible things
or services cannot be the 2. As distinguished from
object of contracts. motive –
-impossible: not Art. 1351. . The particular
susceptible or existing, motives of the parties in
outside of the entering into a contract are
commerce different from the cause
of man thereof.

C. Cause of Contracts Cause: objective, intrinsic and

1. Meaning of cause – juridical reason for the
-cause: the ‘why’ of existence of the contract itself;
its contract, the objective of the party
immediate and
proximate purpose of Motive: the psychological,
the contract, the individual or personal purpose
essential reason which of a party to a contract; what
impels the contracting drives one to enter into said
parties to enter into it contract
and which explains or
justifies the creation of You can have two differing
the obligation motives for entering into a
contract, but one causa.
-the obligation
established by the their effects:
contract, whence it a. Absence of cause and
follows that if unlawful cause –
obligations are created Art. 1352. Contracts without
for both parties, there cause, or with unlawful cause,
must be more than produce no effect whatever.
one “causa” The cause is unlawful if it is
contrary to law, morals, good
Art. 1350. In onerous customs, public order or public
contracts the cause is policy.
understood to be, for each
contracting party, the LIGUEZ vs CA
prestation or promise of a
thing or service by the other; Lopez conveyed said parcel of land for the
in remuneratory ones, the purpose of cohabitation with Liguez. Said
service or benefit which is condition was unlawful. Courts will not aid
remunerated; and in contracts either party to enforce an illegal contract.
of pure beneficence, the mere However, Lopez, had he been living, would be
liberality of the benefactor. barred from setting up his own defense, since
a. In onerous contracts he cannot donate the entirety of the property
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 93
in litigation; he can only donate insofar as it -unless the contrary is
does not prejudice his wife. The children proved, a contract is
may set aside the donation in so far as it is presumed to have a
in excess of the portion of free disposal. good and sufficient
b. Statement of a false
cause in the contract –
Art. 1353. The statement of Chapter III. Form of Contracts
a false cause in contracts
shall render them void, if it A. General rule: Contracts shall
should not be proved that be obligatory, in whatever form
they were founded upon they may have been entered into,
another cause which is true provided all the essential
and lawful. requisites for their validity are
present. (“Spiritual system” of
c. Lesion or inadequacy of the Spanish Code) –
cause – Art. 1356. Contracts shall be
Art. 1355. Except in cases obligatory, in whatever form they
specified by law, lesion or may have been entered into,
inadequacy of cause shall not provided all the essential requisites
invalidate a contract, unless for their validity are present.
there has been fraud, mistake However, when the law requires that
or undue influence. a contract be in some form in order
that it may be valid or enforceable, or
CARANTES vs CA that a contract be proved in a certain
way, that requirement is absolute
The contract cannot be considered as one to and indispensable. In such cases, the
declare the inexistence of a contract for lack right of the parties stated in the
of consideration. In this case, the sum of following article cannot be exercised.
1.00 appears in the document as one of the -validity of the contract
considerations. It is only total absence of in whatever
cause or consideration that renders a form it may have
contract void and inexistent.

B. Exception: When the law

requires that a contract be in
SPS BUENAVENTURA vs CA some form in order that it may
be valid or enforceable. (Anglo-
Failure to pay the consideration is different American principle) –
from lack of consideration. Also, apparent Art. 1356. Contracts shall be
gross inadequacy shall not invalidate a obligatory, in whatever form they may
contract. have been entered into, provided all
the essential requisites for their
Requisite of Cause: validity are present. However, when
1. it must exist the law requires that a contract be
2. it must be true in some form in order that it may
3. it must be licit. be valid or enforceable, or that a
contract be proved in a certain
4. Presumption of the existence way, that requirement is absolute
and lawfulness of a cause, and indispensable. In such cases,
though the right of the parties stated in the
it is not stated in the contract – following article cannot be exercised.
Art. 1354. Although the
cause is not stated in the HERNAEZ vs DE LOS ANGELES
contract, it is presumed that it The oral contract in this case is still valid and
exists and is lawful, unless enforceable. Hernaez is entitled to the money
the debtor proves the she was promised as star of the films she is
contrary. claiming.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 94
C. Kinds of formalities required reformation of the instrument
by law: but annulment of the contract.
1. Those required for the
validity of contracts, such as 1. Meeting of the minds upon
those referred to in Arts. 748, the contract;
749, 1874, 2134, 1771, 1773;
2. The true intention of the
2. Those required, not for parties is not expressed in the
validity, but to make the contract instrument; and
effective as against third
persons, such as those covered 3. The failure of the instrument
by Arts. 1357 and 1358; and to express the true agreement
is due to mistake, fraud,
3. Those required for the purpose inequitable conduct, or accident.
of proving the existence of the
contract, such as those under the -it is unjust to allow the
Statute of Frauds in Art. 1403. enforcement of a written
instrument, which does not
RESUENA vs CA reflect the real meeting of
Assuming the verbal agreement, said Article the minds
grants a coercive power to the parties by
which they can reciprocally compel the -valid contract exists;
documentation of the agreement. whether written or not.
Sometimes, in reducing the
agreement in writing, the true
intention of the contracting
parties are not correctly

Chapter IV. Reformation of
Instruments An allegation is essential because the object
sought is to make an instrument conform to a
A. Requisites (Art. 1359): real agreement or intention of the parties.
. When, there having been a meeting The function of reformation is to establish and
of the minds of the parties to perpetuate an existing agreement, not to
a contract, their true intention make a new agreement. Appellant’s complaint
is not expressed in the does not ask for annulment.
instrument purporting to
embody the agreement, by BENIR vs LEANDA
reason of mistake, fraud, The complaint for reformation has not
inequitable conduct or prescribed. The prescriptive period of a
accident, one of the parties written contract is within 10 years.
may ask for the reformation SIR JJ: Before you can claim
of the instrument to the end prescription, you should determine
that such true intention may whether or not reformation is possible.
be expressed.
If mistake, fraud, inequitable
conduct, or accident has The inability of the municipal court to identify
prevented a meeting of the the exact location did not negate the principal
minds of the parties, the object of the contract. This error is
proper remedy is not correctible by reformation, and does not
indicate the absence of the principal object.
The requisites for reformation must concur: a
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 95
meeting of the minds, and an instrument
that does not express the true intention. The mistake did not vitiate the consent. In
this case, the deed of sale executed need not
B. Cases where no reformation is be reformed. The parties retain possession of
allowed – their property and all they should do is
execute mutual deeds of sale.
Art. 1366. There shall be no
reformation in the following cases: SARMING vs DY
Silveria was a party to the contract.
(1) Simple donations inter vivos Remember, she sold the coconut trees, and
wherein no condition is imposed; was also one of the heirs entitled to the
(2) Wills; estate. The mistake in the preparation of the
(3) When the real agreement is void. contract may be privy to reformation.

-wills and donations are

gratuitous dispositions of
property. An action for
reformation is tantamount to
an action for specific
performance , which is an
element lacking as between
donor and donee and between
testator and beneficiary.

C. Implied Ratification –
Art. 1367. When one of the
parties has brought an action
to enforce the instrument, he
cannot subsequently ask for
its reformation.

-there has been an Chapter V. Interpretation of

election as between Contracts (Compare with Rules on
inconsistent remedies, Statutory Construction)
one in affirmance of
the contract, and A. Primacy of intention –
another in Art. 1370. If the terms of a
disaffirmance. contract are clear and leave no
doubt upon the intention of the
D. Who may ask for reformation contracting parties, the literal
– meaning of its stipulations shall
Art. 1368. Reformation may control.
be ordered at the instance of
either party or his successors -the language of a
in interest, if the mistake was writing is to be
mutual; otherwise, upon interpreted according
petition of the injured party, to the legal meaning it
or his heirs and assigns. bears in the place of
its execution, unless
E. Procedure of reformation – parties have reference
Art. 1369. The procedure for to a different place
the reformation of instrument
shall be governed by rules of -when the terms of
court to be promulgated by the agreement are
the Supreme Court. so clear and explicit
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 96
that they do not and Reyes. The difference in the two
justify an attempt contracts is present.
to read into it SIR JJ: The problem with the clause is
only alleged intention that it is written in the passive voice. It
of the parties, the does not state who has the capacity to
terms are to be extend the contract. Always write in the
understood literally. active voice.

-when the true intent

and agreement of B. How to determine intention –
the parties is Art. 1371. In order to judge
established, it must be the intention of the contracting
given effect and parties, their contemporaneous
prevail as the bare and subsequent acts shall be
words of the contract principally considered.
-The circumstances
under which the
Art. 1372. . However general contract was made,
the terms of a contract may and the circumstances
be, they shall not be including the situation
understood to comprehend of the subjects
things that are distinct and
cases that are different from RAPANUT vs CA
those upon which the parties Petitioner has complied with his obligation.
intended to agree The correct view is that the 500 peso monthly
installments with a 10% interest per annum,
- a particular intent not placing an additional 10% interest on the
will prevail over a 500 pesos monthly. Respondent is also in
general one. The estoppel, since she accepted petitioner’s
contract cannot be payments.
construed to include
matters distinct from
those with respect
to what parties
intended to contract

BORROMEO vs CA C. How to interpret a contract

1. When it contains
It is a fundamental principle in the stipulations that admit
interpretation of contracts that while several meanings –
ordinarily the literal sense of the words Art. 1373. If some
employed is followed, such is not the case stipulation of any
where they appear to be contrary to the contract should admit of
evident intention of the contracting parties. several meanings, it
The payment is due. shall be understood as
bearing that import
KASILAG vs RODRIGUEZ which is most adequate
to render it effectual.
The verbal contract they entered into sought
to alter the mortgage contract into a OIL & NATURAL GAS CO vs CA
contract of antichresis, which is illegal and
void. The clauses regarding said contract of Petitioner’s displacement of the comma in its
antichresis, being independent of the complaint cannot circumvent that clause 16
mortgage, can be eliminated because said deals with the fact that ‘except when
contract of mortgage is legal and valid. otherwise provided in the supply/order
contract’, thus indicating that jurisdiction of
SANTI vs CA the arbitrator is not all encompassing.
SIR JJ: Do not take structuring of
The phrase “automatically extended” did not arguments for granted. If you’re going
appear in the contract of lease between Jose to construct an argument, go through
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 97
each step. Do it step by step. Explain keeping with the nature
why the ruling applies. Analyze how and object of the
the SC reaches its conclusion. contract
-determined by
2. When it contains various a consideration
stipulations, some of of the general
which are doubtful – scope and
Art. 1374. The purpose of the
various stipulations of instrument in
a contract shall be which it occurs
interpreted together,
attributing to the 4. When it contains
doubtful ones that ambiguities and omission of
sense which may stipulations –
result from all of them Art. 1376. . The usage
taken jointly. or custom of the place
shall be borne in mind in
-a contract the interpretation of the
cannot be ambiguities of a
construed in contract, and shall fill
parts, but its the omission of
clauses must be stipulations which are
interpreted in ordinarily established.
relation to one
another -An instrument
may be
according to
usage, in order
to determine
the true

Article 1376 states that the custom of the
Both promissory note and the chattel place shall be used in interpreting ambiguities
mortgage must be treated as a singular of the contract. In this case, “putting one’s
contract, with one complementing the other, papers in order” does not involve payment of
pursuant to Article 1374. The deed of the capital gains tax is not a pre-requisite of
chattel mortgage modified this condition transferring ownership to the buyer.
where the promissory note confined the
proper court to Makati. Since respondent 5. With respect to the party
moved to Dagupan, this is the proper who caused the obscurity –
venue. Art. 1377. The
SIR JJ: Let the acts determine the interpretation of obscure
intention, absent any other possible words or stipulations in
means of interpretation. a contract shall not
favor the party who
3. When it contains words caused the obscurity.
that have different
significations – -the party who draws
Art. 1375. Words up a contract in which
which may have obscure terms or
different significations clauses appear, is
shall be understood in the one responsible
that which is most in
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 98
for the obscurity or Art. 1378 states that there will be an
ambiguity; they must inclination against the least possible
therefore be construed transmission of rights and interests. Hence,
against him. the interpretation will be that Gacos did not
sell her entire share.
b. in onerous contracts
There is no evidence that Ilustre acted with -doubts are resolved in favor
malice or negligence, that RCBC claimed he of greater reciprocity/
did when he failed to sing a check which equivalence
they claim violated Paragraph 11 of the
Chattel Mortgage. 7. When the doubts are cast
upon the principal object so
6. When it is absolutely that the intention cannot be
impossible to settle doubts known –
by the rules above – Art. 1378. When it is
Art. 1378. When it is absolutely impossible to
absolutely impossible settle doubts by the
to settle doubts by the rules established in the
rules established in the preceding articles, and
preceding articles, and the doubts refer to
the doubts refer to incidental circumstances
incidental of a gratuitous contract,
circumstances of a the least transmission of
gratuitous contract, rights and interests shall
the least transmission prevail. If the contract is
of rights and interests onerous, the doubt shall
shall prevail. If the be settled in favor of the
contract is onerous, greatest reciprocity of
the doubt shall be interests.
settled in favor of the
greatest reciprocity of If the doubts are cast
interests. upon the principal object
of the contract in such a
If the doubts are cast way that it cannot be
upon the principal known what may have
object of the contract been the intention or
in such a way that it will of the parties, the
cannot be known what contract shall be null
may have been the and void.
intention or will of the
parties, the contract -if the will or intent
shall be null and void. of the parties cannot be
ascertained, the
-construction which contract is null and void.
would amount to
impairment or loss of D. Applicability of Rule 123, Rules
right is not favored; of Court (now Secs. 10-19, Rule
conservation and 130)
preservation, not
waiver, abandonment
or forfeiture of a right
is the rule.

a. in gratuitous contracts
-doubts are resolved in favor
of least resolved in favor of
the least transmission of right


Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 99
(3) Those undertaken in fraud
of creditors when the latter
cannot in any other manner
collect the claims due them;

(4) Those which refer to things

under litigation if they have
been entered into by the
defendant without the
knowledge and approval of the
litigants or of competent
judicial authority;

(5) All other contracts specially

declared by law to be subject to

-a valid contract can

only be rescinded for
legal cause.

-to give rise to

rescission, lesion must
have been known or
could have been
known at the time of
making the contract

Lesion: the injury which one

of the parties suffers by virtue
of a contract which is
disadvantageous to him.

-the idea is to establish parity

between the value of the thing
and its price, so that if the price
is less than the true value of
the thing at the time of the
perfection of a contract, there

Chapter VI. Rescissible Contracts Contracts & guardians: a

guardian is only to manage the
A. Kinds – estate of his word, hence, he
Art. 1381. The following has no power to dispose of any
contracts are rescissible: portion thereof without
approval of the court when a
(1) Those which are entered guardian enters into a contract,
into by guardians whenever he must secure the approval of
the wards whom they the guardianship court
represent suffer lesion by
more than one-fourth of the Contracts for absentees –
value of the things which are principles for wards and
the object thereof; guardians also apply, since the
powers and duties of a legal
(2) Those agreed upon in representative of an absentee
representation of absentees, and the same as those of
if the latter suffer the lesion guardians
stated in the preceding
number; B. Characteristics

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 100
1. Their defect consists in injury The Deed of Sale is rescissible. However, this
or damage either to one of the is the rescission of Article 1191, which means
contracting parties or to third that they must return the partial payment
persons. made by petitioner.

2. They are valid before IRINGAN vs CA

The applicable period of rescission here is not
3. They can be attacked directly under Article 1389 (4 years) but under Article
only, and not collaterally. 1144 (10 years) since it is a principal action,
not a subsidiary one limited to case of
4. They can be attacked only rescission under Article 1381.
either by a contracting party or
by a third person who is injured RIVERA vs DEL ROSARIO
or defrauded. Article 1383 only applies to those found under
Article 1381. The ‘Kasunduan’ does not fall
5. They can be convalidated only under any one of them.
by prescription, and not by

C. Rescission – Art. 1380 Rescission creates the obligation to return the

1. Definition things object of the contract, and all fruits
2. As distinguished from and price with interest. Petitioner is only
rescission under Art. 1191 entitled to the return of the purchase price,
no more, no less.
1191: rescission – RESOLUTION –
principal VITUG (DISSENT): Rescissible contracts are
not void ab initio. They are valid, until set
1381: rescission – LESION - subsidiary aside in an appropriate action.

3. Requisites:
In this case, the dismissal of respondent
from his work as head scientist was a b. The party asking for
fundamental and substantial breach of the rescission has no other legal
Bill of Assignment. Hence, respondents- means to obtain reparation
appellees had no alternative but to file the – Art. 1383. The action for
present action for rescission and damages. rescission is subsidiary; it
Hence, what is applicable is rescission or cannot be instituted except
resolution under Article 1191. when the party suffering
damage has no other legal
PRYCE CORP vs PAGCOR means to obtain reparation for
the same.;
When parties pray for payment of rental,
the aggrieved party sought the partial UNION INSURANCE vs CA
enforcement of a lease contract. The Philippine Tugger’s acquisition, albeit
remedy is not rescission but termination. rescissible is valid until legally rescinded.
Termination entails enforcement of its terms Hence, petitioner may ask for value of ships.
prior to the declaration of its cancellation. The vessels are no longer owned by private
respondent. Petitioner should have impleaded
CANNU vs. GALANG Peninsula Tourist Shipping who owned the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 101
together with their
c. He is able to return fruits, and the price with
whatever he may be its interest;
obliged to restore if consequently, it can be
rescission is granted – carried out only when he
Art 1385. Rescission who demands rescission
creates the obligation can return whatever he
to return the things may be obliged to
which were the object restore.
of the contract,
together with their Neither shall rescission
fruits, and the price take place when the
with its interest; things which are the
consequently, it can be object of the contract
carried out only when are legally in the
he who demands possession of third
rescission can return persons who did not act
whatever he may be in bad faith.
obliged to restore.
In this case, indemnity
Neither shall rescission for damages may be
take place when the demanded from the
things which are the person causing the loss.
object of the contract
are legally in the a. with respect to third
possession of third persons who acquired the
persons who did not thing in good faith – Art.
act in bad faith. ; 1385, 2nd and 3rd par.

d. The object of the

contract has not passed
legally to the possession of
a third person acting in
good faith – Art. 1385;

e. The action for rescission

is brought within the
prescriptive period of four
(4) years –
Art 1389. The action 5. Extent of rescission –
to claim rescission Art. 1384. Rescission shall be
must be commenced only to the extent necessary to
within four years. cover the damages caused.

For persons under -it is only in favor of

guardianship and for plaintiff creditor, not all
absentees, the period of the creditors. The
of four years shall not extent of the revocation
begin until the is only to the amount
termination of the of the prejudice suffered
former's incapacity, or by creditor.
until the domicile of
the latter is known. 6. Presumptions of fraud –
Art. 1387. All contracts by
4. Effect of rescission – virtue of which the debtor
alienates property by gratuitous
Art. 1385. Rescission title are presumed to have
creates the obligation been entered into in fraud of
to return the things creditors, when the donor did
which were the object not reserve sufficient property
of the contract,
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 102
to pay all debts contracted It is inconceivable that ADB will connive with
before the donation. Marcopper to defraud Solidbank. Solidbank
was not prejudiced.
Alienations by onerous title
are also presumed fraudulent 7. Liability for acquiring in bad
when made by persons faith the things alienated in fraud
against whom some judgment of creditors –
has been issued. The decision Art. 1388. Whoever acquires
or attachment need not refer in bad faith the things alienated
to the property alienated, and in fraud of creditors, shall
need not have been obtained indemnify the latter for
by the party seeking the damages suffered by them on
rescission. account of the alienation,
whenever, due to any cause, it
In addition to these should be impossible for him to
presumptions, the design to return them.
defraud creditors may be
proved in any other manner If there are two or more
recognized by the law of alienations, the first acquirer
evidence. shall be liable first, and so on
-this article presumes
the existence of fraud
by a debtor. To raise the
presumption of fraud
case of attachment,
it is enough that it be

-proof of fraud must

be met.

a. Badges of fraud Chapter VII. Voidable or

Annullable Contracts
Art. 1390. The following
Courts have laid down certain rules by contracts are voidable or
which the fraudulent character of the annullable, even though there
transaction is determined. These are the may have been no damage to
badges of fraud, which are all present in this the contracting parties:
present case.
(1) Those where one of the
CHINA BANKING CORP vs CA parties is incapable of giving
consent to a contract;
There are two badges of fraud present in
this case: Chua sold the only property which (2) Those where the consent is
was his right to redeem to his son. Also, vitiated by mistake, violence,
said land was sought by China Banking intimidation, undue influence or
Corp. fraud.
MR HOLDINGS vs BAJAR These contracts are binding,
unless they are annulled by a
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 103
proper action in court. They
are susceptible of ratification. 3. In nullity, the direct
influence of the public interest
-they are existent and is noted, while in rescission,
binding and valid private interest governs.
although they can be
annulled because of 4. nullity is based on a vice of
want of capacity or the contract which invalidates
vitiated consent of one it, while rescission is
of the parties but compatible with the perfect
before annulment, validity of the contract.
they are valid until it is set
aside. 5. nullity is a sanction while
rescission is a remedy. The law
B. Characteristics predominates the former,
1. Their defect consists in the equity dominates the latter.
vitiation of consent of one of the
contracting parties. 6. while nullity can be
demanded only by parties to
2. They are binding until they are the contracts, rescission may
annulled by a competent court. be demanded even by third
party affected by it.
3. They are susceptible of
convalidation by ratification or by 2. Grounds – Art. 1390
prescription. 3. Who may and may not institute
action for annulment –
FELIPE vs HEIRS of ALDON Art. 1397. The action for the
annulment of contracts may be
The deed of sale is a voidable contract, instituted by all who are
because Gimena had no capacity to give thereby obliged principally or
consent to the contract, which she sold subsidiarily. However, persons
without her husband’s consent. After who are capable cannot allege
Maximo, Gimena’s late husband, died, it was the incapacity of those with
only the heirs of Aldon who could acquire whom they contracted; nor can
the right to question the defective contract, those who exerted intimidation,
since it deprives them of their hereditary violence, or undue influence, or
rights. Gimena cannot assail the deed of employed fraud, or caused
sale. mistake base their action upon
SIR JJ: This is more of an these flaws of the contract.
unenforceable contract than it is a
voidable contract. -plaintiff must have
an interest in the
C. Annulment contract
1. As distinguished from
rescission: Both rescission and -the victim and not
nullity when declared, render the the party responsible
contract inofficious. for the defect is the
one who must assert
1. nullity declares the
inefficacy which the contract SINGSONG vs ISABELLA SAWMILL
carries in itself, while Plaintiffs may institute an action for
rescission merely produces that annulment, even if they are not parties to the
inefficacy which did not exist contract, since he is prejudiced in his rights
essentially in the contract. with respect to one of the contracting parties,
and can show detriment which would
2. nullity, to be cured, positively result to him from the contract in
requires an act of ratification. which he has no intervention. However,
Rescission needs no Saldajeno has a right to be reimubursed,
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 104
since the parties explicitly agreed to release -This does not apply
her from the partnership. to third persons but
only to the parties to
JOSEP 5. Effect
a. Mutual restitution –
The redemption made by the minors is only Arts. 1398. An obligation
voidable. It is not void ab initio. The action having been annulled, the
to annul the minors’ redemption was one contracting parties shall restore
that could only have been initiated by the to each other the things which
minors themselves, which they never have been the subject matter
initiated. of the contract, with their
fruits, and the price with its
MALABANAN vs GAW CHING interest, except in cases
provided by law.
Contracts take effect only between the
parties, their assigns and heirs. Gaw Ching And Arts. 1402. As long as
had no legal right of preemption in respect one of the contracting parties
of the house. It is outside the Urban Land does not restore what in virtue
Refor Zone. He could not pursue the nullity of the decree of annulment he
of the contract, where the land was sold, is bound to return, the other
because the land at the time belonged to cannot be compelled to comply
the lessee and not Gaw Ching, who was with what is incumbent upon
renting the land. him.

ARMENTIA vs PATRIARCA -the effect of

annulment is to wipe
If no rights, action or obligation is the contract out of
transmitted to the heir, the heir cannot existence and to
bring an action to annul the contract. restore the parties to
Armentia adjudicated to herself a parcel of their original situation
land; she was 13 years old at the time of before the contract
the sale. was entered into.
SIR JJ: This is an absolutely simulated
contract. It is not voidable. Erlinda -principle of unjust
Armentia and Patriarca clearly did not enrichment is the basis
intend to be legally bound by their of the second paragraph

4. Prescription –
Art. 1391. The action for
annulment shall be brought
within four years. CADWALLER vs SMITH, BELL

This period shall begin: The defendants were not entitled to retain
their commission under the annulled contract,
In cases of intimidation, which was ½ of whatever sum was obtained.
violence or undue influence,
from the time the defect of INES vs CA
the consent ceases. Interest may be allowed in discretion of
damages. The award of legal interest is a
In case of mistake or fraud, necessary consequence the finding that the
from the time of the discovery Contract of Sale is void that Ines existed.
of the same. SIR JJ: It is voidable, because it was
valid until the lower court declared it.
And when the action refers to However, this is dangerous because the
contracts entered into by other party would only want to delay the
minors or other incapacitated case as to incur greater interest.
persons, from the time the
guardianship ceases. VELARDES vs CA

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 105
Rescission in this case is for mutual Annulment:
restitution as well. -by the fault or
negligence of one
ARRA REALTY vs GUARANTEED DEVT party: he must restore
the fruits and value of
ARC failed to transfer property to the thing lost plus
respondent’s name because of mortgage to interest at the time
CBC, and sale of GDCIA, respondent of the loss
Penaloza is entitled to refund the amount
she paid to petitioner ARC. -by fortuitous event:
SIR JJ: This is a valid contract! Breach only the fruits received
took place. and restored

1) When one of the parties 6. Extinguishment of the action

is incapacitated – a. By ratification –
Art. 1399. When the defect Art. 1392. Ratification
of the contract consists in the extinguishes the action to annul
incapacity of one of the a voidable contract.
parties, the incapacitated b. When the thing is lost
person is not obliged to make through the fault of the
any restitution except insofar person who has the right to
as he has been benefited by file the action –
the thing or price received by Art. 1401. The action for
him. annulment of contracts shall be
extinguished when the thing
-a person must which is the object thereof is
see to it that lost through the fraud or fault
the other party has of the person who has a right
sufficient to institute the proceedings.
capacity to bind
himself . If If the right of action is based
nullity is on upon the incapacity of any one
account of of the contracting parties, the
incapacity of loss of the thing shall not be an
one of the obstacle to the success of the
contracting action, unless said loss took
parties, the place through the fraud or fault
party suffering of the plaintiff.
from such
incapacity is -Until the annulment of
only bound to the contract, it is valid
return what he and produces legal
has profited. effect; hence, the
plaintiff who was in

possession of the object

2) When the thing is lost at the time of the loss if
through the fault of the he were to be given
party obliged to return the back the consideration
same – Art. 1400. that he had paid to the
Whenever the person obliged defendant
by the decree of annulment to
return the thing can not do so D. Ratification
because it has been lost 1. Requisites:
through his fault, he shall a. The contract is voidable;
return the fruits received and b. The ratification is made with
the value of the thing at the knowledge of the cause for nullity;
time of the loss, with interest c. At the time of the ratification,
from the same date. the cause of nullity has already
ceased to exist.
Loss after the decree of -efficacy is given to a
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 106
contract which suffers -the right to ratify
from a vice of curable pertains to the
nullity incapacitated persons;
hence, during the
-when a contract existence of incapacity,
entered into through it may be exercise by
error is approved by a the guardian for him
party after discovering
his error, there is -ratification does not
confirmation or require consent of the
ratification; party who could not
acknowledgement – ask for annulment of
remedy of proof the contract

confirmation – remedy 3. Effects:

of a defect of nullity a. Action to annul is extinguished
2. Forms – Art. 1392. Ratification extinguishes
a. Express or tacit – the action to annul a voidable
Art. 1393. Ratification may contract.
be effected expressly or
tacitly. It is understood that UY SOO LIM vs TAN UNCHUAN
there is a tacit ratification if,
with knowledge of the reason By virtue of ratification, Uy Soo had not
which renders the contract sustained the burden of proof of fraud.
voidable and such reason Through his actions, Uy Soo cannot seek to
having ceased, the person have the contract annulled when he himself
who has a right to invoke it benefited from it. He disposed of the whole
should execute an act which 85,000 pesos he now seeks to be paid to him.
necessarily implies an
intention to waive his right. b. The contract is cleansed
Express ratification: retroactively from all its defects –
Any oral or written Art. 1396. Ratification cleanses the
manifestation of contract from all its defects from the
the person entitled to moment it was constituted.
ask for annulment that
he agrees to be bound -the action to annul
by the contract or that the same can be
he will not seek the maintained based
annulment upon defects relating
to its original validity

-ratification is merely
declaratory of the
waiver of the right
to ask for annulment
Chapter VIII. Unenforceable
Implied ratification: Contracts
Based on the conduct
of acts or the party
who is entitled to ask A. Characteristics
for annulment. This -an unenforceable contract is one
may include silence, which cannot be enforced unless it
acquiescence or is first ratified in the manner provided
acceptance by law. It is distinguished from the
rescissible contracts and annullable
b. By the parties themselves or contracts in that the latter two
by the guardian in behalf of an contracts produce legal effects
incapacitated party – unless they are set aside by a
Art. 1394. Ratification may competent court
be effected by the guardian of
the incapacitated person. 1. They cannot be enforced by a
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 107
proper action in court. auction and entry is made by the
auctioneer in his sales book, at the
2. They are susceptible of time of the sale, of the amount and
ratification. kind of property sold, terms of sale,
price, names of the purchasers and
3. They cannot be assailed by person on whose account the sale is
third persons. made, it is a sufficient
- contracts that by reason of memorandum;
statutory defects do not
confer any action to enforce (e) An agreement of the leasing for a
the longer period than one year, or for
same until and unless they the sale of real property or of an
are ratified in the manner interest therein;
prescribed by law are called
unenforceable contracts. (f) A representation as to the credit
of a third person.
B. Kinds – Art. 1403. The following
contracts are unenforceable, unless (3) Those where both parties are
they are ratified: incapable of giving consent to a
(1) Those entered into in the name 1. Unauthorized contracts
of another person by one who has - when a person enters into a
been given no authority or legal contact for and in the name of
representation, or who has acted another, without authority to
beyond his powers; do so, the contract does not
bind the latter
(2) Those that do not comply with
the Statute of Frauds as set forth in a. Governing rules –
this number. In the following cases Art. 1404. Unauthorized
an agreement hereafter made shall contracts are governed by
be unenforceable by action, unless Article 1317 and the principles
the same, or some note or of agency in Title X of this
memorandum, thereof, be in writing, Book.
and subscribed by the party charged,
or by his agent; evidence, therefore, 2. Contracts covered by the
of the agreement cannot be received Statute of Frauds
without the writing, or a secondary -the term ‘Statute of Frauds’
evidence of its contents: is descriptive of statutes
which require certain classes
(a) An agreement that by its terms of contracts to be in writing.
is not to be performed within a year It regulates the formalities of
from the making thereof; the contract necessary to
Render it enforceable
(b) A special promise to answer for
the debt, default, or miscarriage of
another; a. Purpose of Statute
-prevent fraud and perjury in
(c) An agreement made in the enforcement of contracts
consideration of marriage, other depending for their evidence
than a mutual promise to marry; upon the unassisted memory
of witnesses by requiring
(d) An agreement for the sale of certain enumerated contracts
goods, chattels or things in action, & transactions to be evidenced
at a price not less than five by a writing signed by the party
hundred pesos, unless the buyer to be charged.
accept and receive part of such
goods and chattels, or the -since the Statute of Frauds
evidences, or some of them, of was enacted for the purpose
such things in action or pay at the of preventing frauds, it should
time some part of the purchase not be made the instrument
money; but when a sale is made by
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 108
to further them. Thus, where – Art. 1407. In a contract
one pary has entirely where both parties are
performed his obligation incapable of giving consent,
under an oral contract, equity would express or implied ratification
agree that all evidence be by the parent, or guardian, as
admitted to prove the alleged the case may be, of one of the
agreement. contracting parties shall give
the contract the same effect as
b. How ratified – if only one of them were
Art. 1405. . Contracts
infringing the Statute of b. Effect of ratification by the
Frauds, referred to in No. 2 of parents or guardian of both
Article 1403, are ratified by parties – Art. 1407. In a contract
the failure to object to the where
presentation of oral evidence both parties are incapable of
to prove the same, or by the giving consent, express or
acceptance of benefit under implied ratification by the
them. parent, or guardian, as the
case may be, of one of the
-If the parties make no contracting parties shall give
objection to the the contract the same effect as
admissibility of oral if only one of them were
evidence to support incapacitated.
a contract covered by
the Statute of Frauds -Defense is personal
and therein permit to the party of the
such contract to be agreement. It is like
proved orally. It will minority, fraud,
be just and binding mistake or of the
upon the parties as similar defects which
if it had been reduced may be asserted or
to writing. The Statute waived by the parties
of Frauds cannot be to the contract or their
invoked when the representatives, and
contract had been cannot be set up by
partly executed; it only strangers to the
applies to executory agreement.

c. Right of the parties when a

contract is enforceable but a
public document is necessary for
its registration –
Art. 1406. When a contract
is enforceable under the
Statute of Frauds, and a
public document is necessary
for its registration in the Chapter IX. Void or Inexistent
Registry of Deeds, the parties Contracts
may avail themselves of the A. Characteristics
right under Article 1357. 1. Void from the beginning
2. Produces no effect whatsoever
3. Contracts executed by parties 3. Cannot be ratified –
who are both incapable of giving Art. 1409. The following
consent to a contract contracts are inexistent and
void from the beginning:
a. Effect of ratification by the
parents or guardian of one of the (1) Those whose cause, object
parties or purpose is contrary to law,

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 109
morals, good customs, public 1) When the act constitutes a
order or public policy; criminal offense –
Art. 1411. When the nullity
(2) Those which are proceeds from the illegality of
absolutely simulated or the cause or object of the
fictitious; contract, and the act
constitutes a criminal offense,
(3) Those whose cause or both parties being in pari
object did not exist at the delicto, they shall have no
time of the transaction; action against each other, and
both shall be prosecuted.
(4) Those whose object is Moreover, the provisions of the
outside the commerce of Penal Code relative to the
men; disposal of effects or
instruments of a crime shall be
(5) Those which contemplate applicable to the things or the
an impossible service; price of the contract.

(6) Those where the intention This rule shall be applicable

of the parties relative to the when only one of the parties is
principal object of the guilty; but the innocent one
contract cannot be may claim what he has given,
ascertained; and shall not be bound to
comply with his promise.
(7) Those expressly prohibited a) in pari delicto rule
or declared void by law. -parties who voluntarily enter
into a compromise agreement
These contracts cannot be which is “expressly prohibited
ratified. Neither can the right or declared void by law”
to set up the defense of cannot withdraw, recall or
illegality be waived. render ineffective acts already
done in the performance of
-No force and effect their part in the illegal bargain
from the very
beginning 2) When the act is unlawful but
does not constitute a criminal
-Consent was not offense –
produced by the Art. 1412. If the act in which
concurrence of the the unlawful or forbidden cause
offer and acceptance consists does not constitute a
and did not pass the criminal offense, the following
stage of generation to rules shall be observed:
the point of perfection
(1) When the fault is on the
-those which violate part of both contracting parties,
some mandatory neither may recover what he
provisions of law has given by virtue of the
contract, or demand the
performance of the other's

(2) When only one of the

B. Kinds –Art. 1409 contracting parties is at fault,
he cannot recover what he has
1. Contracts that are void given by reason of the contract,
a. Those whose cause, object, or ask for the fulfillment of
or purpose is contrary to law, what has been promised him.
morals, good customs, public The other, who is not at fault,
order or public policy may demand the return of what
he has given without any

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 110
obligation to comply his designated for the protection of
promise. the plaintiff, he may, if public
a) in pari delicto rule policy is thereby enhanced,
recover what he has paid or
-illegal per se: an act
or contract that is
illegal per se is one
3) When the purpose is illegal, that is universally
and money is paid or property recognized standard
delivered therefor – or inherently or by its
Art. 1414. When money is very nature bad,
paid or property delivered for improper, immoral, or
an illegal purpose, the contrary to good
contract may be repudiated conscience
by one of the parties before
the purpose has been 6) When the amount paid exceeds
accomplished, or before any the maximum fixed by law –
damage has been caused to a Art. 1417. When the price of
third person. In such case, any article or commodity is
the courts may, if the public determined by statute, or by
interest will thus be authority of law, any person
subserved, allow the party paying any amount in excess of
repudiating the contract to the maximum price allowed
recover the money or may recover such excess.
-when parties to an
illegal contract are not 7) When by virtue of a contract a
equally guilty, and laborer undertakes to work longer
when public policy is than the maximum number of
considered as hours of work fixed by law –
advanced by allowing the Art. 1418. When the
more excusable of law fixes, or authorizes
the two to sue the fixing of the
for relief, the maximum number of
transactory relief is hours of labor, and a
given to him contract is entered into
whereby a laborer
4) When the contract is illegal undertakes to work
and one of the parties is longer than the
incapable maximum thus fixed, he
of giving consent – may demand additional
Art. 1415. . Where one of compensation for
the parties to an illegal service rendered beyond
contract is incapable of giving the time limit.
consent, the courts may, if
the interest of justice so
demands allow recovery of
money or property delivered 8) When a laborer agrees to
by the incapacitated person. accept a lower wage than that set
by law –
Art. 1419. When the law sets,
or authorizes the setting of a
minimum wage for laborers,
and a contract is agreed upon
5) When the agreement is not by which a laborer accepts a
illegal per se but is prohibited – lower wage, he shall be entitled
Art. 1416. When the to recover the deficiency.
agreement is not illegal per se
but is merely prohibited, and 9) When the contract is divisible –
the prohibition by the law is
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 111
Art. 1420. In case of a Art.1421. The defense of
divisible contract, if the illegal illegality of contract is not
terms can be separated from available to third persons
the legal ones, the latter may whose interests are not directly
be enforced. affected.
-void stipulations have
no effect
-exceptions: when the
nature of the contract
requires divisibility

2) when the intention

of the parties is that
the contract be entire

10)When the contract is the

direct result of a previous illegal
contract –
Art. 1422. . A contract
which is the direct result of a
previous illegal contract, is
also void and inexistent.
b. Those whose object is outside
the commerce of man

c. Those which contemplate an

impossible service

d. Those where the intention of

the parties relative to the
principal object of the contract
cannot be ascertained

e. Those expressly prohibited or

declared void by law

2. Contracts that are inexistent

a. Those which are absolutely
simulated or fictitious (see Arts.
1345 and 1346)

b. Those whose cause or object

did not exist at the time of the

C. Right to set up defense of

illegality cannot be waived – Art.

D. The action or defense for the

declaration of the inexistence of
a contract
1. does not prescribe –
Art. 1410. The action or TITLE III.
defense for the declaration of
the inexistence of a contract
does not prescribe.
A. Definition –
2. is not available to third
Art. 1423. Obligations are civil
persons whose interest is not
or natural. Civil obligations give
directly affected –
a right of action to compel their
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 112
performance. Natural he has delivered or the value of
obligations, not being based the service he has rendered.
on positive law but on equity
and natural law, do not grant Art. 1425. When without the
a right of action to enforce knowledge or against the will of
their performance, but after the debtor, a third person pays
voluntary fulfillment by the a debt which the obligor is not
obligor, they authorize the legally bound to pay because
retention of what has been the action thereon has
delivered or rendered by prescribed, but the debtor later
reason thereof. Some natural voluntarily reimburses the third
obligations are set forth in the person, the obligor cannot
following articles. recover what he has paid.
-midway between civil
and moral obligation Art. 1426. When a minor
between eighteen and twenty-
-an obligation without one years of age who has
a sanction, susceptible entered into a contract without
of voluntary the consent of the parent or
performance, but not guardian, after the annulment
through compulsion of the contract voluntarily
by legal means. It is returns the whole thing or price
a real obligation to received, notwithstanding the
which the law denies fact the he has not been
an action, but which benefited thereby, there is no
the debtor may right to demand the thing or
perform voluntarily. price thus returned.

B. As distinguished from civil Art. 1427. When a minor

obligations – Art. 1423 between eighteen and twenty-
Civil obligations: juridical one years of age, who has
obligation which are entered into a contract without
apparently in conformity the consent of the parent or
with positive law, but are guardian, voluntarily pays a
contrary to juridical principles sum of money or delivers a
and susceptible of being fungible thing in fulfillment of
annulled; given effect by law the obligation, there shall be no
Natural obligations: there is a right to recover the same from
juridical tie the obligee who has spent or
consumed it in good faith.
C. As distinguished from moral (1160A)
obligations: duties of conscience
completely outside of the field Art. 1428. When, after an
of law action to enforce a civil
D. Conversion to civil obligation obligation has failed the
1. By novation defendant voluntarily performs
2. By ratification the obligation, he cannot
demand the return of what he
has delivered or the payment of
the value of the service he has

Art. 1429. When a testate or

E. Examples – Arts. 1424-1430 intestate heir voluntarily pays a
Art. 1424. When a right to debt of the decedent exceeding
sue upon a civil obligation has the value of the property which
lapsed by extinctive he received by will or by the
prescription, the obligor who law of intestacy from the estate
voluntarily performs the of the deceased, the payment
contract cannot recover what is valid and cannot be
rescinded by the payer.
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 113
-origin in equity
Art. 1430. When a will is -a bar which precludes
declared void because it has a person from denying,
not been executed in or asserting anything
accordance with the to the contrary of that
formalities required by law, which has in
but one of the intestate heirs, contemplation of law
after the settlement of the been established
debts of the deceased, pays a as the truth, either by
legacy in compliance with a the acts of judicial or
clause in the defective will, legislative officer, or
the payment is effective and by his own deed or
irrevocable. representation either
expressed or implied
-whenever a party has, by his
own declaration, act or
omission, intentionally and
deliberately led another to
believe a particular thing to be
true, and to act upon such
belief, he cannot, in any
litigation arising out of such
declaration, act or omission, be
permitted to falsify it.

B. Kinds
1. Technical estoppel
a. By record
-the preclusion to deny the
truth of matters set for him a
record, whether judicial or
legislative and also to deny
the facts adjudicated by a
court of competent jurisdiction

example: the conclusiveness

of a judgment on the parties
to a case
b. By deed –
-a bar which precludes one
party to a deed and his privies
from asserting as against the
other party and the other
party or from denying the
truth of any material facts
asserted in it.

Art. 1433. Estoppel may be in

pais or by deed.
A. Definition – Art. 1431. 3. Equitable estoppel or estoppel
Through estoppel an in pais – Art. 1433
admission or representation is -applied to a situation where
rendered conclusive upon the because of something he has
person making it, and cannot done or omitted to do, a
be denied or disproved as party is denied the right to
against the person relying plead or prove an otherwise
thereon. important fact

Simoun Antonio Montelibano Salinas - 2002-24124

[ C 2011 ] [ UP COLLEGE OF LAW ] 114
C. Persons bound – (3) The party misled must have
Art. 1439. Estoppel is been unaware of the true facts;
effective only as between the and
parties thereto or their
successors in interest. (4) The party defrauded must
have acted in accordance with
D. Cases where estoppel applies the misrepresentation.
– Arts. 1434-1438
Art. 1434. When a person Art. 1438. One who has allowed
who is not the owner of a another to assume apparent
thing sells or alienates and ownership of personal property
delivers it, and later the seller for the purpose of making any
or grantor acquires title transfer of it, cannot, if he
thereto, such title passes by received the sum for which a
operation of law to the buyer pledge has been constituted,
or grantee. set up his own title to defeat
-a person who sells the pledge of the property,
property when he did made by the other to a pledgee
not have title to it, who received the same in good
cannot deny validity faith and for value.
to the sale after
he has acquired title

Art. 1435. If a person in

representation of another
sells or alienates a thing, the
former cannot subsequently
set up his own title as against
the buyer or grantee.

Art. 1436. A lessee or a bailee

is estopped from asserting
title to the thing leased or
received, as against the lessor
or bailor.

Art. 1437. When in a contract

between third persons
concerning immovable
property, one of them is
misled by a person with
respect to the ownership or
real right over the real estate,
the latter is precluded from
asserting his legal title or
interest therein, provided all
these requisites are present:

(1) There must be fraudulent
Chapter I. General Provisions
representation or wrongful
concealment of facts known to
A. Definition
the party estopped;
Trust is the legal relationship
between one person having an
(2) The party precluded must
equitable ownership in property
intend that the other should
and another person owning the
act upon the facts as
legal title to such property,
the equitable ownership of the
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 115
former entitling him to the any interest therein may be
performance of certain duties proved by parol evidence.
and the exercise of certain
powers by the latter
b. Form –
-a fiduciary relationship with Art. 1444. No particular words
respect to property subjecting are required for the creation of
the person holding the same an express trust, it being
to the obligation of dealing sufficient that a trust is clearly
with the property benefit intended.
of another person
- it is possible to create a
B. Governing rules – trust without using the word
Art. 1442. The principles of ‘trust’ or ‘trustee’. The mere
the general law of trusts, fact that these words are used
insofar as they are not in does not necessarily indicate
conflict with this Code, the an intention to create a trust
Code of Commerce, the Rules
of Court and special laws are c. Want of trustee –
hereby adopted. Art. 1445. No trust shall fail
because the trustee appointed
C. Parties – declines the designation, unless
Art. 1440. A person who the contrary should appear in
establishes a trust is called the instrument constituting the
the trustor; one in whom trust.
confidence is reposed as
regards property for the -equity will not allow a trust
benefit of another person is to fail for want of a trustee is
known as the trustee; and the clearly established
person for whose benefit the
trust has been created is d. Acceptance by the beneficiary
referred to as the beneficiary. – Art. 1441. Trusts are either
express or implied. Express
trusts are created by the
1. Trustor, who establishes or intention of the trustor or of the
creates trust parties. Implied trusts come
2. Trustee, who holds the property into being by operation of law.
in trust
3. Beneficiary or cestui que , 2. Implied Trusts
the person for whose benefit a. How established – Art. 1441
the property is held by the b. How proved –
trustee Art. 1457. An implied trust
4. Trust property, which is held may be proved by oral
by the trustee for the evidence.

c. Examples – Arts. 1448-1456

D. Kinds – Art. 1448. There is an implied
Art. 1441. Trusts are either trust when property is sold, and
are created by the intention of the legal estate is granted to
the trustor or of the parties. one party but the price is paid
Implied trusts come into by another for the purpose of
being by operation of law. having the beneficial interest of
the property. The former is the
1. Express Trusts trustee, while the latter is the
a. Proof required – beneficiary. However, if the
Art. 1443. No express trusts person to whom the title is
concerning an immovable or
Simoun Antonio Montelibano Salinas - 2002-24124
[ C 2011 ] [ UP COLLEGE OF LAW ] 116
conveyed is a child, legitimate Art. 1454. If an absolute
or illegitimate, of the one conveyance of property is made
paying the price of the sale, in order to secure the
no trust is implied by law, it performance of an obligation of
being disputably presumed the grantor toward the grantee,
that there is a gift in favor of a trust by virtue of law is
the child. established. If the fulfillment of
the obligation is offered by the
Art. 1449. There is also an grantor when it becomes due,
implied trust when a donation he may demand the
is made to a person but it reconveyance of the property
appears that although the to him.
legal estate is transmitted to
the donee, he nevertheless is Art. 1455. When any trustee,
either to have no beneficial guardian or other person
interest or only a part thereof. holding a fiduciary relationship
uses trust funds for the
Art. 1450. If the price of a purchase of property and
sale of property is loaned or causes the conveyance to be
paid by one person for the made to him or to a third
benefit of another and the person, a trust is established
conveyance is made to the by operation of law in favor of
lender or payor to secure the the person to whom the funds
payment of the debt, a trust belong.
arises by operation of law in
favor of the person to whom Art. 1456. If property is
the money is loaned or for acquired through mistake or
whom its is paid. The latter fraud, the person obtaining it
may redeem the property and is, by force of law, considered a
compel a conveyance thereof trustee of an implied trust for
to him. the benefit of the person from
whom the property comes.
Art. 1451. When land passes -mutual mistake
by succession to any person
and he causes the legal title Why you must know the
to be put in the name of difference among trusts?
another, a trust is established -If the person to whom the title is conveyed is
by implication of law for the a child, no trust is implied by law, it being
benefit of the true owner. disputably presumed that there is a gift in
favor of the child.
Art. 1452. If two or more
persons agree to purchase
property and by common
consent the legal title is taken
in the name of one of them
for the benefit of all, a trust is
created by force of law in
favor of the others in
proportion to the interest of

Art. 1453. When property is

conveyed to a person in
reliance upon his declared
intention to hold it for, or
transfer it to another or the
grantor, there is an implied
trust in favor of the person
whose benefit is

Simoun Antonio Montelibano Salinas - 2002-24124