UST Golden Notes 2011 Obligations and Contracts Libre

OBLIGATIONS
OBLIGATIONS ACTIVE SUBJECT

I. DEFINITION Q: Who is an active subject?

Q: What is an obligation? A: One who is demanding the performance of the
obligation. It is he who in his favor the obligation
A: It is a juridical necessity to give, to do, or not to is constituted, established or created. He is called
do. (Art. 1156, NCC) the creditor (CR) or obligee.

It is a juridical relation whereby a person PASSIVE SUBJECT
(creditor) may demand from another (debtor) the
observance of a determinative conduct (giving, Q: Who is a passive subject?
doing, or not doing), and in case of breach, may
demand satisfaction from the assets of the latter. A: One bound to perform the prestation to give,
(Arias Ramos) to do, or not to do. He is called the debtor (DR) or
obligor. (Pineda, Obligations and Contracts, p. 2,
Note: Art. 1156 refers only to civil obligations which 2000 ed)
are enforceable in court when breached. It does not
cover natural obligations (Arts. 1423‐1430, NCC) Note: When there is a right there is a corresponding
because these are obligations that cannot be obligation. Right is the active aspect while obligation
enforced in court being based merely on equity and is the passive aspect. Thus, it is said that the
natural law and not on positive law. (Pineda, concepts of credit and debt are two distinct aspects
Obligations and Contracts, 2000 ed, p. 3) of unitary concept of obligation. (Pineda, Obligations
and Contracts, p. 2, 2000 ed)
II. ELEMENTS OF AN OBLIGATION
OBJECT
Q: What are the elements of an obligation?
Q: What are the requisites of a valid object?
A: JAPOC
1. Juridical or legal tie – vinculum juris; A: The object must be:
2. Active subject – obligee or creditor; 1. licit or lawful;
3. Passive subject – obligor or debtor; 2. possible, physically & judicially;
4. Object – prestation; and 3. determinate or determinable; and
5. Cause – efficient cause is the same with 4. pecuniary value or possible equivalent
vinculum juris. in money.

VINCULUM JURIS Note: Absence of either of the first three (licit,
possible and/or determinate) makes the object void.
Q: What is vinculum juris?
Form is not generally considered essential, though
A: It is the efficient cause or juridical tie by virtue sometimes it is added as the 5threquisite.There is no
of which the debtor has become bound to particular form to make obligations binding, except
perform the prestation. in certain rare cases. (Tolentino, Civil Code of the
Philippines, Vol. IV, 2002 ed. p. 57)
Q: How is vinculum juris established?
III. DIFFERENT KINDS OF PRESTATION
A: By:
1. law (i.e. – relation of husband and wife Q: What is prestation?
for support)
2. bilateral acts (i.e. – contracts) A: It is a conduct that may consist of giving, doing,
3. unilateral acts (i.e. – crimes and quasi‐ or not doing something.
delicts)(Tolentino, Civil Code Vol. IV, p.
Note: It is the conduct that must be observed by the
59, 1999 ed)
debtor/obligor.

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II U N I V E R S I T Y O F S A N T O T O M A S
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE C HAIR FOR A DMINISTRATION AND F INANCE : JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011

Q: What are the different kinds of prestation? 2. Performance
Distinguish. a. Positive – to give; to do
b. Negative – not to do
A:
OBLIGATION OBLIGATION TO OBLIGATION 3. Subject matter
TO GIVE DO NOT TO DO a. Personal – to do; not to do
Consists in the Covers all kinds b. Real – to give
delivery of a of works or
Consists in 4. Object
movable or services
refraining from a. Determinate / specific –
immovable whether
doing some acts particularly designated or
thing to the physical or
creditor mental physically segregated from all
i.e. – Easement others of the same class.
prohibiting b. Generic– is designated merely by
building its class or genus.
proprietor or c. Limited generic– generic objects
i.e. – Contract possessor from confined to a particular class (e.g.
i.e. – Sale,
for professional committing an obligation to deliver one of my
deposit,
services like nuisance(Art. horses) (Tolentino, Civil Code of the
pledge,
painting, 682, NCC), Philippines, Vol. IV, 2002 ed, p. 91)
donation,
antichresis
modeling, restraining order
singing, etc. or injunction 5. Person obliged
(Pineda, a. Unilateral – only one party is
Obligations and bound
Contracts, p. 3, b. Bilateral – both parties are bound
2000 ed)

6. Creation
Q: What are the requisites of a valid prestation? a. Legal – imposed by law (Art. 1158,
NCC)
A: b. Conventional – established by the
1. Possible, physically and juridically; agreement of the parties like
2. Determinate, or at least determinable contracts
according to pre‐established elements
or criteria; and 7. Susceptibility of partial fulfillment
3. Has a possible equivalent in money a. Divisible – obligation is susceptible
(Tolentino, Civil Code Vol. IV, p. 58, 1999 of partial performance
ed). b. Indivisible – obligation is not
susceptible
IV. CLASSIFICATION OF OBLIGATIONS
8. Existence of burden or condition
Q: What are the kinds of obligation? a. Pure – is not burdened with any
condition or term. It is immediately
A: From the viewpoint of: demandable.
1. Sanction b. Conditional – is subject to a
a. Civil – gives a right of action to condition which may be suspensive
compel their performance (happening of which shall give rise
b. Natural– not based on positive law to the obligation) or resolutory
but on equity and natural law; (happening terminates the
does not grant a right of action to obligation).
enforce their performance, but
after voluntary fulfillment by the 9. Character of responsibility or liability
obligor, they authorize retention of a. Joint – each debtor is liable only
what has been delivered/ rendered for a part of the whole liability and
by reason thereof. to each creditor shall belong only a
c. Moral– cannot be enforced by part of the correlative rights
action but are binding on the party b. Solidary – a debtor is answerable
who makes it in conscience and for the whole of the obligation
natural law. without prejudice to his right to

CIVIL LAW TEAM:
ADVISER: ATTY. ELMER T. RABUYA; SUBJECT HEAD: ALFREDO B. DIMAFELIX II;
ASST. SUBJECT HEADS: KAREN FELIZ G. SUPNAD, LAMBERTO L. SANTOS III; MEMBERS: PAUL ELBERT E. AMON, ALSTON ANARNA, OZAN J.
FULLEROS, CECILIO M. JIMENO, JR., ISMAEL SARANGAYA, JR.; CONTRIBUTORS: LOISE RAE G. NAVAL, MONICA JUCOM

OBLIGATIONS
collect from his co‐debtors the substitution of the first one (Art.
latter’s shares in the obligation 1206, NCC)
(Art. 1207, NCC)
11. Imposition of penalty
10. Right to choose and substitution a. Simple – there is no penalty
a. Alternative – obligor may choose imposed for violation of the terms
to completely perform one out of thereof
the several prestations(Art. 1199, b. Obligation with penalty –
NCC) obligation which imposes a penalty
b. Facultative – only one prestation for violation (Art. 1226, NCC)
has been agreed upon, but the (Pineda, Obligations and Contracts,
obligor may render one in 2000 ed, p. 5‐7)

V. SOURCES OF OBLIGATIONS

Q: What are the sources of obligations? Distinguish.

A: LCQ‐DQ
Sources Obligations Perfection
Law ex lege From the time designated by the law creating or regulating them.
GR: From the time of the perfection of the contract (i.e. meeting of
the minds)

XPNs:
Contracts ex contractu 1. When the parties made stipulation on the right of the creditor
to the fruits of the thing
2. When the obligation is subject to a suspensive condition or
period; arises upon fulfillment of the condition or expiration of
the period.
Quasi‐
ex quasi‐contractu
contracts
ex maleficio or ex
Delicts From the time designated by the law creating or regulating them.
delicto
Quasi‐ ex quasi maleficio or ex
delict quasi‐ delicto

Note: The enumeration is exclusive.

A. OBLIGATION EX LEGE B. OBLIGATION EX CONTRACTU

Q: What are the characteristics of a legal Q: What are the requisites for a contract to give
obligation or an obligation ex lege? rise to obligations ex contractu?

A: A:
1. Does not need the consent of the 1. It must contain all the essential
obligor; requisites of a contract
2. Must be expressly set forth in the law 2. It must not be contrary to law, morals,
creating it and not merely presumed; good customs, public order, and public
and policy
3. In order that the law may be a source of
obligation, it should be the creator of Q: What is “compliance in good faith”?
the obligation itself.
A: It is performance in accordance with the
Q: What governs obligations arising from law? stipulation, clauses, terms and conditions of the
contract.
A: These obligations shall be regulated by the
provisions of the law which establishes them. The Note: The contract is the “law” between the parties.
Civil Code is applicable suppletorily.

Q: May a party unilaterally evade his obligation 1. Negotiorium gestio (inofficious
in the contract? manager) – arises when a person
voluntarily takes charge of the
A: management of the business or
GR:Neither party may unilaterally evade his property of another without any power
obligation in the contract. from the latter.
2. Solutio indebiti (unjust enrichment)–
XPNs:Unilateral evasion is allowed when the: takes place when a person receives
1. contract authorizes such evasion something from another without any
2. other party assents thereto right to demand for it, and the thing
was unduly delivered to him through
Q: Is there a limitation on the right of the parties mistake.
to freely enter into stipulations?
Note: The delivery must not be through liberality or
A: Yes. Parties may freely enter into any some other cause.
stipulations provided such are not contrary to
law, morals, good customs, public order or public NEGOTIORUM GESTIO
policy
Q: Upon the declaration of martial rule in the
Q: What governs obligations arising from Philippines, X, together with his wife and
contracts? children, disappeared from his residence along
Ermita, Manila. Years passed without Y hearing
A: from X and his family. Y continued taking care of
GR:These obligations shall be governed X’s house, even causing minor repairs to be done
primarily by the stipulations, clauses, terms at his house to preserve it. In 1976, when
and conditions of the parties’ agreements. business began to perk up in the area, Z,
approached Y and proposed that they build
XPN: Contracts with prestations that are stores at the ground floor of the house and
unconscionable or unreasonable. convert its second floor into a pension house. Y
agreed to Z’s proposal and together they spent
Note: In case of unconscionable penalty for for the construction of stores at the ground floor
breach of contract (Art. 1229, NCC), or liquidated and the conversion of the second floor into a
damages (Art. 2226, NCC), the same may be pension house. While construction was going on,
reduced by the court. (Pineda, Obligations and fire occurred at a nearby house. The houses at
Contracts, p.13, 2000 ed) the entire block, including X’s, were burned.
After the EDSA revolution in February 1986, X
and his family returned from the United States
C. OBLIGATION EX QUASI ‐ CONTRACTU where they took refuge in 1972.

Q: What is quasi‐contract? Upon learning of what happened to his house, X
sued Y for damages. Y pleaded as a defense that
A: It is a juridical relation arising from lawful, he merely took charge of his house under the
voluntary and unilateral acts based on the principle of negotiorum gestio. He was not liable
principle that no one should unjustly enrich as the burning of the house is a fortuitous event.
himself at the expense of another.
Is Y liable to X for damages under the foregoing
Q: What is presumptive consent? circumstance?

A: Since a quasi‐contract is a unilateral contract A: No. Y is not liable for damages, because he is a
created by the sole act or acts of the gestor, there gestor in negotiorum gestio(Art. 2144,
is no express consent given by the other party. NCC).Furthermore, B is not liable to A for any
The consent needed in a contract is provided by fortuitous event because he did not commit any
law through presumption. (Pineda, Obligations of the instances provided under Art. 2147 of the
and Contracts, p. 15, 2000 ed) Civil Code:
1. He did not undertake risky operation
Q: What are the principal forms of quasi‐ which the owner was not accustomed to
contracts? embark upon;
2. He has not preferred his own interest to
A: that of the owner;

CIVIL LAW TEAM:

OBLIGATIONS
3. He has not failed to return the property or officers. GSIS sought the restoration of the said

business after demand of the owner; and disallowed benefits but the court ruled that such
4. He has not assumed the management in restoration cannot be enforced against X’s
bad faith. (1993 Bar Question) retirement benefits as this is expressly
prohibited by law under R.A. 8291. Is X obliged
Q: In fear of reprisals from lawless elements to return the benefits improperly received by
besieging his barangay, X abandoned his him under the principle of solutio indebiti?
fishpond, fled to Manila and left for Europe.
Seeking that the fish in the fishpond were ready A: Yes. It cannot be denied that X was a recipient
for harvest, Y, who is in the business of of benefits that were properly disallowed by the
managing fishponds on a commission basis, took COA. These COA disallowances would otherwise
possession of the property, harvested the fish have been deducted from his salaries. The GSIS
and sold the entire harvest to Z. can no longer recover these amounts by any
administrative means due to the specific
Thereafter, Y borrowed money from W and used exemption of retirement benefits from COA
the money to buy new supplies of fish fry and to disallowances. X resultantly retained benefits to
prepare the fishpond for the next crop. which he was not legally entitled which, in turn,
gave rise to an obligation on his part to return the
1. What is the juridical relation between amounts under the principle of solutio indebiti.
X and Y during X's absence? (GSIS v. COA, G.R. No. 138381, Nov. 10, 2004;
2. Upon the return of X to the barangay, GSIS v. Pineda, et. al., G.R. No. 141625, Nov. 10,
what are the obligations of Y to X as 2004).
regards the contract with Z?
3. Upon X's return, what are the D. OBLIGATIONS EX DELICTO
obligations of X as regards Y's contract
with W? Q: What is the basis for civil liability arising from
4. What legal effects will result if X delicts as according to the penal code?
expressly ratifies Y's management and
what would be the obligations of X in A: Art. 100 of the Revised Penal Code provides
favor of Y? that: “Every person criminally liable for a felony is
also civilly liable.”
Explain all your answers.
Q: What is delict?
A:
1. The juridical relation is that of the A: It is an act or omission punished by law.
quasi‐contract of "negotiorum gestio". Y
is the "gestor" or "officious” manager" E. OBLIGATIONS EX QUASI – DELICTO
and X is the "owner" (Art. 2144, NCC).
2. Y must render an account of his Q: What is quasi‐delict or tort?
operations and deliver to X the price he
received for the sale of the harvested A: It is an act or omission arising from fault or
fish. (Art. 2145, NCC). negligence which causes damage to another,
3. X must pay the loan obtained by Y from there being no pre‐existing contractual relations
W because X must answer for between the parties.
obligations contracted with third
persons in the interest of the owner Q: What are the elements of a quasi‐delict?
(Art. 2150, NCC).
4. Express ratification by X provides the A:
effects of an express agency and X is 1. Act or omission;
liable to pay the commissions habitually 2. Fault or negligence attributable to the
received by the gestor as manager (Art. person charged;
2149, NCC). (1992 Bar Question) 3. Damage or injury;
4. Direct relation of cause and effect
SOLUTION INDEBITI between the act arising from
fault/negligence and the damage or
X received his full retirement benefits including injury (proximate cause); and
those monetary benefits that were properly 5. No pre‐existing contractual relation
disallowed by COA to be granted to public between the parties.

Q: What is the scope of civil liability? VI. NATURE AND EFFECTS OF OBLIGATIONS

A: RRI A. OBLIGATION TO GIVE
1. Restitution;
2. Reparation for damage caused; and Q: In an obligation to deliver a thing, what are
3. Indemnity for consequential damages. the obligations of the debtor?

F. NATURAL OBLIGATIONS A: It depends upon the kind of obligation.

Q: What are natural obligations? SPECIFIC GENERIC
Deliver the thing which is
A: They are real obligations to which the law Deliver the thing agreed
neither of superior nor
denies an action, but which the debtor may upon (Art. 1165, NCC)
inferior quality
perform voluntarily.
Take care of the thing Specific performance i.e.

with the proper diligence delivery of another thing
Q: What are the instances of natural obligations? of a good father of a within the same genus as
family unless the law the thing promised if
A: requires or parties such thing is damaged
1. Performance after the civil obligation stipulate another due to lack of care or a
has prescribed; standard of care (Art. general breach is
2. Reimbursement of a third person for a 1163, NCC) committed
debt that has prescribed; If the object is generic,
3. Restitution by minor after annulment of Deliver all accessions, but the source is
contract; accessories and fruits of specified or delimited,
4. Delivery by minor of money or fungible the thing (Art. 1166, NCC) the obligation is to
thing in fulfillment of obligation; preserve the source
5. Performance after action to enforce
Pay damages in case of Pay damages in case of
civil obligation has failed; breach of obligation by breach of obligation by
6. Payment by heir of debt exceeding reason of delay, fraud, reason of delay, fraud,
value of property inherited; and negligence, negligence,
7. Payment of legacy after will has been contravention of the contravention of the
declared void. tenor thereof tenor thereof (Art. 1170)
Obligation is not
Q: Distinguish natural from civil obligation. Fortuitous event
extinguished (genus
extinguishes the
nunquamperuit – genus
A: obligation
never perishes)
NATURAL OBLIGATION CIVIL OBLIGATION

Based from law,
Based on equity and contracts, quasi‐
natural law contracts, delicts, and
quasi‐delicts
Can be enforced in court
Cannot be enforced in
because the obligee has a
court because the
right of action
obligee has no right of
(Pineda,Obligations and
action to compel its
Contracts, 2000 ed, p.
performance
636)

Q: May natural obligations be converted into
civil obligations?

A: Yes, by way of novation. The natural obligation
becomes a valid cause for a civil obligation after it
has been affirmed or ratified anew by the debtor.
(Pineda, Obligations and Contracts, 2000 ed, p.
634)

CIVIL LAW TEAM:

OBLIGATIONS
Q: In failing to deliver a thing, what are the Q: What is the principle of “balancing of
remedies of the creditor? equities” as applied in actions for specific
performance?
A:
SPECIFIC OBLIGATION GENERIC OBLIGATION A: In decreeing specific performance, equity
Specific performance requires not only that the contract be just and
(delivery of any thing equitable in its provisions, but that the
Specific performance consequences of specific performance, is likewise
belonging to the same
species) be just and equitable. The general rule is that this
equitable relief will not be granted if, under the
Rescission (action to Ask that the obligation
circumstances of the case, the result of the
rescind under Art. 1380, be complied with at the
NCC) debtor’s expense specific performance of the contract would be
harsh, inequitable, and oppressive or result in an
Resolution or specific
Resolution (action for unconscionable advantage to the plaintiff
performance, with
cancellation under Art. (Agcaoili v. GSIS, G.R. No. 30056, Aug. 30, 1988).
damages in either case
1191, NCC)
(Art. 1191, NCC)
B. OBLIGATION TO DO OR NOT TO DO
Damages, in both cases (Art. 1170, NCC)
Q: What are the types of personal obligations?
Note:May be exclusive or in addition to the above‐

mentioned remedies(Pineda, Obligations and
A:
Contracts, 2000 ed, p. 37)
1. positive‐ to do
2. negative‐ not to do
Note: In obligation to deliver a specific thing, the

creditor has the right to demand preservation of the
Q: What are the remedies in personal
thing, its accessions, accessories, and the fruits. The
obligations?
creditor is entitled to the fruits and interests from
the time the obligation to deliver the thing arise. A:
Q: What is the nature of the right of the creditor 1. positive personal obligations
with respect to the fruits? a. not purely personal act‐ to
have obligation executed at
A: debtor's expense plus
1. Before delivery – personal right damages
2. After delivery – real right b. purely personal act‐ damages
only.
Note: The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises. Note; same rule applies if obligation is done in
However, he shall acquire no real right over it until contravention of the terms of the obligation.
the same has been delivered to him (Art. 1164, NCC).
2. Negative personal obligation‐ to have
Q: Distinguish personal right from real right. the prohibited thing undone plus
damages. However, if thing cannot be
A: physically or legally undone, only
damages may be demanded.
PERSONAL REAL

Jus ad rem Jus in re Q: Is specific performance a remedy in personal
Enforceable only against obligations?
Enforceable against the
a definite person/group
whole world
of persons A: No. Otherwise this may amount to involuntary
Right to demand from servitude which is prohibited by the Constitution.
Right over a specific
another, as a definite
thing, without a definite
passive subject, the Q: When may a thing be ordered undone?
passive subject against
fulfillment of the A:
whom the right may be
prestation to give, to do 1. if made poorly
personally enforced.
or not to do. 2. negative personal obligations
Has a definite passive No definite passive
subject subject


C. BREACHES OF OBLIGATIONS 2. Where it would be physically or legally
impossible to undo what has been
Q: What are the forms of breach of obligations? undone – because of:
a. the very nature of the act itself;
A: b. a provision of law; or
1. Voluntary –debtor is liable for damages c. conflicting rights of third persons.
if he is guilty of:
a. default (mora) Note: In either case, the remedy is to seek recovery
b. fraud (dolo) for damages.
c. negligence (culpa)
d. breach through contravention of DEFAULT (MORA))
the tenor thereof
Q: When does delay or default arise?
2. Involuntary – debtor is unable to
perform the obligation due to fortuitous A: Those obliged to deliver or to do something
event thus not liable for damages incur in delay from the time the obligee judicially
or extrajudicially demands from them the
Q: What is the concept of a good father of the fulfillment of their obligation.
family?
In reciprocal obligations, neither party incurs in
A: The Supreme Court described a good father of delay if the other does not comply in a proper
a family by first stating who is not. He is not and is manner with what is incumbent upon him. From
not supposed to be omniscient of the future; the moment one of the parties fulfills his
rather, he is one who takes precautions against obligations, delay by the other begins. (Art. 1169,
any harm when there is something before him to NCC)
suggest or warn him of the danger or to foresee
it(Picart v. Smith, G.R. No. L‐12406, Mar. 15, Q: What are the requisites of delay?
1918).
A:
1. COMPLETE FAILURE TO PERFORM 1. Obligation must be due, demandable
and liquidated;
Q: What are the effects of breach of obligation? 2. Debtor fails to perform his positive
obligation on the date agreed upon;
A: If a person obliged to do something fails to do 3. A judicial or extra‐judicial demand made
it, or if he does it in contravention of the tenor of by the creditor upon the debtor to
the obligation, the same shall be executed at his fulfill, perform or comply with his
cost. And what has been poorly done, be undone. obligation; and
(Art. 1167, NCC) 4. Failure of the debtor to comply with
such demand.
When the obligation consists in not doing, and
the obligor does what has been forbidden him, it Note: In reciprocal obligations, the moment one
shall also be undone at his expense. (Art.1168, party is ready to comply with his obligation, delay by
NCC) the other begins. There is no need for demand from
either party.
Q: What are the instances where the remedy
under Art. 1168 is not available? 2. DELAY

A: Q: What are the kinds of delay or default?
1. Where the effects of the act which is
forbidden are definite in character – A:
even if it is possible for the creditor to 1. Mora solvendi – default on the part of
ask that the act be undone at the the debtor/obligor
expense of the debtor, consequences a. Ex re – default in real obligations
contrary to the object of the obligation (to give)
will have been produced which are b. Ex personae – default in personal
permanent in character. obligations (to do)

2. Mora accipiendi – default on the part of
the creditor/obligee

CIVIL LAW TEAM:

OBLIGATIONS
3. Compensatio morae – default on the MORA ACCIPIENDI

part of both the debtor and creditor in
reciprocal obligations Q: What are the requisites of mora accipiendi?

MORA SOLVENDI A:
1. Offer of performance by a capacitated
Q: What are the requisites of mora solvendi? debtor;
2. Offer must be to comply prestation as it
A: should be performed; and
1. Obligation pertains to the debtor; 3. Refusal of the creditor without just
2. Obligation is determinate, due and cause.
demandable, and liquidated;
3. Obligation has not been performed on Q: What are the effects of mora accipiendi?
its maturity date;
4. There is judicial or extrajudicial demand A:
by the creditor; 1. Responsibility of DR is limited to fraud
5. Failure of the debtor to comply with and gross negligence
such demand 2. DR is exempted from risk of loss of
thing; CR bears risk of loss
Q: Does mora solvendi apply in natural 3. Expenses by DR for preservation of
obligations? thing after delay is chargeable to CR
4. If the obligation bears interest, DR does
A: No (Art. 1423, NCC), because performance is not have to pay from time of delay
optional or voluntary on the debtor’s part. 5. CR liable for damages
6. DR may relieve himself of obligation by
Q: Does mora solvendi apply in negative consigning the thing
obligations?
Q: What are the rules on default?
A: No because one can never be late in not giving
or doing something. A:
1. Unilateral obligations
Q: What are the effects of mora solvendi? GR: Default or delay begins from
extrajudicial or judicial demand – mere
A: expiration of the period fixed is not
1. Debtor may be liable for damages or enough in order that DR may incur
interests; and delay.
2. When it has for its object a determinate
thing, debtor may bear the risk of loss XPNs:
of the thing even if the loss is due to a. The obligation or the law expressly
fortuitous event (Art. 1165, NCC). so dictates;
b. Time is of the essence;
Q: May the debtor’s liability be mitigated even if c. Demand would be useless, as DR
he is guilty of delay? has rendered it beyond his power
to perform; or
A: Yes. If the debtor can prove that loss would d. DR has acknowledged that he is in
nevertheless transpire even if he had not been in default.
default, the court may equitably mitigate his
liability. (Art. 2215 (4), NCC; Pineda, Obligations 2. Reciprocal obligations
and Contracts, 2000 ed., p. 47) GR: Fulfillment by both parties should
be simultaneous.

XPN: When different dates for the
performance of obligation is fixed by
the parties.


Q: What are reciprocal obligations? WAIVER OF FUTURE FRAUD

A: These are obligations created and established Q: May an action arising from fraud be waived?
at the same time, out of the same cause and
which results in the mutual relationship between A: With respect to fraud that has already been
the parties. committed, the law does not prohibit
renunciation of the action for damages based on
Q: In reciprocal obligations, when does a party the same. However, the law does prohibit any
incur in delay? waiver of an action for future fraud since the
same is contrary to law and public policy.
A: In reciprocal obligations one party incurs in
delay from the moment the other party fulfills his Note: Waiver of past fraud is valid since such can be
deemed an act of generosity. What is renounced is
obligation, while he himself does not comply or is
the effect of fraud, particularly the right to
not ready to comply in a proper manner with
indemnity.
what is incumbent upon him.

Q: What are the kinds of fraud? Distinguish.
Q: In reciprocal obligations, when is demand

necessary in order for a party to incur in delay?
A:

FRAUD DURING THE FRAUD DURING THE
A: Only when the respective obligations are to be
PERFECTION OF THE PERFORMANCE OF THE
performed on separate dates. CONTRACT OR CAUSAL OBLIGATION OR
FRAUD INCIDENTAL FRAUD
Q: What is the effect of non‐compliance of both (ART. 1338) (ART. 1344)
parties in reciprocal obligations? When Employed
During the performance
A: If neither party complies with his prestation, Before or during the
of a
default of one compensates for the default of the perfection of a contract
pre‐existing obligation
other. Purpose of Execution
To secure the consent of To evade the normal
Q: What may cause the cessation of the effects another to enter into the fulfillment of the
of mora? contract obligation
Resultant Effect
A:
Vitiation of consent Breach of an obligation
1. Renunciation (express/implied); or
2. Prescription. Status of the Contract
Voidable Valid
3. FRAUD
Right or Remedy of Aggrieved Party

Right of innocent party Right of innocent
Q: What is fraud?
to annul the contract party/creditor to claim

with damages for damages
A: It is an intentional evasion of the faithful

performance of the obligation (8 Manresa 72).
Q: What are the remedies of the defrauded

party?
Q: What type of fraud must be present in order

that the obligor may be held liable for damages?
A:

1. Specific performance (Art. 1233, NCC)
A: The fraud must be incidental fraud, or that
2. Resolution of the contract (Art. 1191,
which is present during the performance of the
NCC)
obligation, and not causal fraud, or fraud
3. Damages, in either case
employed in the execution of a contract, which

vitiates consent.

CIVIL LAW TEAM:

OBLIGATIONS
4. NEGLIGENCE relation contractual relation

The source of
Q: Distinguish fraud from negligence. obligation of
The source of obligation
defendant to pay
A: is defendant’s
damages is the breach
negligence itself
Fraud Negligence or non‐fulfillment of
There is no deliberate the contract
There is deliberate intention to cause Proof of the existence
intention to cause damage or injury even if of the contract and of
The negligence of the
damage the act was done its breach or non‐
defendant must be
voluntarily fulfillment is sufficient
proved
prima facie to warrant
Liability cannot be Liability may be recovery
mitigated mitigated Proof of diligence in
Proof of diligence in the
GR: Waiver for future the selection &
selection & supervision
negligence may be supervision of the
of the employees is a
allowed in certain cases employees is not an
defense
available defense
Waiver for future fraud
is void
XPN:Nature of the
obligation or public Q: What is the degree of diligence required?
policy requires
extraordinary diligence A:
(e.g. common carrier) 1. That agreed upon
2. In the absence of such, that which is
Note: When negligence is so gross that it amounts to required by the law
wanton attitude on the part of the debtor, the laws 3. In the absence of the foregoing,
in case of fraud shall apply. diligence of a good father of a family –
that reasonable diligence which an
Where negligence shows bad faith (i.e., deliberately ordinary prudent person would have
committed) it is considered equivalent to fraud. Any done under the same circumstances.
waiver of an action for future negligence of this kind XPN:Common carriers requiring
is therefore void. (De Leon, Obligations and Contract, extraordinary diligence (Arts. 1998‐
2003 ed., p. 57)
2002)

Q: What are the effects of contributory
5. CONTRAVENTION OF TENOR OF OBLIGATION
negligence of the creditor?
(VIOLATIO)

A:
Q: What is violation of the terms of the
GR:It reduces or mitigates the damages which
contract?
he can recover.

A: It is the act of contravening the tenor or terms
XPN:If the negligent act or omission of the
or conditions of the contract. It is also known as
creditor is the proximate cause of the event
“violatio,”i.e. failure of common carrier to take its
which led to the damage or injury complained
passenger to their destination.(Pineda,
of, he cannot recover.
Obligations and Contracts, 2000 ed, p. 50)

Q: Distinguish culpa contractual from culpa Note: Under Art. 1170, NCC, the phrase “in any
aquiliana. manner contravene the tenor” of the obligation
includes any illicit act which impairs the strict and
A: faithful fulfillment of the obligation, or every kind of
CULPA defective performance.
CULPA CONTRACTUAL
(CONTRACT)
AQUILIANA(QUASI‐
DELICT)
Negligence is merely
Negligence is
an incident in the
substantive and
performance of an
independent
obligation
There is always a pre‐ There may or may not be
existing contractual a pre‐existing

6. FORTUITOUS EVENT Q: Is there liability for loss due to fortuitous
event?
Q: What is fortuitous event?
A:
A: It is an occurrence or happening which could GR: There is no liability for loss in case of
not be foreseen, or even if foreseen, is inevitable fortuitous event.
(Art. 1174, NCC).
XPNs: LaNS‐PCBaG
Q: What are the requisites of a fortuitous event? 1. Law
2. Nature of the obligation requires the
A: assumption of risk
1. Cause is independent of the will of the 3. Stipulation
debtor; 4. The debtor is guilty of dolo, malice or
2. The event is unforeseeable or bad faith, has Promised the same thing
unavoidable; to two or more persons who does not
3. Occurrence renders it absolutely have the same interest
impossible for the debtor to fulfill his 5. The debtor Contributed to the loss (Tan
obligation in a normal manner; v. Inchausti & Co., G.R. No. L‐6472, Mar.
impossibility must be absolute not 7, 1912)
partial, otherwise not force majeure; 6. The possessor is in Bad faith (Art. 552)
and 7. The obligor is Guilty of fraud, negligence
4. Debtor is free from any participation in or delay or if he contravened the tenor
the aggravation of the injury to the of the obligation (Juan Nakpil v. United
creditor. Construction Co., Inc. v. CA, G.R. No. L‐
47851, Apr. 15, 1988)
Note: The fortuitous event must not only be the
proximate cause but it must also be the only and Q: Philcomsat contends that expiration of the
sole cause. Contributory negligence of the debtor RP‐US Military Bases Agreement and non‐
renders him liable despite the fortuitous event. ratification of the treaty is not a fortuitous
(Pineda, Obligations and Contracts, 2000 ed, p. 62) event. Decide.

Q: If the happening of an event is difficult to A: No. The requisites for fortuitous events are
foresee, is it a fortuitous event? present in the instant case. Philcomsat and Globe
had no control over the non‐renewal of the term
A: No. The mere difficulty to foresee the of the RP‐US Military Bases Agreement when the
happening is not impossibility to foresee the same expired in 1991, because the prerogative to
same. (Republic v. Luzon Stevedoring Corp., G.R. ratify the treaty belonged to the Senate. Neither
No. L‐21749, Sept. 29, 1967) did the parties have control over the subsequent
withdrawal of the US military forces and
Q: Distinguish Act of God from Act of Man personnel from Cubi Point. The events made
impossible the continuation of the agreement
A: without fault on the part of either party. Such
ACT OF GOD ACT OF MAN fortuitous events rendered Globe exempt from
Fortuitous event Force majeure payment of rentals for the remainder of the term
Event caused by the of the agreement. (Philippine Communications
Event which is
legitimate or illegitimate Satellite Corp.v.Globe Telecom, Inc.,G.R. No.
absolutely independent
acts of persons other
of human intervention 147324, May 25, 2004)
than the obligor

i.e. – armed invasion,
i.e. – earthquakes, Q: MIAA entered into a compromise agreement
robbery, war(Pineda,
storms, floods, with ALA. MIAA failed to pay within the period
Obligations and
epidemics stipulated. Thus, ALA filed a motion for
Contract, 2000 ed, p. 60)
execution to enforce its claim. MIAA filed a
Note: There is no essential difference between comment and attributed the delays to its being a
fortuitous event and force majuere; they both refer government agency and the Christmas rush. Is
to causes independent of the will of the obligor. the delay of payment a fortuitous event?
(Tolentino, Civil Code of the Philippines, Vol. IV, 2002
ed, p. 127) A: No. The act‐of‐God doctrine requires all human
agencies to be excluded from creating the cause

CIVIL LAW TEAM:

OBLIGATIONS
of the mischief. Such doctrine cannot be invoked 2. On generic obligation – the obligation is
to protect a person who has failed to take steps not extinguished (genus nun quam
to forestall the possible adverse consequences of peruit – genus never perishes)
loss or injury. Since the delay in payment in the
present case was partly a result of human Q: AB Corp. entered into a contract with XY
participation ‐ whether from active intervention Corp. whereby the former agreed to construct
or neglect ‐ the whole occurrence was humanized the research and laboratory facilities of the
and was therefore outside the ambit of a caso latter. Under the terms of the contract, AB Corp.
fortuito. agreed to complete the facility in 18 months, at
the total contract price of P10 million. XY Corp.
First, processing claims against the government paid 50% of the total contract price, the balance
are certainly not only foreseeable and expectable, to be paid upon completion of the work. The
but also dependent upon the human will. Second, work started immediately, but AB Corp. later
the Christmas season is not a casofortuito, but a experienced work slippage because of labor
regularly occurring event. Third, the occurrence unrest in his company. AB Corp.’s employees
of the Christmas season did not at all render claimed that they are not being paid on time;
th
impossible the normal fulfillment of the hence, the work slowdown. As of the 17
obligation. Fourth, MIAA cannot argue that it is month, work was only 45% completed. AB Corp.
free from any participation in the delay. It should asked for extension of time, claiming that its
have laid out on the compromise table the labor problems is a case of fortuitous event, but
problems that would be caused by a deadline this was denied by XY Corp. When it became
falling during the Christmas season. Furthermore, certain that the construction could not be
it should have explained to ALA the process finished on time, XY Corp. sent written notice
involved for the payment of AL’s claim. (MIAA v. cancelling the contract and requiring AB Corp. to
Ala Industries Corp., G.R. No. 147349, Feb. 13, immediately vacate the premises.
2004)
Can the labor unrest be considered a fortuitous
Q: JAL cancelled all its flight to Manila due to the event?
Mt. Pinatubo eruption and NAIA's indefinite
closure. The passengers were then forced to pay A: Labor unrest is not a fortuitous event that will
for their accommodations and meal expenses excuse AB Corp. from complying with its
from their personal funds. Thus, they filed an obligation of constructing the research and
action for damages against JAL. Can JAL avoid laboratory facilities of XY Corp. The labor unrest,
liability by invoking that delays were caused by which may even be attributed in large part to AB
force majeure? Corp. itself, is not the direct cause of non‐
compliance by AB Corp. It is independent of its
A: Yes. The Mt. Pinatubo eruption prevented JAL obligation. It is similar to the failure of a DBP
from proceeding to Manila on schedule. Such borrower to pay her loan just because her
event can be considered as "force majeure" since plantation suffered losses due to the cadang‐
the delayed arrival in Manila was not imputable cadang disease. It does not excuse compliance
to JAL. with the obligation (DBP v. Vda. De Moll).

When JAL was prevented from resuming its flight Additional Answer: The labor unrest in this case
to Manila due to the effects of Mt. Pinatubo is not a fortuitous event. The requisites of
eruption, whatever losses or damages in the form fortuitous event are: (1) the event must be
of hotel and meal expenses the stranded independent of human will or at least of the
passengers incurred, cannot be charged to JAL. debtor’s will; (2) the event could not be foreseen,
Indeed, in the absence of bad faith or negligence, or if foreseen is inevitable; (3) the event must
JAL cannot be liable for the amenities of its have rendered impossible debtor’s compliance of
stranded passengers by reason of a fortuitous the obligation in a proper manner; and (4) the
event. (Japan Airlines v. CA, G.R. No. 118664, Aug. debtor must not be guilty of concurrent
7, 1998). negligence. All the requisites are absent in this
case. AB Corp. could have anticipated the labor
Q: What are the effects of fortuitous event? unrest which was caused by delays in paying the
laborer’s wages. The company could have hired
A: additional laborers to make up for the work
1. On determinate obligation – the slowdown.
obligation is extinguished

Can XY Corp. unilaterally and immediately cancel a. personal rights of the debtor
the contract? b. rights inherent in the person of the
debtor
A: No. XY Corp. cannot unilaterally and c. properties exempt from execution
immediately cancel the contract because there is (e.g.family home)
need for a judicial action of rescission. The
provisions of Art. 1191 of the Civil Code providing 3. Accion pauliana (rescissory action) – an
for rescission in reciprocal obligations can only be action to impugn or assail the acts done
invoked judicially. or contracts entered into by the debtor
in fraud of his creditor;
Alternative Answer: Yes, XY Corp. may
unilaterally cancel the obligation but this is Note: Must be a remedy of last resort,
subject to the risk that the cancellation of the availed of only after all other legal
reciprocal obligation being challenged in court remedies have been exhausted and have
and if AB Corp. succeeds, then XY Corp. will be been proven futile.
declared in default and be liable for damages.
Presupposes a judgment and the issuance
by the trial court of a writ of execution for
Must AB Corp. return the 50% down payment?
the satisfaction of the judgment and the

failure of the Sheriff to enforce and satisfy
A: No, under the principle of quantum meruit, AB the judgment of the court.
Corp. had the right to retain payment
corresponding to his percentage of Note: Resort to the remedies must be in the order
accomplishment less the amount of damages stated above. (Art. 1177, NCC)
suffered by XY Corp. because of the delay or
default. (2008 Bar Question) Q: Saturnino was the registered owner of two
parcels of land. The Adorables were lessees of a
D. REMEDIES portion of Lot No. 1. Saturnino and his son,
Francisco, obtained a loan from Salvador, in
Q: What are the remedies that may be availed of consideration of which they promised to transfer
in case of breach? the possession and enjoyment of the fruits of Lot
No. 2. Saturnino sold to Francisco part of Lot No.
A: 1, which Francisco sold to Jose Ramos. The
1. Specific performance, or substituted portion of land being rented by Salvador was
performance by a third person in case included in the portion sold to Ramos. The deeds
of an obligation to deliver a generic of sale evidencing the conveyances were not
thing, and in obligations to do, unless it registered in the office of the register of deeds.
is a purely personal act; or When Saturnino and Francisco failed to pay their
2. Rescission (or resolution in reciprocal loan, a demand letter was sent to Francisco, but
obligations); he refused to pay.
3. Damages, in any case;
4. Subsidiary remedies of creditors: When Salvador learned of the sale made by
a. Accion subrogatoria Francisco to Ramos, Salvador filed a complaint
b. Accion pauliana for the annulment or rescission of the sale on
c. Accion directa the ground that the sale was fraudulently
prepared and executed. Can Salvador file an
1. SPECIFIC PERFORMANCE action for the rescission or annulment of the
sale?
Q: What are the remedies in connection with
specific performance? A: No. As creditor, Salvador does not have such
material interest as to allow him to sue for
A: rescission of the contract of sale. At the outset,
1. Exhaustion of the properties of the Salvador’s right against Francisco and Ramos is
debtor (not exempt from attachment only a personal right to receive payment for the
under the law) loan; it is not a real right over the lot subject of
2. Accion subrogatoria (subrogatory the deed of sale.
action) – an indirect action brought in
the name of the debtor by the creditor The sale was not made in fraud of creditors. Art.
to enforce the former’s rights except: 1177 of the Civil Code provides for successive

CIVIL LAW TEAM:

OBLIGATIONS
measures that must be taken by a creditor before Q: What is substitute performance?
he may bring an action for rescission of an
allegedly fraudulent sale. Without availing of the A: It is a remedy of the creditor in case of non‐
first and second remedies, Salvador simply performance by the debtor; where another party
undertook the third measure and filed an action performs the obligation or the same is performed
for annulment of the sale. This cannot be done. at the expense of the debtor.

An action for rescission is a subsidiary remedy; it Q: When may there be substitute performance?
cannot be instituted except when the party A:
suffering damage has no other legal means to 1. Positive personal obligation:
obtain reparation for the same. Considering a. If not purely personal‐
Article 1380 of the Civil Code, which states that substitute performance; the
contract validly agreed upon may be rescinded in obligation shall be executed
the cases established by law, Salvador, et al. have at debtor’s cost if he fails to
not shown that they have no other means of do it. (Art. 1167, NCC)
enforcing their credit. (Adorable, et. al. v.CA, G.R. b. Purely personal‐ no substitute
No. 119466, Nov. 25, 1999) performance may be
demanded because of the
Q: While the case was pending, Felix donated his personal qualifications taken
of parcels of land in favor of his children. into consideration. The only
Judgment was rendered against Felix. When the remedy is damages.
sheriff, accompanied by counsel of Philam, 2. Real obligation:
sought to enforce the alias writ of execution, a. Generic thing‐ substitute
they discovered that Felix no longer had any performance; delivery may be
property and that he had conveyed the subject made by a person other than
properties to his children. Thus, Philam filed an the debtor since the object is
accionpauliana for rescission of the donations. merely designated by its class
Felix countered that an action for rescission of or genus. The creditor may
the donation had already prescribed since the ask that the obligation be
time of prescription has to run from the date of complied with at the expense
registration. Has the action filed by Philam of the debtor. (1165,NCC)
prescribed? b. Specific thing‐ specific
performance may be
A: No. Philam only learned about the unlawful demanded, that is, the
conveyances made by Felix more than four years creditor may compel the
after the donations were effected, when its debtor to make the delivery.
counsel accompanied the sheriff to Butuan City to
attach the properties. There they found that he 2. RESCISSION
no longer had any properties in his name. It was
only then that Philam's action for rescission of the Q: What is rescission under Article 1191?
deeds of donation accrued because then it could
be said that Philam had exhausted all legal means A: It refers to the cancellation of the contract or
to satisfy the trial court's judgment in its favor. reciprocal obligation in case of breach on the part
Since Philam filed its complaint for accion of one, which breach is violative of the reciprocity
pauliana against petitioners barely a month from between the parties. This is properly called
its discovery that Felix had no other property to resolution.
satisfy the judgment award against him, its action
for rescission of the subject deeds clearly had not Note: The rescission under Art. 1380 is rescission
yet prescribed.(Khe Hong Cheng v. CA,G.R. No. based on lesion or fraud upon creditors.
144169, Mar. 28, 2000)
Q: To what kind of obligation is resolution
Note: The debtor is liable with all his property, available?
present and future, for the fulfillment of his
obligations, subject to the exemptions provided by A: Reciprocal obligation, since resolution is
law (De Leon, Obligations and Contracts, 2003 ed, implied therein.
p.71)


Q: Who may demand resolution? Q: What is accion directa?

A: Injured party. A: It is the right of the lessor to go directly against
the sublessee for unpaid rents of the lessee.
Q: May the injured party demand resolution
after he elects specific performance? Note: Under Art. 1652 of the Civil Code, the
A: sublessee is subsidiarily liable to the lessor for any
GR: No. His right is not conjunctive, thus, he may rent due from the lessee.
not choose both remedies of resolution and
specific performance. VII. KINDS OF CIVIL OBLIGATIONS
XPN: Yes, if specific performance should become
impossible Q: What are the kinds of civil obligations?

Q: When does liability for damages arise? A:
1. Pure obligations;
A: Those liable under Art. 1170 shall pay damages 2. Conditional obligations;
only if aside from the breach of contract, 3. Obligations with a period or term; and
prejudice or damage was caused. (Berg v. Teus, 4. Alternative or Facultative obligations
G.R. No. L‐6450, Oct 30, 1954)
Q: Differentiate a civil obligation from a natural
Q: What are the kinds of damages? obligation.
A:
1. Moral A:
2. Exemplary CIVIL OBLIGATION NATURAL OBLIGATION
3. Nominal As to binding force
4. Temperate Arises from equity and
Arises from positive law
5. Actual justice
6. Liquidated4. SUBSIDIARY DEMEDIES As to enforcement in court
Cannot be enforced in
Q: What are the requisites of accion court. It depends
Can be enforced by court
subrogatoria? exclusively upon the
action
good conscience of the

debtor.
A:

1. The debtor’s assets must be insufficient
A. PURE OBLIGATIONS
to satisfy claims against him
2. The creditor must have pursued all
properties of the debtor subject to Q: What is pure obligation?
execution
3. The right of action must not be purely A: One whose effectivity or extinguishment does
personal not depend upon the fulfillment or non‐
4. The debtor whose right of action is fulfillment of a condition or upon the expiration
exercised must be indebted to the of a period and is demandable at once. (Art. 1179,
creditor. NCC)

Q: What are the requisites of accion pauliana? B. CONDITIONAL OBLIGATIONS

A: Q: What is conditional obligation?
1. Defendant must be indebted to plaintiff
2. The fraudulent act performed by the A: It is an obligation subject to a condition and
debtorsubsequent to the contractgives the effectivity of which is subordinated to the
advantage to another fulfillment or non‐fulfillment of a future and
3. The creditor is prejudiced by such act. uncertain event, or upon a past event unknown
4. The creditor must have pursued all to the parties.
properties of the debtor subject to
execution
5. The creditor has no other legal remedy.

CIVIL LAW TEAM:

OBLIGATIONS
Q: Ramon, the judicial administrator of the Q: Distinguish suspensive from resolutory
estate of Juan, found out that Rodriguez had conditions.
enlarged the area of the land which he
purchased from Juan before his death. Thus, A:
Ramon demanded Rodriguez to vacate the RESOLUTORY
SUSPENSIVE CONDITION
portion allegedly encroached by him. Rodriguez CONDITION
refused and contested there was indeed a Effect of Fulfillment
conditional sale with the balance of the Obligation arises or Obligation is
purchase price payable within five years from becomes effective extinguished
the execution of the deed of sale. Ramon then Effect of Non‐fulfillment
filed an action for recovery of possession of the If not fulfilled, no
If not fulfilled, juridical
disputed lot. Is the contract of sale a conditional juridical relation is
relation is consolidated
one? created
When Rights are Acquired
A: No. The stipulation that the "payment of the Rights are not yet
Rights are already
full consideration based on a survey shall be due acquired, but there is
acquired, but subject to
hope or expectancy that
and payable in 5 years from the execution of a the threat or danger of
they will soon be
formal deed of sale" is not a condition which extinction
acquired
affects the efficacy of the contract of sale. It

merely provides the manner by which the full
Q: In cases of obligations with a suspensive
consideration is to be computed and the time
condition, what are the effects of loss,
within which the same is to be paid. But it does
deterioration, and improvements in real
not affect in any manner the effectivity of the
obligations?
contract. (Heirs of San Andresv.Rodriguez, G.R.

No. 135634, May 31, 2000)
A:

WITH DR’S FAULT WITHOUT DR’S FAULT
Q: Distinguish period from condition.
Loss
DR pays damages Obligation extinguished
A:
Deterioration
PERIOD CONDITION
CR‐ choose b/w
As to Time
rescission of obligation
May refer to past event
Refers to the future or fulfillment (with Impairment borne by CR
unknown to the parties
indemnity for damages in
As to Fulfillment
either case)
It will happen at an
Improvement
exact date or at an
May or may not happen 1. By the thing’s nature or by time – inure to the
indefinite time, but is
benefit of the CR
sure to arrive
2. At the debtor’s expense – DR shall have no right
As to its Influence on the Obligation to be Fulfilled or
other than that granted to a usufructuary
Performed

No effect or influence May give rise to an
upon the existence of obligation (suspensive)
Q: What are the requisites for Art.1189 to apply?
the obligation but only in or the cessation of one
its demandability or already existing A:
performance (resolutory) 1. Must be a real obligation;
2. Object is a specific/determinate thing;
1. SUSPENSIVE CONDITION 3. Obligation is subject to a suspensive
condition;
Q: What is a suspensive condition? 4. The condition is fulfilled; and
5. There is loss, deterioration or
A: A condition the fulfillment of which will give improvement of the thing during the
rise to the acquisition of a right. pendency of the happening of the
condition.

Note: The same conditions apply in case of an

obligor in obligations with a resolutory condition. In

such cases, the third requisite must read, “subject to
a resolutory condition.”


Q: GSIS approved the application of Agcaoili for Q: X donated a parcel of land to the municipality
the purchase of a house and lot in the GSIS of Tarlac under a condition that a public school
Housing Project; it is subject to the condition shall be erected and a public park be made
that he should immediately occupy the house. within 6 months from the date of the ratification
But he could not because the house was of the donation by the parties. After the
uninhabitable. He paid the first installment and registration of the said donation, X sold the
other fees but refused to make further payment same land to Y. Thereafter, Y brought an action
until GSIS had made the house habitable. GSIS against the Province of Tarlac, alleging that the
refused and opted to cancel the award and conditions of the donation is a condition
demand the vacation by Agcaoili of the precedent, thus, the municipality of Tarlac did
premises. Can GSIS cancel the contract? not acquire ownership over the land when it
failed to comply with the said condition. Is the
A: No. There was a perfected contract of sale contention of Y correct?
between the parties; there had been a meeting of
the minds upon the purchase by Agcaoili of a A: No. In this case, the condition could not be
determinate house and lot at a definite price and complied with except after giving effect to the
from that moment, the parties acquired the right donation. The Municipality of Tarlac could not do
to reciprocally demand performance. Based on any work on the donated land if the donation had
their contact, it can only be understood as not really been effected, because it would be an
imposing on GSIS an obligation to deliver to invasion of another's title, for the land would
Agcaoili a reasonably habitable dwelling in return have continued to belong to the donor so long as
for his undertaking to pay the stipulated price. the condition imposed was not complied with.
Since GSIS did not fulfill that obligation, and was Thus, considering that the condition itself was for
not willing to put the house in habitable state, it a public school to be built means that ownership
cannot invoke Agcaoili's suspension of payment of the land was already with the Municipality.
of amortizations as cause to cancel the contract (Parks v. Province of Tarlac, G.R. No. L‐24190, July
between them. 13, 1926)

Note: In reciprocal obligations, neither party incurs Q: The late Don Lopez, Sr., who was then a
in delay if the other does not comply or is not ready member of the Board of Trustees of CPU,
to comply in a proper manner with what is executed a deed of donation in favor of the
incumbent upon him. (Agcaoili v. GSIS, G.R. No. L‐ latter of a parcel of land subject to the condition
30056, Aug. 30, 1988) that it shall be utilized for the establishment and
use of a medical college. However, the heirs of
2. RESOLUTORY CONDITION Don Lopez, Sr., filed an action for annulment of
the donation, reconveyance and damages
Q: What is a resolutory condition? against CPU alleging that CPU had not complied
with the conditions of the donation.
A: A condition where the rights already acquired
are lost upon fulfillment of the condition. Are the conditions imposed resolutory or
suspensive?
Q: What are the effects of fulfillment of
resolutory condition? A: Under Art. 1181 of the Civil Code, on
A: conditional obligations, the acquisition of rights,
1. Real obligations: as well as the extinguishment or loss of those
a. The parties shall return to each already acquired, shall depend upon the
other what they have received. happening of the event which constitutes the
b. Obligation is extinguished. condition. Thus, when a person donates land to
c. In case of the loss, deterioration or another on the condition that the latter would
improvement of the thing, Art. build upon the land a school, the condition
1189, with respect to the debtor, imposed was not a condition precedent or a
shall be applied to the party who is suspensive condition but a resolutory one. It is
bound to return. not correct to say that the schoolhouse had to be
constructed before the donation became
2. Personal obligations‐ the courts shall effective, that is, before the donee could become
determine, in each case, the retroactive the owner of the land, otherwise, it would be
effect of the condition that has been invading the property rights of the donor. The
complied with. donation had to be valid before the fulfillment of

CIVIL LAW TEAM:

OBLIGATIONS
the condition. If there was no fulfillment or Q: What are the effects of the fulfillment of a
compliance with the condition, the donation may resolutory condition?
now be revoked and all rights which the donee A:
may have acquired under it shall be deemed lost 1. Real obligations:
and extinguished. (Central Philippine University v. a. obligation is extinguished
CA, G.R. No. 112127, July 17, 1995) b. Parties shall return to each other
what they have received.
Q: What does a constructive fulfillment of a 2. Personal obligations‐ the court
condition entail? determines the retroactive effect of the
condition fulfilled.
A:When the debtor actually prevents the
fulfillment of the condition, then said condition Q: What are the other types of conditions?
shall be deemed fulfilled.
A: CaMP‐NID‐CAPI
2. POTESTATIVE CONDITION 1. Casual – the performance or fulfillment
of the condition depends upon chance
Q: When is a condition said to be potestative? and/or the will of a third person
2. Mixed – the performance or fulfillment
A: When the condition depends upon the will of of the condition depends partly upon
one of the contracting parties. the will of a party to the obligation and
partly upon chance and/or the will of a
Q: Does a condition which depends upon the will third person
of the debtor invalidate both the condition and 3. Positive – involves the doing of an act
the obligation? What about a condition which 4. Negative – involves the omission of an
depends upon the will of the creditor? act
5. Divisible – is susceptible of partial
A: Yes. This is because its validity and compliance performance
is left to the will of the debtor, and cannot 6. Indivisible – is not susceptible of partial
therefore be easily demanded. But if the performance
condition is a pre‐existing one, only the condition 7. Conjunctive – there are several
is void, leaving the obligation itself valid. Further, conditions in an obligation all of which
if the condition is resolutory, it is valid because must be performed
what is left to the sole will of the debtor is not the 8. Alternative – there are several
existence or the fulfillment of the obligation but conditions in an obligation but only one
merely its extinguishment. must be performed
9. Possible – is capable of fulfillment
If the fulfillment depends upon the will of the according to the nature, law, public
creditor, in any case, both the condition and the policy or good customs
obligation are valid. 10. Impossible – is not capable of fulfillment
according to nature, law, public policy
Q: What are the effects of the fulfillment of a or good customs (Art. 1183, NCC)
suspensive condition?
A: Q: What is the effect of an impossible or
1. Real obligations: unlawful condition?
GR: Effects retroact to the day of
constitution of the obligation. A:
XPN: No retroactivity as to; GR: Impossible conditions annul the
a. fruits obligation which depends upon the parties
b. interests but not of a third person.

XPN to the XPN: There may be XPNs: PD‐DoNT.
retroactivity as to the fruits and 1. Pre‐existing obligation
interests in unilateral obligations if such 2. Obligation is Divisible
intention appears 3. In simple or remuneratory Donations
4. In case of conditions Not to do an
2. Personal obligations‐ the court impossible thing
determines the retroactive effect of the 5. In Testamentary dispositions
condition fulfilled.

Note: In the foregoing, the obligations remain Q: For whose benefit is the period constituted?
valid, only the condition is void and deemed to
have not been imposed. It is applicable only to A:
obligations not to do and gratuitous GR: When a period has been agreed upon for
obligations. the performance or fulfillment of an
obligation, it is presumed to have been
Q: When will the effect of fulfillment of a established for the benefit of both the
condition retroact? creditor and the debtor.

A: XPN: When it appears from the tenor of the
1. In an obligation to give – it retroacts to period or other circumstances that it was
the day of the constitution of the established for the benefit of one of the
obligation parties.
2. In an obligation to do or not to do – the
court may determine to what date Q: What is the effect of the term being for the
retroactivity shall be allowed, or it may benefit of either the CR or the DR?
even refuse to permit retroactivity
(Tolentino, Civil Code of the Philippines, A:
Vol. IV, 2002 ed, p.166) 1. When it is for the benefit of the Creditor
–Creditor may demand the
performance of the obligation at any
C. OBLIGATIONS WITH A PERIOD time but the DR cannot compel him to
accept payment before the expiration
Q: What is an obligation with a period or a term? of the period (e.g. “on demand”)
2. When it is for the benefit of the Debtor
A: It is an obligation whose demandability or –
extinguishment is subject to the expiration of a Debtor may oppose any premature
period or a term. (Art. 1193, NCC) demand on the part of the CR for
performance of the obligation, or if he
Q: What are the requisites of a valid period or so desires, he may renounce the benefit
term? of the period by performing his
obligation in advance. (Manresa)
A:
1. Future Q: What is the effect of a fortuitous event in an
2. Certain obligation with a period?
3. Possible, legally and physically
A: It only relieves the contracting parties from the
Q: Is the statement of a debtor that he will pay fulfillment of their respective obligation during
when his means permit him to do so relate to a the term or period.
period or a condition? Is such a statement valid
considering that the same is left to the will of Q: When may the court fix the period?
the debtor?
A:
A: When the debtor binds himself to pay when his 1. If the obligation does not fix a period,
means permit him to do so, the obligation is but from its nature and circumstances it
deemed with a period or term. This is valid can be inferred that a period was
because it is not the payment itself that is intended by the parties
dependent upon the will of the debtor, but the 2. If the duration of the period depends
moment of payment. upon the will of the DR

3. In case of reciprocal obligations, when
As the time of payment is not fixed, the court
there is a just cause for fixing the period
must fix the same before any action for collection
4. If the DR binds himself when his means
may be entertained, unless, the prior action of
permit him to do so
fixing the term or period will only be a formality

and will serve no purpose but delay.

CIVIL LAW TEAM:

OBLIGATIONS
Q: When may a debtor lose his right to make use Q: In alternative obligations, when does the

of the period? choice made take effect?

A: A: The choice made takes effect only upon
1. Insolvency of the DR, unless security is communication of the choice to the other party
provided and from such time the obligation ceases to be
2. Did not deliver security promised alternative (Art. 1205, NCC).
3. Impaired security through his own acts
or through fortuitous event, unless he Note: The notice of selection or choice may be in any
gives a new security equally satisfactory form provided it is sufficient to make the other party
(if impairment is without the fault of know that the election has been made. (Tolentino,
DR, he shall retain the right) Civil Code of the Philippines, 2002 ed, p. 205)
4. Violates undertaking in consideration of
extension of period Q: Does the choice made by the DR require the
5. DR attempts to abscond (Art. 1198, concurrence of the CR? What happens when
NCC) through the CR’s fault, selection is deemed
impossible?
D. ALTERNATIVE OBLIGATION

A: No. To hold otherwise would destroy the very
Q: Distinguish facultative from alternative
nature of the right to select given to the DR. Once
obligations.
a choice is made, it can no longer be renounced

and the parties are bound thereto.
A:

FACULTATIVE ALTERNATIVE
When choice is rendered impossible through the
OBLIGATIONS OBLIGATIONS
Fortuitous loss of all
CR’s fault, the DR may bring an action to rescind
Fortuitous loss extinguishes the contract with damages (Art. 1203, NCC).
prestation will not
the obligation
extinguish the obligation
Culpable loss obliges the Q: What are the limitations on the right of
Culpable loss of choice of the debtor?
debtor to deliver substitute
any object due will give
prestation without liability
rise to liability to debtor A: Debtor cannot choose prestations which are:
to debtor
GR: Choice pertain to 1. Impossible;
debtor 2. Unlawful; and
Choice pertains only to 3. could not have been the object of the
debtor XPN: Expressly granted obligation.
to creditor or third
person Q: When is an alternative obligation converted
Only one object is due Several objects are due to a simple obligation?
May be complied with by May be complied with
substitution of one that is by fulfilling any of those A: When:
due alternately due 1. the person who has a right of choice has
If principal obligation is If one prestation is void, communicated his choice; or
void, the creditor cannot the others free from 2. only one is practicable. (Art. 1202, NCC)
compel delivery of the vices preserve the

substitute validity of the obligation

If various prestations are
impossible to perform
If there is impossibility to
except one, this one
deliver the principal thing or
must be delivered.
prestation, the obligation is
If all prestations are
extinguished, even if the
impossible to perform,
substitute obligation is valid
the obligation is
extinguished
Where the choice is
Loss of substitute before
given to the creditor, the
the substitution through the
loss of the alternative
fault of the debtor doesn’t
through the fault of the
make him liable
debtor renders him

liable for damages

Q: What are the effects of loss of objects of Q: Distinguish joint from solidary obligation.
alternative obligations?
A:
A: JOINT OBLIGATION SOLIDARY OBLIGATION
DUE TO Not presumed. Must be
DUE TO DEBTOR’S
FORTUITOUS expressly stipulated by
FAULT
EVENT the parties, or when the
Choice Belongs to Debtor Presumed by law law or the nature of the
CR shall have a right obligation requires
to indemnify for solidarity. (Art. 1207,
damages based on NCC)
DR released
All are the value of the last Each debtor is liable only
from the Each debtor is obliged to
lost thing which for a proportionate part
obligation pay the entire obligation
disappeared/service of the entire debt
which become Each creditor has the
impossible right to demand from
Each creditor, if there are
DR shall deliver DR shall deliver that any of the debtors, the
Some several, is entitled only
that which he which he shall choose payment or fulfillment of
but not to a proportionate part
shall choose from among the the entire obligation
all are of the credit
from among remainder without (Tolentino, Civil CodeVol
lost
the remainder damages IV, 1999 ed. p. 217)
Only
one Deliver that which remains Q: What is the rule as regards the joint or
remains solidary character of an obligation?

Choice Belongs to Creditor A:
CR may claim the GR: When two or more creditors or two or
DR released
All are price/value of any of more debtors concur in one and the same
from the
lost them with indemnity obligation, the presumption is that the
obligation
for damages obligation is joint.
CR may claim any of
DR shall deliver those subsisting
Some XPNs: The obligation shall be solidary when:
that which he without a right to
but not ELN‐CJ
shall choose damages OR
all are 1. Expressly stipulated that there is
from among price/value of one of
lost solidarity;
the remainder those lost with right
to damages 2. Law requires solidarity;
Only Deliver that which remains. In case of 3. Nature of the obligation requires
one fault of DR, CR has a right to indemnity solidarity;
remains for damages 4. Charge or condition is imposed upon
heirs or legatees and the will expressly
VIII. JOINT AND SOLIDARY OBLIGATIONS makes the charge or condition in
solidum (Manresa); or
Q: What are joint obligations? 5. solidary responsibility is imputed by a
final Judgment upon several
A: It is where the entire obligation is to be paid or defendants.(Gutierrez v. Gutierrez, 56
performed proportionately by the debtors (Art. Phil 177)
1208, NCC).
Q: Chua bought and imported to the Philippines
Q: What are solidary obligations? dicalcium phosphate. When the cargo arrived at
the Port of Manila, it was discovered that some
A: It is where each of the debtors obliges to pay were in apparent bad condition. Thus, Chua filed
the entire obligation, and where each one of the with Smith, Bell, and Co., Inc., the claim agent of
creditors has the right to demand from any of the First Insurance Co., a formal statement of claim
debtors, the payment or fulfillment of the entire for the loss. No settlement of the claim having
obligation (Art. 1207, NCC; Pineda, Obligations been made, Chua then filed an action. Is Smith,
and Contracts, 2000 ed, p. 139). Bell, and Co., solidarily liable upon a marine
insurance policy with its disclosed foreign
principal?

CIVIL LAW TEAM:

OBLIGATIONS
A: No. Article 1207 of the Civil Code clearly 5. Insolvency of a debtor will not increase
provides that "there is a solidary liability only the liability of his co‐debtors;
when the obligation expressly so states, or when 6. Vices of each obligation emanating from
the law or the nature of the obligation requires a particular debtor or creditor will not
solidarity." The well‐entrenched rule is that affect the others; and
solidary obligation cannot lightly be inferred. It 7. In indivisible or joint obligation, the
must be positively and clearly expressed. (Smith, defense of res judicata of one does not
Bell & Co., Inc. v. CA, G.R. No. 110668, Feb. 6, extend to the others.
1997)
B. JOINT INDIVISIBLE OBLIGATIONS
Q: The labor arbiter rendered a decision, the
fallo of which states that the following Q: What are the different permutations of joint
respondents as liable, namely: FCMC, Sicat, indivisible obligations? What are their effects?
Gonzales, Chiu Chin Gin, Lo Kuan Chin, and
INIMACO. INIMACO questions the execution, A:
alleging that the alias writ of execution altered 1. If there are two or more debtors,
and changed the tenor of the decision by compliance with the obligation requires
changing their liability from joint to solidary, by the concurrence of all the debtors,
the insertion of the words "AND/OR". Is the although each for his own share. The
liability of INIMACO pursuant to the decision of obligation can be enforced only by
the labor arbiter solidary or not? preceding against all of the debtors.
2. If there are two or more creditors, the
A: INIMACO's liability is not solidary but merely concurrence or collective act of all the
joint. Well‐entrenched is the rule that solidary creditors, although each of his own
obligation cannot lightly be inferred. There is a share, is also necessary for the
solidary liability only when the obligation enforcement of the obligation.
expressly so states, when the law so provides or 3. Each credit is distinct from one another;
when the nature of the obligation so requires. In therefore a joint debtor cannot be
the dispositive portion of the labor arbiter, the required to pay for the share of another
word "solidary" does not appear. The said fallo with debtor, although he may pay if he
expressly states the following respondents wants to.
therein as liable, namely: Filipinas Carbon Mining 4. In case of insolvency of one of the
Corporation, Sicat, Gonzales, Chiu Chin Gin, Lo debtors, the others shall not be liable
Kuan Chin, and INIMACO. Nor can it be inferred for his shares. To hold otherwise would
therefrom that the liability of the six respondents destroy the joint character of the
in the case below is solidary, thus their liability obligation.
should merely be joint.(INIMACO v. NLRC,G.R. No.
101723, May 11, 2000) Q: What is the effect of breach of a joint
indivisible obligation by one debtor?
A. JOINT OBLIGATIONS
A: If one of the joint debtors fails to comply with
Q: What are the legal consequences if the his undertaking, the obligation can no longer be
obligation is joint? fulfilled or performed. It is the converted into one
of indemnity for damages. Innocent joint DR shall
A: not contribute to the indemnity beyond their
1. Each debtor is liable only for a corresponding share of the obligation.
proportionate part of the entire debt;
2. Each creditor, if there are several, is C. SOLIDARY OBLIGATIONS
entitled only to a proportionate part of
the credit; Q: What is the effect of solidary obligation?
3. The demand made by one creditor upon
one debtor, produces effects of default A: Each one of the debtors is obliged to pay the
only as between them; entire obligation, and each one of the creditors
4. Interruption of prescription caused by has the right to demand from any of the debtors
the demand made by one creditor upon the payment or fulfillment of the entire obligation
one debtor, will NOT benefit the co‐
creditors or the co‐debtors;

Q: Joey, Jovy and Jojo are solidary debtors under Q: What are the rules in a solidary obligation?
a loan obligation of P300, 000.00 which has
fallen due. The creditor has, however, condoned A:
Jojo's entire share in the debt. Since Jovy has
become insolvent, the creditor makes a demand 1. Anyone of the solidary creditors may
on Joey to pay the debt. collect or demand payment of whole
obligation; there is mutual agency among
1. How much, if any, may Joey be solidary debtors (Arts. 1214, 1215)
compelled to pay?
2. To what extent, if at all, can Jojo be
2. Any of the solidary debtor may be
compelled by Joey to contribute to
required to pay the whole obligation; there
such payment?
is mutual guaranty among solidary debtors

(Arts. 1216, 1217, 1222)
A:
1. Joey can be compelled to pay only the
remaining balance of P200,000, in view 3. Each one of solidary creditors may do
of the remission of Jojo’s share by the whatever maybe useful to the others, but
creditor. (Art. 1219, NCC) not anything prejudicial to them (Art. 1212);
2. Jojo can be compelled by Joey to however, any novation, compensation,
contribute P50,000. When one of the confusion or remission of debt executed by
solidary debtors cannot, because of his any solidary creditor shall extinguish the
insolvency, reimburse his share to the obligation without prejudice to his liability
debtor paying the obligation, such share for the shares of the other solidary creditors.
shall be borne by all his co‐debtors, in
proportion to the debt of each.(par. 3, Q: In cases of solidary creditors, may one act for
Art. 1217, NCC) all? What are the limitations?
Since the insolvent debtor's share which Joey
paid was Pl00,000, and there are only two A: Yes. However, while each one of the solidary
remaining debtors ‐ namely Joey and Jojo ‐ creditors may execute acts which may be useful
these two shall share equally the burden of or beneficial to the others, he may not do
reimbursement. Jojo may thus be compelled anything which may be prejudicial to them. (Art.
by Joey to contribute P50,000. (1998 Bar 1212, NCC)
Question)
Note: Prejudicial acts may still have valid legal
Q: What are the kinds of solidary obligation? effects, but the performing creditor shall be liable to
his co‐creditors. (Pineda, Obligations and Contracts,
A: 2000 ed, p. 157)
1. Passive – solidarity on the part of the
debtors Q: What are the effects of assignment of rights
2. Active – solidarity on the part of the in a solidary obligation?
creditors
3. Mixed – solidarity on both sides A:
GR: Solidary creditor cannot assign his right
Q: Distinguish solidarity from indivisibility. because it is predicated upon mutual
confidence, meaning personal qualification of
A: each creditor had been taken into
INDIVISIBILITY SOLIDARITY consideration when the obligation was
Refers to the vinculum constituted. (Art. 1213, NCC)
Refers to the prestation
existing between the
or object of the contract
subjects or parties XPNs:
Does not require 1. Assignment to co‐creditor; or
Requires the plurality of
plurality of subjects or 2. Assignment is with consent of co‐
parties or subjects
parties creditor.
In case of breach, it is
converted to one of In case of breach, the
indemnity for damages liability of the solidary
and the indivisibility of debtors for damages
the obligation is remains solidary
terminated

CIVIL LAW TEAM:

OBLIGATIONS
Q: To whom must payment be made in a A: It is tantamount to non‐performance. (Pineda,

solidary obligation? Obligations and Contracts, 2000 ed, p. 179)

A: E. OBLIGATIONS WITH A PENAL CLAUSE
GR: To any of the solidary creditors.
Q: What is a penal clause?
XPN: If demand, judicial or extra‐judicial, has
been made by one of them, payment should A: It is an accessory obligation attached to the
be made to him.(Art. 1214, NCC) principal obligation to assure greater
responsibility in case of breach.
D. DIVISIBLE AND INDIVISIBLE OBLIGATIONS
Note: Proof of actual damages suffered by the
Q: What is the primary distinction between creditor is not necessary in order that the penalty
divisible and indivisible obligations? may be demanded. (Art. 1228, NCC)

A: Q: What is the effect of incorporating a penal
DIVISIBLE INDIVISIBLE clause in an obligation?

Non‐susceptibility to be
A:
Susceptibility of an performed partially
GR: The penalty fixed by the parties is a
obligation to be Partial performance is
compensation or substitute for damages in
performed partially tantamount to non‐
performance case of breach.

XPNs: Damages shall still be paid even if there

is a penal clause if:
Q: What is the true test in determining
1. there is a stipulation to the contrary
divisibility?
2. the debtor refuses to pay the agreed

penalty
A: Whether or not the prestation is susceptible of
3. the debtor is guilty of fraud in the
partial performance, not in the sense of
fulfillment of the obligation. (Art. 1126,
performance in separate or divided parts, but in
NCC)
the sense of the possibility of realizing the
purpose which the obligation seeks to obtain. If a
thing could be divided into parts and as divided, Note:The nullity of the penal clause does not carry
its value is impaired disproportionately, that thing with it that of the principal obligation.
is indivisible. (Pineda, Obligations and Contracts,
2000 ed, p. 174) The nullity of the principal obligation carries with it
that of the penal clause. (Art. 1230, NCC)
Q: When may an obligation to deliver a divisible
thing be considered indivisible? Q: When may penalty be reduced by the courts?

A: A: PIU
1. When the law so provides; or 1. Partial performance of the obligation;
rd
2. By stipulation of the parties.(3 par., 2. Irregular performance of the obligation;
Art. 1255, NCC) or
3. Penalty is Unconscionable even if there
Q: What is the effect of illegality of a part of a has been no performance.
contract?

A:
1. Divisible contract – illegal part is void
and unenforceable. Legal part is valid
and enforceable. (Art. 1420, NCC)
2. Indivisible contract – entire contract is
indivisible and unenforceable.

Q: What is the effect of partial performance in
indivisible obligation?


IX. EXTINGUISHMENT OF OBLIGATIONS Q: Is the creditor bound to accept payment or
performance by a third person?
Q: What are the modes of extinguishment of an A:
obligation? GR: No, the creditor is not.

A: XPNs:
1. Payment or performance 1. When made by a third person who has
2. Loss of the thing due interest in the fulfillment of the
3. Condonation or remission of debt obligation
4. Confusion or merger 2. Contrary stipulation
5. Compensation
6. Novation Q: What are the rights of a third person who
7. Annulment paid the debt?
8. Rescission
9. Fulfillment of a resolutory condition A:
10. Prescription(Art. 1231, NCC) 1. With knowledge and consent of the
debtor:
Note: The enumeration is not exclusive. a. can recover entire amount paid
(absolute reimbursement )
MUTUAL DESISTANCE b. can be subrogated to all rights of
the creditor
Q: If the parties mutually disagree as regards the 2. Without knowledge or against the will
obligation, may it be cancelled? of the debtor – can recover only insofar
as payment has been beneficial to the
A: Yes. That is in the nature of “mutual debtor (right of conditional
desistance” – which is a mode of extinguishing reimbursement )
obligations. It is a concept that derives from the
principle that since mutual agreement can create NOTE: Payment made by a third person who does
a contract, mutual disagreement by the parties not intend to be reimbursed by the debtor is
can cause its extinguishment.(Saura v. deemed to be a donation, which requires the
Development Bank of the Phils., G.R. No. 24968, debtor's consent. But the payment is in any case
Apr. 27, 1972) valid as to the creditor who has accepted it. (Art.
1238, NCC)
A. PAYMENT OR PERFORMANCE
Q: State the requisites of a valid payment.
Q: Is the term “payment,” as used in the Code,
limited to appreciable sums of money? A: CCPAD
1. Capacity of the payor
A:No. Payment may consist not only in the 2. Capacity of the payee
delivery of money but also the giving of a thing 3. Propriety of the time, place, manner of
(other than money), the doing of an act, or not payment
doing of an act. 4. Acceptance by the creditor
5. Delivery of the full amount or the full
Q: What is tender of payment? performance of the prestation

A: Tender of payment is the definitive act of Q: What are the characteristics of payment?
offering the creditor what is due him or her,
together with the demand that the creditor A:
accept the same. 1. Integrity;
2. Identity; and
Note: There must be a fusion of intent, ability and 3. Indivisibility.
capability to make good such offer, which must be
absolute and must cover the amount due. (FEBTC v.
Diaz Realty Inc., G.R. No. 138588, Aug. 23, 2001)

CIVIL LAW TEAM:

OBLIGATIONS
INTEGRITY Q: Is the acceptance by a creditor of a partial

payment an abandonment of its demand for full
Q: How should performance be made? payment?

A: A: No. When creditors receive partial payment,
GR: Performance should always be in full. they are not ipso facto deemed to have
abandoned their prior demand for full payment.
XPNs:
1. Substantial performance performed in To imply that creditors accept partial payment as
good faith complete performance of their obligation, their
2. Creditor accepts the performance acceptance must be made under circumstances
knowing its incompleteness or that indicate their intention to consider the
irregularity without protest or objection performance complete and to renounce their
3. Debt is partly liquidated and partly claim arising from the defect.
unliquidated, but the liquidated part of
the debt must be paid in full Note: While Article 1248 of the Civil Code states that
creditors cannot be compelled to accept partial
IDENTITY payments, it does not prohibit them from accepting
such payments. (Selegna Management and
Q: What should be given as payment of an Development Corp. v. UCPB, G.R. No. 165662, May
obligation? 30, 2006)

A:
GR: Thing paid must be the very thing due and Q: To whom payment should be made?
cannot be another thing even if of same
quality and value. A: Payment shall be made to the person in whose
favor the obligation has been constituted, or his
XPNs: successor in interest, or any person authorized to
1. Dation in payment receive it. (Art. 1240)
2. Novation of the obligation
3. Obligation is facultative Q: Is payment to an unauthorized person a valid
payment?

INDIVISIBILITY A:
GR: Payment to an unauthorized person is not
Q: Can the debtor or creditor be compelled to a valid payment.
perform/accept partial prestations?
XPNs:
A: 1. Payment to an incapacitated person if:
GR: Debtor cannot be compelled by the a. he kept the thing delivered, or
creditor to perform obligation in parts and b. it has been beneficial to him
neither can the debtor compel the creditor to 2. Payment to a third person insofar as it
accept obligation in parts. redounded to the benefit of the CR
3. Payment in good faith to the possessor
XPNs: When: of credit
1. partial performance has been agreed
upon
2. part of the obligation is liquidated and
part is unliquidated
3. to require the debtor to perform in full
is impractical


SPECIAL FORMS OF PAYMENT As such, the essential elements of a contract of sale,
namely, consent, object certain, and cause or
Q: What are the special forms of payment? consideration must be present.

A: In its modern concept, what actually takes place in
CONCEPT dacion en pago is an objective novation of the
Dation in Payment obligation where the thing offered as an accepted
equivalent of the performance of an obligation is
Alienation by the DR of a particular property in favor
considered as the object of the contract of sale,
of his CR, with the latter’s consent, for the
while the debt is considered as the purchase price. In
satisfaction of the former’s money obligation to the
any case, common consent is an essential
latter, with the effect of extinguishing the said
prerequisite, be it sale or novation, to have the
money obligation (Pineda, Obligations and
effect of totally extinguishing the debt or obligation.

Application of Payment
Designation of the particular debt being paid by the
Q: Lopez obtained a loan in the amount of
DR who has two or more debts or obligations of the P20,000.00 from the Prudential Bank. He
same kind in favor of the same CR to whom the executed a surety bond in which he, as principal,
payment is made (Pineda, Obligations and Contracts, and PHILAMGEN as surety, bound themselves
2000 ed, p. 229) jointly and severally for the payment of the sum.
Payment by Cession He also executed a deed of assignment of 4,000
DR cedes his property to his CRs so the latter may shares of the Baguio Military Institution in favor
sell the same and the proceeds realized applied to of PHILAMGEN. Is the stock assignment made by
the debts of the DR Lopez dation in payment or pledge?
Tender of Payment
Voluntary act of the DR whereby he offers to the CR A: The stock assignment constitutes a pledge and
for acceptance the immediate performance of the not a dacion en pago. Dation in payment is the
former’s obligation to the latter delivery and transmission of ownership of a thing
Consignation by the debtor to the creditor as an accepted
Act of depositing the object of the obligation with equivalent of the performance of the obligation.
the court or competent authority after the CR has Lopez’s loan has not yet matured when he
unjustifiably refused to accept the same or is not in a "alienated" his 4,000 shares of stock to
position to accept it due to certain reasons or Philamgen. Lopez's obligation would arise only
circumstances when he would default in the payment of the
principal obligation which is the loan and
1. DATION IN PAYMENT Philamgen had to pay for it. Since it is contrary to
the nature and concept of dation in payment, the
Q: What does dation in payment or dacion en same could not have been constituted when the
pago entail? stock assignment was executed. In case of doubt
as to whether a transaction is a pledge or a dation
A: Dacion en pago is the delivery and in payment, the presumption is in favor of pledge,
transmission of ownership of a thing by the the latter being the lesser transmission of rights
debtor to the creditor as an accepted equivalent and interests. (Lopez v. CA,G.R. No. L‐33157, June
of the performance of the obligation. The 29, 1982)
property given may consist not only of a thing but
also of a real right. (Tolentino, Civil Code of the Q: Cebu Asiancars Inc., with the conformity of
Philippines, Vol. IV, 2002 ed, p. 293) the lessor, used the leased premises as a
collateral to secure payment of a loan which
Note: The consent of the creditor is essential. Asiancars may obtain from any bank, provided

that the proceeds of the loan shall be used solely
It is a special mode of payment where the debtor
for the construction of a building which, upon
offers another thing to the creditor who accepts it as
the termination of the lease or the voluntary
equivalent of payment of an outstanding debt.
surrender of the leased premises before the
The undertaking partakes of the nature of sale, that expiration of the contract, shall automatically
is, the creditor is really buying the thing or property become the property of the lessor. Meeting
of the debtor, payment for which is to be charged financial difficulties and incurring an outstanding
against the debtor’s debt. balance on the loan, Asiancars conveyed
ownership of the building on the leased
premises to MBTC, by way of "dacion en

CIVIL LAW TEAM:

OBLIGATIONS
pago."Is the dacion en pago by Asiancars in favor Yen and damages for the delay at the rate of 6%
of MBTC valid? per annum. Unable to execute the decision in
Japan, Northwest Airlines filed a case to enforce
A: Yes. MBTC was a purchaser in good faith. said foreign judgment with the RTC of Manila.
MBTC had no knowledge of the stipulation in the What is the rate of exchange that should be
lease contract. Although the same lease was applied for the payment of the amount?
registered and duly annotated, MBTC was
charged with constructive knowledge only of the A: The repeal of R.A. 529 by R.A. 8183 has the
fact of lease of the land and not of the specific effect of removing the prohibition on the
provision stipulating transfer of ownership of the stipulation of currency other than Philippine
building to the Jaymes upon termination of the currency, such that obligations or transactions
lease. While the alienation was in violation of the may now be paid in the currency agreed upon by
stipulation in the lease contract between the the parties. Just like R.A. 529, however, the new
Jaymes and Asiancars, MBTC’s own rights could law does not provide for the applicable rate of
not be prejudiced by Asiancars’ actions unknown exchange for the conversion of foreign currency‐
to MBTC. Thus, the transfer of the building in incurred obligations in their peso equivalent. It
favor of MBTC was valid and binding. (Jayme v. follows, therefore, that the jurisprudence
CA, G.R. No. 128669, Oct. 4, 2002) established in R.A. 529 regarding the rate of
conversion remains applicable. Thus, in Asia
2. FORM OF PAYMENT World Recruitment, Inc. v. National Labor
Relations Commission, the SC, applying R.A. 8183,
Q: What are the rules as regards payment in sustained the ruling of the NLRC that obligations
monetary obligations? in foreign currency may be discharged in
Philippine currency based on the prevailing rate
A: at the time of payment. It is just and fair to
1. Payment in cash– all monetary preserve the real value of the foreign exchange‐
obligations shall be settled in the incurred obligation to the date of its payment.
Philippine currency which is legal tender
in the Philippines. However, the parties If the rate of interest is not stipulated, what
may agree that the obligations or should be the rate of interest that should apply?
transactions shall be settled in any When should the interest begin to run?
other currency at the time of payment.
(Sec. 1, R.A. 8183) A: In Eastern Shipping Lines, Inc. v. CA, it was held
that absent any stipulation, the legal rate of
Note: R.A. 8183 amended the first interest in obligations which consists in the
paragraph of Art. 1249 of the Civil Code, payment of a sum of money is 12% per annum to
but the rest of the article remain be reckoned from the time of filing of the
subsisting. (Pineda, Obligations and complaint therein until the said foreign judgment
Contracts, 2000 ed, p. 221) is fully satisfied. (C.F. Sharp & Co., Inc. v.
Northwest Airlines, Inc., G.R. No. 133498, Apr. 18,
2. Payment in check or other negotiable 2002)
instrument – not considered payment,
they are not considered legal tender PAYMENT BY NEGOTIABLE INSTRUMENT
and may be refused by the creditor
except when: Q: Diaz & Company obtained a loan from Pacific
a. the document has been cashed; or Banking Corp which was secured by a real estate
b. it had been impaired through the mortgage over two parcels of land owned by the
fault of the creditor. plaintiff Diaz Realty. ABC rented an office space
in the building constructed on the properties
PAYMENT IN CASH covered by the mortgage contract. The parties
then agreed that the monthly rentals shall be
Q: Northwest Airlines, through its Japan Branch, paid directly to the mortgagee for the lessor's
entered into an International Passenger Sales account, either to partly or fully pay off the
Agency Agreement with CF Sharp, authorizing aforesaid mortgage indebtedness. Thereafter,
the latter to sell its air transport tickets. CF Sharp FEBTC purchased the credit of Diaz & Company
failed to remit the proceeds of the ticket sales, in favor of PaBC, but it was only after 2 years
thus, Northwest Airlines filed a collection suit that Diaz was informed about it. Diaz asked the
before the Tokyo District Court which rendered FEBTC to make an accounting of the monthly
judgment ordering CF Sharp to pay 83,158,195

rental payments made by Allied Bank. Diaz 4. APPLICATION OF PAYMENTS
tendered to FEBTC the amount of P1,450,000.00
through an Interbank check, in order to prevent Q: What does the concept of application of
the imposition of additional interests, penalties payments mean?
and surcharges on its loan but FEBTC did not
accept it as payment, instead, Diaz was asked to A: It is the designation of the debt to which the
deposit the amount with the FEBTC’s Davao City payment must be applied when the debtor has
Branch Office. Was there a valid tender of several obligations of the same kind in favor of
payment? the same creditor.

A: Yes. True, jurisprudence holds that, in general, Q: What are the requisites of application of
a check does not constitute legal tender, and that payments?
a creditor may validly refuse it. It must be
emphasized, however, that this dictum does not A:
prevent a creditor from accepting a check as 1. One debtor and one creditor
payment. In other words, the creditor has the 2. Two or more debts of the same kind
option and the discretion of refusing or accepting 3. Amount paid by the debtor must not be
it. (FEBTC v. Diaz Realty Inc., G.R. No. 138588, sufficient to cover all debts
Aug. 23, 2001) 4. Debts are all due
5. Parties have not agreed previously on
Q: Who has the burden of proving payment in an the application
action for sum of money?
Q: What is the governing rule in case the debtor
A: The party who pleads payment as a defense has fails to ascertain which debt his payment is to be
the burden of proving that such payment has, in applied?
fact, been made.
A: The choice may be transferred to the creditor
Q: Are receipts the only evidence that can be as when the debtor makes payment and does not
presented to prove payment? make application and debtor accepts a receipt in
which the application is made. In such a case, the
A: No. Receipts of payment, although not debtor cannot complain of the application the
exclusive, are deemed the best evidence of the creditor has made unless there be a cause for
fact of payment. (Dela Peña and Villareal v. CA invalidating the contract.
and Rural Bank of Bolinao, Inc., G.R. No. 177828,
Feb. 13, 2009
Q: If both the creditor and the debtor fail to
EXTRAORDINARY INFALTION OR DEFLATION apply payments, what rule governs?

Q: What is the rule in payment in case of an A: Legal application of payment governs wherein
extraordinary inflation or deflation? the law makes the application.

A: In case an extraordinary inflation or deflation The payment should be applied to the more
of the currency stipulated should supervene, the onerous debts:
value of the currency at the time of the 1. When a person is bound as principal in
establishment of the obligation shall be the basis one obligation and as surety in another,
of payment, unless there is an agreement to the the former is more onerous.
contrary. (Art. 1250, NCC) 2. When there are various debts, the
oldest ones are more burdensome.
Q: Does the exchange rate at the time of the 3. Where one bears interest and the other
establishment of the obligation apply in all does not, even if the latter is the older
cases? obligation, the former is considered
more onerous.
A: No. The rule that the value of the currency at 4. Where there is an encumbrance, the
the time of the establishment of the obligation debt with a guaranty is more onerous
shall be the basis of payment finds application than that without security.
only when there is an official pronouncement or 5. With respect to indemnity for damages,
declaration of the existence of an extraordinary the debt which is subject to the general
inflation or deflation. rules on damages is less burdensome

CIVIL LAW TEAM:

OBLIGATIONS
than that in which there is a penal latter.(Pineda, Obligations and Contracts, 2000
clause. ed, p. 241)
6. The liquidated debt is more
burdensome than the unliquidated one. Tender of payment is the manifestation by
7. An obligation in which the debtor is in debtors of their desire to comply with or to pay
default is more onerous than one in their obligation. (Sps. Benosv.Sps.Lawilao, G.R.
which he is not. (Tolentino, Civil Code of No. 172259, Dec. 5, 2006)
the Philippines, Vol. IV, 2002 ed, p. 314‐
315) Note: If the creditor refuses the tender of payment
without just cause, the debtors are discharged from
Note: If the debts happen to be of same nature and the obligation by the consignation of the sum due.
burden, the payment shall be applied (Sps. Benosv.Sps.Lawilao, G.R. No. 172259, Dec. 5,
proportionately. 2006)

PAYMENT BY CESSION CONSIGNATION

Q: What are the circumstances evidencing Q: What is consignation?
payment by cession?
A: Act of depositing the object of the obligation
A: Debtor abandons all of his property for the with the court or competent authority after the
benefit of his creditors in order that from the CR has unjustifiably refused to accept the same or
proceeds thereof, the latter may obtain payment is not in a position to accept it due to certain
of credits. reasons or circumstances. (Pineda, Obligations
and Contracts, 2000 ed, p. 241)
Note: It presupposes insolvency of the debtor. All
the debtor’s creditors must be involved and the Q: When and where is consignation made?
consent of the latter must be obtained.
A: Consignation is made by depositing the proper
Q: What are the difference between Dation in amount to the judicial authority, before whom
Payment and Payment in Cession? the tender of payment and the announcement of
the consignation shall be proved. (Sps.
A: Benosv.Sps.Lawilao, G.R. No. 172259, Dec. 5,
DATION IN PAYMENT PAYMENT IN CESSION 2006)
Maybe one creditor Plurality of creditors
Not necessarily in state Debtor must be partially Note: Once the consignation has been duly made,
of financial difficulty or relatively insolvent the debtor may ask the judge to order the
Thing delivered is Universality or property cancellation of the obligation.
considered as equivalent of debtor is what is
of performance ceded Q: When will consignation produce effects of
Payment extinguishes payment?
obligation to the extent Merely releases debtor
of the value of the thing for net proceeds of A:
delivered as agreed things ceded or GR: Consignation shall produce effects of
upon, proved or implied assigned, unless there is payment only if there is a valid tender of
from the conduct of the contrary intention payment.
creditor
Ownership is transferred Ownership is not XPNs: When: ARTIT
to CR upon delivery transferred
1. Creditor is Absent or unknown,
An act of novation Not an act of novation
or doesn’t appear at place of payment
Does not presuppose
Presupposes insolvency 2. Creditor Refuses to issue a receipt
insolvency
without just cause

3. Title of the obligation has been lost
5. TENDER OF PAYMENT
4. Creditor is Incapacitated to

receive payment at the time it is due
Q: What constitutes a valid tender of payment?
5. Two or more persons claim the right to

collect
A: Voluntary act of the debtor whereby he offers

to the creditor for acceptance the immediate Note: The expenses of consignation, when properly
performance of the former’s obligation to the made, shall be charged against the creditor.

Q: What are the requisites of consignation? Q: In an ejectment case, X refused to vacate the
land alleging that Y had sold to him the
A: VP‐CPAS additional area, the payment of which would be
1. Valid existing debt which is already due; effected five years after the execution of a
2. Prior valid tender except when prior formal deed of sale. However, the parties failed
tender of payment is dispensable; to execute a deed of sale. During the pendency
3. Creditor unjustly refuses the tender of of the action, X deposited the payment for the
payment; addition to the lot with the court. Is there a valid
4. Prior notice of consignation given to consignation?
persons interested in the fulfillment of
the obligation; A: No. Under Art. 1257 of this Civil Code,
5. Amount or thing is deposited at the consignation is proper only in cases where an
disposal of judicial authority; and existing obligation is due. In this case, the
6. Subsequent notice of the fact of contracting parties agreed that full payment of
consignation to persons interested in purchase price shall be due and payable within 5
the fulfillment of the obligation. years from the execution of a formal deed of sale.
At the time Rodriguez deposited the amount in
Q: Can the debtor withdraw the thing court, no formal deed of sale had yet been
deposited? executed by the parties, and, therefore, the 5‐
year period during which the purchase price
A:Before the creditor has accepted the should be paid had not commenced. In short, the
consignation, or before a judicial declaration that purchase price was not yet due and payable.
the consignation has been properly made, the (Heirs of San Andresv.Rodriguez, G.R. No. 135634,
debtor may withdraw the thing or the sum May 31, 2000)
deposited, allowing the obligation to remain in
force. (Art. 1260, NCC) Q: Under a pacto de retro sale, X sold to Y his lot
and the building erected thereon. They agreed
NOTE: If, the consignation having been made, the that half of the consideration shall be paid to the
creditor should authorize the debtor to withdraw bank to pay off the loan of X. After paying the
the same, he shall lose every preference which he first installment, Y, instead of paying the loan to
may have over the thing. The co‐debtors, guarantors the bank, restructured it twice. Eventually, the
and sureties shall be released. (Art. 1261, NCC) loan became due and demandable. Thus, X paid

the bank. On the same day, Y also went to the
Q: Distinguish tender of payment from
bank and offered to pay the loan, but the bank
consignation.
refused to accept the payment.

A:
Y then filed an action for consignation without

notifying X. Is there a valid consignation by Y of
TENDER OF PAYMENT CONSIGNATION
the balance of the contract price?
Nature

Antecedent of Principal or
A: No. Y filed the petition for consignation against
consignation or consummating act for
the bank without notifying the X, resulting to the
preliminary act to the extinguishment of
consignation the obligation former’s failure to prove the payment of the
Effect balance of the purchase price and consignation.
It does not by itself It extinguishes the In fact, even before the filing of the consignation
extinguish the obligation when declared case, Y never notified the X of their offer to
obligation valid pay.(Sps. Benosv. Sps.Lawilao, G.R. No. 172259,
Character Dec. 5, 2006)
Judicial for it requires the
filing of a complaint in
court (Pineda,
Extrajudicial
Obligations and
Contracts, 2000 ed, p.
242)

CIVIL LAW TEAM:

OBLIGATIONS
Q: Because of Ligaya’s refusal to accept several f. When debtor Promised to deliver
tenders of payment and notices of consignation the same thing to two or more
given by OSSA in its desire to comply with its persons who do not have the same
obligation to pay on installments, OSSA brought interest
a complaint for consignation against Ligaya g. When the debt of a certain and
before the RTC. The RTC allowed OSSA, among determinate thing proceeds from a
others, to deposit with it,by way of consignation, Criminal offense
all future quarterly installments without need of h. When the obligation is Generic
formal tenders of payment and service of notices
of consignation. 2. Generic obligation to give:

Ligaya assails the validity of the consignation on GR: The obligation is not extinguished
the ground that there was no notice to her because a generic thing never perishes.
regarding OSSA's consignation of the amounts
corresponding to certain installments. Is Ligaya XPN:In case of generic obligations
correct? whose object is a particular class or
group with specific or determinate
A: No. The motion and the subsequent court qualities (limited generic obligation)
order served on Ligaya in the consignation
proceedings sufficiently served as notice to Ligaya 3. An obligation to do – the obligation is
of OSSA's willingness to pay the quarterly extinguished when the prestation
installments and the consignation of such becomes legally or physically
payments with the court. For reasons of equity, impossible.
the procedural requirements of consignation are
deemed substantially complied with in the Q: Differentiate legal from physical impossibility
present case (De Mesa v. CA, G.R. Nos. 106467‐ to perform an obligation to do.
68, Oct. 19, 1999).
A:
B. LOSS OF THE THING DUE 1. Legal impossibility – act stipulated to be
performed is subsequently prohibited
Q: When is a thing considered lost? by law.
2. Physical impossibility – act stipulated
A: When: DOPE could not be physically performed by
1. It Disappears in such a way that its the obligor due to reasons subsequent
existence is unknown; to the execution of the contract.
2. It goes Out of commerce; (Pineda, Obligations and Contracts,
3. It Perishes; or 2000 ed, p. 261)
4. Its Existence is unknown or if known, it
cannot be recovered. Q: What is the effect of partial loss?

Q: What is the effect of loss of the thing which is A:
the object of the obligation? 1. Due to the fault or negligence of the
debtor – Creditor has the right to
A: If the obligation is a: demand the rescission of the obligation
1. Determinate obligation to give: or to demand specific performance,
plus damages, in either case.
GR:The obligation is extinguished when 2. Due to fortuitous event:
the object of the obligation is lost. a. Substantial loss – obligation is
extinguished.
XPNs: LAS‐CD‐PCG b. Unsubstantial loss – the CR shall
a. Law provides otherwise deliver the thing promised in its
b. Nature of the obligation requires impaired condition.
the Assumption of risk
c. Stipulation to the contrary
d. Debtor Contributed to the loss
e. Loss the of the thing occurs after
the debtor incurred in Delay

Q: What is the effect when the thing is lost in the (Pineda, Obligations and Contracts, 2000 ed, p.
possession of the debtor? 267)
EXPRESS CONDONATION
A:
GR: It is presumed that loss is due to DR’s Q: What are the requisites of condonation?
fault.
A: GAIDE
XPN: Presumption shall not apply in case loss 1. Must be Gratuitous;
is due to earthquake, flood, storm or other 2. Acceptance by the debtor;
natural calamity. 3. Must not be Inofficious;
4. Formalities provided by law on
XPN to the XPN: Debtor still liable even if loss Donations must be complied with if
is due to fortuitous event when: condonation is express; and
1. Debtor incurred in delay; or 5. An Existing demandable debt.
2. Debtor promised to deliver the thing to
two or more persons with different IMPLIED CONDONATION
interests (par. 3, Art. 1165, NCC)
Q: What is the effect of the delivery of a private
Q: What does rebus sic stantibus mean? document evidencing a credit?

A: A principle in international law which means A:The delivery of a private document evidencing a
that an agreement is valid only if the same credit, made voluntarily by the creditor to the
conditions prevailing at time of contracting debtor, implies the renunciation of the action
continue to exist at the time of performance. It is which the former had against the latter.
the basis of the principle of unforeseen difficulty
of service.
If in order to nullify this waiver it should be

Note: However, this principle cannot be applied
claimed to be inofficious, the debtor and his heirs
absolutely in contractual relations since parties are may uphold it by proving that the delivery of the
presumed to have assumed the risk of unfavorable document was made in virtue of payment of the
developments. (Pineda, Obligations and Contracts, debt. (Art. 1271, NCC)
2000 ed, p. 264)
NOTE: Whenever the private document in which the
Q: What are the requisites in order to relieve the debt appears is found in the possession of the
debtor from his obligation, in whole or in part, debtor, it shall be presumed that the creditor
based on unforeseen difficulty of service? delivered it voluntarily, unless the contrary is
proved. (Art. 1272, NCC)
A:
1. Event or change in circumstance could It is presumed that the accessory obligation of
not have been foreseen at the time of pledge has been remitted when the thing pledged,
the execution of the contract; after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who
2. Such event makes the performance
owns the thing. (Art. 1274, NCC)
extremely difficult but not impossible;

3. The event must not be due to the act of
Q: What is the effect of inofficious condonation?
any of the parties; and

4. The contract is for a future prestation.
A: It may be totally revoked or reduced
(Tolentino, Civil Code of the Philippines,
depending on whether or not it is totally or only
Vol. IV, 2002 ed, p. 347)
partly inofficious. (Pineda, Obligations and

C. CONDONATION

Q: Can there be a unilateral condonation?
Q: What is condonation?

A: No. Since it is a donation of an existing credit,
A: It is an act of liberality by virtue of which the
considered a property right, in favor of the
creditor, without receiving any price or
debtor, it is required that the DR gives his consent
equivalent, renounces the enforcement of the
thereto by making an acceptance. If there is no
obligation, as a result of which it is extinguished
acceptance, there is no condonation. (Pineda,
in its entirety or in that part or aspect of the same
Obligations and Contracts, 2000 ed, p. 267)
to which the condonation or remission refers.

CIVIL LAW TEAM:

OBLIGATIONS
D. CONFUSION OR MERGER not extinguish the obligation. (Art.

1276, NCC)
Q: When is there a confusion or merger of
rights? Q: In a joint obligation, what is the effect of
confusion or merger in one debtor or creditor?
A: The meeting in one person of the qualities of a
creditor and debtor of the same obligation. A:
GR: Joint obligation is not extinguished since
Q: What are the requisites of confusion of confusion is not definite and complete with
rights? regard to the entire obligation. A part of the
obligation still remains outstanding.
A:
1. Merger in the same person of the XPN: Obligation is extinguished with respect
characters of both a creditor and d only to the share corresponding to the DR or
debtor; CR concerned. In effect, there is only partial
2. Must take place in the persons of a extinguishment of the entire obligation.
principal creditor and a principal (Pineda, Obligations and Contracts, 2000 ed,
debtor; and p. 281)
3. Merger is definite and complete.
E. COMPENSATION.
Q: What is the effect of confusion or merger of
rights? Q: What is compensation?

A: The creditor and debtor becomes the same A: It is a mode of extinguishing to the concurrent
person involving the same obligation. Hence, the amount, the obligations of those persons who in
obligation is extinguished. (Art. 1275, NCC) their own right are reciprocally debtors and
creditors of each other (Art. 1232, NCC). It
Q: Can there be partial confusion? involves the simultaneous balancing of two
obligations in order to extinguish them to the
A: Yes. It will be definite and complete up to the extent in which the amount of one is covered by
extent of the concurrent amount or value, but the that of the other.
remaining obligation subsists. (Pineda,
Obligations and Contracts, 2000 ed, p. 278) Q: What are the requisites of compensation?

Q: What is the effect when confusion or merger A:
is revoked? 1. Both parties must be mutually creditors
and debtors in their own right and as
A: If the act which created the confusion is principals;
revoked for some causes such as rescission of 2. Both debts must consist in sum of
contracts, or nullity of the will or contract, the money or if consumable, of the same
confusion or merger is also revoked. The subject kind or quality;
obligation is revived in the same condition as it 3. Both debts are due;
was before the confusion. 4. Both debts are liquidated and
demandable;
Note: During such interregnum, the running of the 5. Neither debt must be retained in a
period of prescription of the obligation is suspended. controversy commenced by third
(Pineda, Obligations and Contracts, 2000 ed, p. 279) person and communicated with debtor
(neither debt is garnished); and
Q: What is the effect of confusion or merger in 6. Compensation must not be prohibited
relation to the guarantors? by law.

A: Note: When all the requisites mentioned in Art. 1279
1. Merger which takes place in the person of the Civil Code are present, compensation takes
of the principal debtor or principal effect by operation of law, even without the consent
creditor benefits the guarantors. The or knowledge of the creditors and debtors.
contract of guaranty is extinguished.
2. Confusion which takes place in the
person of any of the guarantors does

1. KINDS OF COMPENSATION CONVENTIONAL

Q: What are the kinds of compensation? Q: What is conventional compensation?

A: A: It is one that takes place by agreement of the
1. Legal compensation – by operation of parties.
law
2. Conventional – by agreement of the JUDICIAL COMPENSATION
parties
3. Judicial – by judgment of the court Q: What is judicial compensation?
when there is a counterclaim duly
pleaded, and the compensation A: One made by order of a court based on a
decreed permissive counterclaim. Pleading and proof of
the counterclaim must be made.
LEGAL COMPENSATION
FACULTATIVE COMPENSATION
Q: What are the debts not subject to
compensation? Q: What is facultative compensation?

A: A: One of the parties has a choice of claiming or
1. Debts arising from contracts of deposit opposing the compensation.
2. Debts arising from contracts of
commodatum Q: What are the obligations subject to
3. Claims for support due by gratuitous facultative compensation?
title
4. Obligations arising from criminal A: When one of the debts arises from:
offenses 1. Depositum
5. Certain obligations in favor of 2. Obligations of a depositary
government (e.g. taxes, fees, duties, 3. Obligations in commudatum
and others of a similar nature) 4. Claim of support due to gratuitous title
XPN: Future support.
Note: If a person should have against him several 5. Civil liability from a crime
debts which are susceptible of compensation, the
rules on the application of payments shall apply to Q: Distinguish compensation from payment.
the order of the compensation. (Art. 1289, NCC) A:
COMPENSATION PAYMENT
Q: De Leon sold and delivered to Silahis various A mode of extinguishing
merchandise. Due to Silahis' default, De Leon to the concurrent
Payment means not only
amount, the obligations
filed a complaint for the collection of said delivery of money but
of those persons who in
accounts. Silahis asserts, as affirmative defense, also performance of an
their own right are
a debit memo as unrealized profit for a obligation
reciprocally debtors and
supposed commission that Silahis should have creditors of each other
received from De Leon. Was there legal Capacity of parties not Debtor must have
compensation? necessary capacity to dispose of
the thing paid;
A: Silahis admits the validity of its outstanding Reason: Compensation creditor must have
accounts with De Leon. But whether De Leon is operates by law, not by capacity to receive
liable to pay Silahis a commission on the subject the act of the parties payment
sale to Dole is disputed. This circumstance There can be partial The performance must
prevents legal compensation from taking place. extinguishment of the be complete unless
(Silahis Marketing Corp. v. IAC, G. R. No. L‐74027, obligation waived by the creditor
Dec. 7, 1989) Legal compensation
takes place by operation Involves delivery or
Note: Compensation is not proper where the claim of law without action
of the person asserting the set‐off against the other simultaneous delivery
is not clear nor liquidated; compensation cannot It is not necessary that
Parties must be mutually
extend to unliquidated, disputed claim existing from the parties be mutually
debtors and creditors of
breach of contract. (Silahis Marketing Corp. v. IAC, G. debtors and creditors of
each other
R. No. L‐74027, Dec. 7, 1989) each other

CIVIL LAW TEAM:

OBLIGATIONS
Q: Distinguish compensation from confusion. has been held that the relation existing between

a depositor and a bank is that of creditor and
A: debtor. As a general rule, a bank has a right of set
COMPENSATION CONFUSION off of the deposits in its hands for the payment of
(Arts. 1278‐1279) (Arts. 1275‐1277) any indebtedness to it on the part of a depositor"
Two persons who are One person where (Gullas v. PNB, GR No. L‐43191, November 13,
mutual debtors and qualities of debtor and 1935). Hence, compensation took place between
creditors of each other creditor are merged the mutual obligations of X and Y bank. (1998 Bar
At least two obligations One obligation Question)

Q: Atty. Laquihon, in behalf of Pacweld, filed a Q: Eduardo was granted a loan by XYZ Bank for
pleading addressed to MPCC titled “motion to the purpose of improving a building which XYZ
direct payment of attorney's fee”, invoking a leased from him. Eduardo executed the
decision wherein MPCC was adjudged to pay promissory note in favor of the bank, with his
Pacweld the sum of P10,000.00 as attorney's friend Ricardo as cosignatory. In the PN, they
fees. MPCC filed an opposition stating that the both acknowledged that they are “individually
said amount is set‐off by a like sum of and collectively” liable and waived the need for
P10,000.00, collectible in its favor from Pacweld prior demand. To secure the PN, Ricardo
also by way of attorney's fees which MPCC executed a real estate mortgage on his own
recovered from the same CFI of Manila in property. When Eduardo defaulted on the PN,
another civil case. Was there legal XYZ stopped payment of rentals on the building
compensation? on the ground that legal compensation had set
in. Since there was still a balance due on the PN
A: MPCC and Pacweld were creditors and debtors after applying the rentals, XYZ foreclosed the
of each other, their debts to each other consisting real estate mortgage over Ricardo’s property.
in final and executory judgments of the CFI in two Ricardo opposed the foreclosure on the ground
separate cases. The two obligations, therefore, that he is only a co‐signatory; that no demand
respectively offset each other, compensation was made upon him for payment, and assuming
having taken effect by operation of law and he is liable, his liability should not go beyond
extinguished both debts to the concurrent half of the balance of the loan. Further, Ricardo
amount of P10,000.00, pursuant to the provisions said that when the bank invoked compensation
of Arts. 1278, 1279 and 1290 of the Civil Code, between the rentals and the amount of the loan,
since all the requisites provided in Art. 1279 of it amounted to a new contract or novation, and
the said Code for automatic compensation "even had the effect of extinguishing the security since
though the creditors and debtors are not aware he did not give his consent (as owner of the
of the compensation" were present. (Mindanao property under the real estate mortgage)
Portland Cement Corp. v. CA,G.R. No. L‐62169, thereto.
Feb. 28, 1983)
Can XYZ Bank validly assert legal compensation?
Q: X, who has a savings deposit with Y Bank in
the sum of PI,000,000.00, incurs a loan A: XYZ Bank may validly assert the partial
obligation with the said bank in the sum of compensation of both debts, but is should be
P800,000.00 which has become due. When X facultative compensation because not all of the
tries to withdraw his deposit, Y Bank allows only five requisites of legal compensation are present
P200,000.00 to be withdrawn, less service (Art. 1279, NCC). The payment of the rentals by
charges, claiming that compensation has XYZ Bank is not yet due, but the principal
extinguished its obligation under the savings obligation of loan where both Eduardo and
account to the concurrent amount of X's debt. X Ricardo are bound solidarily and therefore any of
contends that compensation is improper when them is bound principally to pay the entire loan, is
one of the debts, as here, arises from a contract due and demandable without need of demand.
of deposit. Assuming that the promissory note XYZ Bank may declare its obligation to pay rentals
signed by X to evidence the loan does not as already due and demand payment from any of
provide for compensation between said loan and the two debtors.
his savings deposit, who is correct?
Alternative Answer: Legal compensation can be
A: Y bank is correct. All the requisites of Art. 1279, validly asserted between the bank, Eduardo and
Civil Code are present. Compensation shall take Ricardo. This is a case of facultative obligation,
place when two persons are reciprocally creditor thus, the bank can assert partial compensation.
and debtor of each other. In this connection, it

Banks have an inherent right to set off where in the obligation under Art. 1302, NCC. (2008 Bar
both obligations are due and demandable (Art. Question)
1279, NCC).
F. NOVATION
Can Ricardo’s property be foreclosed to pay the
full balance of the loan? Q: What is novation?

A: No, because there was no prior demand on A: It is the change of an obligation by another,
Ricardo, depriving him of the right to reasonably resulting in its extinguishment or modification,
block the foreclosure by payment. The waiver of either by changing the object or principal
prior demand in the PN is against public policy conditions, or by substituting another in the place
and violates the right to due process. Without of the debtor or by subrogating a third person to
demand, there is no default and the foreclosure is the rights of the creditor. (Pineda, Obligations
null and void. Since the mortgage, insofar as and Contracts, 2000 ed, p. 298)
Ricardo is concerned is not violated, a
requirement under Act 3135 for a valid Q: What are the requisites of novation?
foreclosure of real estate mortgage is absent.
A:
In the case of DBP v. Licuanan, it was held that: 1. Previous valid obligation;
“the issue of whether demand was made before 2. An agreement by the parties to create a
the foreclosure was effected is essential. If new one or a modified version;
demand was made and duly received by the 3. Extinguishment or modification of the
respondents and the latter still did not pay, then old obligation; and
they were already in default and foreclosure was 4. Valid new obligation.
proper. However, if demand was not made, then
the loans had not yet become due and Q: Is novation presumed?
demandable. This meant that the respondents
had not defaulted in their payment and the A: No. Novation is never presumed, it must be
foreclosure was premature.” proven as a fact either by:
1. Explicit declaration – if it be so declared
Alternative Answer 1:No. Although the principal in unequivocal terms; or
obligation of loan is due and demandable without 2. Material incompatibility – that the old
need of further demand the foreclosure of the and the new obligations be on every
accessory contract of real estate mortgage, there point incompatible with each other.
is a need of notice and demand. (Art. 1293, NCC)

Alternative Answer 2: Yes. Ricardo’s property can Q: SDIC issued to Danilo a Diners Card (credit
be foreclosed to pay the full balance of the loan. card) with Jeannete as his surety. Danilo used
He is admittedly “individually and collectively” this card and initially paid his obligations to
liable. His liability is solidary. He and Eduardo SDIC. Thereafter, Danilo wrote SDIC a letter
have waived notice for a prior demand as requesting it to upgrade his Regular Diners Club
provided in the promissory note. Card to a Diamond (Edition) one. As a
requirement of SDIC, Danilo secured from
Does Ricardo have basis under the Civil Code for Jeanette her approval and the latter obliged.
claiming that the original contract was novated? Danilo's request was granted and he was issued
a Diamond (Edition) Diners Club Card. Danilo had
A: None of the three kinds of novation is incurred credit charged plus appropriate interest
applicable. There is no objective novation, and service charge. However, he defaulted in the
whether express or implied, because there is no payment of this obligation. Was the upgrading a
change in the object or principal conditions of the novation of the original agreement governing
obligation. There is no substitution of debtors, the use of Danilo Alto's first credit card, as to
either. Compensation is considered as extinguish that obligation?
abbreviated or simplified payment and since
Ricardo bound himself solidarily with Eduardo, A: Yes. Novation, as a mode of extinguishing
any facultative compensation which occurs does obligations, may be done in two ways: by explicit
not result in partial legal subrogation. Neither declaration, or by material incompatibility.
Eduardo nor Ricardo is a third person interested
There is no doubt that the upgrading was a
novation of the original agreement covering the

CIVIL LAW TEAM:

OBLIGATIONS
first credit card issued to Danilo Alto, basically b. if suspensive and it did not occur –

since it was committed with the intent of it is as if there is no obligation;
cancelling and replacing the said card. However, thus, there is nothing to novate
the novation did not serve to release Jeanette Did the assignment amount to payment by
from her surety obligations because in the surety cession?
undertaking she expressly waived discharge in
case of change or novation in the agreement A:No.There was only one creditor, the DBP.
governing the use of the first credit card.(Molino Article 1255 contemplates the existence of two or
v. Security Diners International Corp.,G.R. No. more creditors and involves the assignment of all
136780, Aug. 16, 2001) the debtor's property.

Q: What are the effects of novation? Did the assignment constitute dation in
payment:
A:
1. Extinguishment of principal also A: No. The assignment, being in its essence a
extinguishes the accessory, except: mortgage, was but a security and not a
a. Mortgagor, pledgor, surety or satisfaction of indebtedness. (DBP v. CA, G.R. No.
guarantor agrees to be bound by 118342, Jan. 5, 1998)
the new obligation (Tolentino, Civil
Code of the Philippines, Vol. IV,
1999 ed, p. 395)
b. Stipulation made in favor of a third
person such as stipulation pour
atrui(Art. 1311, NCC), unless
beneficiary consents to the
novation.
2. If the new obligation is:
a. Void – old obligation shall subsist
since there is nothing to novate,
except when the parties intended
that the old obligation be
extinguished in any event.
b. Voidable – novation can take
place, exceptwhen such new
obligation is annulled. In such case,
old obligation shall subsist.
c. Pure obligation – conditions of old
obligation deemed attached to the
new, unless otherwise stipulated
(Tolentino, Civil Code of the
Philippines, Vol. IV, 1999 ed, p.
399)
d. Conditional obligation:
i. if resolutory– valid until
the happening of the
condition
ii. if suspensive and did
not materialize– no
novation, old obligation
is enforced

3. If old obligation is conditional and the
new obligation is pure:
a. if resolutoryand it occurred – old
obligation already extinguished; no
new obligation since nothing to
novate

CONTRACTS Note: We follow the theory of cognition and not the
theory of manifestation. Under our Civil Law, the
Q: What is a contract? offer & acceptance concur only when the offeror
comes to know, and not when the offeree merely
A: It is a meeting of the minds between two or manifests his acceptance.
more persons whereby one binds himself, with
respect to the other, or where both parties bind Q: What are the requisites of a valid consent?
themselves reciprocally in favor of one another,
to fulfill a prestation to give, to do, or not to do. A: It should be:
(Pineda, Obligations and Contracts, 2000 ed, p.
328) 1. Intelligent, or with an exact notion of
the matter to which it refers;
Q: What is the difference between an obligation
and a contract? Note: Intelligence in consent is vitiated by
error; freedom by violence, intimidation
or undue influence; and spontaneity by
A: While a contract is one of the sources of
fraud.
obligations, an obligation is the legal tie or

relations itself that exists after a contract has
2. Free; and
been entered into.
3. Spontaneous.

Hence, there can be no contract if there is no
Q: What is the effect on the validity of a contract
obligation. But an obligation may exist without a
if consent is reluctant?
contract. (De Leon, Obligations and Contracts,

2003 ed, p. 283‐284)
A: A contract is valid even though one of the

parties entered into it against his wishes and
I. ESSENTIAL REQUISITES OF A CONTRACT
desires or even against his better judgment.

Contracts are also valid even though they are
Q: State the essential elements of contracts.
entered into by one of the parties without hope

of advantage or profit (Martinez v. Hongkong and
A: COC
Shanghai Banking Corp., GR No. L‐5496, Feb. 19,
1. Consent;
1910).
2. Object or subject matter; and

3. Cause or consideration.
Q: What are the kinds of simulation of contract?

Q: State the characteristics of a contract.
A:

1. Absolute – the contracting parties do
A: ROMA
not intend to be bound by the contract
1. Relativity (Art. 1311, NCC)
at all, thus the contract is void.
2. Obligatoriness and consensuality(Art.

1315, NCC)
2. Relative – the real transaction is hidden;
3. Mutuality (Art. 1308, NCC)
the contracting parties conceal their
4. Autonomy (Art. 1306, NCC)
true agreement; binds the parties to

their real agreement when it does not
CONSENT
prejudice third persons or is not

intended for any purpose contrary to
Q: What are the elements of consent?
law, morals, etc. If the concealed

contract is lawful, it is absolutely
A: LM‐CR
enforceable, provided it has all the
1. Legal capacity of the contracting
essential requisites: consent, object,
parties;
and cause.
2. Manifestation of the conformity of the

contracting parties;
As to third persons without notice, the
3. Parties’ Conformity to the object, cause,
apparent contract is valid for purposes
terms and condition of the contract
beneficial to them. As to third persons
must be intelligent, spontaneous and
with notice of the simulation, they
free from all vices of consent; and
acquire no better right to the simulated
4. The conformity must be Real.
contract than the original parties to the

same.

CIVIL LAW TEAM:

CONTRACTS
Q: Tiro is a holder of an ordinary timber license Q: What are the requisites of a valid offer?
issued by the Bureau of Forestry. He executed a
deed of assignment in favor of the Javiers. At the A:
time the said deed of assignment was executed, 1. Must be certain
Tiro had a pending application for an additional 2. May be made orally or in writing, unless
forest concession. Hence, they entered into the law prescribes a particular form
another agreement.
Q: When does offer become ineffective?
Afterwards, the Javiers, now acting as timber
license holders by virtue of the deed of A:
assignment entered into a forest consolidation 1. Death, civil interdiction, insanity or
agreement with other ordinary timber license insolvency of either party before
holders. For failure of the Javiers to pay the acceptance is conveyed
balance due under the two deeds of assignment,
Tiro filed an action against them. Are the deeds 2. Express or implied revocation of the
of assignment null and void for total absence of offer by the offeree
consideration and non‐fulfillment of the
conditions? 3. Qualified or conditional acceptance of
the offer, which becomes counter‐offer
A: The contemporaneous and subsequent acts of
Tiro and the Javiers reveal that the cause stated 4. Subject matter becomes illegal or
in the first deed of assignment is false. It is settled impossible before acceptance is
that the previous and simultaneous and communicated
subsequent acts of the parties are properly
cognizable indicia of their true intention. Where Q: What is the rule on complex offer?
the parties to a contract have given it a practical
construction by their conduct as by acts in partial A:
performance, such construction may be 1. Offers are interrelated – contract is
considered by the court in construing the perfected if all the offers are accepted
contract, determining its meaning and 2. Offers are not interrelated – single
ascertaining the mutual intention of the parties at acceptance of each offer results in a
the time of contracting. The first deed of perfected contract unless the offeror
assignment is a relatively simulated contract has made it clear that one is dependent
which states a false cause or consideration, or upon the other and acceptance of both
one where the parties conceal their true is necessary.
agreement. A contract with a false consideration
is not null and void per se. Under Article 1346 of Q: What is the rule on advertisements as offers?
the Civil Code, a relatively simulated contract,
when it does not prejudice a third person and is A:
not intended for any purpose contrary to law, 1. Business advertisements –not a definite
morals, good customs, public order or public offer, but mere invitation to make an
policy binds the parties to their real agreement. offer, unless it appears otherwise
(Javier v. CA, G.R. No. L‐48194, Mar. 15, 1990) 2. Advertisement for bidders –
onlyinvitation to make proposals and
Q: What are contracts of adhesion? advertiser is not bound to accept the
highest or lowest bidder, unless it
A: One party has already a prepared form of a appears otherwise.
contract, containing the stipulations he desires,
and he simply asks the other party to agree to Q: What are the effects of an option?
them if he wants to enter into the contract.
A: Option may be withdrawn anytime before
Q: What are the elements of a valid offer and acceptance is communicated but not when
acceptance? supported by a consideration other than purchase
price – option money.
A:
1. Definite – unequivocal
2. Intentional
3. Complete – unconditional


Q: What are the requisites of a valid acceptance? Note: The most evident and fundamental requisite
in order that a thing, right or service may be the
A: object of a contract, it should be in existence at the
1. Must be absolute; a qualified moment of the celebration of the contract, or at
acceptance constitutes a counter‐offer least, it can exist subsequently or in the future.
2. No specified form but when the offeror
specifies a particular form, such must Q: What are the things which can be the object
be complied with of contracts?

Note: Offer or acceptance, or both, expressed in A:
electronic form, is valid, unless otherwise agreed by GR: All things or services may be the object of
the parties (electronic contracts). contracts.
Q: What is the period for acceptance?
XPNs:
A: 1. Things outside the commerce of men;
1. Stated fixed period in the offer 2. Intransmissible rights;
a. Must be made within the period 3. Future inheritance, except in cases
given by the offeror expressly authorized by law;
i. As to withdrawal of the offer: 4. Services which are contrary to law,
morals, good customs, public order or
GR: It can be made at any time public policy;
before acceptance is made, by 5. Impossible things or services; and
communicating such withdrawal 6. Objects which are not possible of
determination as to their kind.
XPN: When the option is founded
upon a consideration, as something Q: A contract of sale of a lot stipulates that the
paid or promised since partial "payment of the full consideration based on a
payment of the purchase price is survey shall be due and payable in 5 years from
considered as proof of the perfection
the execution of a formal deed of sale". Is this a
of the contract
conditional contract of sale?

2. No stated fixed period

a. Offer is made to a person present –
A: No, it is not. The stipulation is not a condition
acceptance must be made
which affects the efficacy of the contract of sale.
immediately
It merely provides the manner by which the full
b. Offer is made to a person absent – consideration is to be computed and the time
acceptance may be made within
within which the same is to be paid. But it does
such time that, under normal
not affect in any manner the effectivity of the
circumstances, an answer can be
contract. (Heirs of San Andresv.Rodriguez, G.R.
received from him
No. 135634, May 31, 2000)

Note: Acceptance may be revoked before it comes
CAUSE
to the knowledge of the offeror (withdrawal of offer)

Q: What are the requisites of a cause?
OBJECT

A: It must:
Q: What are the requisites of an object?
1. exist

2. be true
A:
3. be licit
1. Determinate as to kind (even if not

determinate, provided it is possible to
Q: What are the two presumptions in contracts
determine the same without the need
as to cause?
of a new contract);

2. Existing or the potentiality to exist
A:
subsequent to the contract;
1. Every contract is presumed to have a
3. Must be licit;
cause; and
4. Within the commerce of man; and
2. The cause is valid.
5. Transmissible.

CIVIL LAW TEAM:

CONTRACTS
Q: What are the kinds of causes? c. in cases specified by law

(e.g.contracts entered when ward
A: suffers lesion of more than 25%)
1. Cause of onerous contracts – the
prestation or promise of a thing or II. KINDS OF CONTRACT
service by the other
2. Cause of remuneratory contracts– the Q: What are the kinds of contracts?
service or benefit remunerated
3. Cause of gratuitous contracts – the A:
mere liberality of the donor or 1. Consensual contracts which are
benefactor perfected by the mere meeting of the
4. Accessory – identical with cause of minds of the parties
principal contract, the loan which it
derived its life and existence (e.g.: 2. Real contracts that require delivery for
mortgage or pledge) perfection –creation of real rights over
immovable property must be written
Q: Distinguish cause from motive.
3. Solemn contracts– contracts which
A: must appear in writing, such as:
CAUSE MOTIVE
Direct and most a. Donations of real estate or of
Indirect or remote
proximate reason of a movables if the value exceeding
reasons
contract P5,000;
Objective and juridical Psychological or purely b. Transfer of large cattle;
reason of contract personal reason c. Stipulation to pay interest in loans;
Legality or illegality of Legality or illegality of d. Sale of land through an agent;
cause affects the motive does not affect e. Partnership to which immovables
existence or validity of the existence or validity are contributed;
the contract of contract f. Stipulation limiting carrier’s liability
Cause is always the same to less than extra‐ordinary
Motive differs for each
for each contracting
contracting party diligence; or
party
g. Contracts of antichresis and sale of

vessels.
Q: What is the effect of the error of cause on

contracts?

Q: What is the principle of relativity of
A:
contracts?
1. Absence of cause (want of cause; there

is total lack or absence of cause) –
A:
Confers no right and produces no legal
GR: A contract is binding not only between
effect
parties but extends to the heirs, successors in
2. Failure of cause ‐ Does not render the
interest, and assignees of the parties,
contract void
provided that the contract involves
3. Illegality of cause (the cause is contrary
transmissible rights by their nature, or by
to law, morals, good customs, public
stipulation or by provision of law.
order and public policy)–Contract is null

and void
XPNs:
4. Falsity of cause (the cause is stated but
1. Stipulation pour autrui (stipulation in
the cause is not true)–Contract is void,
favor of a third person) – benefits
unless the parties show that there is
deliberately conferred by parties to a
another cause which is true and lawful
contract upon third persons.
5. Lesion or inadequacy of cause –Does

not invalidate the contract, unless:
Requisites:
a. there is fraud, mistake, or undue
a. The stipulation must be part, not
influence;
whole of the contract;
b. when the parties intended a
b. Contracting parties must have
donation or some other
clearly and deliberately conferred
contract;or
a favor upon third person;

c. Third person must have his debt as soon as he is able, even after 10 years
communicated his acceptance; and and that he waives his right to prescription.
d. Neither of the contracting parties What are the effects of said stipulation to the
bears the legal representation of action for collection filed by Borromeo?
the third person.
A: None. The rule is that a lawful promise made
2. When a third person induces a party to for a lawful consideration is not invalid merely
violate the contract because an unlawful promise was made at the
same time and for the same consideration. This
Requisites: rule applies although the invalidity is due to
a. Existence of a valid contract violation of a statutory provision, unless the
b. Third person has knowledge of statute expressly or by necessary implication
such contract declares the entire contract void. Thus, even with
c. Third person interferes without such waiver of prescription, considering that it
justification was the intent of the parties to effectuate the
3. Third persons coming into possession of terms of the promissory note, there is no legal
the object of the contract creating real obstacle to the action for collection filed by
rights Borromeo. (Borromeo v. CA,G.R. No. L‐22962,
Sept. 28, 1972)
4. Contracts entered into in fraud of
creditors Note: Where an agreement founded on a legal
consideration contains several promises, or a
Q: Fieldmen's Insurance issued, in favor of MYT, promise to do several things, and a part only of the
a common carrier, accident insurance policy. things to be done are illegal, the promises which can
50% of the premium was paid by the driver. The be separated, or the promise, so far as it can be
policy indicated that the Company will indemnify separated, from the illegality, may be
the driver of the vehicle or his representatives valid.(Borromeo v. CA,G.R. No. L‐22962, Sept. 28,
upon his death. While the policy was in force, 1972)
the taxicab driven by Carlito, met with an
accident. Carlito died. MYT and Carlito's parents Q: What is the principle of mutuality of
filed a complaint against the company to collect contracts?
the proceeds of the policy. Fieldmen’s admitted
the existence thereof, but pleaded lack of cause A: Contract must be binding to both parties and
of action on the part of the parents. Decide. its validity and effectivity can never be left to the
will of one of the parties. (Art. 1308, NCC)
A: Yes. Carlito’s parents‐ who, admittedly, are his
sole heirs have a direct cause of action against the Q: What is the principle of autonomy of
Company. This is so because pursuant to the contracts?
stipulations, the Company will also indemnify
A: It is the freedom of the parties to contract and
third parties. The policy under consideration is
includes the freedom to stipulate provided the
typical of contracts pour autrui, this character
stipulations are not contrary to law, morals, good
being made more manifest by the fact that the
customs, public order or public policy. (Art. 1306,
deceased driver paid 50% of the premiums.
NCC)
(Coquia v. Fieldmen’s Insurance Co., Inc.,G.R. No.

L‐23276, Nov. 29, 1968)
A. CONSENSUAL CONTRACTS

Q: What is the obligatory force of contracts?
Q: What are consensual contracts?

A: The parties are bound not only by what has
A: They are contracts perfected by mere consent.
been expressly provided for in the contract but

also to the natural consequences that flow out of
Note: This is only the general rule.
such agreement. (Art. 1315, NCC)

B. REAL CONTRACTS
Q: Villamor borrowed a large amount from

Borromeo, for which he mortgaged his property
Q: What are real contracts?
but defaulted.Borromeo pressed him for

settlement. The latter instead offered to execute
A: They are contracts perfected by delivery
a promissory note containing a promise to pay

CIVIL LAW TEAM:

CONTRACTS
C. FORMAL CONTRACTS 7. Chattel mortgage‐ personal property

must be recorded in the Chattel
Q: What are formal contracts? Mortgage Register

A: Contracts which require a special form for III. FORM OF CONTRACTS
perfection.
Q: What are rules on the form of contracts?
Q: What are the formalities required in the
following contracts? A:
A: 1. Contracts shall be obligatory, in
1. Donations: whatever form they may have been
a. personal property‐ if value entered into, provided all essential
exceeds 5000, the donation requisites for their validity are present.
and acceptance must both be
written. 2. Contracts must be in a certain form –
b. b. real property: when the law requires that a contract
i. donation must be in a public be in some form to be:
instrument, specifying therein the a. valid;
property donated and value of b. enforceable; or
charges which donee must satisfy. c. for the convenience of the parties.
ii. acceptance must be written, either
in the same deed of donation or in a 3. The parties may compel each other to
separate instrument. reduce the verbal agreement into
iii. If acceptance is in a separate writing.
instrument, the donor shall be
notified therof in authentic form, Note:
and this step must be noted in both GR: Form is not required in consensual contracts.
instruments.
Note: The acceptance in a separate XPNs: When the law requires a contract be in
document must be a public instrument. certain for its:
1. validity (formal contracts); or
2. Partnership where real property 2. enforceability (under Statute of Frauds).
contributed:
i. there must be a public instrument Q: What are the acts which must appear in a
regarding the partnership. public document?
ii. the inventory of the realty must be
made, signed by the parties and A:
attached to the public instrument. 1. Donation of real properties (Art. 719);
2. Partnership where immoveable
3. Antichresis‐ the amount of the principal property or real rights are contributed
and interest must be in writing. to the common fund (Arts. 1171 &
1773);
4. Agency to sell real property or an 3. Acts and contracts which have for their
interest therein‐ authority of the agent object the creation, transmission,
must be in writing. modification or extinguishment of real
rights over immovable property; sales
5. Stipulation to charge interest‐ interest of real property or of an interest therein
must be stipulated in writing. is governed by Arts. 1403, No. 2, and
1405 [Art. 1358 (1)];
6. Stipulation limiting common carrier's 4. The cession, repudiation or
duty of extraordinary diligence to renunciation of hereditary rights or of
ordinary diligence: those of the conjugal partnership of
i. must be in writing, signed by gains [Art. 1358 (2)]
shipper or owner 5. The power to administer property or
ii. supported by valuable consideration any other power which has for its object
other than the service rendered by an act appearing or which should
the comon carrier appear in a public document or should
iii. reasonable, just and not contrary to prejudice a third person [Art. 1358 (3)];
public policy.

6. The cession of actions or rights A: It may be ordered at the instance of:
proceeding from an act appearing in a 1. if the mistake is mutual – either party or
public document [Art. 1358 (4)]. his successors in interest; otherwise;
2. upon petition of the injured party; or
Q: What are contracts that must be registered? 3. his heirs and assigns.

A: Note: When one of the parties has brought an action
1. Chattel mortgages (Art. 2140) to enforce the instrument, no subsequent
2. Sale or transfer of large cattle (Cattle reformation can be asked (estoppel).
Registration Act)
Q: In case of reformation of contracts, is the
REFORMATION prescription period in bringing an action for
reformation run from the time the contract
Q: What is reformation of instruments? became disadvantageous to one party?

A: It is a remedy to conform to the real intention A: In reformation of contracts, what is reformed
of the parties due to mistake, fraud, inequitable is not the contract itself, but the instrument
conduct, accident. (Art. 1359) embodying the contract. It follows that whether
the contract is disadvantageous or not is
Note: Reformation is based on justice and equity. irrelevant to reformation and therefore, cannot
be an element in the determination of the period
Q: What are the requisites in reformation of for prescription of the action to reform.
instruments?
IV. DEFECTIVE CONTRACTS
A:
1. Meeting of the minds to the contract Q: What may be the status of contracts?
2. True intention is not expressed in the
instrument A:
3. By reason of MARFI: 1. Valid
a. Mistake, 2. Void
b. Accident, 3. Voidable
c. Relative simulation, 4. Rescissible
d. Fraud, or 5. Unenforceable
e. Inequitable conduct 6. Inexistent
4. Clear and convincing proof of MARFI
A. RESCISSIBLE CONTRACTS
Note: When there is no meeting of the minds, the
proper remedy is annulment and not reformation. Q: What are rescissible contracts?

Q: In what cases is reformation of instruments A: Those which have caused a particular
not allowed? economic damage either to one of the parties or
to a third person and which may be set aside
A: even if valid. It may be set aside in whole or in
1. Simple, unconditional donations inter part, to the extent of the damage caused. (Art.
vivos 1381, NCC)
2. Wills
3. When the agreement is void Q: Which contracts are rescissible?
4. When an action to enforce the
instrument is filed (estoppel) A:
1. Entered into by persons exercising
Q: What is the prescriptive period in reformation fiduciary capacity:
of instruments? a. Entered into by guardian whenever
ward suffers damage more than ¼
A: 10 years from the date of the execution of the of value of property.
instrument. b. Agreed upon in representation of
absentees, if absentee suffers
Q: Who may ask for the reformation of an lesion by more than ¼ of value of
instrument? property.

CIVIL LAW TEAM:

CONTRACTS
c. Contracts where rescission is based Applicability
on fraud committed on creditor Applies to both unilateral
Applies only to reciprocal
(accionpauliana) and reciprocal
obligations
d. Objects of litigation; contract obligations
entered into by defendant without Person who can Initiate the Action
knowledge or approval of litigants Even third persons
Only the injured party
or judicial authority prejudiced by the
who is a party to the
e. Payment by an insolvent – on contract may bring the
contract
debts which are not yet due; action
prejudices claim of others Fixing of Period by the Court
f. Provided for by law (Arts. 1526, Court may fix a period or
1534, 1538, 1539, 1542, 1556, grant extension of time
1560, 1567 & 1659, NCC) for the fulfillment of the Court cannot grant
obligation when there is extension of time
sufficient reason to
2. Payments made in state of insolvency:
justify such extension
a. Plaintiff has no other means to
Purpose
maintain reparation
Reparation for damage
b. Plaintiff must be able to return Cancellation of the
or injury, allowing partial
whatever he may be obliged to contract
rescission of contract
return due to rescission

c. The things must not have been Note: While Article 1191 uses the term “rescission,”
passed to third persons in good the original term which was used in the old Civil
faith Code, from which the article was based, was
d. It must be made within 4 yrs. “resolution.” (Ongv.CA,G.R. No. 97347, July 6, 1999)

Q: What are the requisites before a contract Q: What is the obligation created by the
entered into in fraud of creditors may be rescission of the contract?
rescinded?
A: Mutual restitution of things which are the
A: objects of the contract and their fruits and of the
1. There must be credit existing prior to price with interest.
the celebration of the contract;
2. There must be fraud, or at least, the Q: When is mutual restitution not applicable?
intent to commit fraud to the prejudice
of the creditor seeking rescission; A:
3. The creditor cannot in any legal manner 1. Creditor did not receive anything from
collect his credit (subsidiary character of contract; or
rescission); and 2. Thing already in possession of third
4. The object of the contract must not be persons in good faith; subject to
legally in possession of a third person in indemnity only, if there are two or more
good faith. alienations – liability of first infractor.

Note: Rescission is possible only when the person
Q: Distinguish rescission from resolution. demanding rescission can return whatever he may
be obliged to restore. A court of equity will not
RESOLUTION RESCISSION rescind a contract unless there is restitution, that is,
(ART. 1191) (ARTICLE 1381) the parties are restored to the status quo
Both presuppose contracts validly entered into and ante.(Article 1385)
subsisting and both require mutual restitution when
proper Q: Reyes (seller) and Lim (buyer) entered into a
Nature contract to sell of a parcel of land. Harrison
Principal action. Lumber occupied the property as lessee. Reyes
Subsidiary remedy
retaliatory in character offered to return the P10 million down payment
Grounds for Rescission to Lim because Reyes was having problems in
5 grounds under Art. removing the lessee from the property. Lim
Only ground is non‐ 1381. (lesions or fraud of rejected Reyes’ offer. Lim learned that Reyes had
performance of creditors) already sold the property to another.
obligation Non‐performance is not
important

Trial court, in this case, directed Reyes to deposit Q: What are the characteristics of the right to
the P10 million downpayment with the clerk of rescind?
court but Reyes refused. Does Reyes have the
obligation to deposit the P10 million A:
downpayment in the court? 1. Can be demanded only if plaintiff is
ready, willing and able to comply with
A: Yes. There is also no plausible or justifiable his own obligation and defendant is not;
reason for Reyes to object to the deposit of the 2. Not absolute;
P10 million down payment in court. The contract 3. Needs judicial approval in the absence
to sell can no longer be enforced because Reyes of a stipulation allowing for extra‐
himself subsequently sold the property. Both Lim judicial rescission, in cases of non‐
and Reyes are seeking for rescission of the reciprocal obligations;
contract. 4. Subject to judicial review if availed of
extra‐judicially;
By seeking rescission, a seller necessarily offers to 5. May be waived expressly or impliedly;
return what he has received from the buyer. Such and
a seller may not take back his offer if the court 6. Implied to exist in reciprocal obligations
deems it equitable, to prevent unjust enrichment therefore need not be expressly
and ensure restitution, to put the money in stipulated upon.
judicial deposit.
Q: May an injured party avail of both fulfillment
Note: In this case, it was just, equitable and proper and rescission as remedy?
for the trial court to order the deposit of the down
payment to prevent unjust enrichment by Reyes at A:
the expense of Lim. Depositing the down payment in GR:The injured party can only choose
court ensure its restitution to its rightful owner. Lim, between fulfillment and rescission of
on the other hand, has nothing to refund, as he has the obligation, and cannot have both.
not received anything under the contract to sell.
(Reyes v. Lim, Keng and Harrison Lumber, Inc., G.R. Note: This applies only when the
No. 134241, Aug. 11, 2003) obligation is possible of fulfillment.

Q: What are the badges of fraud attending sales, XPN: If fulfillment has become
as determined by the courts? impossible, Article 1191, NCC allows the
injured party to seek rescission even
A: after he has chosen fulfillment. (Ayson‐
1. Consideration of the conveyance is Simon v. Adamos,G.R. No. L‐39378, Aug.
inadequate or fictitious; 28 1984)
2. Transfer was made by a DR after a suit
has been begun and while it is pending Q: Vermen and Seneca entered into an
against him "offsetting agreement", where Seneca is obliged
3. Sale upon credit by an insolvent DR; to deliver construction materials to Vermen,
4. The presence of evidence of large who is obliged to pay Seneca and to deliver
indebtedness or complete insolvency of possession of 2 condominium units to Seneca
the debtor; upon its completion. Seneca filed a complaint for
5. Transfer of all his property by a DR rescission of the offsetting against Vermen
when he is financially embarrassed or alleging that the latter had stopped issuing
insolvent; purchase orders of construction materials
6. Transfer is made between father and without valid reason, thus resulting in the
son, where there are present some or stoppage of deliveries of construction materials
any of the above circumstances; and on its part, in violation of the Offsetting
7. Failure of the vendee to take exclusive Agreement. Can the agreement be rescinded?
possession of the property.
A: Yes, because the provisions of the offsetting
agreement are reciprocal in nature. Article 1191
of the Civil Code provides the remedy of
rescission (more appropriately, the term is
"resolution") in case of reciprocal obligations,
where one of the obligors fails to comply with
that is incumbent upon him.

CIVIL LAW TEAM:

CONTRACTS
The question of whether a breach of contract is In a contract to sell, the payment of the purchase
substantial depends upon the attendant price is a positive suspensive condition, the failure of
circumstances. Seneca did not fail to fulfill its which is not a breach, casual or serious, but a
obligation in the offsetting agreement. The situation that prevents the obligation of the vendor
discontinuance of delivery of construction to convey title from acquiring an obligatory force.
materials to Vermen stemmed from the failure of (Ongv.CA, G.R. No. 97347, July 6, 1999)
Vermen to send purchase orders to Seneca.
Vermen would never have been able to fulfill its Q: Goldenrod offered to buy a mortgaged
obligation in allowing Seneca to exercise the property owned by Barreto Realty to which it
option to transfer from Phase I to Phase II, as the paid an earnest money amounting to P1 million.
construction of Phase II has ceased and the It was agreed upon that Goldenrod would pay
subject condominium units will never be the outstanding obligations of Barreto Realty
available. The impossibility of fulfillment of the with UCPB. However, Goldenrod did not pay
obligation on the part of Vermen necessitates UCPB because of the banks denial of its request
resolution of the contract, for indeed, the non‐ for the extension to pay the obligation.
fulfillment of the obligation aforementioned Thereafter, Goldenrod, through its brocker,
constitutes substantial breach of the agreement. informed Barreto Realty that it could not go
(Vermen Realty Development Corp. v. CA and through with the purchase of the property and
Seneca Hardware Co., Inc., G.R. No. 101762, July also demanded the refund of the earnest money
6, 1993) it paid. In the absence of a specific stipulation,
may the seller of real estate unilaterally rescind
Q: Ong and spouses Robles executed an the contract and as a consequence keep the
"agreement of purchase and sale" of 2 parcels of earnest money to answer for damages in the
land. Pursuant to the contract they executed, event the sale fails due to the fault of the
Ong partially paid the spouses the by depositing prospective buyer?
it with the bank. Subsequently, Ong deposited
sums of money with the BPI in accordance with A: No. Goldenrod and Barretto Realty did not
their stipulation that Ong pay the loan of the intend that the earnest money or advance
spouse with BPI. To answer for Ong’s balance, he payment would be forfeited when the buyer
issued 4 post‐dated checks which were should fail to pay the balance of the price,
dishonored. Ong failed to replace the checks and especially in the absence of a clear and express
to pay the loan in full. Can the contract entered agreement thereon.
into by Ong and the spouses be rescinded?
Moreover, Goldenrod resorted to extrajudicial
A: No. The agreement of the parties in this case rescission of its agreement with Barretto Realty.
may be set aside, but not because of a breach on Under Article 1385, NCC, rescission creates the
the part of Ong for failure to complete payment obligation to return the things which were the
of the purchase price. Rather, his failure to do so object of the contract together with their fruits
brought about a situation which prevented the and interest. Therefore, by virtue of the
obligation of the spouses to convey title from extrajudicial rescission of the contract to sell by
acquiring an obligatory force. Goldenrod without opposition from Barretto
Realty, which in turn, sold the property to other
The agreement of purchase and sale shows that it persons, Barretto Realty, had the obligation to
is in the nature of a contract to sell. Ong’s failure return the earnest money which formed part of
to complete payment of the purchase price is a the purchase price plus legal interest from the
non‐fulfillment of the condition of full payment date it received notice of rescission. It would be
which rendered the contract to sell ineffective most inequitable if Barretto Realty would be
and without force and effect. The breach allowed to retain the money at the same time
contemplated in Article 1191, NCC is the obligor’s appropriate the proceeds of the second sale
failure to comply with an obligation. In this case, made to another. (Goldenrod, Inc. v. CA, G.R. No.
Ong’s failure to pay is not even a breach but 126812, Nov. 24, 1998)
merely an event which prevents the vendor’s
obligation to convey title from acquiring binding
force.

Note: The contract entered into by the parties in the
case at bar does not fall under any of those
mentioned by Article 1381. Consequently, Article
1383 is inapplicable.

Q: What is the prescriptive period of action for Q: What are the vices of consent?
rescission?
A: MIVUF
A: 1. Mistake – substantial mistake and not
1. Under Art. 1381, no.1 – within 4 years merely an accidental mistake; must
from the time the termination of the refer to the:
incapacity of the ward; a. substance of the thing which is the
2. Under Art. 1381, no. 2‐ within 4 years subject of the contract; or
from the time the domicile of the b. to those conditions which have
absentee is known; or principally moved one or both
3. Under Art. 1381, nos. 3 & 4 & Art. 1382 parties to enter the contract.
– within 4 years from the time of the
discovery of fraud. Note: Mistake as to identity or
qualifications of one of the parties
B. VOIDABLE CONTRACTS will vitiate consent only when such
identity or qualifications have been
Q: What are the characteristics of a voidable the principal cause of the contract.
contract?
A: 2. Intimidation – An internal moral force
1. Effective until set aside; operating in the will and inducing
2. May be assailed or attacked only in an performance of an act.
action for that purpose; 3. Violence – An external, serious or
3. Can be confirmed; and irresistible physical force exerted upon
4. Can be assailed only by the party whose a person to prevent him from doing
consent was defective or his heirs or something or to compel him to do an
assigns. act.
4. Undue influence – Any means employed
Q: When is there a voidable contract? upon a party which, under the
circumstances could not be resisted and
A: When: has the effect of controlling his volition
1. one of the parties is incapacitated to and inducing him to give his consent to
give consent; or the contract, which otherwise, he
2. consent was vitiated. would not have entered into.
5. Fraud – Use of insidious words or
Q: Who are the persons incapacitated to give machinations in inducing another party
consent? to enter into the contract, which
without them, he would not have
A: DIM agreed.
1. Deaf‐mutes who do not know how to
read and write (illiterates) Q: What are the kinds of mistake?
2. Insane or demented persons, unless the
contract was entered into during a lucid A:
interval 1. Mistake of fact– When one or both of
3. Minors except: the contracting parties believe that a
a. Contracts for necessaries fact exists when in reality it does not, or
b. Contracts by guardians or legal that such fact does not exist when in
representatives & the court having reality it does.
jurisdiction had approved the same
c. When there is active 2. Mistake of law– When 1 or both parties
misrepresentation on the part of arrive at erroneous conclusion or
the minor (minor is estopped) interpretation of a question of law or
d. Contracts of deposit with the legal effects of a certain act or
Postal Savings Bank provided that transaction.
the minor is over 7 years of age
e. Upon reaching age of majority – Note:
they ratify the same GR: Mistake as a vice of consent refers to
mistake of facts and not of law.

CIVIL LAW TEAM:

CONTRACTS
XPN: When mistake of law involves error as to mental weakness or some other handicap. It

the effect of an agreement when the real contemplates a situation wherein a contract is
purpose of the parties is frustrated (Art. 1334, entered into but the consent of one of the
NCC). contracting parties is vitiated by mistake or fraud
committed by the other.(Leonardo v. CA, G.R. No.
To determine the effect of an alleged error, both the 125485, Sept. 13, 2004)
objective and subjective aspects of the case which is
the intellectual capacity of the person who Q: What are the requisites that ignorance of or
committed the mistake. erroneous interpretation of law (mistake of law)
may vitiate consent?
Q: When will mistake invalidate consent?
A:
A: Mistake, in order to invalidate consent, should 1. Mistake must be with respect to the
refer to the substance of the thing which is the legal effect of the agreement;
object of the contract, or to those conditions 2. It must be mutual; and
which have principally moved one or both parties 3. Real purpose of the parties must have
to enter into the contract.(Leonardo v. CA, G.R. been frustrated.
No. 125485, Sept. 13, 2004)
Q: What are the requisites of intimidation?
Q: Leonardo is the only legitimate child of the
late spouses Tomasina and Balbino. She only A:
finished Grade three and did not understand 1. One of the parties is compelled to give
English. The Sebastians, on the other hand, are his consent by a reasonable and well‐
illegitimate children. She filed an action to grounded fear of an evil;
declare the nullity of the extrajudicial settlement 2. The evil must be imminent and grave;
of the estate of her parents, which she was 3. It must be unjust; and
made to sign without the contents thereof, 4. The evil must be the determining cause
which were in English, explained to her. She for the party upon whom it is employed
claims that her consent was vitiated because she in entering into the contract.
was deceived into signing the extrajudicial
settlement. Is the extra‐judicial settlement of Q: What are the requisites of violence?
estate of Tomasina valid?
A: It must be:
A: No. When one of the parties is unable to read, 1. serious or irresistible; and
or if the contract is in a language not understood 2. the determining cause for the party
by him, and mistake or fraud is alleged, the upon whom it is employed in entering
person enforcing the contract must show that the into the contract.
terms thereof have been fully explained to the
former. (Art. 1332, NCC) Leonardo was not in a Q: What are the kinds of fraud?
position to give her free, voluntary and
spontaneous consent without having the A:
document, which was in English, explained to her. 1. Fraud in the perfection of the contract
Therefore, the consent of Leonardo was a. Causal fraud (dolo causante)
invalidated by a substantial mistake or error, b. Incidental fraud (dolo incidente)
rendering the agreement voidable. The
extrajudicial partition between the Sebastians 2. Fraud in the performance of an
and Leonardo should be annulled and set aside obligation (Art. 1170, NCC)
on the ground of mistake. (Leonardo v. CA, G.R.
No. 125485, Sept. 13, 2004) Requisites:
a. Fraud, insidious words or
Note: Contracts where consent is given by mistake machinations must have been
or because of violence, intimidation, undue employed by one of the
influence or fraud are voidable. These circumstances contracting parties;
are defects of the will, the existence of which b. It must have been serious;
impairs the freedom, intelligence, spontaneity and
c. It induced the other party to enter
voluntariness of the party in giving consent to the
into a contract; and
agreement.

d. Should not have been employed by
Art. 1332 was intended to protect a party to a both contracting parties or by third
contract disadvantaged by illiteracy, ignorance, persons.

Q: Distinguish dolo causante from dolo this suspensive condition. (Samson v. CA, G.R. No.
incidente. 108245, Nov. 25, 1994)

A: Q: What are the causes of extinction of action to
DOLOCAUSANTE DOLOINCIDENTE annul?
(ART. 1338) (ART. 1344)
Refers to fraud which is Refers to fraud which is A:
serious in character not serious in character 1. Prescription – the action must be
It is the cause which It is not the cause which commenced within 4 years from the
induces the party to induces the party to time the:
enter into a contract enter into a contract a. incapacity ends; guardianship
Renders the contract Renders the party liable ceases;
voidable for damages b. violence, intimidation or undue
influence ends; or
Note: In contracts, the kind of fraud that will vitiate c. mistake or fraud is discovered
consent is one where, through insidious words or
machinations of one of the contracting parties, the
2. Ratification–cleanses the contract of its
other is induced to enter into a contract which,
defects from the moment it was
without them, he would not have agreed to. This is
known as dolo causante or causal fraud which is
constituted
basically a deception employed by one party prior to
or simultaneous to the contract in order to secure Requisites:
the consent of the other. (Samson v. CA, G.R. No. a. there must be knowledge of the
108245, Nov. 25, 1994) reason which renders the contract
voidable;
Q: Santos’ lease contract was about to expire b. such reason must have ceased; and
but it was extended and he continued to occupy c. the injured party must have
the leased premises beyond the extended term. executed an act which expressly or
Samson offered to buy Santos’ store and his impliedly conveys an intention to
right to the lease. Santos stated that the lease waive his right
contract between him and the lessor was
impliedly renewed and that formal renewal 3. By loss of the thing which is the object
thereof would be made upon the arrival of a of the contract through fraud or fault of
certain Tanya Madrigal, based on the letter to the person who is entitled to annul the
him given by the lessor. When Samson occupied contract
the premises, he was forced to vacate for
Santos’ failure to renew his lease. He filed an Q: Who may institute action for annulment?
action for damages against Santos for fraud and
bad faith claiming that the misrepresentation A: By all who are thereby obliged principally or
induced him to purchase the store and the subsidiarily.
leasehold right. Decide. Note: He who has capacity to contract may not
invoke the incapacity of the party with whom he has
A: No, Santos was not guilty of fraud nor bad faith contracted.

in claiming that there was implied renewal of his
A third person who is a stranger to the contract
contract of lease with his lessor. The letter given
cannot institute an action for annulment.
by the lessor led Santos to believe and conclude

that his lease contract was impliedly renewed and
Q: What are the effects of annulment?
that formal renewal thereof would be made upon

the arrival of Tanya Madrigal. Thus, from the
A:
start, it was known to both parties that, insofar as
1. If contract not yet consummated –
the agreement regarding the transfer of Santos’
parties shall be released from the
leasehold right to Samson was concerned, the
obligations arising therefrom.
object thereof relates to a future right. It is a
2. If contract has already been
conditional contract, the efficacy of which
consummated – rules provided in Arts.
depends upon an expectancy the formal renewal
1398‐1402, NCC, shall govern.
of the lease contract between Santos and lessor.

The efficacy of the contract between the parties

was thus made dependent upon the happening of

CIVIL LAW TEAM:

CONTRACTS
Q: What is confirmation? involved, but merely regulates the formalities of

the contract necessary to render it enforceable.
A: It is an act by which a voidable contract is Evidence of the agreement cannot be received
cured of its vice or defect. without the writing or a secondary evidence of its
contents. (Swedish Match, AB v. CA, G.R. No.
Q: What is recognition? 128120, Oct. 20, 2004)

A: It is an act whereby a defect of proof is cured Note: The Statute of Frauds applies only to
such as when an oral contract is put into writing executory contracts, not to those that are partially or
or when a private instrument is converted into a completely fulfilled. Where a contract of sale is
public instrument. alleged to be consummated, it matters not that
neither the receipt for the consideration nor the sale
Q: What is ratification? itself was in writing. Oral evidence of the alleged
consummated sale is not forbidden by the Statute of
Frauds and may not be excluded in court. (Victoriano
A:It is an act by which a contract entered into in
v. CA, G.R. No. 87550, Feb. 11, 1991)
behalf of another without or in excess of

authority is cured of its defect.
Q: What is the purpose of the Statute of Frauds?

Q: What are the modes of ratification?
A: It is to prevent fraud and perjury in the

enforcement of obligations depending for their
A:
evidence on the unassisted memory of witnesses,
1. For contracts infringing the Statute of
by requiring certain enumerated contracts and
Frauds:
transactions to be evidenced by a writing signed
a. expressly
by the party to be charged. (Swedish Match, AB v.
b. impliedly– by failure to object to
CA, G.R. No. 128120, Oct. 20, 2004)
the presentation of oral evidence

to prove the contract, or by the
Q: What are the contracts or agreements
acceptance of benefits under the
covered by the Statute of Frauds?
contract.
2. If both parties are incapacitated,
ratification by their parents or guardian A:
shall validate the contract retroactively 1. An agreement that by its terms is not to
be performed within a year from the
C. UNENFORCEABLE CONTRACTS
making thereof;
2. A special promise to answer for the
Q: What are unenforceable contracts? debt, default or miscarriage of another
3. An agreement made in consideration of
A: The following contracts are unenforceable marriage, other than a mutual promise
unless they are ratified: to marry;
1. Those entered into without or in excess 4. An agreement for the sale of goods,
of authority; chattels or things in action, at a price
2. Those that do not comply with the not lower that 500 pesos, unless the
Statute of Frauds i.e., are not in writing
buyer accepts and receives part of such
nor subscribed by the party charged or goods and chattels, or the evidences, or
by his agent; or some of them, of such things in action,
3. Those where both contracting parties or pay at the time some part of the
are incapable of giving consent. entry is made by the auctioneer in his
sales book, at the time of the sale, of
Q: What is Statute of Frauds? the amount and kind of property sold,
terms of sale, price, names of the
A: The Statute of Frauds [Article 1403, (2)] purchasers and person on whose
requires certain contracts enumerated therein to account the sale is made, it is a
be evidenced by some note or memorandum in
sufficient memorandum
order to be enforceable. The term "Statute of 5. An agreement for the leasing for a
Frauds" is descriptive of statutes which require longer period than one year, or for the
certain classes of contracts to be in writing. The sale of real property or of an interest
Statute does not deprive the parties of the right therein;
to contract with respect to the matters therein

6. A representation to the credit of a third D. VOID CONTRACTS
person
Q: What are the kinds of void contracts?
Q: Cenido, as an heir of Aparato and claiming to
be the owner of a house and lot, filed a A:
complaint for ejectment against spouses 1. Those lacking in essential elements:
Apacionado. On the other hand, spouses No consent, no object, no cause – some or
Apacionado allege that they are the owners all elements of a valid contract are absent
which are unregistered purchased by them from a. Those which are absolutely simulated
its previous owner, Aparato. Their claim is or fictitious: no cause
anchored on a 1‐page typewritten document b. Those whose cause or object did not
entitled "Pagpapatunay," executed by Aparato. exist at the time of the transaction:
Is the “Pagpapatunay” entered into by Bonifacio no cause or object
and spouse Apacionado valid and enforceable? c. Those whose object is outside the
commerce of man: no object
A: It is valid but unenforceable. Generally, d. Those which contemplate an
contracts are obligatory, in whatever form such impossible service: no object
contracts may have been entered into, provided e. Those where the intention of parties
all the essential requisites for their validity are relative to principal object of the
present. When, however, the law requires that a contract cannot be ascertained
contract be in some form for it to be valid or
enforceable, that requirement must be complied 2. Contracts prohibited by law
with. a. Pactum commisorium – the creditor
appropriates to himself the things
The sale of real property should be in writing and given by way of pledge or mortgage
subscribed by the party charged for it to be to fulfill the debt
enforceable. The "Pagpapatunay" is in writing and b. Pactum de non alienando – an
subscribed by Aparato, hence, it is enforceable agreement prohibiting the owner
under the Statute of Frauds. Not having been from alienating the mortgaged
subscribed and sworn to before a notary public, immovable
however, the "Pagpapatunay" is not a public c. Pactum leonina – a stipulation in a
document, and therefore does not comply with partnership agreement which
par. 1, Art. 1358, NCC. excludes one or more partners from
Moreover, the requirement of a public document any share in the profits or losses
in Article 1358 is not for the validity of the
instrument but for its efficacy. Although a 3. Illegal or illicit contracts(e.g. contract to
conveyance of land is not made in a public sell marijuana)
document, it does not affect the validity of such
conveyance. The private conveyance of the house Q: On July 6, 1976, Honorio and Vicente
and lot is therefore valid between Aparato and executed a deed of exchange. Under this
the spouses. (Cenidov.Spouses Apacionado, G.R. instrument, Vicente agreed to convey his 64.22‐
No. 132474, Nov. 19, 1999) square‐meter lot to Honorio, in exchange for a
500‐square‐meter property. The contract was
Q: What are the two ways of ratifying contracts entered into without the consent of Honorio’s
which infringe the Statute of Frauds? wife. Is the deed of exchange null and void?

A: A: The deed is valid until and unless annulled. The
1. Failure to object during the trial to the deed was entered into on July 6, 1976, while the
admissibility of parol evidence to Family Code took effect only on August 3, 1998.
support a contract covered by the Laws should be applied prospectively only, unless
Statute of Frauds. a legislative intent to give them retroactive effect
2. Acceptance of benefits – when the is expressly declared or is necessarily implied
contract has been partly executed from the language used. Hence, the provisions of
because estoppel sets in by accepting the Civil Code, not the Family Code are applicable.
performance. According to Article 166 of the Civil Code, the
husband cannot alienate or encumber any real
property of the conjugal partnership without the
wife’s consent. This provision, however, must be

CIVIL LAW TEAM:

CONTRACTS
read in conjunction with Article 173 of the same in interest not protected
Code. The latter states that an action to annul an by law
alienation or encumbrance may be instituted by Action to annul
the wife during the marriage and within ten years contract prescribes in 4
from the transaction questioned. Hence, the lack Action to declare nullity years (Pineda,
of consent on her part will not make the does not prescribe Obligations and
husband’s alienation or encumbrance of real Contracts, 2000 ed, p.
property of the conjugal partnership void, but 606)
merely voidable. (Villarandav. Villaranda, G.R. No.
153447, Feb. 23, 2004) Q: Distinguish void contract from rescissible
contract.
Q: Judie sold one‐half of their lot to Guiang
under a deed of transfer of rights without the A:
consent and over the objection of his wife, Gilda VOID RESCISSIBLE
and just after the latter left for abroad. When Defect is inherent Defect is in its effects, either
Gilda returned home and found that only her in the contract against one of the parties or a
itself third person
son, Junie, was staying in their house. She then
Nullity is a matter
gathered her other children, Joji and Harriet and Based on equity and matter of
of law and public
went to stay in their house. For staying in their private interest
interest
alleged property, the spouses Guiang
No legal effects Produces legal effects and
complained before the barangay authorities for even if no action is remains valid if no action is
trespassing. filed to set it aside filed
Action to declare Action to rescind prescribes
Is the deed of transfer of rights executed by its nullity does not within 4 years (Art. 1389, NCC;
Judie Corpuz and the spouses Guiang void or prescribe (Art. Pineda, Obligations and
voidable? 1410, NCC) Contracts, 2000 ed, p. 605)

A: Q: Distinguish void contract from inexistent
It is void. Gilda’s consent to the contract of sale of contract.
their conjugal property was totally inexistent or
absent. Thus, said contract properly falls within A:
the ambit of Article 124 of the FC. VOID CONTRACT INEXISTENT CONTRACT
Those where all the
The particular provision in the old Civil Code requisites of a contract
which provides a remedy for the wife within 10 are present, but the
Those where one or
years during the marriage to annul the cause, object or purpose
some of the requisites
encumbrance made by the husband was not is contrary to law,
which are essential for
carried over to the Family Code. It is thus clear morals, good customs,
validity are absolutely
that any alienation or encumbrance made after public order or public
lacking
the Family Code took effect by the husband of the policy or the contract
conjugal partnership property without the itself is prohibited or
consent of the wife is null and void. (Spouses declared prohibited.
Guiangv.CA, G.R. No. 125172, June 26, 1998) Principle of in pari
Principle of in pari
delicto
delicto is applicable.
isnot applicable.
Q: Distinguish void contract from voidable

contract.
V. EFFECT OF CONTRACTS

A:
VOID VOIDABLE
Q: Between whom do contracts take effect?
Consent is vitiated or

Absence of essential A: Contracts take effect only between the parties,
there is incapacity to
element/s of a contract and their assigns and heirs, the latter being liable
give consent
No effect even if not set Valid contract until set only to the extent of the property received from
aside aside the decedent.
Cannot be ratified Can be ratified
Nullity can be set up Q: What are the instances when the heirs may
Nullity can be set up be liable for the obligation contracted by the
against any person
only against a party decedent?
asserting right arising
thereto
from it, and his successors

A: When the rights and obligations arising from
the contract are transmissible:
1. By their nature; or
2. By stipulation; or
3. By provision of law.

Q: What are the requisites in order that a third
person may demand the fulfillment of the
contract?

A:
1. The contracting parties must have
clearly and deliberately conferred a
favor upon the third person;
2. The third person’s interest or benefit in
such fulfillment must not be merely
incidental; and
3. Such third person communicated his
acceptance to the obligor before the
stipulations in his favor are revoke.

CIVIL LAW TEAM:

UST Golden Notes 2011 Obligations and Contracts Libre

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OBLIGATIONS

3. He has not failed to return the property or officers. GSIS sought the restoration of the said

3. Compensatio morae – default on the MORA ACCIPIENDI

4. NEGLIGENCE relation contractual relation

Q: When may a debtor lose his right to make use Q: In alternative obligations, when does the

Q: To whom must payment be made in a A: It is tantamount to non‐performance. (Pineda,

INTEGRITY Q: Is the acceptance by a creditor of a partial

D. CONFUSION OR MERGER not extinguish the obligation. (Art.

Q: Distinguish compensation from confusion. has been held that the relation existing between

first credit card issued to Danilo Alto, basically b. if suspensive and it did not occur –

Q: What are the kinds of causes? c. in cases specified by law

C. FORMAL CONTRACTS 7. Chattel mortgage‐ personal property

XPN: When mistake of law involves error as to mental weakness or some other handicap. It

Q: What is confirmation? involved, but merely regulates the formalities of

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