Oblicon Reviewer

OBLIGATION AND CONTRACTS
REVIEWER
FIRST YEAR 2020

SHERLYN LOVE D. YUNGOT
PHILIPPINE LAW SCHOOL
TITLE 1- OBLIGATIONS
Chapter 1 GENERAL PROVISIONS
CONCEPT AND ELEMENTS
Article 1156 -Manresa defines obligation as a legal obligation between one person and another, who bound to the fulfillment of a prestation
“An obligation is a juridical necessity to which the former may demand of him.
give, to do or not to do.” -New Civil Code defines it as a juridical necessity to give, to do or not to do.
Four elements :
1. A juridical tie (Vinculum Juris) – efficient cause
2. Object or Prestation – giving, doing or not doing
3. Active subject, obligee or creditor - has the right to demand the prestation
4. Passive subject, obligor or debtor – is the one bound to perform
Article 1157 Sources of Obligation

“Obligations arise from: 1. Ex-Lege or Law – When they are imposed by law itself. ( Obligation to pay taxes)
(1) Law; 2. Ex-Contractu or Contracts – When they are arise from the stipulation of the parties (payment of loan with interest as agreed
(2) Contracts; upon)
(3) Quasi-contracts; 3. Quasi-Contractu or Quasi-contract – when they arise from lawful, voluntary and unilateral acts which are enforceable to the
(4) Acts or omissions punished by law; end that no one shall be unjustly enriched or benefit at the expense of another. In a sense, that these obligation can be
and considered as arising from law. ( solutio endebiti)
(5) Quasi-delicts. (1089a)” 4. Ex-maleficio or Crimes – when they arise from civil liability which is the consequence of a criminal offense. (duty of a culprit
to pay actual damages for causing the death of a person)
5. Quasi-maleficio or Quasi-delicts (torts) – when they arised from damaged caused to another through an act or omission, there
being fault or negligence, but no contractual relation exists between the parties. (duty of a tortfeasor to pay damages for
injuries or damages due to his fault, negligence or omission.
Sources classified
1. Those emanating from law
2. Those emanating from private acts which may be further subdivided into: a.) those arising from licit acts, in the case of
contracts and quasi-contracts, and b.) those arising from illicit acts, which may be either punishable in the case of delicts or
crimes, or not punishable in the case of quasi- delicts or torts.
Article 1158 Legal obligations are not presumed because they are considered a burden upon the obligor. To be demandable, they must be clearly
“Obligations derived from law are not set forth in the law.
presumed.
Only those expressly determined in this Special law under article 1158 refer to all the other laws not contained in Civil Code ( Corporate code, Negotiable Instruments,
Code or in special laws Insurance Code, NIRC, RPC, Labor Code, etc. )
are demandable, and shall be regulated
by the precepts of the
law which establishes them; and as to
what has not been fore
seen, by the provisions of this Book.
(1090)
1|SHERLYN LOVE D. YUNGOT
Article 1159 -A Contract is define as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give
“Obligations arising from contracts have something or to render service.
the force - It is the element of consent which distinguishes contract from other sources of obligations.
of law between the contracting parties -Contractual obligations or obligations arising from contracts or voluntary agreements presupposes that the contracts entered into are
and should be complied valid and enforceable.
with in good faith. (1091a)”
Article 1160 Quasi-contract- that juridical relation from lawful, unilateral acts by virtue of which the parties become bound to each other to the
“Obligations derived from quasi- end that no one will be unjustly enriched or benefited at the expense of another. It is a kind of contract created without the consent
contracts shall of one party but whose missing created without the consent given by the law.
be subject to the provisions of Chapter 1, - There is no consent but the same is supplied by fiction of law; to prevent injustice.
Title XVII, of this
Book. (n)” Characteristics distinguished from other sources of obligation
Quasi-contract Other sources
The law or acts executed must be lawful In a delict or crime, the act or acts are unlawful
The act or acts executed must be voluntary In quasi-delict, the act or acts involved constitue a fault,
negligence or lack of foresight.
The act or acts executed must be unilateral In ordinary contract, there is a meeting of minds of two parties.
Kinds of Quasi-contract
1. Negotiorum gestio (unauthorized management)- is defined as a form of quasi-contract which arises when a person, called
the officious manager or gestor, voluntary takes charge of the agency or management of the business or property of another
which has been neglected or abandoned, without any power from the latter.
- The chief element of negotiorum gestio is the principal’s absence or inability to appoint a proper agent.
Requisites
a.) A person, called the officious manager or gestor, voluntary assumes the agency or management of the business or
property of another,
b.) The property or business is being neglected or abandoned,
c.) There is no authorization from the owner , either expressly or impliedly,
d.) The assumption of agency or management is done in good faith.
*Reimbursement should be made to the gestor for necessary and useful expenses.
Extinguishment of Negotiorum Gestio

The juridical tie can be extinguish by any of the following:
a.) Repudiation of the officious management by the owner
b.) Death, civil interdiction, insanity or insolvency of the owner or gestor
c.) Putting an end to such gestor
d.) Withdrawal from the management by gestor, but without prejudice to his liability for damages should the owner suffer
damage.
2. Solutio Indebiti (undue payment)- takes place when something is received when there is no right to demand it, and it was
unduly delivered through mistake.

a.) A payment made when there exist no binding relation between the payor, who has no duty to pay, and the person who
received the payment
b.) The payment is made through mistake, and not through liberality or some other cause.
*The recipient has duty to return what was received.
Unjust Enrichment
1.) A person is unjustly benefited .
2.) Such benefit is derived at the expense of or with damages to another.
In Rem Verso
1. That the defendant has been enriched
2. That the plaintiff suffered the loss,
3. That the enrichment of the defendant is without just or legal ground
4. The plaintiff has no other action based on contract , quasi-contract, crime or quasi-delict.
*Accion in Rem Verso is based on law, while in solutio endibiti, the obligation of the debtpr to return the undue payment is based of
quai-contract.
*Mistake is essential element of Solutio Indebiti.
*If there’s a mistake of payment, the available remedy is an action to recover the undue payment based on the principle of solution
indebiti and the availability of this remedy on quasi-contract shall preclude any recovery based on accion in rem verso. While the
defendant is enriched without just or legal ground, such enrichment must not be the reason of any mistake in payment by the
plaintiff.
Article 1161 Oftentimes, the commission of a crime causes not only moral evil but also material damage. From this fact the rule has been
“Civil obligations arising from criminal established: Every person is criminally liable for a felony is also civilly liable.
offenses shall be governed by the penal
laws, A crime has a dual character
subject to the provisions of Article 1. as an offense against the state because of the disturbance of the social order
2177,and of the pertinent provisions of 2. as an offense against the private person injured by the crime unless it involves the crime of treason, rebellion, espionage,
Chapter 2, Preliminary Title on Human contempt and others wherein no civil liability arises on the part of the offender either because there’s no damages to be
Relations,and of Title XVIII of this compensated or there is no private person injured by the crime.
Book, regulating damages. (1092a)”
*what gives rise to the civil liability is really the obligation of everyone to repair or to make whole damage cause to another by
reason of his act or omission, whether done intentionally or negligently and whether punishable by law or not. (direct proximate
cause)
Rules that govern

1. Pertinent provision of the RPC and other penal laws, subject to the provisions of Art. 2177, Civil Code
2. Chapter 2, Preliminary Title, on Human Relations of the Civil Code
3. Title 18 of the book 4 of the Civil Code (on damages)
Civil Liability arising from crimes

1. Restitution
2. Reparation of damaged caused
3. Indemnity for consequential damages
*to hold employers subsidiarily liable for the crime of an employee, it must be committed in the performance of functions or duties
of the employee.
Effects of acquittal in criminal case

1. When acquittal is due to unreasonable doubt – no civil liability
2. When it is due to exempting circumstances – there is civil liability
3. When there is preponderance of evidence – there is civil liability
*After the criminal action has been commenced, no civil action arising from the same offense can be prosecuted.
1.) when a independent civil action is allowed by law.
-- upon the filing of criminal action, there is impliedly filed also a civil action, unless the offended party expressly reserves his right
to institute a separate civil action.
2.)Cases such as a.) obligations not arising from the act or omission claimed to be criminal, b.) violation of individual constitutional
rights and liberties of an individual, c.) defamation, fraud or physical injuries, d.)refusal or failure of members of local police force
to render protection to life or property, and e.) quasi-delicts
*the amount of proof or evidence that is required to recover on the civil liability arising from crime:
1.) if the claim is made in criminal case, then the proof of facts giving rise to the liability must be beyond reasonable doubt.
2.) if the claim of indemnity is made in a civil case, a mere preponderance of evidence is necessary.
*Acquittal does not affect civil liability

*Where the judgement of acquittal contained a declaration that no negligence can be attributed to the accused and that the fact from
which the civil action might arise did not exist, such acquittal in the criminal action carried with extinction of civil responsibility
arising therefrom.
Article 1162 Quasi-delict (Culpa Aquiliana) – an act or omission by a person (tortfeasor) which causes damage to another in his person, property
“Obligations derived from quasi-delicts or rights giving rise to an obligation to pay for the damage done, there being fault or negligence but there is no pre-existing
shall be governed by the provisions of contractual relation between the parties.
Chapter 2, Title XVII of this Book, and
by special laws. (1093a)” Requisites:
1. There must be an act or omission; fault or negligence
2. There must be damage or injury caused, and a direct relation or connection of cause and effect between the act and
omission and the damage
3. There is no pre-existing contractual relation between the parties
 The fault or negligence is the proximate cause of the damage injury
CRIME QUASI-DELICT
There is crime or malicious intent or criminal negligence There is only negligence
The purpose is punishment Indemnification of the offended party
Affects public interest Concerns private citizen
There are generally two liabilities; criminal and civil There is only civil liability
Criminal liability cannot be compromised or settled by the Liability for quasi-delict can be compromised as any other
parties themselves civil liability
The guilt of the accused must be proved beyond The fault and negligence of the defendant need only be
reasonable doubt proved by preponderance of evidence
Liability for quasi-delict is founded upon an undisputable principle of equity; namely, that fault or negligence cannot prejudice
anyone else besides its author, and in no case should its consequences be borne by him who, without will or caused on his part,
becomes the victim of the results, or suffers the harm produced by such fault or negligence.
Man is responsible not only for his voluntary wilful acts, executed consciously and intentionally, but also for those acts performed
with lack of foresight, care and negligence, which cause material harm to society or to other individuals.
Negligence – the failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other person suffers injury.
Test of Negligence
1. A duty on the party of the defendant to protect the plaintiff from the injury of which the latter complains
2. A failure to perform that duty
3. An injury to the plaintiff through such failure
Culpa Aquiliana Culpa Contractual

Negligence as a source of obligation Negligence in the performance of contact
Defense of “good father of a family” this is a complete and This is not a complete proper defense in the selection and
proper defense insofar as parents, guardians, employers are supervision of employees
concerned.
There is no presumption of negligence. The injured party must There is presumption of negligence as long as it can be proved
prove the negligence of the defendant. Otherwise, the that there was no negligence in the Carrying out of the terms of
complaint of injured party will be dismissed. the contract
DOLO CULPA
Fraud or dolo in an act involves wilfulness or deliberate intent Negligence or culpa is mere want of care and diligence .
to cause damage or injury to another.
The test in determining whether a person is negligent in doing an act whereby injury or damage results to the person or property of
another is this; would a prudent man, in the position of the person to whom negligence is attributed, foresee harm to the person
injured is as reasonable consequence of the course about to be pursued? If so, the law imposes a duty on the actor to refrain from
that course or to take precaution against its mischievous results, and that failure to do so constitutes negligence.
Requisites of liability under quasi-delict:

1. That there exist a wrongful act or omission imputable to the defendant by reason of his fault or negligence.
2. That there exist a damage or injury, which must be proved by the person claiming recovery.

3. That there must be a direct casual connection or a relation of cause and effect between the fault or negligence and the
damage or injury; or that the fault or negligence be the cause of damage or injury.
Proximate cause – the one which in natural sequence, undisturbed by any independent cause, produces the result complained of.
When the plaintiff’s own negligence was immediate and proximate cause of his own damage or injury, he cannot recover damages.
If his negligence was only contributory, the plaintiff may recover, but the court shall mitigate the damages to be awarded.
Obligations emerging from quasi-delicts are demandable not only for tortfeasors’ own fault or negligence but also, in certain cases,
for the fault or negligence as parents, guardians, teachers or employers. This kind of assumptive form of liability is provided in
Article 2180 and known as the doctrine of vicarious liability.
Barredo V Garcia and Almario: same negligent act causing damages may produce civil liability arising from a crime under Article
100 of the RPC, or create an action for quasi-delict under Article 2176 to 2194 of the CV.
Elcano V Hill : that the concept of quasi-delicts includes voluntary and negligent acts which may be punishable by law. The scope
of article 2176, therefore, is not limited to acts and omissions resulting from negligence. Well-entrentched is the doctrine that Article
2176 covers not only acts committed with negligence, but also acts which are voluntary and intentional.
Air France V Carrascoso: existence of contract between the parties does not bar the commission of a tort by one against the other
and the consequent recovery of damages, therefore, when the act that breaks the contract is also a tort.
Civil and Natural Obligations (Kinds of Obligation)

 Classification of obligation
1. Civil or Natural (Article 1423) – obligations are civil or natural. Civil obligations give a right of action to compel their
performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of
action to enforce their performance, but after voluntary fulfilment by the obligor, they authorize the retention of what
has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.
2. Real or personal
a. Real, in turn, may either be specific or generic
b. Personal, on the other hand, may either be positive or negative
3. Pure, conditional or with a term
4. Conjunctive or distributive, and the distributive may be alternative of facultative
5. Joint or Solidary
6. Divisible or indivisible
7. With penal clause
3 kinds of prestations in obligation

1. To give
2. To do
3. Not to do
Obligation to give may refer either to :

1. Specific or determinate object or thing
2. Generic or indeterminate thing
Generic – one that is indicated only by its kinds, without being designated and distinguish from others of the same kind.
In the obligation to deliver generic thing, the object due is determinable; the moment it is delivered, it becomes determinate. When
the generic objects are, however, confined to a particular class, we have a limited generic obligation. The class is considered in itself
a determinate object.
Specific – one that uis individualized and can be identified or distinguish from others of its kind.
In an obligation to deliver a determinate thing, there are 3 incidental or accessory obligations:

1. The obligation to preserve the thing with due care , provided for in Article 1163.
2. The obligation to deliver the fruits, provided for in Article 1164
3. The obligation to deliver the accessions and accessories, provided for in Article 1166.
CHAPTER 2 Nature and effects of Obligations
Article 1163 A thing is said to be specific or determinate particularly designated or physically segregated others of the same class ( Ex. The
“Every person obliged to give something watch I’m wearing, my dog name “terror,” the Toyota car with plate no. AAV 316 (2008), or this cavan of rice)
is also obliged to take care of it with the
proper diligence of a good father of a A thing is generic or indeterminate when refers only a class or genus to which it pertains and cannot be pointed out with
family, unless the law or the stipulation particularity ( Ex. The sum of 1k , 1 1995 car)
of the parties
requires another standard of care. Specific Generic
(1094a)” Identified by its originality. Identified only by its specie.
The debtor cannot substitute it with another although the latter The debtor can give anything of the same class as long as it is
is of the same kind and quality without the consent of the of the same kind.
creditor
Duties of debtor in obligation to give determinate thing:

1. Preserve the thing : in obligations to give ( real obligations), the obligor has an incidental duty to take care of the thing due
with diligence of a good father of a family pending delivery
a. Diligence of a good father of a family
b. Another standard of care – Art 1163, 1306
c. Factors to be considered- art 1173
d. Reason for debtor’s obligation
2. Deliver the fruits of the thing- art 1164

3. Deliver the accessions and accessories – art 1166
4. Deliver the thing itself – art 1163,1233, 1244 as to kinds of delivery, art 1497 to 1501
5. Answer for the damages for the case of non-fulfilment or breach – art 1170
Duties of debtor in obligation to deliver a generic thing :

1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and
other circumstances.
2. To be liable for damages in a case of fraud, negligence, or contravention of tenor thereof.

 If the failure of the debtor to preserve the thing is due to no fault or negligence of his, but to fortuitous events or force
majeure, he is exempted from responsibility.
Article 1164 Kinds of fruits:
“The creditor has a right to the fruits of 1. Natural fruits- the spontaneous products of soil, and the young and other products of animals. (tress and plants on the land
the thing from the time the obligation to produce without intervention of human)
deliver it arises. However, he shall 2. Industrial fruits – those produced by lands of any kind through cultivation of labor . (with human labor)
acquire no real right over it until the 3. Civil Fruits – those derived by virtue of a juridical relation (rents of buildings)
same has been delivered to him. (1095)”
 The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make delivery arises. The
intention of the law is to protect the interest of the obligee should the obligor commit delay, purposely or otherwise, in the
fulfilment of his obligation.
When obligation to deliver fruits arises:

1. Generally, the obligation to deliver the thing due and consequently, the fruits thereof, if any, arises from the time of the
“perfection of the contract.”
2. If the obligation is subject to suspensive, condition or period, it arises upon the fulfilment of the condition or arrival of the
term. However, the parties may make a stipulation to the contraryas regards the right of the creditor to the fruits of the
thing.
3. In a contact of sale, the obligation arises from its perfection of the contract even if the obligation is subject to a suspensive
condition or a suspensive period where the price has been paid.
4. In obligations to give arising from law, quasi-contracts, delicts and quasi-delicts, the time of performance is determined by
the specific provisions of the law applicable
Ownership and other real rights over property are acquired and transmitted in consequence of certain contracts by tradition or
delivery.
Non nudis pactis, sed traditione dominie rerum transferentur (the ownership of things is transferred by not mere agreements but by
delivery)
The delivery or tradition of a thing constitutes a necessary and indispensable requisite for the purpose of acquiring the ownership of
the same by virtue of a contract.
Meaning of personal right and real right

Personal Right Real Right
The right or power of a person (creditor) to demand from The right or interest of a person over a specific thing (i.e
another (debtor), as a definite passive subject, the fulfilment of ownership, possession, mortgage) without a definite subject
the latter’s obligation to give, to do, or not to do. against whom the right may be personally enforced.
Personal right and real right, Distinguished

Personal Right Real Right
There is a definite active subject and a definite passive subject There is only a definite subject without any passive subject
Binding and enforceable only against a particular person Directed against the whole world

Accessory obligations in determinate (specific) obligations:
1. The obligation to preserve the thing to be delivered.
2. The obligation to deliver the fruits, if the creditor is already entitled to them.
3. The obligation to deliver the accessions and accessories.
 The only way by which a debtor may be able to comply with his determinate obligation is delivering the exact thing which
is due.
--- Art. 1244 : “the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the
same value as, or more valuable than which is due.”
 Proper diligence of a good father: referring to the diligence required of a reasonably prudent person. Diligence required of
the debtor in fulfilling his obligation to preserve the determinate thing due.
Article 1165 Remedies of a Creditor

“When what is to be delivered is a 1. In obligation to give (Art. 1165)
determinate thing, the creditor, in 2. In obligations to do ( Art 1167)
addition to the right granted him by
Article 1170, may compel the debtor to Remedies of Creditor in real obligation:
make the delivery. 1. In a specific real obligation ( obligation to deliver a determinate thing), the creditor may exercise the following remedies or
If the thing is indeterminate or generic, rights in the case the debtor fails to comply with his obligation:
he may ask that the a. Demand Specific performance or fulfilment ( if it is still possible ) of the obligation with a rights to recover the
obligation be complied with at the damages;
expense of the debtor. b. Demand rescission or cancellation ( in certain cases) of the obligation also with a right to recover damages,
If the obligor delays, or has promised to c. Demand payment of damages only, where it is the only feasible remedy.
deliver the same
thing to two or more persons who do not In an obligation to deliver a determinate thing, the very thing itself must be delivered. Consequently, only the debtor can comply
have the same interest, he shall be with the obligation.
responsible for any fortuitous event until
he has 2. A generic real obligation (obligation to deliver generic thing), on the other hand, can be performed by a third person since
effected the delivery. (1096)” the object is expressed only according to its family or genus. It is, thus, not necessary for the creditor to compel the debtor
to make the delivery, although he may ask for the performance of obligation.
When a fortuitous event does not exempt the debtor from responsibility. It is likewise refers to a determinate thing. An
indeterminate thing cannot be the object of destruction by the fortuitous event because genus nunquam perit (genus never perishes)
Article 1166 Meaning of accessions and accessories
“The obligation to give a determinate
thing in Accessions Accessories
cludes that of delivering all its The fruits of the thing or additions to or improvements upon Things joined to or included with the principal thing for the
accessions and accessories, a thing (the principal), naturally or artificially, i.e House or latter’s embellishment, better use, or completion, i.e key of
even though they may not have been tress on the land, rents of a building , air conditioner in a car the house frame of the picture, bracelet of the watch.
mentioned. (1097a)” etc Machinery of the factory, bow of the violin, etc.
This article refers to the accession continua, including the accession natural, such as alluvion, and accession industrial in its three
form of building, planting and sowing.
 All accessions and accessories are considered included in the obligation to deliver a determinate thing although they may
not have been mentioned.
 Unless otherwise stipulated
 An obligation to deliver the accessions and accessories of a thing does not include the latter , ex. Sale of the improvement
(ex. House) upon a land is not sufficient to convey the title or any right to the land, unless otherwise stipulated.
Article 1167 Situations contemplated in Article 1167 ( an obligation to do)

“If a person obliged to do something 1. The debtor fails to perform an obligation to do
fails to do it, the same shall be executed 2. The debtor performs an obligation to do but contrary to the terms thereof
at his cost. 3. The debtor performs an obligation to do but in poor manner
This same rule shall be observed if he
does it in contravention of the tenor of Remedies of the creditor in positive personal obligation
the obligation.Furthermore, it may be 1. If the debtor fails to comply with his obligation to do, the creditor has the right:
decreed that what has been poorly done a. To have the obligation performed by himself or by another, unless personal consideration are involved, at the debtor’s
be undone. (1098)” expense;
b. To recover damages
2. In the case the obligation is done in contravention of terms of the same or is poorly done, it may be ordered (by the court)
that it may be undone if it is still possible to undo what was done.
 A personal obligation to do, like a real obligation to deliver a generic thing, can be performed by a third person. Where,
however, the personal qualifications of the debtor are the determining motive for the obligation contracted (ex. To sing in a
night club), the performance of the same by another would be impossible or would result to be so different that the
obligation could not be considered performed. Hence, the only feasible remedy of the creditor is indemnification for
damages.
 The law does not authorize the imposition of personal force or coercion upon the debtor to comply with his obligation
 There is no imprisonment for debt. The ultimate sanction of civil obligations is indemnification of damages.
Article 1168 Remedies of the creditor in negative personal obligation:
“When the obligation consists in not - The remedy of the obligee is the undoing of the forbidden thing plus the damages. However, if it is not possible to undo
doing, and the obligor does what has what was done, either physically or legally, or because of the rights acquired by the third persons who acted in good faith,
been forbidden him, it shall also be or for some reason, his remedy is an action for damages caused by the debtor’s violation of his obligation.
undone at his expense. (1099a)”
Article 1169 Meaning of delay
“Those obliged to deliver or to do Ordinary Legal (default or Mora)
something incur in delay from the time Merely the failure to perform an obligation on time The failure to perform and obligation on time which failure
the obligee judicially or extra-judicially constitutes a breach of obligation
demands from them the fulfifillment of  There can be delay only on positive obligations (to do and to give); but there can be no delay on negative oblogations (not
their obligation. However, the demand to do or not to give)
by the creditor shall not be necessary
in order that delay may exist: Kinds of delay or default
(1) When the obligation or the law
expressly so declares; Mora Solvendi Mora Accipiende Compensatio Morae
or
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(2) When from the nature and the The delay on the part of the debtor to The delay on the part of the creditor that The delay on the part of the obligors in
circumstances of the obligation it fulfil his obligation ex re ( to give) or accept the performance of the obligation reciprocal obligations
appears that the designation of the time persona (to do)
when the
thing is to be delivered or the service is Mora Solvendi
to be rendered was a controlling motive - Mora on the part of the debtor is the delay, contrary to the law, in the fulfilment of the prestation by reason of cause
for the establishment of the contract; or imputable to the former.
(3) When demand would be useless, as - It presupposes that the obligation is due or demandable
when the obligor has rendered it beyond
his power to perform. Requisites:
In reciprocal obligations, neither party 1. The obligation be demandable and already liquidated.
incurs in delay if the other does not 2. The debtor delays performance
comply or is not ready to comply in a 3. The creditor requires the performance judicially (when complaint is filed in the court) or extra-judicially (when made
proper outside of the court or orally or in writing)
manner with what is incumbent upon
him. From the moment one of the parties - A mere reminder cannot be considered a demand for performance, because it must appear that the tolerance or benevolence
fulfifi lls his obligation, delay by the of the creditor must have ended.
other be - Default generally begins from the moment the creditor demands the performance of the obligation, even if the period has
gins. (1100a)” been fixed in the obligation.
- The demand must refer to the prestation that is due and not to another.
When demand is not necessary to put the debtor in delay:

1. When obligation so provides – “without the need of any demand”
2. When the law so provides.
3. When time is of the essence
4. When demand would be useless
a. When the impossibility is caused by some act or fault of the debtor, such as when he is absent or in hiding , or has already
disposed of the thing which is to be delivered.
b. When the impossibility is caused by fortuitous event, the debtor has bound himself to be liable in cases of such events
 In 1 and 2, it is not sufficient that the law or the obligation fixes a date of performance; it must further state expressly that
after the period lapses, default will commence.
 In case of doubt, the doubt should be resolved in favour of the debtor, because dispensing with demand is an exemption to
a general rule; unless the exemption is clearly proved, the general rule must apply
Mora Accipiendi
- Mora of the creditor is the delay in the performance based on the omission by the creditor of the necessary cooperation,
especially acceptance on his part.
Requisites:
1. An offer of performance by the debtor who has required capacity
2. The offer must be to comply with the prestation as it should be performed
3. The creditor refuses the performance without just cause
Compensatio Morae
- The parties in a bilateral contract can regulate the order in which they shall comply with their reciprocal prestations
- One party can demand performance by the other without offering to comply his own prestation
- Neither party incurs default if the other does not comply is not ready to comply in a proper manner with what is incumbent.
 The fulfilment by the parties should be simultaneous

 Delinquency commences when one of the contracting parties fulfils his obligation and become invested with power to
determine the contract because of failure on the part of the other to carrt out agreement.
Effects of Delay:
Mora Solvendi Mora Accipiende Compensatio Morae
He is liable to the creditor for the interest Where the obligation is to pay the The delay of the obligor cancels the dlay
( in case of obligations to pay money) or money, the debtor is not loable for the of the oblige, and vice versa.
damages interest from the time of creditor’s delay
He is liable even for a fortuitous event He bears the risk of loss of the thing due Legally speaking, there is no default or
when the obligation is to be deliver a delay on the part of both parties
determinate thing
Damages He is liable for the damages suffered , if Damages
any, by the debtor
Specific Performance Debtor’s liability limited to gross Specific Performance
negligence
Recission Debtor’s liability limited to gross Recission
negligence
 The benefit arising from default or delay may cease upon 1.) renunciation, expressly or impliedly by the creditor, 2.)
prescription
 Prescription of the action on the obligation may also extinguish the effects of the default.
Article 1170 Grounds for Liability
“Those who in the performance of their 1. Fraud (deceit or Dolo) – the voluntary execution of a wrongful act, or a wilful omission, knowing and intending the effects
obligations are guilty of fraud, which naturally and necessarily arise from such act or omission. It is the deliberate or intentional evasion of the normal
negligence, or delay, and those who fulfilment of an obligation. As a ground for damages, it implies some kind of malice or dishonesty and it cannot cover
in any manner contravene the tenor cases of mistake and errors of judgement made in good faith. It is synonymous to bad faith in that, it involves a design to
thereof, are liable for damages. (1101)” mislead or deceive another.
Article 1170 refers to incidental fraud (dolo incidente) committed in the performance of an obligation already existing
because of contract. It is to be differentiated from casual fraud (dolo causante) or fraud employed in the execution of a
contract under Article 1338, which vitiates consent.
Evasion of legitimate obligation for benefits admittedly received constitutes unjust enrichment.
2. Negligence (fault or culpa) – any voluntary act or omission, there being no malice , which prevents the normal fulfilment of
an obligation.
This fault or negligence is known as culpa contractual, the fault or negligence of the debtor as an incident in the fulfilment
of an existing obligation.
3. Delay (mora)
4. Contravention of the terms of obligation – the violation of the terms and conditions stipulated in the obligation. It includes
any illicit act which impairs the strict and faithful fulfilment of the obligation, or every kind defective performance. The
contravention must not be due to a fortuitous event or force majeure.
It is enough that there be non-performance or delay to hold the debtor liable for damages; such non-performance or delay
must be imputable to him.
The delay or contravention of the obligation must either be malicious or negligent to be actionable; if due to fortuitous
events, such delay or contravention cannot ordinarily give rise to damages.
Fraud Negligence
There is deliberate intention to cause damage or injury There is no such intention
Waiver of the liability or future fraud is void Such waiver may be allowed, in a certain sense
Must be clearly proved Presumed from the violation of a contractual obligation
Liability cannot be mitigated or reduced by courts May be reduced according to circumstances
Both are voluntary, that is, they are commited with Both are voluntary, that is, they are commited with volition
volition
Damages include any and all damages that a human being may suffer in any and all manifestations of his life; physical or material,
moral or psychological, mental or spiritual, financial, economic, social, political and religious.
Article 1171 Responsibility arising from fraud can be demand with respect to all kinds of obligation and unlike in the case of responsibility
“Responsibility arising from fraud is arising from negligence , the court is not given the power to mitigate or reduce the damages to be awarded. This is so because fraud
demandable in all obligations. Any is so serious and evil that it’s employment to avoid the fulfilment of one’s obligation should be discouraged.
waiver of an action for future fraud is
void. (1102a) “ A waiver of an action for future fraud is void (no effect, as of there is no waiver)as being against the law and public policy.
A past fraud can be the subject of a valid waiver because the waiver can be considered as an act of generosity and magnanimity on
the part of the victim of the fraud, that is, the right to indemnity of the party entitled thereto.
Article 1172 In the performance of the obligation, the debtor is liable for the damages resulting from his negligence
Responsibility arising from negligence in
the performance of every kind of An action for future negligence (not fraud) may be renounced except where the nature of the obligation requires the exercise of
obligation is also demandable, but such extraordinary diligence in the case of common carriers
liability may be regulated by the courts,
according to the circumstances. (1103) Where negligence show bad faith, it is considered equivalent to fraud. Any waiver of an action for future negligence of this kind is,
therefore, void
Kinds of negligence according to source of obligation :
1. contractual negligence or negligence in contracts ( Culpa contractual) – resulting in their breach is not a source of obligation but
merely makes the debtor liable for damges in view of his negligence in the fulfilment of pre-existing obligation.
2. Civil negligence (Culpa Aquilliana) – or negligence which by itself a source of an obligation between the parties not so relayed
before by any pre-existing contract. It is also called tort or quasi delict or tort
3. criminal negligence (culpa criminal) – negligence resulting in the commission of the crime.
In negligence cases, the aggrieved party may choose between a criminal action under article 100 of the RPC or a civil action for
damages under article 2176 of the civil code
 What is prohibited under article 2177 of the civil code is recover twice for te same negligent act
“the exercise of due diligence to prevent the damage” as a defense is available on culpa acquiliana but not in culpa contractual
Effect of negligence on the part of the injured party—
Article 2179 of the new civil code provides:

“when the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.”
F According to the Supreme Court,” negligence is the failure to observe for the protection of the interests of another person, that
degree of care, precaution and vigilance which the circumstances justly demand, whereby such other persons suffer injury”
Negligence is simply the absence of due care required by the obligation
Negligence is a question of fact, existence being dependent upon the particular circumstances of each case.
In determining the issue of negligence, the following factors must be considered:

1. Nature of obligation
2. Circumstances of the peson
3. Circumstances of time
4. Circumstances of place
Kinds of diligence required:

1. That agreed upon by the parties, orally or in writing;
2. In the absence of stipulation, that required by law in the particular case; and
3. If both the contract and law are silent, then the diligence expected of a good father of a family.
Article 1174 Fortuitous Event – an event which cannot be foreseen, or which, through foreseen, in inevitable. Stated otherwise, it is an event
Except in cases expressly specififi ed by which is either impossible to foresee or imposible to avoid.
the law, or when it is otherwise declared
by stipulation, or when the nature of the It may produced by two general causes:
obligation requires the assumption of 1. By nature, and
risk, no person shall be responsible for 2. By the act of man.
those events which could not be foreseen,
or which, though foreseen, were In order that such acts of man may constitute fortuitous event, it is necessary that the have the forece of an imposition which the
inevitable. (1105a debtor could not have resisted.
Fortuitous Event Force Majeure

Acts of man; strictly speaking, an event independent of the will Acts of God; those event which are totally independent of the
of the obligor but not of other human wills will of every human being
In law, both are identical in so far as they exempt the obligor from liability and are independent of the will of the obligor.
Fortuitous event includes unavoidable accidents, even if there has been an intervention of human element, provided fault or
negligence cannot be imputed to the debtor.
Kinds of fortuitous event:

1. Ordinary fortuitous events – those events which are common and which are contracting parties could reasonably foresee
2. Extra-ordinary fortuitous events – those events which are uncommon and which the contracting parties could not have
reasonably foreseen.
Characteristics:
1. The cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be
independent of the human will.
2. It must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen, it must be impossible
to avoid.
3. The occurrence must be of such as to render it impossible for the debtor to fulfil his obligation in a normal manner.
4. The obligor must be free from any participation in the aggravation of the injury resulting to the creditor.
 The absence of any of the above requisites would prevent the obligor from being exempt from liability
 For the defense of force majeure to prosper, the accident must be due to natural causes, and absolutely without human
intervention.
 Mere pecuniary inability or poverty is not an excuse for the non-fulfillment of an obligation. Neither is mere difficulty to
foresee the same. As stated earlier, the event must be unforeseeable, or even if it could be foreseen, must be impossible to
avoid.
 In order that fortuitous event or force majeure may exempt a person from liability, it is necessary that he be free from
negligence.
 When a debtor is unable to fulfil his obligation because of fortuitous event or force majeure, he cannot be held liable for
damages for non-performance
1. When expressly specified by law

a. The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the obligation.
b. The debtor has promised to deliver the same (specific) thing to two or more persons who do not have the same
interest
c. The obligation to deliver a specific thing arises from a crime
d. The thing to be delivered is generic
2. When declared by expressed stipulation – the parties may expressly stipulate in their contract that the debtor shall be
liable to the creditor, even if the performance is rendered impossible by fortuitous event of force majeure
3. When the nature of obligation requires the assumption of risk – the principle of assumption of risk is based on an
ethico-economic sensibility of modern society, which has noted the inustices which industrial civilization has created.
 If he benefits from the means that have produced the loss, it is only equitable that he should bear the consequences of such
loss.
 When a person makes use of machinery, instruments, apparatus or substances which are dangerous in themselves, by
reason of their speed, of their explosive or inflammable nature, of the electric power they carry, or of other analogous
cases, he bound to indemnify for the injuries they may cause, even if he does not act unlawfully, unless the injury is caused
by the inexcusable fault or negligence of the victim himself.
 It is manifestly unjust to hold the owner of the dangerous works or things for injuries which are imputable to the
inexcusable negligence of the victim himself.
4. Concurrent negligence or fault on the part of the obligor
-CO V. CA : the fact that a thing was unlawfully and forcefully taken from another’s rightful possession, as in cases of carnapping,
does not automatically give rise to a fortuitous event.
- SICAM V JORGE & CO V CA: court did not appreciate the defense if the robbery and carnapping as a fortuitous event because
of the concurring negligence of the pawnshop and the repair shop.
- AUSTRIA V CA; HERNANDEZ V CHAIRMAN, COA; CRUZ V GANGAN: where the victims of robber were exonerated from
liability, there was a finding that the victims were not guilty of contributor negligence.
- LASAM V SMITH, JR: an accident caused either by defects in the automobile or through the negligence of its driver is not a caso
fortuito that would exempt the carrier from liability for damages.
- SON V CEBU AUTOBUS COMPANY: a common carrier liable in damages to passenger for injuries cause by an accident due to
accident due to the breakage of a faulty drag-link spring.
-NECESSITO V PARAS: a common carrier liable for an accident caused by failure or breakage of the steering knucle.
- LA MALLORCA AND PAMPANGA BUS CO V DE JESUS: where the accident was caused by a tire blow-out, it was held that
the same did not constitute fortuitous event because the tire blow-out was due either to mechanical defect of the conveyance or a
fault in the equipment which was easily discoverable had the bus been subjected to a more thorough or rigid check-up before it took
to the road.
- JUNTILLA V FONTANAR :tire that blew out is still good does not make the explosion a fortuitous event. Because such sudden
blowing-up could have been caused by too much air pressure injected into the tire coupled by the fact that the jeepney was
overloaded and speeding at the time of the accident.
- YOPIDO V CA : explosion of the new tire may not be considered a fortuitous event because there are human factors involved in
the situation.
Article 1175 Simple loan or Mutuum

Usurious transactions shall be governed - A contract whereby one of the parties delivers to another, money or other consumable thing, upon the condition that the
by same kind and quality shall be paid. It may be gratuitous or with stipulation to pay interest.
special laws. (n)
Interest – the income produced by money in relation to its amount and to the time that it cannot be its owner. Interest may either be
moratory or compensatory.
The moratory interests are those paid in contractual obligations to pay a sum of money,or as the stipulated advanced determination
of damages due to delay in the fulfilment of the obligation. Interest on obligations which have an extra-contractual or delictual
origin are compensatory.
Usury – contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods,
chattels or credit than the law allows.
Requisites for recovery of interest :

1. The payment of interest must be expressly stipulated
2. The agreement must be in writing; and
3. The interest must be lawful
 A stipulation for the payment of usurious interest is void, that is, as if there is no stipulations to interest.
 In Eastern Shipping v. CA, 234 SCRA 78: No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169) but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
 When the judgement of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
-MEDEL V CA: the CB Circular No. 905 “did not repeal or in any way amend the Usury Law, but simply suspended the latter’s
effectivity.”
-FIRST METRO INVESTMENT CORP. V ESTE DEL SOL MOUNTAIN RESERVE. INC. : “the illegality of usury is holly the
creature of legislation. A Central Bank Circular cannot repeal another law”
-FLORENDO V CA: by virtue of CB Circular 905, the Usury Law has been rendered ineffective.”
Article 1176 Under Article 1253 of the Code, if a debt produces interest, payment of the principal shall not be deemed to have been until interest
The receipt of the principal by the have been covered.
creditor, without reservation with
respect to the interest, shall give rise to Presumption – the interference of a fact not actually known arising from its usual connection with another which is known or
the presumption that said interest has proved.
been paid. The receipt of a later
installment of a debt without reservation Kinds of presumption :
as to prior installments, shall likewise 1. Conclusive presumption – one which cannot be contradicted, like the presumption that everyone is conclusively presumed
raise the presumption that such to know the law
installments have been paid. (1110a) 2. Disputable (or rebuttable )presumption – one which can be contradicted or rebutted by presenting proof to the contrary
When presumptions in Article 1176 do not apply:

1. With reservation as the interest.
2. Receipt without indication of particular instalment paid
3. Receipt for a part of the principal
4. Payment of taxes – because the tax for one year is independent of the taxes for one year is independent of the taxes for
other years. They do not constitute instalments of the same obligation.
5. Non-payment proven
Article 1177 Remedies contemplated in this article :
The creditors, after having pursued the 1. To levy by attachment ad execution upon all properties of the debtor, except such as are exempt by law from execution
property in possession of the debtor to 2. Accion subrogatoria
satisfy their claims, may exercise 3. Accion Pauliana
OBLIGATIONS all the rights and bring
all the actions of the latter for the same In case the debtor does not comply with his obligation, the creditor may avail himself of following remedies to satisfy his claim:
purpose, save those which are inherent 1. Exact fulfilment (special performance) with the right damages ;
in his person; they may also impugn the 2. To levy by attachment and execution upon all properties of the debtor, except such such as are exempt by law from
acts which the debtor may have done to execution;
defraud them. (1111) 3. After having pursued the property in possession of the debtor, exercise all the rights ( ex. The right redeem) and bring all
the actions of the debtor ( ex. The right to collect from the debtor of his debtor), except those inherent in or personal to the
person of the latter (the right to vote, to receive legal support, etc.) and
4. To ask for the rescission of the contracts made by the debtor in fraud of their rights
 The debtor is liable with all his property, present and future, for the fulfilment of his obligations, subject to the exemptions
provided by law. This liability of the property is the legal guaranty in favour of the creditors; hence, the debtor cannot
maliciously reduce such guaranty.
Requisites:
1. The creditor has an interest in the right or action not only because of hid credit but because of his insolvency of the debtor.
2. Malicious or negligent inaction of the debtor in the exercise if his right or action of such seriousness as to endanger the
claim of the creditor
3. The creditor of the debtor against a third person is certain, demandable and liquidated
4. The debtor’s right against the third person must be patrimonial, or susceptible of being transformed to patrimonial value for
the benefit of the creditor
The action which the creditor may exercise in the place of his negligent debtor in order to preserve or recover for the patrimony of
the debtor the product of such action, and then obtain therefrom the satisfaction of his own credit, is known as the accion
subrogatoria or subrogatory action
In order to exercise the accion subrogatoria, a previous approval of the court is not necessary
The following are rights of the debtor which cannot be exercised by the creditor:
1. The right to existence, thereby exempting from the reach of creditors whatever he may be receiving as support;
2. Rights or relations of a public character;
3. Rights of an honorary character;
4. Rights consisting of powers which have not been used, including:
(a) The power to administer, such as when the debtor fails to
(b) have some property leased the creditor cannot give it in lease for him,
(c) The power to carry out an agency of deposit, which are purely personal acts, and
(d) The power to accept an offer for a contract;
5. Non-patrimonial rights, such as the action to establish the debtor’s status as a legitimate or an illegitimate child, the action
for legal separation or annulment of marriage, and other rights arising from family relations;
6. Patrimonial rights not subject to execution, such as the right to government gratuity or pension; and
7. Patrimonial rights inherent in the person of the debtor, such as the right to revoke a donation by reason of ingratitude, and
the right to demand exclusion of an unworthy heir
As a last recourse, creditors have the right to set side or revoke the acts which the debtor may have done to defraud them;
creditors may rescind fraudulent reductions of the properties of the debtor which constitute the guaranty of his debts.
The action to revoke or rescind such acts is known as the accion pauliana
All acts of the debtor which reduces patrimony in fraud of his creditors, whether by gratuitous or onerous title, can be revoked by
this action
But payments of pre-existing obligations already due, whether natural or civil, cannot be impugned by an accion pauliana
New debts contracted by the insolvent debtor are not included although they may make the position of existing creditors worse,
because only acts which impair the assets of the debtor are covered by the provision and those which merely increase his liabilities
are not.
Art. 1178 Gen Rule
. Subject to the laws, all rights acquired - All rights acquired by virtue of an obligation are transmissible
in virtue of an obligation are
transmissible, if there has been no Exception
stipulation to the contrary. 1. Express stipulation
2. Non transmissibility by their nature
3. Non transmissibility by law
Example
A- debtor; B-creditor
 If A dies, B can claim against the estate of A.
 If B dies, B's right to claim is transmissible to his heirs.
1. Prohibited by law --
(a) By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits among themselves
(b) By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter
(c) By the contract of commodatum (or gratuitous), one of the parties delivers to another something not consumable (e.g. car) so that
the latter may use the same for a certain time and return it.
2. Prohibited by stipulation of the parties

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS
Classification of Obligations:
A. By their juridical quality or efficaciousness:

Natural Civil
A special kind of obligation which cannot be enforced in An obligation, which if not fulfilled when it becomes due
court but which authorizes the retention of the voluntary and demandable, may be enforced in court through action
payment or performance made by the debtor
B. By their subject
Unilateral Bilateral
Only ONE of the parties is bound to fulfill a prestation BOTH parties are bound to perform a part in the obligation,
i.e. in sale
 Reciprocal obligations are those which arise from the same cause, wherein each party is a debtor and a creditor of the other,
such that performance of one is conditioned upon the simultaneous fulfillment of the other--from the moment one of the
parties fulfills his obligation, delay by the other party begins.
SIMPLE (Individual) MULTIPLE (Collective)
JOINT SOLIDARY
Each debtor is liable only for a part of the whole liability A debtor is answerable for the whole of the obligation
and to each creditor shall belong only a part of the without prejudice to his right to collect from his co-debtors
correlative rights the latter’s shares in the obligation
C. By their object
SIMPLE COMPOUND (Multiple)
CONJUNCTIVE DISTRIBUTIVE
Specific Generic
Alternative Facultative
The obligor may choose to completely perform one out of Only one prestation has been agreed upon, but the obligor
several prestations may render one in substitution of the first one
Positive Negative
When the debtor is obliged to give or do something in favor When the debtor is obliged not to do something, that is, he
of the creditor must refrain from doing something
Real Personal
Obligation to give, that in which the subject matter is a thing Obligation to do or not to do, that in which the subject
which the obligor must deliver to the obligee matter is an act to
Posible Imposible
Capable of accomplishment or fulfillment in nature or in law Not capable of accomplishment of fulfillment in nature or in
law
Divisible Indivisible
Susceptible of partial performance Not susceptible of partial performance
Principal Accessory
Main obligation created by parties Secondary obligation created to guarantee the fulfillment of
the principal obligation
FIDE JUSORIAS HIPOTECARIAS
PINORATICIAS EJECUTIVAS
WITH A PENAL CLAUSE SIMPLE

Imposes a penalty for violation of the terms thereof There is no penalty imposed for violation of the terms
thereof
D. By their juridical perfection and extinguishment

PURE CONDITIONAL WITH A TERM
Not burdened with any condition or Subject to a condition Subject to the happening of an event
term. It is immediately demandable which surely will happen, although the
date may not be known as of the
moment
Suspensive Resolutory
The happening of which gives rise to an obligation The happening of which extinguishes rights already existing
Art. 1179. When the obligation contains no term or condition whatever upon which depends the fulfillment of the obligation contracted by the
Every obligation whose performance debtor, the obligation is a pure obligation. It is immediately demandable and there is nothing to exempt the debtor from compliance
does not therewith.
depend upon a future or uncertain event,
or upon a past event unknown to the A demand note is subject to neither a suspensive condition nor a suspensive period. The demand is not a condition precedent, since
parties, is demandable at once . the effectivity and binding effect of the note does not depend upon the making of the demand: the note is binding even before the
demand is made. Thus, a demand note is strictly a pure obligation as defined in this article of the Civil Code, and, consequently, in
Every obligation which contains a the absence of other restrictions, payment thereof is immediately demandable.
resolutory condition shall also be
demandable, without prejudice to the When the period originally given has been cancelled by mutual agreement of the parties, or the non-fulfillment of a condition
effects of the happening of the event. resolves the period stipulated, the obligation must be considered pure.
A conditional obligation is one which is subject to a condition.
Condition
-Every future and uncertain event upon which an obligation or provision is made to depend; it is a future and uncertain event upon
which the acquisition or resolution of rights is made to depend by those who execute the juridical act.
An event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be considered as one with a
term.
The code considers “a past event unknown to the parties” as a condition. The element of uncertainty, however, is wanting when the
event is past or present; hence, it cannot properly be called a condition. It is more accurate to designate it as a basisof the contract. It
cannot have the quality of suspending the effects of a juridical act.
What can be a condition is the future knowledge or proof of a past event unknown to the parties, but not the event itself. Thus, the
proof of an unknown past event may, by the will of the parties, be established as a condition.
Classification of conditions:
Suspensive Resolutory
The happening of which gives rise to an obligation The happening of which extinguishes rights already existing
Potestative Casual Mixed

Depends upon the will of the party to the Depends upon chance Depends partly upon the will of the
juridical relation former and partly upon chance or the
will of a third person
Conjunctive alternative
When there are several, or all of them or only one must be performed
Positive Negative
Whether it is an act or omission
Express Implied
Whether they are stated or merely inferred
Possible impossible
Whether they can be fulfilled or not, the impossibility in the latter case being either physical or legal.
The fulfillment of conditions is indivisible even when the object of the condition is a divisible thing; hence, partial fulfillment of the
condition does not give rise to the existence of part of the obligation.
However, by the very nature of the condition, by stipulation, or by law, it may be divisible.
If several conditions are imposed for the same obligation, the necessity of complying with all or one only depends upon the intention
of the parties. If the conditions are imposed in the alternative or disjunctively, the fulfillment of one of them is sufficient. If they are
imposed conjunctively, then all of them must be complied with.
An obligation is demandable at once--

1. When it is pure
2. When it is subject to a resolutory condition
3. When it is subject to a resolutory period
Art. 1180. In cases falling under the present article, the creditor should file an action to fix a period for the payment of the obligation. An
When the debtor binds himself to pay immediate action to enforce the obligation, without a period having been previously fixed by the court, would be premature.
when his means permit him to do so, the
obligation shall be deemed to be one A period is a future and certain event upon the arrival of which the demandability either arises or extinguished.
with a period, subject to the provisions of
Article 1197. 1. The debtor binds himself to pay when his means permit him to do so--the obligation shall be deemed to be one with a
period. In this case, what depends upon the debtor’s will is not whether he should pay or not for indeed he binds himself to pay.
What is left only to his will is the duration of the period
2. Other cases--as when the debtor binds himself to pay: “little by little,” “as soon as possible,” “from time to time,” etc
Art. 1181. If the suspensive condition (condition precedent or antecedent) happens, the obligation arises; in other words, if the condition does
In conditional obligations, the not happen, the obligation does not come into existence.
acquisition of rights, as already
acquired, shall depend upon the The resolutory condition (condition subsequent) extinguishes rights and obligations already existing; in other words, the obligations
happening of the event which and rights already exists, but under the threat of extinction upon the happening of the resolutory condition.
constitutes the condition.
If the time comes when it becomes certain that the condition will not be fulfilled, and the condition is suspensive, the conditional
creditor loses all hope of becoming a real creditor, and he likewise loses the power to exercise the actions granted by Article 1188
for the preservation of his rights; and if the condition is resolutory, the creditor’s rights become absolute.
1. Acquisition of rights--In obligations subject to a suspensive condition, the acquisition of rights by the creditor depends upon the
happening of the event which constitutes the condition. E.g. the surrender of the sweepstakes ticket is a
condition precedent to the payment of the prize.
2. Loss of rights already acquired--In obligation subject to a resolutory condition, the happening of the event which
constitutes the condition produces the extinguishment or loss of rights already acquired.
E.g. X binds himself to support Y until Y graduates from college
In Parks v. Province of Tarlac, 49 Phil. 142: The characteristic of a condition precedent is that the acquisition of the right is not
effected while said condition is not complied with or is not deemed complied with. Meanwhile nothing is acquired and there is only
an expectancy of right. Consequently, when a condition is imposed, the compliance of which cannot be effected except when the
right is deemed acquired, such condition cannot be a condition precedent.
Art. 1182. A condition suspensive in nature and which depends upon the sole will of one of the contracting parties is known as potestative
When the fulfillment of the condition condition.
depends upon the sole will of the debtor,
the conditional obligation shall be void. Protestative Casual mixed
If it depends upon chance or upon the One which depends upon the will of one One which depends exclusively upon One which depends upon the will of one
will of a third person, the obligation of the contracting parties chance or other factors, or a third party, of the contracting parties and other
shall take effect in conformity with the and not upon the will of the contracting circumstances
provisions of this Code. parties;
E.g. “I will pay you if I want,” E.g. “I will give you my and if war E.g. “I will give you a house, if you
“I will pay you after I recover what X breaks out next month,” marry Carolina”
owes” “S binds himself to sell his land to B if
he wins a case which is pending before
the Supreme Court"
In Trillana v. Quezon College, Inc., 93 Phil. 383: A condition obviously dependent upon her sole will and, therefore, facultative in
nature, render[s] the obligation void.
It is only when the potestative condition depends exclusivelyupon the will of the debtor that the conditional obligation is
void.
When the fulfillment of the condition depends on the exclusive will of the creditor, it is valid. E.g. “I will lend you P100 if you want
it”
To allow conditions whose fulfillment depends exclusively on the debtor’s will, is to sanction illusory obligations; this cannot
happen when the fulfillment depends on the will of the creditor.
In Vda. De Mistica v. Naguiat, 418 SCRA 73: The Code prohibits purely potestative, suspensive, conditional obligations that
depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled. Indeed, to allow the fulfillment of
conditions to depend exclusively on the debtor’s will would be to sanction illusory obligations.
In cases falling under this article, it is not only the condition that is void; the whole obligation is void. This provision, however, is
applicable only when the condition is suspensive, and cannot apply to resolutory conditions the validity of which is recognized in
Article 1179 of the Code.
In other words, a condition that is both potestative (or facultative) and resolutory may be valid, even though the
condition is made to depend upon the will of the obligor. The obligation in such case arises immediately, but the party who has
made the reservation may resolve it when he wishes to.
When the condition depends, not only upon the will of the debtor, but also upon chance or the will of the others, the obligation is
valid.
When the fulfillment of the condition does not depend upon the will of the obligor, but on that of a third person who can in no way
be compelled to carry it out, and it is found by the court that the obligor has done all in his power to comply with the obligation, the
other party may be ordered to comply with his part of the contract.
In Romero v. CA, 250 SCRA 223: Where the so-called "potestative condition" is imposed not on the birth of the obligation but on
its fulfillment, only the obligation is avoided, leaving unaffected the obligation itself.
In Santos v. CA, 337 SCRA 67: As we earlier pointed, in a contract to sell, title remains with the vendor and does not pass on to the
vendee until the purchase price is paid in full, Thus, in contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of
the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where
non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has
lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside.21 In a contract to sell,
however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase.
If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it.
When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase
price in full, they were merely enforcing the contract and not rescinding it.
Art. 1183. The impossibility of a condition may either be physical or juridical:
Impossible conditions, those contrary to Physical Judical (legal)
good customs or public policy and those When it is contrary to the law of nature When it is contrary to law, morals, good customs, public order
prohibited by law shall annul the and public policy
obligation which depends upon them. If E.g. “I will pay you P10,000 if it will not rain for one year in E.g. “X will give Y P1,000 if Y will kill Z; or will be the
the obligation is divisible, that part the Philippines,” “I will pay you P10,000 if you can carry common-law wife of X; or will slap his father; or will publicly
thereof which is not affected by the twenty (20) cavans of palay on your shoulder" advocate the overthrow of the government; or will not appear
impossible or unlawful condition shall be as a witness against X in a criminal case
valid.
It is juridically impossible or illicit, not only when the act is prohibited by law, but also when it restricts certain essential rights
The condition not to do an impossible which are necessary for the free development of human activity, such as political rights, family rights, and constitutional rights and
thing shall be considered as not having liberties. E.g. the condition not to change domicile; to change or not to change religion; and that a person shall not contract
been agreed upon. marriage.
In order that a condition may be considered as illicit or juridically impossible, it is necessary that it consist of an act or fact for one
of the parties to the contract. The illicit character of the act is not determined by the act or fact in itself, but by its effects upon one of
the parties. The intention of the party imposing the condition must be considered. In other words, the criterion is subjective.
Reason: One who promises something under a condition that is impossible or illicit knows that it cannot be fulfilled, and, manifests
that he does not intend to be bound; hence, the effect is the nullity of the promise.
Scope: Impossible or illicit conditions annul the obligations dependent upon them only when the conditions are positive and
suspensive. If the impossible or illicit condition is negative, it is simply considered as not written, and the obligation is converted
into a pure and simple one.
Note: This principle of nullity of the obligation itself due to the impossibility or illicit character of the condition, applies only to
contracts.
In order that an impossible condition may annul the obligation, the impossibility must exist at the time of the creation of the
obligation; a supervening impossibility does not affect the existence of the obligation.
On the same principle, if the condition was impossible when the obligation was constituted the obligation remains void even if such
condition subsequently becomes possible, unless the parties later agree again.
The present article applies only to cases where the condition was already impossible or illicit at the time when the contract was
made.
Similar to the effect of an impossible condition is the logical impossibility in an obligation although the condition itself is not
impossible. E.g. “I will deliver to you my house if it is totally destroyed”.
When the obligation is divisible, that part which is not affected by the impossible or unlawful condition shall be valid. E.g. X
promises to pay to Y the sum of P1,000 if Y furnishes X with information as to the whereabouts of Z, and another sum of P2,000 if
Y kills Z.
Although the second paragraph of this article provides that the condition not to do an impossible thing shall be considered as not
having been agreed upon, this should be understood to include all negative impossible conditions. In this case, the condition is
considered as not imposed, and the obligation must be regarded as a pure and simple one. E.g. “I will give you P500 if you do not
fly to the moon within a period of five years”.
The negative impossible conditions are considered as not writtenA negative unintelligible condition is the same as a negative
impossible condition; hence, it is considered as not imposed.
Art. 1184. The above article refers to positive (suspensive) condition--the happening of an event at a determinate time. The obligation is
The condition that some event happen at extinguished:
a determinate time shall extinguish the
obligation as soon as the time expires or 1. As soon as the time expires without the event taking place; or
if it has become indubitable that the
event will not take place. 2. As soon as it has become indubitable that the event will not take place although the time specified has not expired.
E.g. X obliges himself to give B P10,000 if B will marry C before B reaches the age of 23.
a. X is liable if B marries C before he reaches the age of 23

b. X is not liable if B marries C at the age of 23 or after he reaches the age of 23
c. If B dies at the age of 22 without having married C. the obligation is extinguished because it has become indubitable
that the condition will not take place
Note: The intention of the parties is controlling, and the time shall be that which the parties may have probably contemplated, taking
into account the nature of the obligation.
Art. 1185. The above provision speaks of a negative condition--that an event will not happen at a determinate time. The obligation shall
The condition that some event will not become effective and binding:
happen at a determinate time shall
render the obligation effective from the 1. From the moment the time indicated has elapsed without the event taking place; or
moment the time indicated has elapsed,
or if it has become evident that the event 2. From the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed.
cannot occur.
If no time is fixed, the circumstances shall be considered to arrive at the intention of the parties. This rule may also be
If no time has been fixed, the condition applied to a positive condition.
shall be deemed fulfilled at such time as E.g. an obligation to deliver a piece of land to X is subject to the condition that he shall not marry within two years.
may have probably been contemplated,
bearing in mind the nature of the This obligation shall become effective and the land should be delivered to X if (a) two years expire without X having married, or (b)
obligation. X enters priesthood before the two years expire.
Art. 1186. This article covers constructive fulfillment of conditions, and refers to a condition which, although not exclusively within the will of
The condition shall be deemed fulfilled the debtor, may in some way be prevented by the debtor from happening.
when the obligor voluntarily prevents its
fulfillment. There will be constructive fulfillment when two requisites concur:
1. Intent of the obligor to prevent fulfillment of the condition, and

2. Actual prevention of compliance
The principle underlying constructive fulfillment of condition is that a party to a contract may not be excused from performing his
promise by the non-occurrence of an event which he himself prevented.
Any act imputable to the debtor, whether done with or without fraud or malice will suffice; in both cases the debtor is responsible
for his act.
Where the act of the debtor, however, although voluntary, did not have for its purpose the prevention of fulfillment of the condition,
it will not fall within the scope of this article (i.e. criminal prosecution).
If in preventing the fulfillment of the condition the debtor acts pursuant to a right, the condition will not be deemed as fulfilled.
There is constructive fulfillment of the condition only if the act of the debtor had in fact prevented compliance with the condition.
When the condition is resolutory but not dependent on the will of the debtor, and he unjustifiably provokes or produces the
condition, which would not have happened without his doing so, it will be considered as not having been fulfilled, and there will be
no extinguishment of rights.
Following the basic principle underlying the present article, the debtor cannot be excused from compliance by the occurrence of an
event which he himself brought about, unless such possibility is clearly permitted by the contract.
Art. 1187. This article refers to the effects of the happening of suspensive conditions. Between the moment of the creation of the conditional
The effects of a conditional obligation to obligation and the fulfillment of the suspensive condition, the creditor cannot enforce the obligation; his right during that period is a
give, once the condition has been mere expectancy. The moment the suspensive condition happens, however, the obligation becomes effective and enforceable. The
fulfilled, shall retroact to the day of the debtor may legally be compelled to perform from that moment. The cause of action for the enforcement of the obligation accrues,
constitution of the obligation. and the period of prescription of the action has to be computed from that moment.
Nevertheless, when the obligation The effect of the obligation, however, retroact to the moment when such obligation was constituted or created.
imposes reciprocal prestations upon the
parties, the fruits and interests during Reason: The condition is only accidental, and not an essential element of the obligation. The obligation is constituted when the
the pendency of the condition shall be essential elements which give rise thereto concur.
deemed to have been mutually
compensated. If the bligation is Hence when the condition is fulfilled, resulting in the effectivity of the obligation, it is only logical that the effects of the obligation
unilateral, the debtor shall appropriate must be deemed to commence, not from the time the accidental element or condition was fulfilled, but from the time the obligation
the fruits and interests received, unless itself was constituted.
from the nature and circumstances of the
obligation it should be inferred that the By the principle of retroactivity, a fiction is created whereby the binding tie of the conditional obligation is produced from the time
intention of the person constituting the of its perfection, and not from the happening of the condition.
same was different.
If the conditional obligation has its object the delivery of a determinate thing, the debtor cannot, before the happening of the
In obligations to do and not to do, the suspensive condition, make contracts disposing of or alienating or encumbering the thing, or otherwise creating a real right over the
courts shall determine, in each case, the thing incompatible with the right of the creditor. If he does so, then all such contracts are abrogated and cease to have any effect
retroactive effect of the condition that upon the happening of the suspensive condition. Because of the retroactivity of the obligation, the creditor retains superior right.
has been complied with.
The application of the principle of retroactivity of conditional obligations is not absolute. It is subject to certain limitations dictated
by justice and required by practicability or convenience. Thus, if a thing is lost by fortuitous event before the happening of the
condition, the debtor suffers the loss because he is still the owner.
Acts of administration, performed by the debtor before the happening of the suspensive condition, are not affected by retroactivity
of the effects of the obligation, and can be asserted against the creditor after the happening of the condition. Nevertheless, acts in
abuse of right, committed by the debtor in the guise of administration, should not be allowed to defeat the rights of the creditor. The
will of the parties, however, must also be taken into account.
For reasons of practicability or convenience, the law does not require the delivery or payment of the fruits or interests accruing
before the happening of the suspensive condition. The right to the fruits of the thing, therefore, is not within the principle of
retroactivity of conditional obligations.
These rules with respect to the retention of the fruits and interests by the parties, however, must yield to the contrary intent or
agreement of the parties themselves.
E.g.:
In obligations to give: On January 20, S agreed to sell his parcel of land to B for P50,000 should B lose a case involving the
recovery of another parcel of land. On April 10, S sold his land to C. B lost the case on December 4.
Before December 4, B had no right to demand the sale of the land by S. When the condition, however, was fulfilled on December 4,
it is as if B was entitled to the land beginning January 20. Hence, as between B and C, B will have a better right over the land.
In obligations to do or not to do: C obliged himself to condone the debt of D, his lawyer, should the latter win C’s case in the
Supreme Court.
In this case, upon the fulfillment of the condition, shall not be entitled, unless the contrary has been stipulated, to the earned interests
of the capital during the pendency of the condition as the intention of C is to extinguish the debt. Here the fulfillment of the
condition has a retroactive effect.
In reciprocal obligations (no retroactivity): In the first example, when B lost the case in court on December 4, S must deliver the
land and B must pay P50,000.
S does not have to give the fruits received from the land before December 4 and B is not obliged to pay legal interests on the price
since the fruits and interests received are deemed to have been mutually compensated.
In unilateral obligation (usually no retroactivity): Suppose, in the same example, the promise of S was to donate the parcel of land to
B.
Upon the fulfillment of the condition, S has to deliver the land but he has the right to keep himself all the fruits and interests he may
have received during the pendency of the condition, that is from January 20 to December 4, unless a contrary intention by S may be
inferred, as when it is stipulated that once the condition is fulfilled, S shall render an accounting of fruits received during its
pendency.
Art. 1188. The actions for the preservation of the creditor’s rights may have for their objects:
The creditor may, before the fulfillment
of the condition, bring the appropriate 1. To prevent the loss or deterioration of the things which are objects of the obligation by enjoining or restraining acts of alienation
actions for the preservation of his right. or destruction by the debtor himself or by third persons;
The debtor may recover what during the
same time he has paid by mistake in case 2. To prevent concealment of the debtor’s properties which constitute the guaranty in case of non-performance of the
of a suspensive condition. obligation;
3. To demand security if the debtor becomes insolvent;
4. To compel acknowledgment of the debtor’s signature on a private document or the execution of the proper public
documents for registration so as to affect third persons;
5. To register the deeds of sale or mortgages evidencing the contract;
6. To set aside fraudulent alienations made by the debtor; and
7. To interrupt the period of prescription, by actions against adverse possessors of the things which are the object of the
obligation.
The article does not grant any preference of credit but only allows the bringing of the proper action for the preservation of the
creditor’s rights.
Under Article 2159, “whoever in bad faith29 accepts an undue payment, shall pay legal interest if a sum of money is involved, or
shall be liable for the fruits received or which should have been received if the thing produces fruits”
Under Article 2160, “he who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for
. . . its accessories and accessions insofar as he has thereby been benefited”
Rights of the debtor: He is entitled to recover what he has paid by mistake prior to the happening of the suspensive condition.
The right is granted to the debtor because the creditor may or may not be able to fulfill the condition imposed and hence, it is not
certain that the obligation will arise. This is a case of solutio indebiti.
Note: If the payment was made with knowledge of the condition, there is an implied waiver of the condition, and whatever has been
paid cannot be recovered.
Art. 1189. Scope: the provisions of this article apply only to obligations to deliver a determinate or specific thing. It can have no application to
When the conditions have been imposed generic objects. Furthermore, these provisions apply only in case of the suspensive condition is fulfilled
with the intention of suspending the
efficacy of an obligation to give, the A thing is lost:
following rules shall be observed in case 1. Physical loss or when it perishes. E.g. when an animal dies, a house is destroyed completely by fire, a crop is washed away by
of the improvement, loss or deterioration flood, or fruits rot
of the thing during the pendency of the 2. Legal loss or when it goes out of the commerce of man.
condition: E.g. a private land is converted into a public plaza, or a thing is declared by law as contraband
(1) If the thing is lost without the fault of 3. Civil loss or when it disappears in such a manner that its existence is unknown or cannot be recovered.
the debtor, the obligation shall be E.g. ship sinks in the middle of the ocean, a thing is stolen by unknown persons or is dropped somewhere in the forest and cannot
extinguished; be found.
(2) If the thing is lost through the fault of
the debtor, he shall be obliged to pay If the loss if due to the fault of the debtor, he becomes liable for damages to the creditor upon the fulfillment of the condition. But if
damages; it is understood that the thing the debtor is without fault, the obligation is extinguished, unless there is a stipulation to the contrary.
is lost when it perishes, or goes out of
commerce, or disappears in such a way Deterioration is any reduction or impairment in the substance or value of a thing which does not amount to a loss.
that its existence is unknown or it cannot If the deterioration is not imputable to the debtor, he is not liable for any damages for such deterioration, and the creditor must
be recovered; accept the thing in its impaired condition. But if the deterioration is due to the fault of the debtor, then the creditor may either
(3) When the thing deteriorates without demand the thing or ask rescission, with damages in either case.
the fault of the debtor, the impairment is
to be borne by the creditor; Anything added to, or incorporated in, or attached to the thing that is due, is an improvement
(4) If it deteriorates through the fault of
the debtor, the creditor may choose Rules during pendency of suspensive condition:
between the rescission of the obligation
and its fulfillment, with indemnity for (1) If the thing is lost without the fault of the debtor,
damages in either case; E.g. X obliged himself to give Y his car worth P100,000 if Y will sell X’s
(5) If the thing is improved by its nature, property. The car was lost without the fault of X, the obligation shall be extinguished
or by time, the improvement shall inure
to the benefit of the creditor; (2) If the thing is lost through the fault of the debtor,
(6) If it is improved at the expense of the E.g. In the same example, if the loss occurred because of the negligence of X, Y will be entitled to demand damages
debtor, he shall have no other right than
that granted to the usufructuary. (3) When the thing deteriorates without the fault of the debtor,
E.g. If the car figured in an accident, as a result of which the windshield was broken and some of its paints were scratched away
without the fault of X, thereby reducing its value to P90,000, Y will have to suffer the deterioration or impairment in the amount of
P10,000
(4) If it deteriorates through the fault of the debtor,

E.g. In this case, Y may choose between the rescission of the obligation or its fulfillment, with damages in either case
(5) If the thing is improved by its nature or by time, the improvement shall inure to the benefit of Y. In as much as would suffer in
case of deterioration of the car through a fortuitous event
(6) If it is improved at the expense of the debtor,

E.g. During the pendency of the condition, X had the car painted and its seat cover changed at his expense. In this case, X will have
the right granted to a usufructuary with respect to improvements made on the thing held in usufruct
Rules:
1. If caused by the nature of the thing or by time, the improvement shall inure to the benefit of the creditor
2. If the improvement was at the expense of the debtor, the law says he shall have the same rights as a usufructuary30
Usufruct is the right to enjoy the use and fruits of a thing belonging to another.
Art. 1190. This article gives the effects of the happening of a resolutory condition. In an obligation subject to such a condition, the rights of the
When the conditions have for their creditor are immediately vested; but such rights are always in the danger of being extinguished by the happening of the resolutory
purpose the extinguishment of an condition.
obligation to give, the parties, upon the
fulfillment of said conditions, shall If the condition does not happen, those rights are consolidated and they become absolute in character.
return to each other what
they have received. But if the condition happens, such rights are extinguished, and the obligation is treated as if it did not exist.
In case of the loss, deterioration or Hence, each party is bound to return to the other whatever he has received, so that they may be returned to their original condition
improvement of the thing, the provisions before the creation of the obligation. Every vestige of the obligation is wiped out as much as possible through the process of mutual
which, with respect to the debtor, are restitution.
laid down in the preceding article shall
be applied to the party who is bound to Before the resolutory condition happens, the party who has a right, is practically in the same position as one who has an obligation
return. subject to a suspensive condition; there is the possibility that he may have to return or deliver the thing to the other party, and that
possibility becomes a positive duty when the resolutory condition is fulfilled. Therefore, in case of loss of the thing, or
As for the obligations to do and not to deteriorations suffered by it, or improvements made thereon, the provisions of Article 1189 shall be applicable, the party who has to
do, the provisions of the second make restitution being considered as the debtor.
paragraph of Article 1187 shall be
observed as regards the effect of the The juridical principle that by the happening of the resolutory condition all vestiges of the obligation should be wiped out, indicates
extinguishment of the obligation. that the duty of mutual restitution applies not only to the object and the price, but also to the fruits and interests; this is the only way
by which the parties can be restored to the status quo or their original condition before the obligation was constituted.
The party who would be entitled to restitution from the other, in the event the resolutory condition is fulfilled, stands in the same
position as a creditor in an obligation with a suspensive condition, in that he has an expectancy of recovery of the thing.
E.g.: X allows Y to use the former’s car until X returns from the province. Upon the return of X from the province, Y must give
back the car. The effect of the happening of the condition is to annul the obligation as if it had never been constituted at all. In this
case, the parties intend the return of the car.
Art. 1191. Both relations must arise from the same cause, such that one obligation is correlative to the other.
The power to rescind obligations is
implied in Reciprocity arises from identity of cause, and necessarily the two obligations are created at the same time.
reciprocal ones, in case one of the Reciprocal obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other, such
obligors should not comply with what is that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the
incumbent upon him. performance of one is conditioned upon the simultaneous fulfillment of the other.
The injured party may choose between In reciprocal obligations, when one party has performed his part of the contract, the other party incurs in delay; hence, the party who
the fulfillment and the rescission of the has performed or is ready and willing to perform may rescind the obligation if the other does not perform or is not ready and willing
obligation, with the payment of damages to perform.
in
either case. He may also seek rescission, In Areola v. CA, 236 SCRA 643: Under the law governing reciprocal obligations, particularly the second paragraph of
even after he has chosen fulfillment, if Article 1191, the injured party is given a choice between fulfillment or rescission of the obligation in case one of the obligors fails to
the latter should become impossible. comply with what is incumbent upon him.
The court shall decree the rescission However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of
claimed, unless there be just cause the obligation.
authorizing the fixing of a period.
The power to rescind is given to the injured party. Where the plaintiff is the party who did not perform the undertaking which he
This is understood to be without was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the contract by the
prejudice to the rights of third persons defendant or recover damages by reason of his own breach. An action for specific performance of a contract is an equitable
who have acquired the thing, in proceeding, and he who seeks to enforce it must himself be fair and reasonable, and do equity.
accordance with Articles 1385 and 1388
and the Mortgage Law. In Gil v. CA, 411 SCRA 18: The right of rescission of a party to an obligation under Article 1191 of the New Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity between them.
Where both parties have committed a breach of obligation and it cannot be determined who was the first infractor, the contract shall
be deemed extinguished and each shall bear his/its own damages.
It has been held that the mere failure of one party to perform his undertaking does not ipso jure produce the resolution of the
contract; the party entitled to resolve should apply to the court for a decree of rescission or resolution.
If the obligation has not yet been performed, extra-judicialdeclaration of resolution or rescission by the party who is ready and
willing to perform would suffice; he can refuse to perform if the other party is not ready and willing to perform. But where the
injured party has already performed such as when property has already been delivered by him to the other party, he cannot by his
own declaration rescind the contract and reacquire titleto the property, if the other party opposes the rescission.
In such case, court action must be taken, and the function of the court is to declare the rescission as properly made, or to give a
period to the debtor in which to perform.
Hence, it has been held that the present provision regulates rescission as a power conferred upon the injured party, who may choose
rescission or fulfillment, and this choice can be exercised either judicially or by declaration of the creditor, but shall be subject to
judicial determination. But where the other party does not oppose or impugn the extra-judicial declaration of rescission, such
declaration will produce legal effect.
In Dijamco v. CA, 440 SCRA 190: A judicial action for the rescission of a contract is not necessary where the contract provides that
it may be revoked and cancelled for violation of any of its terms and conditions.
In Buenaventura Angeles v. Ursula Torres Calasanz, 135 SCRA 323: [T]here is nothing in the law that prohibits the parties from
entering into an agreement that violation of the terms of thecontract would cause its cancellation even without court intervention.
If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to
court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party
will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the
party prejudiced.
The right to resolve or rescind is not absolute, and will not be granted where there has been substantial compliance by partial
payments. Rescission will not be permitted for a slight or casual breach of the contract, but only for such breached as are so
substantial and fundamental as to defeat the object of the parties in making the agreement.
In Visayan Sawmill v. CA, 219 SCRA 378: Consequently, in a contract of sale, after delivery of the object of the contract has been
made, the seller loses ownership and cannot recover the same unless the contract is rescinded. But in the contract to sell, the seller
retains ownership and the buyer's failure to pay cannot even be considered a breach, whether casual or substantial, but an event that
prevented the seller's duty to transfer title to the object of the contract.
The right of an injured party to rescind is subordinate to the rights of a third person to whom bad faith is not imputable.
The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having
retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the
celebration of the contractThe party seeking rescission cannot have performance as to a part and rescission as to the remainder.
These two remedies are alternative; the injured party cannot have both.
However, where the performance has become impossible or there are insuperable and legal obstacles thereto, rescission with
damages to the injured party is proper although the latter had sought specific performance. The prescriptive period for the action for
rescission in such case is four (4) years from the final judgment on the action for specific performance which has become impossible
to execute.
So long as there has been no judgment declaring rescission, however, the creditor who has asked for it may change his mind and
demand specific performance instead, or vice-versa, unless he has previously renounced one of these remedies.
While the right to rescind reciprocal obligations is implied, that is, that such right need not be expressly provided in the contract,
nevertheless. Considering practical needs and demands of equity and good faith, the disappearance of the basis of a contract gives
rise to a right of resolution in favor of the party prejudiced.
Note these following cases on Notice of Cancellation:
In Jison v. CA, 164 SCRA 339: The indispensability of notice of cancellation to the buyer was to be later underscored in Republic
Act No. 6552, entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took effect on
September 14-15). when it specifically provided: Sec. 3 (b) ... the actual cataract, of the contract shall take place thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer.less the contracting parties may waive the same.
Acceptance by the creditor of delayed installment payment beyond the grace period amounts to a waiver of the right of rescission.
In Pagtalunan v. De la Cruz Vda. de Manzano, 533 SCRA 242: R.A. No. 6552, otherwise known as the "Realty Installment Buyer
Protection Act," recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller
to cancel the contract upon non-payment of an installment by the buyer, which cancellation may be done outside the court
particularly when the buyer agrees to such cancellation provided that such cancellation by the seller must be in accordance with Sec.
3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash
surrender value of the payments on the property. Actual cancellation of the contract takes place after 30 days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
A demand letter is not the same as the notice of cancellation or demand for rescission by a notarial act required by R.A. No. 6552;
An action for annulment of contract is a kindred concept of rescission by notarial act while a case of unlawful detainer is not.
In Fabrigas v. San Francisco Del Monte, 476 SCRA 247: The cancellation of the contract under Section 4 of R.A. No. 6552 is a
two-step process--first, the seller should extend the buyer agrace period of at least sixty (60) days from the due date of the
installment, and, second, at the end of the grace period, the seller shall furnish the buyer with a notice of cancellation or demand for
rescission through a notarial act, effective thirty (30) days from the buyer's receipt thereof.
It is worth mentioning, of course, that a mere notice or letter, short of a notarial act, would not suffice.
Art. 1192. Where both parties are in default, their respective liability for damages shall be offset equitably.
In case both parties have committed a
breach of the obligation, the liability of
the first infractor shall be equitably
tempered by the courts. If it cannot be
determined which of the parties first
violated the contract, the same shall be
deemed
extinguished, and each shall bear his
own damages.
Art. 1193. A term or period is a space of time which, exerting an influence on obligations as a consequence of a juridical act, suspends their
Obligations for whose fulfillment a day demandability or determines their extinguishment.
certain has been fixed, shall be
demandable only when that day comes. Term or period may be distinguished from condition In the following ways:
Obligations with a resolutory period take CONDITION PERIOD

effect at once, but terminate upon arrival As to fulfillment, an uncertain An event that must necessarily come, whether on
of the day certain. event a date known before hand or at a time which cannot be
predetermined
A day certain is understood to be that As to influence on the obligation, gives rise to an No effect upon the existence of obligations, but only their
which must necessarily come, although it obligation or extinguishes one already existing demandability or performance
may not be known when. As to time, may refer to a past event unknown to the parties Always refers to the future
As to will of debtor, a condition which depends A period left to the debtor’s will merely empowers the court to
If the uncertainty consists in whether the exclusively on the will of the debtor annuls the obligation fix such period
day will come or not, the obligation is As to retroactivity of effect, the happening of a condition has Unless there is an agreement to the contrary, the arrival of a
conditional, and it shall be regulated by retroactive effect period does not have any
the retroactive effect
rules of the preceding Section.
Requisites of Period: The period must be (1) future, (2) certain, and (3) possible
SUSPENSIVE (ex die) RESOLUTORY (in diem)

From a day certain; one that must lapse before the To a day certain; the period after which the performance must
performance of the obligation can be demanded. terminate.
E.g. I will pay you 30 days from today, I will support you E.g. I will give you P500 a month until the
from the time your father dies, etc end of the year, I will support you until you die
LEGAL VOLUNTARY JUDICIAL

A period fixed by law Stipulated by the parties Allowed by the court
EXPRESS TACIT
When specifically stated When a person undertakes to do some work which can be done
only during a particular season
ORIGINAL PERIOD OF GRACE

An extension fixed by the parties themselves or by the court
DEFINITE INDEFINITE
Refers to a fixed known date or time Refers to an event which will necessarily happen but the date
of its happening is unknown
The uncertainty of the date of occurrence in the indefinite or indeterminate period does not convert into a condition, so long as there
is no uncertainty as whether it will happen or not.
E.g. Death of a person, movable holidays, events of civil or political life.
Obligations with a term are demandable only when the day fixed for their performance arrives.
But once the date stipulated arrives, the obligation can be enforced, and the obligor who alleges that the term has been extended
must show by satisfactory evidence that the extension of payment was for a definite time.
An action, however, may be brought immediately to enforce an obligation originally with a term, if the contract in which the terms
is imposed has been cancelled by mutual agreement of the parties, or when the non-fulfillment of the terms of the contract resolves
the period and authorizes the creditor to immediately demand performance. The obligation in such cases, is converted into a pure
obligation.
A moratorium is a postponement of the fulfillment of an obligation; it is an extension of the period for performance of the
obligation, decreed by statute.
The true test of the constitutionality of a moratorium statute lies in the determination of the period of suspension of the remedy. It is
required that such suspension be definite and reasonable, otherwise it would be violative of the constitution.
Art. 1194.
In case of loss, deterioration or
improvement of the thing before the
arrival of the day certain, the rules in
Article 1189 shall be observed.
Art. 1195. This article applies only to obligations to give. It has no application to obligations to do and not to do.
Anything paid or delivered before the
arrival of the period, the obligor being The creditor cannot unjustly enriched himself by retaining the thing or money received before the arrival of the period.
unaware of the period or believing that
the obligation has become due and This article allows the recovery of the thing or money itself, plus the fruits or interests, which must be understood as those accruing
demandable, may be from the moment of payment to the date of recovery.
recovered, with the fruits and interests.
If the action to recover, however, is not brought by the debtor before the date of maturity, then the right to recover the thing or
money will cease; but, it is submitted, the reason for the law (ratione legis) will still justify the recovery of the fruits or interests
from the time of payment to the date of maturity.
The right of the debtor to recover fruits and interests is not affected by the good or bad faith of the creditor who accepts the
premature payment.
Notwithstanding premature payment, fruits or interests cannot be recovered in the following cases:
1. When the obligation is reciprocal, and there has been premature performance on both sides
2. When the obligation is a loan on which the debtor is bound to pay interest
3. When the period is exclusively for the benefit of the creditor, because the debtor by paying in advance loses nothing
If the payment before the period was made voluntarily, with knowledge of the period, the payment cannot be recovered.
Article 1195 has no application to obligations to do or not to do because as to the former, it is physically impossible to recover the
service rendered, and as to the latter, as the obligor performs by not doing, he cannot, of course, recover what he has not done.
Art. 1196. If the term is for the benefit of both parties, as is the presumption of this article in case of doubt, the creditor cannot demand
Whenever in an obligation a period is payment and the debtor cannot make an effective tender or consignation of payment, before the period stipulated.
designated, it is presumed to have been E.g. Contract of loan
established for the benefit of both the
creditor and the debtor, unless from the If it is for the benefit of the creditor only, he may demand performance at any time, but the debtor cannot compel him to accept
tenor of the same or other circumstances payment before the period expires.
it should appear that the period has E.g. D borrowed from C P1000 payable on December 31 2010 with the stipulation that D cannot make payment before the lapse of
been established in favor of one or of the the period but C may demand fulfillment even before said date.
other.
If the period is for the benefit of the debtor only, he may oppose premature demand for payment, but may validly pay at any time
before the period expires. E.g. D borrowed from C P1000 to be paid “within one year without interest,” or “on or before December
31, 2010”.
A stipulation that the payment is to be made “within” the stipulated period, is obviously for the benefit of the debtor.
Hence, although the creditor cannot enforce or demand payment before the period fixed, the debtor may waive the period and pay in
advance.
Art. 1197. The period mentioned in the above provision refers to a judicial period as distinguished from the period fixed by the parties in their
If the obligation does not fix a period, contract which is known as contractual period.
but from its nature and the
circumstances it can be inferred that a GR: If the obligation does not state a period or no period is intended, the court is not authorized to fix a period. The courts have no
period was intended, the courts may fix right to make contracts for the parties.
the duration thereof.
XPN:
The courts shall also fix the duration of (1) No period is fixed but a period was intended:
the period when it depends upon the will E.g. D agreed to construct the house of C; B bought lumber from the store of S on credit (the period for payment in the invoice is
of the debtor. left blank); S sold a parcel of land to B with a right to repurchase (no term is specified in the contract for the exercise of the right)
(2) Duration of the period depends upon the will of the debtor
In every case, the courts shall determine
such period as may under the This article is part of all obligations contemplated therein.
circumstances have been probably
contemplated by the parties. Once fixed Hence, whenever a period is fixed pursuant to its provisions, the court does not amend or modify the obligation concerned, but
by the courts, the period cannot be merely enforces or carries out an implied stipulation in the contract.
changed by them.
The court may fix a period in the following cases: when the term of a lease has been left to the will of the lessee; or when the term
of a donation imposing certain conditions do not fix the time for the performance of the conditions; etc.
The mere failure of the parties to fix a period, however, will not always justify the court in fixing one; thus, it is not incumbent upon
courts to fix the period during which contracts of employment or services shall last. Their duration is to be implicitly fixed, in
default of express stipulation, by the periodfor the payment of the salary of the employee.
Article 1197 of the Code cannot be applied to such contracts.
The court, however, to prevent unreasonable interpretations of the immediate demandability of pure obligations, may fix a
reasonable time in which the debtor may pay.
The only action that can be maintained on obligations falling under this article, is an action to ask the court to fix a term which the
obligor must comply with his obligation. The fulfillment of the obligation itself cannot be demanded until after the court has fixed
the period for the compliance therewith, and such period has arrived.
We believe that considering our rules of pleading and procedure, the fixing of the period and the ordering of payment cannot be
made in the same action. This would imply two causes of action in the same complaint: first for the purpose of fixing a period, and
the second for the purpose of specific performance to compel payment.
The period to be fixed by the court becomes part of the contract, and until it has expired no action to enforce payment can be
maintained; hence the second cause of action in the case contemplated cannot prosper.
In fixing the period, the term probably contemplated by the parties should be ascertained.
Once the period has been fixed by the court it becomes part of the contract, and it cannot be subsequently changed or extended by
the court without the consent of both of the parties.
The default of the debtor commences only after the expiration of the period fixed by the court. Any demand made before that would
be futile, because legally the debt is not yet due.
In Araneta v. Phil. Sugar Estate Development, Inc., 20 SCRA 330: Article 1197 of the Civil Code involves a two-step process. The
Court must first determine that the obligation does not fix a period (or that the period is made to depend upon the will of the debtor),
and that from the nature and the circumstances it can be inferred that a period was intended. The second step is to ascertain the
period probably contemplated by the parties.
The Court cannot arbitrarily fix a period out of thin air.

Art. 1198. In the cases provided in this article, the obligation becomes immediately due and demandable even if the period has not yet expired.
The debtor shall lose every right to make The obligation is thus converted into a pure obligation.
use of the period:
(1) When after the obligation has GR: The obligation is not demandable before the lapse of the period.
beencontracted, he becomes
insolvent, unless he gives a guaranty or XPN:
security for the debt; (1) When the debtor becomes insolvent: E.g. D owes C P1000 due and payable on December. If D becomes insolvent, say on
(2) When he does not furnish to the September, C can demand immediate payment from D even before maturity unless gives sufficient guaranty or security.
creditor the guaranties or
securities which he has promised; Note: The insolvency of the debtor that would deprive him of the benefit of the term need not be judicially declared in insolvency
(3) When by his own acts he has proceedingThe degree of insolvency that would justify immediate enforcement of the obligation is a matter that should be left to the
impaired said guaranties or securities courts. Such insolvency must occur after the obligation was constituted.
after their establishment, and when
through a (2) When debtor does not furnish guaranties or securities promised: E.g. In the same example, D promised to mortgage his house to
fortuitous event they disappear, unless he secure the debt. If he fails to furnish said security as promised, he shall lose his right to the period.
immediately gives new ones equally
satisfactory; (3) When guaranties or securities have been impaired or have disappeared: E.g. If the debt is secured by a mortgage on the house of
(4) When the debtor violates any D, but the house was burned through his fault, the obligation also becomes demandable unless D gives a new security equally
undertaking, in consideration of which satisfactory.
the creditor agreed to the period;
(5) When the debtor attempts to abscond. Note: The term “disappear” is not used here in its grammatical or ordinary meaning, but in the sense of “loss” as defined by the law.
(4) When debtor violates an undertaking: E.g. Now, suppose C agreed to the period in consideration of the promise of D to repair
the piano of C. The violation of this undertaking by D gives C the right to demand immediate payment of the loan.
(5) When debtor attempts to abscond: E.g. Before the due date of the obligation, D changed his address without informing C and
with the intention of escaping from his obligation. This act of D is a sign of bad faith which results in the loss of his right to the
benefit of the period stipulated.
The present article does not apply to the extension of the period fixed by moratorium statutes. These laws are precisely enacted
because of the financial difficulties of debtors. Hence, the insolvency of the debtor does not deprive him of the benefit of the
moratorium.
Art. 1199. Obligations with several objects: (1) conjunctive, (2) alternative; and (3) facultative.
A person alternatively bound by different
prestations shall completely perform one A conjunctive obligation is one where the debtor has to perform several prestations; it is extinguished only by
of them. performance of all of them.
The creditor cannot be compelled to
receive part of one and part of the other ALTERNATIVE FACULTATIVE
undertaking. Several objects being due, the fulfillment of one is sufficient, Only one thing is due, but the debtor has reserved the right to
determined by the choice of the debtor who generally has the substitute it with another
right of election
The loss of one of the things due affects the obligation The loss of that which may be given substitute does not affect
the obligation
The election may be granted to the creditor Never
The loss of the things does not extinguish the obligation The loss of that which is due as the object of the
obligation, will extinguish such obligation
Art. 1200. In alternative obligations, the debtor has the right to choose the method of meeting the obligation, unless the creditor has expressly
The right of choice belongs to the debtor, reserved that right to himself.
unless it has been expressly granted to
the creditor. The right to choose may be granted to the creditor. The grant must be expressed; it cannot be implied. The choice may also be
The debtor shall have no right to choose expressly entrusted by the parties to a third person.
those prestations which are impossible,
unlawful or which could not have been The right to choose is indivisible. The debtor cannot choose part of one prestations and part of another.
the object of the obligation.
The debtor cannot choose unlawful or impossible undertakings.
The presence of such undertakings does not annul the obligation, which subsists, even as an alternative one if there are other lawful
and possible objects. Neither can the debtor select prestations which could not have been the object of the obligation. This refers to
prestations which turn out to be different from what the parties supposed and which do not serve the purpose for which the
obligation was contracted, such as when the things are future ones or when some accident happens to the object which gives it a new
aspect.
When the debtor has the right to choose, the plaintiff’s action must be in alternative form, demanding “either object X or object Y, at
the election of the debtor.” If the creditor demands only one of the objects, he asks more than what he is entitled to demand. The
judgment must also be on alternative form.
Art. 1201. The notice of selection or choice may be in any form provided it is sufficient to make the other party know that the election has been
The choice shall produce no effect except made. It is not subject to any form and may, therefore, bemade: (1) orally, (2) in writing, (3) tacitly, or (4) by any other unequivocal
from the time it has been communicated. means.
When the debtor, to whom the right to choose pertains, performs one of the prestations with the intent to discharge the obligation, he
is released, because the selection made may be implied in the fact of performance.
GR: The law does not require the other party to consent to the choice made by the party entitled to choose. A mere declaration of the
choice, communicated to the other party, is sufficient; it is a unilateral declaration of will. To require the creditor’s consent would
destroy the very essence of the right to choose and the alternative character of the obligation itself.
XPN: When the debtor has chosen a prestation which could not have been the object of the obligation; the creditor’s consent would
bring about a novation of the obligation.
When there are various debtors or creditors, and the obligation is joint, the consent of all is necessary to make the selection
effective, because none of them can extinguish the entire obligation.
If the obligation is solidary, and there is no stipulation to the contrary, the choice by one will be binding personally upon him, but
not as to the others.
The selection made by one party cannot be subjected by him to a condition or a term unless the other party consents thereto.
The effect of the notice of choice is to limit the obligation to the object or prestations selected, with all the consequences which the
law provides.
Once the selection has been communicated, it becomes irrevocable.
When the debtor performs one of the prestations, believing that he has a simple obligation (an ignorance of the alternatives and the
right to choose), there is no declaration of the selection, nor a binding performance of the obligation. There is a payment of what is
not due, and the debtor can recover the same, in accordance with the provision of the law on quasicontracts.
The right to choose is not lost by the mere fact that the partyentitled to choose delays in making his selection.
So long as the judgment has not been satisfied, the debtor may still exercise his right to select by offering the prestations he chooses;
but once the judgment has been satisfied by execution of any of the prestations, the debtor can no longer choose.
It is his duty to select at the time when performance should be effected; if he does not do so, the choice can be made for him by the
creditor by applying the principle of Article 1167 on obligations to do.
Art. 1202. If all the prestations, except one, are impossible or unlawful, it follows that the debtor can choose and perform only that one.
The debtor shall lose the right of choice
when among the prestations whereby he The obligation ceases to be alternative, and is converted into a simple obligation to perform the only feasible or practicable
is alternatively bound, only one is prestations.
practicable.
The impossibility of the other prestations, however, must not be due to the creditor’s acts, for in such case Article 1203 shall apply.
This article applies only when the debtor has the right to choose. In cases where the creditor is granted the right to choose, Article
1205 will apply when only one prestations remains practicable, either due to fortuitous event or due to the fault of the debtor.
Art. 1203. This article is base on principles of justice. Since one of the prestations had been rendered impossible by the act of the creditor, and
If through the creditor's acts the debtor the debtor precisely may have wanted to choose that particular prestations, the latter may elect to rescind the contract and recover
cannot make a choice according to the damages. Of course, he may also elect to perform that which remains (if there be only one prestations possible) or to elect from
terms of the obligation, the latter may those still remaining (if several are still possible), because the rescission does not take place automatically but at his option.
rescind the contract with damages.
Art. 1204. This article applies to cases which the debtor has the right to choose. If only some of the prestations are rendered impossible, the
The creditor shall have a right to fault of the debtor does not make him liable for damages, because he can still comply with the obligation by performing any of the
indemnity for damages when, through prestations remaining (if there are still several) or the one which remains (if only one is still possible).
the fault of the debtor, all the things
which are alternatively the object of the He will become liable for damages under the terms of this article only when all the prestations become impossible through his fault.
obligation have been
lost, or the compliance of the obligation If all the prestations become impossible due to fortuitous event, the obligation is extinguished; the debtor is not liable for damages.
has become impossible.
If one or more of the prestations due become impossible by fortuitous event, leaving only one prestation, and then this last one
The indemnity shall be fixed taking as a becomes impossible by fault of the debtor, the provisions of the present article will apply; the debtor will be liable for damages, with
basis the value of the last thing the value of the last prestations as the basis.
whichdisappeared, or that of the service
which last became impossible. The debtor should not be relieved from liability when his fault or negligence concurred with the fortuitous event in making
performance impossible.
Damages other than the value of the last
thing or service may also be awarded.
Art. 1205. When the creditor has the right to choose, his selection takes effect from the moment it is communicated to the debtor.
When the choice has been expressly
given to the creditor, the obligation shall The selection of the creditor may be made expressly or tacitly.
cease to be alternative from the day
when the selection has been There is tacit selection when the creditor accepts a prestation offered by the debtor, or brings an action for the enforcement of one of
communicated to the debtor. the prestations.
Until then the responsibility of the debtor When the creditor fails to make a selection in cases where he has the right to choose, the debtor will not incur in delay in the
shall be governed by the following rules: performance of the obligation, even if there is a definite period fixed for performance. There will be default or delay on the part of
the debtor in the performance of the obligation only when the obligation has become a simple one by the exercise of the creditor of
(1) If one of the things is lost through a his right to choose. If the creditor does not make his selection before the period fixed,the debtor’s duty to perform does not arise
fortuitous event, he shall perform the because the particular prestation to be performed has not been determined.
obligation by delivering that which the
creditor should choose from among the The creditor in such case must be considered by his own inaction to have waived the period.
remainder, or that which remains if only
one subsists; Rules in case of loss before creditor has made choice:
(2) If the loss of one of the things occurs 1. When the thing is lost through a fortuitous event:
through the fault of the debtor, the E.g. S obliged himself to deliver to B item one, or item two, or item three, or item four. If item one is lost through a fortuitous event,
creditor may claim any of those B can chooses from among the remainder or that which remains if three of the items are lost
subsisting, or the price of that which, 2. When a thing is lost through debtor’s fault:
through the fault of the former, has E.g. If the loss of item one occurs through the fault of S, B may claim item two or item three or item four with a right to damages or
disappeared, with a right to damages; the price of item one also with a right to damages
(3) If all the things are lost through the 3. When all the things are lost through debtor’s fault:
fault of the debtor, the choice by the E.g. If all the items are lost through the fault of S, the B can demand the payment of the price of any one of them with a right to
creditor shall fall upon the price of any indemnity for damages
one of them, also with indemnity for 4. When all the things are lost through a fortuitous event:
damages. E.g. The obligation of S shall be extinguished if all the items which are alternatively the object of the obligation are lost though a
fortuitous event. In this case, Article 1174 shall apply
The same rules shall be applied to
obligations to do or not to do in case
one, some or all of the prestations should
become impossible.
Art. 1206. ALTERNATIVE FACULTATIVE
When only one prestation has been As to contents of the obligation, there are various Only the principal prestation constitutes the obligation, the
agreed upon, but the obligor may render prestations all of which constitute parts of the accessory being only a means
another in substitution, the obligation is obligation to facilitate payment
called facultative. Before the debtor has made his choice, the creditor must The creditor can demand only the principal prestation
demand all the prestations in the alternative, leaving the debtor
The loss or deterioration of the thing to choose
intended as a substitute, through the As to nullity, The nullity of one prestation does not invalidate The nullity of the principal prestation, such as when the object
negligence of the obligor, does not the obligation, which is still in is unlawful or outside the commerce of man, invalidates the
render him liable. But once the force with respect to those which have no vice obligation, and the creditor cannot demand the substitute even
substitution has been made, the obligor when this is valid
is liable for the loss of the substitute on As to choice, The right to choose maybe given to the Only the debtor can choose the substitute prestation
account of his delay, negligence or creditor
fraud. As to effect of loss, only the impossibility of all the The impossibility of the principal prestation is
prestations due without fault of the debtor extinguishes the sufficient to extinguish the obligation, even if the
obligation substitute is possible
Before the substitution is effected, the substitute is not the prestation that is due; only the principal prestation is due and enforceable
by the creditor at that time. Therefore, if the substitute prestation becomes impossible due to the fault or negligence of the debtor,
the obligation is not affected, and he cannot be held liable for damages.
The option to perform the substitute is exclusively dependent upon the will of the debtor; he cannot be compelled to perform it if the
principal prestation becomes impossible.
The substitution is a matter of absolute choice in the debtor’s part. Therefore, even if he acts with bad faith in rendering the
substitute prestation impossible, he cannot be held liable for damages, because he could not have been compelled to perform it even
if it were possible. To hold the debtor liable in this case would contravene the very essence of facultative obligations.
The substitution of the prestation becomes effective and binding upon the debtor from the time the he communicates to the creditor
that he elects to perform the substitute prestationFrom this moment, the substitute prestation becomes the only prestation that is due.
If the principal prestation thereafter becomes impossible, even by fortuitous event, the debtor would not be relieved but would still
be obliged to perform the substitute prestation that he has chosen. His obligation has become a simple one to perform the substitute
prestation, and he will be liable for damages for his delay, neglect or bad faith in its performance.
Art. 1207. Joint obligation, Defined
The concurrence of two or more -One in which each of the debtor is liable only for a proportionate part of the debt, and each creditor is entitled only to a
creditors or of two or more debtors in proportionate part of the credit.
one and the same obligation does not
imply that each one of the former has a Solidary obligation, Defined
right to demand, or that each one of the -One in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation.
latter is bound to render, entire
compliance with the prestation. There is JOINT SOLIDARY
a solidary liability only when the Each creditor can recover only his share of the obligation, and Each creditor may enforce the entire obligation, and each
obligation expressly so states, or when each debtor can be made to pay only his part debtor may be obliged to pay it in full
the law or the nature of the obligation Variously termed mancomunada or mancomunada simple or a Mancomunada solidaria or joint and several or in
requires solidarity. pro rata solidum; juntos o separadamente
“We promise to pay” “I promise to pay,” “individually or collectively,”
Art. 1208. “individually liable” or “individually and jointly
If from the law, or the nature or the liable”
wording of the obligations to which the
preceding article refers the contrary When two persons are liable under a contract or under a judgment, and no words appear in the contract or the judgment to make
does not appear, the credit or debt shall each liable for the entire obligation, the presumption is that their obligation is joint or mancomunada, and each debtor is liable for a
be presumed to be divided into as many proportionate part of the obligation.
shares as there are creditors or debtors,
the credits or debts being considered Effect of joint liability:
distinct from one another, subject to the 1. The demand by one creditor upon one debtor, produces the effects of default only with respect to the creditor who demanded and
Rules of Court governing the multiplicity the debtor on whom the demand was made, but not with respect to the others.
of suits. 2. The interruption of prescription by the judicial demand of one creditor upon a debtor, does not benefit the other creditors nor
interrupt the prescription as to other creditor. On the same principle, a partial payment or acknowledgment made by one of several
joint debtors does not stop the running of the statute of limitations as to the others.
3. The vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation or
rights if the others.
4. The insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize a creditor to demand
anything from his co-creditors.
5. In the joint divisible obligation, the defense of res judicata is not extended from one debtor to another.
Solidary exists:
1. When there is an express stipulation in the contract
2. When a charge or condition is imposed upon heirs or legatees, and the testament expressly makes the charge or condition in
solidum.
3. When the law expressly provides for solidarity of the obligation of several obligors, as in the case of the liability or co-
participants in a crime.
4. When a solidary responsibility is imposed by a final judgment upon several defendants
5. When the nature of the obligation requires solidarity
An obligation is presumed to be joint unless solidarity has been expressly agreed upon. It is not necessary, however, that the
agreement should use precisely the word “solidary” for an obligation to be so; it is sufficient that the obligation states, for example,
that each one of the debtors can be compelled to pay the totality of the debt, or that each of them is obligated for the entire value of
the .
If two or more persons acting jointly become liable under these provisions32, their liability should be solidary, because of the nature
of the obligation.
Our law recognizes solidary responsibility for wrongful acts, whether they are crimes (Article 10. RPC) or quasi-delicts (Article
2194, CC); such solidarity is imposed even on joint payees of things delivered by mistake (Article 2157, CC).
They have a common element--they are morally wrong. A moral wrong cannot be divided into parts; hence, the liability for it must
be solidary.
When there are two creditors designated disjunctively, the application of the rules of alternative obligations would entitle the debtor
to choose the creditor whom he would pay; on the other hand, the application of the rules on solidarity will entitle either one of the
creditors to demand full payment, and the debtor cannot refuse to pay to the creditor who makes the demand by alleging that he
chooses to pay to the other creditor.
The intention of the parties should prevail, in determining whether the rules on solidarity or those on alternative obligation should be
applied. In case of doubt, solidarity should be favored, as it is more conducive to the fulfillment of the obligation, which is after all
the ultimate purpose of the parties.
The co-creditors or co-debtors may regulate their rights or liabilities in their internal relations with each other.
Thus, they may exclude a division and provide for sole responsibility, or they may provide for total reimbursement, or for a division
into unequal parts.
The obligation may be joint on the side of the creditors, and solidary on the side of the debtors, or vice versa. In such cases, the rules
applicable to each subject of the obligation should be applied, the character of the creditors or the debtors determining their
respective rights and liabilities, thus, if the obligation is joint on the side of the creditors, and solidary on the side of the debtors,
each creditor can demand only his share in the obligation; but each debtor may be compelled to pay the entire obligation to the
creditors.
Art. 1209. When there are several debtors or creditors, but the prestation is indivisible (such as the delivery of a house or other determinate
If the division is impossible, the right of thing), the obligation is joint, unless solidarity has been stipulated.
the creditors may be prejudiced only by
their collective acts, and the debt can be The joint indivisible obligation is in a sense midway between the joint and the solidary, although it preserves two characteristics of
enforced only by proceeding against all the joint obligation, in that no creditor can do an act prejudicial to the others, and no debtor can be made to answer for the others.
the debtors. If one of the latter should be The peculiarity of this obligation, however, is that its fulfillment requires the concurrence of all the debtors, although each for his
insolvent, the others shall not beliable part. On the side of the creditors, collective action is expressly required for acts which may be prejudicial.
for his share.
If there are several creditors and only one debtor, the obligation can be performed only by delivering the object to all the creditors
jointly. A debtor who delivers the thing to one creditor only, becomes liable for damages because of nonperformance to the other
creditors, unless they have authorized the former to receive payment for all of them. If only one or some of the creditors demand the
prestation, the debtor may legally refuse to deliver the thing; he can insist that all the creditors together receive the thing, and if any
of them refuses to join the others, the debtor may deposit the thing in court by way of consignation.
In case of non-performance by the debtor, however, the obligation to pay damages arises. With respect to the damages, the
prestation becomes divisible, and each creditor can recover separately his proportionate share.
As long as the obligation is joint, the act of one creditor cannot have any effect as to another creditor, because the credit of each one
is separate from the credits of the others. The indivisibility requires collective action to be effective.
Where the plurality of subjects is among the debtors, the indivisible obligation can be performed by them only by acting together.
Hence all must be sued. If any of the debtors is not willing to perform, the prestation is converted into an indemnification for
damages. Once so converted, the creditor can sue the debtors separately for their respective shares in the indemnity.
The indivisibility of the obligation does not imply solidary liability; the liability is joint, unless otherwise stipulated. The obligation
not to do, when there are several debtors, is a joint indivisible obligation.
Art. 1210. INDIVISIBLE JOINT OBLIGATION SOLIDARY OBLIGATION
The indivisibility of an obligation does Each creditor cannot demand more than his share and each Each may demand the full prestation and each debtor has
not necessarily give rise to solidarity. debtor is not liable for more than his share likewise the duty to comply with the entire prestation
Nor does solidarity of itself imply Refers to the prestation which is not capable of partial Refers to the legal tie or vinculum defining the extent of
indivisibility. performance liability
Where there are various creditors or various debtors, the obligation is joint even if performance is indivisible.
Art. 1211 Kinds of Solidarity
Solidarity may exist although the ACTIVE PASSIVE MIXED
creditors and the debtors may not be one that exists among the creditors one that exists among the debtors that on part of both creditors and debtors
bound in the same manner and by the
same periods and conditions. The essence of the active solidarity consists in the authority of each creditor to claim and enforce the rights of all, with the resulting
obligation of paying everyone what belongs to him; there is no merger, much less a renunciation of rights, but only mutual
representation. it is thus essentially a mutual agency. In passive solidarity, the essence is that each debtor can be made to answer for
the others with the right on the part of the debtor-payor to recover from the others their respective shares.
Juridical effects:
Active solidarity Passive solidarity

1. Since it is a reciprocal agency, the death of a solidary 1. Each debtor can be required to pay the entire obligation; but
creditor does not transmit the solidarity to each of his heirs but after payment, he can recover from the co-debtors their
to all of them taken together respective shares
2. Each creditor represents the others in the act of receiving 2. The debtor who is required to pay may set up by way of
payment, and in all other acts which tend to secure the credit of compensation his own claim against the creditor, in this case,
make it more advantageous the effect is the same as that of payment
3. One creditor, however, does not represent the others in such 3. The total remission of the debt in favor of a debtor releases
acts as novation (even if the credit is more advantageous), all the debtors; when this remission affects only the share of
compensation and remission
4. The credit and its benefits are divided equally among the one debtor, the other debtors are still liable for the balance of
creditors, unless there is an agreement among them to divide the obligation
differently 4. All the debtors are liable for the loss of the thing due, even if
5. The debtor may pay to any solidary creditor, but if a judicial such loss is caused by the fault of one of them, or by fortuitous
demand is made on him, he must pay only to the plaintiff event after one of the debtors has incurred delay
6. Each creditor may renounce his right even against the will of 5. The interruption of prescription as to one debtor affects all
the debtor, and the later need not thereafter pay the obligation the others; but the renunciation by one debtor of prescription
to the former already had does not prejudice the others
6. The interests due by reasonof the delay of one of the debtors
are borne by all of them
The legal bonds in solidarity may be uniform, when the debtors are bound by the same conditions and clauses, or varied, where the
obligors, although liable for the same prestation, are nevertheless not subject to the same terms and conditions. In the latter case,
before the fulfillment of the condition or the arrival of the term which affects a particular debtor, an action may be brought against
such debtor or any other solidary debtor for the recovery of the entire obligation, minus the portion corresponding to the debtor
affected by the condition or term; but this latter portion cannot be demanded from anyone until the condition happens or the arrival
of the term, however, the creditor may claim this remaining portion from any of the debtors.
Art. 1212. Under this article each solidary creditor may interrupt.
Each one of the solidary creditors may
do whatever may be useful to the others, This article provides that a solidary creditor cannot do anything prejudicial to the others. Remission is particularly prejudicial to the
but not anything which may be co-creditors, and, under the present article, literally understood, one solidary creditor alone cannot make it; but under Article 1215 it
prejudicial to the latter. is authorized. The same is true as to novation, compensation and merger or confusion. Article 1215 expressly authorizes the
effectiveness of these acts of extinguishment by a solidary creditor.
The present provision can be understood to mean that the act of extinguishment, which is prejudicial to the co-creditors, will be
valid so as to extinguish the claim against the debtors, but not with respect to the co-creditors whose rights subsist and can be
enforced against the creditor who performed the act alone.
Art. 1213 The solidary creditor is an agent of the others; hence, he cannot assign that agency to a third person without the consent of the other
A solidary creditor cannot assign his creditors. Mutual agency, which is the essence of active solidarity implies mutual confidence which may take into account the
rights without the consent of the others. personal qualifications of each creditor, hence, it is only just to require consent of the others when one transfers is rights to another.
The law seems to imply that since such assignment cannot be made, it produces no effect whatsoever; the co-creditors and the
debtor or debtors are not bound thereby, and the assignee cannot be regarded as a solidary creditor.
The assignment would produce its effects if made to a co creditor. The consent of the other creditor would not be necessary,
because the assignee is one as to whom the confidence of the others already exist.
Art. 1214. The solidary creditors are tacitly mutual representatives of each other for demanding payment. The equality of the rights of the
The debtor may pay any one of the solidary creditors by virtue of this mutual representation, however, lasts only until one of them goes ahead of the others and sues the
solidary creditors; but if any demand, debtor. When one creditor makes a judicial demand for payment, the tacit representation by the other creditors is considered
judicial or extrajudicial, has been \made revoked, and during the pendency of the action, the creditors who did not sue lose their representation of the others. Up to the
by one of them, payment should be made moment suit filed, the debtor could free himself from the debt by paying it to any creditor, but once action is filed against him by
to him. one creditor, the relation with the plaintiff as creditor is fixed definitely; he can pay only to the plaintiff, in whom the representation
of the other creditors is thus concentrated, and he can no longer be cued by the others.
The present article, modifying the provisions of the old Civil Code, has given to extra-judicial demand the same effect as judicial
demand in terminating the mutual representation among the solidary creditors and concentrating the agency in the creditor who
made the demand.
If all or several solidary creditors demand payment separately, the debtor should pay to the one who first notified him. If they
demand at the same time or collectively, as when they join together in a single action or written demand upon the debtor, the latter
preserves his right to choose and may pay anyone of those demanding payment.
The solidary creditor who makes the demand for payment merely consolidates in himself the representation of all others, but does
not deprive the other creditors of the character of principal as to their respective shares.
If a debtor has already paid the share of a creditor who made no demand upon him, his obligation to that extent should be considered
reduced.
In mixed solidarity, when one creditor makes a demand upon one of the debtors, the latter cannot pay to any other creditor but the
one who made the demand.
Art. 1215. Each solidary debtor may release all the others by binding himself alone, in their place, in favor of the creditor. The debtor who
Novation, compensation, confusion or effects the novation cannot, by himself, bind the others to a new debt without their consent.
remission of the debt, made by any of the
solidary creditors or with any of the GR: The mere extension of time for payment given by the creditor to a solidary debtor, does not release the others from the
solidary debtors, shall extinguish the obligation.
obligation, without prejudice to the
provisions of Article 1219.The creditor XPN: In cases of suretyship, where the sureties are bound in solidum, a different rule applies. A material alteration of the principal
who may have executed any of these acts, contract, effected by the creditor and the principal debtor, without the consent of the sureties, completely discharges the sureties
as well as he who collects the debt, shall from all liability on the contract of suretyship.
be liable to the others for the share in the
obligation corresponding to them. Dation in payment is the delivery of a specific object as a substitute for the performance of the obligation.
If the dation in payment is not immediately effected, but is in the form of a promise, it amounts to a novation. if it is made
immediately, Article 1245 provides that it shall be governed by the law on sales. In so far as it concerns its effects upon the solidary
relation, however, it should be treated as a payment, for it is essentially so.
Merger and compensation:

Partial Total
The rules on application of payments should govern. The obligation is extinguished and there is left only the
resulting liability for reimbursement within each group.
Art. 1216. Each solidary creditor under Article 1212 may bring an action to enforce the obligation and payment can be made only to the
The creditor may proceed against any plaintiff in such case by virtue of the provision of Article 1214.
one of the solidary debtors or some or all
of them simultaneously. The demand Under the present article, the solidary debtors may be sued simultaneously in one suit or successively in different actions.
made against one of them shall not be an
obstacle to those which may The provisions of this article, however, are not of public interest. The parties, therefore, may validly stipulate that the solidary
subsequently be directed against the debtors can only be sued simultaneously, or they may provide for the order in which the debtor may be sued individually.
others, so long as the debt has not been If the judgment is favorable to the creditor, there seems to be no doubt that, under Article 1212, this inures to the benefit of the co-
fully collected. creditors. But if the judgment is adverse to the plaintiffs, is it a bar to an action by the other co-creditors? Yes. Exception: personal
cause
Art. 1217. In Republic Glass Corp. v. Qua, 435 SCRA 480: If a solidary debtor pays the obligation in part, he can recover reimbursement from
Payment made by one of the solidary the co-debtors only in so far as his payment exceeded his share in the obligation.
debtors extinguishes the obligation. If
two or more solidary debtors offer to In Diamond Builders v. Country Bankers, 540 SCRA 194: Article 1217 of the Civil Code recognizes the right of reimbursement
pay, the creditor may choose which offer from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (i.e., the surety). In contrast, Article
to accept. .He who made the payment 1218 of the Civil Code is definitive on when reimbursement is unavailing, such that only those payments made after the obligation
may claim from his co-debtors only the has prescribed or became illegal shall not entitle a solidary debtor to reimbursement.
share which corresponds to each, with
the interest for the payment already
made. If the payment is made before the
debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot,

because of his insolvency, reimburse his
share to the debtor paying the
obligation, such share shall be borne by
all his co-debtors, in proportion to the
debt of each.
Art. 1218.
Payment by a solidary debtor shall not
entitle him to reimbursement from his co-
debtors if such payment is made
after the obligation has prescribed or
become illegal.
Art. 1219. In every passive solidarity, there is a dual relationship: (1) the relation between the creditor and the debtors, and (2) the relation
The remission made by the creditor of among the debtors themselves. When a creditor remits the share of any debtor, he can affect only the first relation, because he is
the share which affects one of the totally a stranger to the second relation. This relationship among the debtors is expressly governed by law in the last paragraph of
solidary debtors does not release the Article 1217, which imposes on every
latter from his responsibility towards the other co-debtor the duty of contributing to the share of the insolvent debtor. This is a provision which does not affect the creditor,
co-debtors, in case the debt had been and no act of the creditor should affect the relation of the debtors under it. The creditor cannot, therefore, by his act exempt any
totally paid by anyone of them before the debtor from the obligation imposed by it.
remission was effected.
Art. 1220.
The remission of the whole obligation,
obtained by one of the solidary debtors,
does not entitle him to reimbursement
from his co-debtors.
Art. 1221.
If the thing has been lost or if the
prestation has become impossible
without the fault of the solidary debtors,
the obligation shall be extinguished.
If there was fault on the part of any one

of them, all shall be responsible to the
creditor, for the price and the payment of
damages and interest, without prejudice
to their action against the guilty or
negligent debtor.
If through a fortuitous event, the thing is

lost or the performance has become
impossible after one of the solidary
debtors has incurred in delay through
the judicial or extrajudicial demand
upon him by the creditor, the provisions
of the preceding paragraph shall apply.
Art. 1222. Defenses of solidary debtor:
A solidary debtor may, in actions filed 1. Defenses derived from the nature of the obligation
by the creditor, avail himself of all 2. Defenses personal to debtor-defendant (i.e. either total or partial, minority, insanity, fraud, violence, or intimidation)
defenses which are derived from the 3. Defenses personal to the other solidary debtors (partial only)
nature of the obligation and of those
which are personal to him, or pertain to
his own share. With respect to those
which personally belong to the others, he
may avail himself thereof only as regards
that part of the debt for which the latter
are responsible.
Art. 1223. Indivisible divisible
The divisibility or indivisibility of the If divided into parts, its value is diminished disproportionately When each one of the parts into which it is divided forms a
things that are the object of obligations homogenous and analogous object to the other parts as well as
in which there is only one debtor and to the thing itself
only one creditor does not alter or
modify the provisions of Chapter 2 of Qualitative quantitative
this Title. When the thing is not entirely homogenous, such as inheritance When the thing divided is homogenous; the parts themselves
may be separated, as in movables, or the limits of each part
may be fixed, as in the case of immovables
The division may also be ideal, when the parts are not separated in a material way, but there are assigned to several persons the
undivided portions pertaining to them, as in co-ownership.
DIVISIBLE OBLIGATION INDIVISIBLE OBLIGATION
One which is susceptible of partial performance; that is, the Whatever may be the nature of the thing which is the object
debtor can legally perform the obligation by parts and the thereof, when it cannot be validly performed in parts
creditor cannot demand a single performance of the entire
obligation
Divisibility or indivisibility of the obligation refers to the performance of the prestation and not to the thing which is the object
thereof.
Note: The thing may be divisible, yet the obligation may be indivisible
Art. 1224. To enforce a joint indivisible obligation, Article 1209 has established the necessity of collective fulfillment and the action must be
A joint indivisible obligation gives rise against all the debtors. In case of non-performance by any of the debtors, the obligation is converted into a liability for losses and
to indemnity for damages from the time damages, which is divisible. In this case, if one of the debtors is insolvent or fails to pay his share, the others will not be liable for
anyone of the debtors does not comply his share; the debtors who are ready to perform their part do not become liable for more than the portions respectively corresponding
with his undertaking. The debtors who to them in the price of the subject matter of the obligation; the obligation is thus transformed, but not increased. If this transaction
may have been ready to fulfill their causes damages to them, they may recover such damages from the debtor who failed to perform. The entire liability for other
promises shall not contribute to the damages, of course, such as those suffered by the creditor, is shouldered by the defaulting debtor.
indemnity beyond the corresponding
portion of the price of the thing or of the Solidarity indivisibility
value of the service in which the Refers to the vinculum and therefore principally to the subjects Refers to the prestation or the object of the obligation
obligation consists. of the obligation
Such solidarity remains even when there has been When converted into one to pay damages, the reason for the
nonperformance and the debtors become liable for damages indivisibility ceases to exist, and each debtor becomes liable
for his part of the indemnity
Requires plurality of subjects Does not require such
Death of the debtor terminates the solidarity, which is not Affects heirs of the debtor in that they remain bound to
transmitted to the heirs perform the same prestation
If the obligation is solidary and indivisible, every debtor is liable for losses and damages, although those ready to perform can later
recover from the guilty one. The creditor may demand the entire indemnity, including the price of the thing or prestation and the
damages, from any debtor, even if the latter was ready and willing to perform. But a debtor who has paid the entire indemnity may
recover from the others their respective shares
in the price, and from the guilty debtor the entire amount of damages.
If the obligation is solidary and indivisible, every debtor is liable for losses and damages, although those ready to perform can later
recover from the guilty one. The creditor may demand the entire indemnity, including the price of the thing or prestation and the
damages, from any debtor, even if the latter was ready and willing to perform. But a debtor who has paid the entire indemnity may
recover from the others their respective shares
in the price, and from the guilty debtor the entire amount of damages.
Art. 1225. Note: The divisibility of the object does not necessarily determine the divisibility of the obligation; while, the indivisibility of the
For the purposes of the preceding object carries with it the indivisibility of the obligation.
articles, obligations to give definite
things and those which are not The obligation may be indivisible even when the object is divisible, by reason of the provision of law, of the express will of the
susceptible of partial performance shall parties, or of their presumed will, shown by the relation of the distinct parts of the object, each of which may be necessary
be deemed to be indivisible. complement of the others, or by the purpose of the obligation which requires the realization of all the parts.
When the obligation has for its object the TEST: Whether or not it is susceptible of partial performance, not in the sense of whether the delivery of the things or the execution
execution of a certain number of days of of the acts in parts is absolutely impossible or not, but in the sense of whether such separation into parts is contrary or not to the end
work, the accomplishment of work by which the obligation seeks to attain.
metrical units, or analogous things
which by their nature are susceptible of FACTORS which determine whether an obligation is divisible or indivisible:
partial performance, it shall be divisible. 1. The will or intention of the parties (expressed or presumed)
2. The objective or purpose of the stipulated prestation
However, even though the object or 3. The nature of the thing
service may be physically divisible, an 4. Provisions of law affecting the prestation
obligation is indivisible if so provided by
law or intended by the parties. In obligations to give, those for the delivery of certain objects, such as an animal or a chair, are indivisible. In obligations to do,
indivisibility is also presumed, and it is only when they are under the exceptional cases mentioned in paragraph 2 of this article that
In obligations not to do, divisibility or they are divisible.
indivisibility shall be determined by the
character of the prestation in each The purpose of the parties is controlling; and this applies not only to obligations to give, but also to those of doing or not doing.
particular case.
Where the contract is indivisible, in that it is not susceptible of partial performance, even if the compensation is fixed by unit of
measure, the debtor who fails to duly perform the work agreed upon, but abandons the same after performing a part, cannot recover
on quantum meruit for the work already finished, because in indivisible obligations partial performance is equivalent to non-
performance.
XPN: (See Articles 1234 & 1235)

1. Where the obligation has been substantially performed in good faith, the debtor may recover as if there had been complete
performance, minus the damages suffered by the creditor
2. When the creditor accepts performance, knowing its incompleteness, and without protest, the obligation is deemed fully
performed .
Divisible and indivisible obligations are not necessarily identical to severable and entire obligations are not necessarily identical to
severable and entire contracts, respectively. Whether a contract is entire or severable depends in general upon the consideration to be
paid, not upon its object.
*If the consideration is single, the contract is entire, but if the consideration is expressly or byimplication apportioned, the contract
is severable
*When the consideration is entire and single, the contract must be held to be entire, although the subject matter may be distinct and
independent items. A contract may be entire in its origin and yet looking to the performance of different things at different times, as
a contract of subscription to a publication to be delivered in parts each part to be paid upon delivery.
If the contract is severable, and one part is illegal, the part which is illegal is void and cannot be enforced, but that part which is
legal is enforceable. If the contract is entire, and a part is illegal, the whole contract is unenforceable.
Art. 1226. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to
In obligations with a penal clause, the insure performance. The penalty is generally a sum of money. But it can also be any other thing stipulated by the parties, including
penalty shall substitute the indemnity for an act or abstention.
damages and the payment of interests in
case of noncompliance, if there is no Double function:
stipulation to the contrary. Nevertheless, 1. To provide for liquidated damages
damages shall be paid if the obligor 2. To strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.
refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation. SUBSIDIARY/ ALTERNATIVE JOINT/ CUMMULATIVE
Upon non-performance, only the penalty can be asked Both the principal undertaking and the penalty may be
The penalty may be enforced only when demanded
it is demandable in accordance with the
provisions of this Code. Its purpose may be either reparation, in which case it substitutes the damages suffered by the creditor, or
punishment, in which case the right to damages, besides the penalty subsists.
Reparation punishment
The matter of damages is generally resolved, and it represents The question of indemnity for damages is not resolved, but
the estimate of the damages that a party might suffer from non- remains subsisting
performance of the obligation, thereby avoiding the difficulties
of proving such damages.
Whether the purpose of the penal clause is punishment or reparation, the mere non-performance of the principal obligation gives rise
to the right to penalty. The penal clause constitutes an exception to the general rules on the recovery of losses and damages.
The creditor cannot recover more than the penalty stipulated, even of he proves that the damages suffered by him exceeded in
amount such penalty.
When the penalty stipulated is not contrary to law, morals, or public order, it must be enforced against the party liable therefore.
Obligations imposing penalties and forfeitures must be strictly construed.
Three cases when damages and interest may be recovered in addition to the penalty:
1. When there is an express provision to that effect

2. When the debtor refuses to pay the penalty
3. When the debtor is guilty of fraud in the non-fulfillment of the obligation.
The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the
debtor. But the creditor does not have to prove that there was fault or fraud on the part of the debtor. The non-performance gives rise
to the presumption of fault; and in order to avoid the payment of the penalty, the debtor has the burden of proving an excuse--either
that the failure of the performance was due to force majeure, or to the acts of the creditor himself.
When there are several debtors in an obligation with a penal clause, the divisibility of the principal obligation among the debtors
does not necessarily carry with it the divisibility of the penalty among them.
CONDITIONAL OBLIGATION OBLIGATION WITH A PENAL CLAUSE
There is no obligation before the suspensive condition There is already an existing obligation (the principal) from the
happens; it is the fulfillment of the condition that gives rise to very beginning
the obligation
The principal obligation itself is dependent upon an uncertain It is the accessory obligation (penalty) which is dependent
event upon non-performance of the principal obligation
ALTERNATIVE OBLIGATION OBLIGATION WITH A PENAL CLAUSE

Two or more obligations are due, but fulfillment of one of There is only one prestation and it is only when this is not
them is sufficient performed that the penal clause is enforceable
The impossibility of one of the obligations, without the fault of The impossibility of the principal obligation
the debtor, still leaves the other subsisting extinguishes also the penalty
The debtor can choose which prestation to fulfill He cannot choose to pay the penalty to relieve himself of the
principal obligation, unless that right
FACULTATIVE OBLIGATION OBLIGATION WITH A PENAL CLAUSE

The power of the debtor to make substitution is The payment of the penalty in lieu of the principal obligation
absolute can be made only by express stipulation
The creditor can never demand both prestations Such right may be granted to him
Guaranty is a contract by virtue of which a third person, called the guarantor, binds himself to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
GUARANTY OBLIGATION WITH A PENAL CLAUSE

Both intended to insure performance of the principal obligation; both accessory and subsidiary obligation
The object of the obligations of the principal debtor and the The obligation to pay the penalty is different from the principal
guarantor is the same obligation
The principal debtor cannot The principal obligation and the penalty can be assumed by the
be guarantor of the same obligation same person
The guaranty subsists even when the principal obligation is The penalty is extinguished by the nullity of the principal
voidable or unenforceable or is a natural one obligation, except when the penal clause is assumed by a third
person (in which case the principle of a guarantor applies)
Art. 1227. GR: The debtor cannot avoid performance of the principal obligation by offering to pay the penalty. Therefore, the penalty, the
The debtor cannot exempt himself from object of which is to secure compliance with the obligation, cannot as a general rule, serve as a defense for the purpose of leaving
the performance of the obligation by the principal obligation unfulfilled.
paying the penalty, save in the case
where this right has been expressly XPN: This right to substitute the penalty for the principal obligation may be expressly granted to the debtor.
reserved for him. Neither can the
creditor demand the fulfillment of the GR: The creditor cannot demand performance of the principal obligation and the penalty at the same time.
obligation and the satisfaction of the
penalty at the same time, unless this right XPN:
has been clearly granted him. However, (1) The creditor may enforce both the principal obligation and the penalty when this right is clearly granted to him; and
if after the creditor has decided to (2) where the creditor demanded fulfillment of the principal obligation but it cannot be performed; in this case, he may demand the
require the fulfillment of the obligation, penalty.
the performance thereof should become
impossible without his fault, the penalty The law obviously means that performance becomes impossible through the fault of the debtor; it is in this case that the penalty may
may be enforced. be enforced.
Art. 1228.
Proof of actual damages suffered by the
creditor is not necessary in order that
the penalty may be demanded.
Art. 1229. Partial performance refers to the extent or quantity or fulfillment; irregular, to the form. In any case where there has been partial or
The judge shall equitably reduce the irregular compliance with the provisions of a contract with a penal clause, courts will rigidly apply the doctrine of strict construction
penalty whenthe principal obligation has against the enforcement in its entirety of the penalty.
been partly or irregularly complied with
by the debtor. Even if there has been no The power of the judge to reduce the penalty refers only to penalties prescribed in contracts. It does not cover the collection of the
performance, the penalty may also be surcharge on taxes that are due, which is mandatory on the collector.
reduced by the courts if it is iniquitous or
unconscionable. The amount of the penalty is not determined by the injury suffered by the creditor, but by what has been agreed upon by the parties
who are free to determine such amount. The limits of good customs, however, should not be infringed.
The penalty is not enforceable when the principal obligation becomes impossible due to fortuitous event, or when the creditor
prevents the debtor from performing the principal obligation.
Art. 1230. GR: The nullity of the principal obligation also nullifies the penal clause, which is only an accessory to the principal obligation
The nullity of the penal clause does not
carry with it that of the principal XPN: The penal clause subsists even if the principal obligation cannot be enforced:
obligation. 1. When the penalty is undertaken by a third person precisely for an obligation which is unenforceable,voidable, or natural, in which
case it assumes the form of a guaranty which is valid under Article 2052
The nullity of the principal obligation 2. When the nullity of the principal obligation itself gives rise to liability of the debtor for damages
carries with it that of the penal clause.
The penal clause may be void because it is contrary to law, moral, good customs, public order, or public policy. In such case, the
principal obligation subsists, if valid
Art. 1231. As a general rule, death of either the creditor or the debtor does not extinguish the obligation; obligations actively and passively, are
Obligations are extinguished: transmissible to the heirs, except when the law, the stipulations of the parties, or nature of the obligation prevents such transmission
(1) By payment or performance:
(2) By the loss of the thing due: XPN: In obligations to do or which are personal, identified with the person himself; these are extinguished by death
(3) By the condonation or remission of
the debt;
(4) By the confusion or merger of the
rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of

obligations, such as annulment,
rescission, fulfillment of a resolutory
condition, and prescription, are
governed elsewhere in this Code.
Art. 1232. Payment is the fulfillment of the prestation due, a fulfillment that extinguishes the obligation by the realization of the purposes for
Payment means not only the delivery of which it was constituted
money but also the performance, in any
other manner, of an obligation. Requisites of payment:
1. The person who pays must be the debtor
2. The person to whom payment is made must be the creditor
3. The thing to be paid or to be delivered must be the precise thing or the thing required to be delivered by the creditor
4. The manner (if expressly agreed upon), time and place of payment, etc
Kinds of payment:
Normal abnormal
When the debtor voluntarily performs the prestation When he is forced by means of a judicial proceeding, either to
stipulated comply with the prestation or to pay indemnity
Art. 1233. Requisites for payment:
A debt shall not be understood to have 1. Identity of the prestation; that the very thing or service due must be delivered or released
been paid unless the thing or service in 2. Integrity; that the prestation must be fulfilled completely
which the obligation consists has been
completely delivered or rendered, as the The payment or performance must be on the date stipulated.
case may be. The failure to perform on the date stipulated is not excused by the fact that such date falls on a Sunday and the next day is a legal
holiday, because payment may be made either on
Sundays or on any holiday. Under some statutes, however, like the Negotiable Instruments Law, payment in such case may be on
the next succeeding business day
When the existence of a debt is fully established by the evidence, the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor
Art. 1234. In order that there may be substantial performance of an obligation, there must have been an attempt in good faith to perform,
If the obligation has been substantially without any willful or intentional departure therefrom. The deviation from the obligation must be slight, and the omission or defect
performed in good faith, the obligor may must be technical and unimportant, and must not pervade the whole or be so material that the object which the parties intended to
recover as though there had been a strict accomplish in a particular manner is not attained. The non-performance of a material part of a contract will prevent the performance
and complete fulfillment, less damages from amounting to a substantial compliance
suffered by the obligee.
When one has received the benefits of substantial performance by the other without the price agreed upon, and he cannot or does not
return these benefits, it is manifestly unjust to permit him to retain them without paying, or doing as he promised
Art. 1235. To constitute a waiver, there must be an intentional relinquishment of a known right. A waiver will not result from a mere failure to
When the obligee accepts the assert a claim for defective performance when the thing or work is received, or from mere payment in accordance with the terms of
performance, knowing its incompleteness the contract. There must have been acceptance of the defective performance with actual knowledge of the incompleteness or the
or irregularity, and without expressing defect, under circumstances that would indicate an intention to consider the performance as complete and renounce any claim
any protest or objection, the obligation is arising from the defect
deemed fully complied with.
The word accept used in this Article, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance
A creditor cannot object because of defects in performance resulting from his own acts or directions. And where a party makes
particular objections to the sufficiency of performance, he is estopped to later set up other objections
Art. 1236. The creditor cannot be compelled to accept performance by a third person who is not bound under the obligation, because whenever
The creditor is not bound to accept a third person pays there is a modification of the prestation that is due. It is believed that the creditor should have a right to insist on
payment or performance by a third the liability of the debtor. A creditor should not be compelled to accept payment from a third person whom he dislikes or distrust
person who has no interest in the
fulfillment of the obligation, unless there A person who pays a debt for the account of another may recover from the debtor the sum so paid out, at least to the extent in which
is a stipulation to the contrary. the payment may have been beneficial to the debtor. Such a payment cannot be considered as a payment of what is not due under
Article 2154, and cannot be recovered from the creditor by the person who paid; the right of the payor in such case is against the
Whoever pays for another may demand debtor whose obligation he
from the debtor what he has paid, except has paid. The debtor who knows that another has paid his obligation for him, and who does not object thereto or repudiate the same
that if he paid without the knowledge or at any time, must pay the amount advanced by the third person
against the will of the debtor, he can
recover only insofar as the payment has Generally, the third person who paid another’s debt is entitled to recover the full amount he had paid. The law, however, limits his
been beneficial to the debtor. recovery to the amount by which the debtor has been benefited, if the debtor has no knowledge of, or has expressed his opposition to
such payment
It is optional for the creditor to accept payment from a third person. If the debtor opposes the payment by a third person, the latter
will be entitled to recover from the debtor only to the extent that the payment has benefited him. But as between the debtor and the
creditor, the obligation is extinguished
Art. 1237. The right to recover from the debtor is based in the mere fact of payment and on considerations of justice; but it gives to the third
Whoever pays on behalf of the debtor person who paid only simple personal action for reimbursement, without the securities, guaranties, and other rights recognized in the
without the knowledge or against the will creditor, which are extinguished by the payment
of the latter, cannot compel the creditor
to subrogate him in his rights, such as From the language of this article, it would seem that there may be subrogation if the creditor willingly and spontaneously permits
those arising from a mortgage, guaranty, the third person who has paid to be subrogated in his rights, even without the consent of the debtor. Such interpretation, however, is
or penalty. not proper. There is no provision giving such right to the creditor; the provisions of this article are for the benefit of the debtor, and
cannot be renounced by the creditor; the third person is amply protected by his right to reimbursement. It is clear, however, that the
creditor may assign his rights to a third person; but in such case, the resulting rights and obligations of the creditor and the third
person would be different from those arising from payment
Art. 1238.
Payment made by a third person who
does not intend to be reimbursed by the
debtor is deemed to be a
donation, which requires the debtor's
consent. But the payment is in any case
valid as to the creditor who has accepted
it.
Art. 1239. Where the person paying has no capacity to make the payment, the creditor cannot be compelled to accept it; consignation will not
In obligations to give, payment made by be proper; in case he accepts it, the payment will not be valid, except in the case provided in Article 1427
one who does not have the free disposal
of the thing due and capacity to alienate
it shall not be valid, without prejudice to
the provisions of Article 1427 under the
Title on "Natural Obligations."
Art. 1240. The authority of a person to receive payment for the creditor may be legal or conventional
Payment shall be made to the person in Legal conventional
whose favor the obligation has been When conferred by law, such as the authority of a guardian of When the authority has been given by the creditor himself, as
constituted, or his successor in interest, an incapacitated creditor, or the administrator of the estate of a
when an agent is appointed to collect from thedebtor. The
or any person authorized to receive it. deceased creditor debtor may be authorized by the creditor to make the payment
to another, whether the
latter be his representative or not
The payment of a debt must be made to the person in whose favor the obligation is constituted, or to another authorized to receive
the payment in his name
Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence
which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the person of his creditor,
or through error induced by the fraud of the third person, the payment to one who is not in fact his creditor, or authorized to receive
such payment, is void, except as provided in Article 1241. Such wrong payment does not prejudice the creditor, and accrual of
interest is not suspended by it
The deposit of the amount of the obligation by the debtor in a bank, in the name and to the credit of the creditor, without the
authorization of the latter, does not constitute payment; but when the creditor cannot be found in the place of payment,
such deposit may be a valid excuse for not holding the debtor in default
Generally, consignation in court of the thing or amount due, when properly made, will extinguish the obligation. But where
the creditor institutes an action for the collection of the amount of the obligation, with the corresponding interest, and the debtor
deposits the amount in court, but in a different case which is separate and distinct in nature from the case in which payment is
demanded, such deposit does not amount to payment
Art. 1241. When the creditor is incapacitated to receive payment, this must be made to his legal representative if there is one. If there be none,
Payment to a person who is then the debtor may relieve himself of responsibility by delivering the thing to the court in consignation, by virtue of Article 1256
incapacitated to administer his property
shall be valid if he has kept the thing If the payment is made to the creditor who is incapacitated, it shall be valid only in so far as it accrued to his benefit. In the absence
delivered, or insofar as the payment has of this benefit, the debtor may be made to pay againby the incapacitated himself when he attains capacity, or his legal representative
been beneficial to him.Payment made to during such incapacity
a third person shall also be valid insofar
as it has redounded to the benefit of the The payment shall be considered as having benefited the incapacitated person, if he made an intelligent and reasonable use thereof,
creditor. Such benefit to the creditor for purposes necessary or useful to him, such as that which his legal representative would have or could have done under similar
need not be proved in the following circumstances, even at the time of the complaint the effect of such use no longer exists. It is not necessary, however, that there be
cases: actual investment or use of the thing. The benefit is deemed to exist also when the thing paid is preserved or kept to be applied to
(1) If after the payment, the third person rational purposes for the benefit of the incapacitated
acquires the creditor's rights;
(2) If the creditor ratifies the payment to The debtor is not released from liability by a payment to one who is not the creditor nor one authorized to receive the payment, even
the third person; if the debtor believed in good faith that he is the creditor, except to the extent that the payment inured to the benefit of the creditor
(3) If by the creditor's conduct, the
debtor has been led to believe that the In the following cases, in addition to those enumerated by this article, payment to a third person releases the debtor:
third person had authority to receive the (1) When, without notice of the assignment of the credit, he pays to the original creditor (Article 1626)
payment. (2)When in good faith he pays to one in possession of the credit (Article 1242)
Even when the creditor receives no benefit from the payment to a third person, he cannot demand payment anew, if the mistake of
the debtor was due to the fault of the creditor
Art. 1242. This article constitutes an exception to the rule that payment must be made to the creditor or his authorized representative.
Payment made in good faith to any
person in possession of the credit shall The person in possession of the credit is neither the creditor nor one authorized by him to receive payment, but appears under the
release the debtor. circumstances of the case, to be the creditor. He
appears to be the owner of the creditor, although in reality he may not be the owner
This article refers to possession of the credit, and not merely of the document representing the credit
Payment to the possessor of the document or title does not necessarily extinguish the credit (i.e. payable to bearer/ order)
The good faith of the debtor consists in the belief that the party who presents the title of the obligation is the true creditor, or that the
person to whom the payment is made is the owner of the credit
Art. 1243. The payment to the creditor after the credit has been attached or garnished, is void as to the party who obtained the attachment or
Payment made to the creditor by the garnishment, to the extent of the amount of thejudgment in his favor. The debtor can therefore be made to pay again to the party
debtor after the latter has been judicially who secured the attachment or garnishment, but he can recover to the same extent what he has paid to his credit
ordered to retain the debt shall not be
valid. The debtor upon whom a garnishment order is served, can always deposit the money in court by way of consignation, and thus
relieve himself of further liability
If the debt is already due, he can even be compelled judicially by the attaching creditor to make the consignation in court, because
he would have no more right to retain the debt
If the action of the attaching or garnishing creditor fails, then the garnishment is of no effect, because it is only incidental or
accessory to the main action. The payment which the garnishee has made to his creditor (defendant in the action) must be considered
as valid and extinguishes the former’s liability to the latter
Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one although the latter may be of the same value than that
The debtor of a thing cannot compel the which is due. Upon agreement or consent of the creditor, the debtor may deliver a different thing or perform a different prestation in
creditor to receive a different one, lieu of that stipulated. In this case there may be dation in payment (Article 1245) or novation (Article 1291)
although the latter may be of the same
value as, or more valuable than that The defects of the thing delivered may be waived by the creditor, if he expressly so declares, or if, with knowledge thereof, he
which is due.In obligations to do or not accepts the thing without protest or disposes of it or consumes it
to do, an act or forbearance cannot be
substituted by another act or
forbearance against the obligee's will.
Art. 1245. The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the
Dation in payment, whereby property is parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent
alienated to the creditor in satisfaction of to the obligation, in which case the obligation is totally extinguished. (8 Manresa 324; 3 Valverde 174 fn.)
a debt in money, shall be governed by
the law of sales. In Caltex (Phil.), Inc., v. IAC, 215 SCRA 580: It is clear that a dation in payment does not necessarily mean total extinguishment of
the obligation. The obligation is totally extinguished only when the parties, by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation.
Dation in payment is an onerous contract of alienation because the object is given in exchange of the credit. The provisions on sales,
regarding warranty against eviction and hidden defects ofthe thing, are therefore applicable, the debtor being considered as the
vendor
Art. 1246. In cases falling under this article, if there is disagreement between the debtor and the creditor as to the quality of the thing delivered,
When the obligation consists in the the court should decide whether it complies with the obligation, taking into consideration the purpose and other circumstances of the
delivery of an indeterminate or generic obligation
thing, whose quality and circumstances
have not been stated, the creditor cannot The creditor or debtor may waive the benefit of this article.
demand a thing of superior quality. Thus, the creditor may require a thing of inferior quality, and the debtor may deliver an object of superior quality, unless the price to
Neither can the debtor deliver a thing of be paid in the latter case is dependent upon the quality
inferior quality. The purpose of the
obligation and other circumstances shall
be taken into consideration.
Art. 1247. Extra-judicial expenses required by the payment is borne by the debtor, in the absence of stipulation, because the payment is his
Unless it is otherwise stipulated, the duty and it inures to his benefit in that he is discharged from the burden of the obligation
extrajudicial expenses required by the
payment shall be for the account of the
debtor. With regard to judicial costs, the
Rules of Court shall govern.
Art. 1248.
Unless there is an express stipulation to
that effect, the creditor cannot be
compelled partially to receive the
prestations in which the obligation
consists. Neither may the debtor be
required to make partial
payments.However, when the debt is in
part liquidated and in part unliquidated,
the creditor may demand and the debtor
may effect the payment of the former
without waiting for the liquidation of the
latter.
Art. 1249. In Tibajia v. CA, 223 SCRA 163; A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check
The payment of debts in money shall be in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.
made in the currency stipulated, and if it Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:
is not possible to deliver such currency, Sec. 63. Legal character — Checks representing deposit money do not have legal tender power and their acceptance in the payment
then in the currency which is legal of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and
tender in the Philippines.The delivery of credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount
promissory notes payable to order, or credited to his account.
bills of exchange or other mercantile
documents shall produce the effect of In Papa v. Valencia & Co., Inc., 284 SCRA 643: After more than ten (10) years from the payment in party by cash and in part by
payment only when they have been check, the presumption is that the check had been encashed.
cashed, or when through the fault of the Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years undoubtedly resulted in the
creditor they have been impaired.In the impairment of the check through his unreasonable and unexplained delay.
meantime, the action derived from the While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil
original obligation shall be held in the Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment.
abeyance. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given.
It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless
presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or
other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this provision and if its no payment is caused by his negligence, payment
will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.
In Hydro Resources v. NIA, 441 SCRA 614: As a contract funded by an international organization, particularly one recognized by
the Philippines, the contract is exempt from the provisions of R.A. No. 529. R.A. No. 4100 amended the provisions of R.A. 529
thus:
SECTION 1. Section one of Republic Act Numbered Five hundred and twenty-nine, entitled "An Act to Assure Uniform Value of
Philippine Coin and Currency," is hereby amended to read as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the
Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared
against public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a) transactions where the funds involved are the proceeds of
loans or investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments, their agencies
and instrumentalities, and international financial and banking institutions so long as the funds are identifiable, as having emanated
from the sources enumerated above; (b) transactions affecting high-priority economic projects for agricultural, industrial and power
development as may be determined by the National Economic Council which are financed by or through foreign funds; (c) forward
exchange transaction entered into between banks or between banks and individuals or juridical persons; (d) import-export and other
international banking, financial investment and industrial transactions. With the exception of the cases enumerated in items (a), (b),
(c) and (d) in the foregoing provisions, in which bases the terms of the parties' agreement shall apply, every other domestic
obligation heretofore or hereafter incurred, whether or not any such provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and
private debts: Provided, That if the obligation was incurred prior to the enactment of this Act and required payment in a particular
kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rates
of exchange at the time the obligation was incurred, except in case of a loan made in a foreign currency stipulated to be payable in
the same currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin
and currency, including Central Bank notes, heretofore and hereafter issued and declared by the Government of the Philippines shall
be legal tender for all debts, public and private.
Section 1 of R.A. No. 529 states that only the stipulation requiring payment in foreign currency is void, but not the obligation to
make payment.
Art. 1250. This article applies only where a contract or agreement is involved. It does not apply where the obligation to pay arises
In case an extraordinary inflation or from law, independent of contracts, like the taking of private property by the Government in the exercise of its power of
deflation of the currency stipulated eminent domain
should supervene, the value of the
currency This article applies to cases where extraordinary inflation or deflation of the stipulated currency takes place. The Code does not
expressly define what is “extraordinary” inflation or deflation. Considering the intent of the law, however,
at the time of the establishment of the extraordinary inflation or deflation may be said to be that which is unusual or beyond the common fluctuations in the value of the
obligation shall be the basis of payment, currency, which the parties could not have reasonably foreseen or which was manifestly beyond their contemplation at the time
unless there is an agreement to the when the obligation was constituted
contrary.
In Almeda v. Bathala Marketing, 542 SCRA 470: Inflation has been defined as the sharp increase of money or credit, or both,
without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and
credit relative to available goods, resulting in a substantial and continuing rise in the general price level.
In Filipino Pipe and Foundry Corp. v. NAWASA, 161 SCRA 339: Extraordinary inflation exists "when there is a decrease
orincrease in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value said
currency, and such decrease or increase could not have reasonably foreseen or was manifestly beyond contemplation the the parties
at the time of the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.)
To determine payment when there has been great fluctuation in the value of currency, we can resort, considering the circumstances
of each particular case, to the principle of good faith expressed in Article 1315, under which parties to contracts “are bound not only
to the fulfillment of what has been expressly stipulated, but also to all the consequences which according to their nature may be in
keeping with good faith, usage and law”
When the currency is devaluated in terms beyond what could have been reasonably foreseen by the parties, the doctrine of
unforeseen risks can be applied, and the effects of the devaluation should not be borne by the creditor alone. The
revaluation of the credit in such cases must be made, according to the principles of good faith and in vie of the circumstances of
each particular case, recognizing the real value of the credit as in consonance with the intent of the parties
Art. 1251. In the absence of stipulation in an obligation to deliver a determinate thing, performance must be made at the place where the thing
Payment shall be made in the place was located at the time the obligation was constituted. This rule applies to obligations to do, where the service or act refers to some
designated in the obligation. determinate thing, such as the painting or repair of a house or building
There being no express stipulation and if
the undertaking is to deliver a Even when the thing is determinate but its existence at the place where it was when the obligation was constituted was temporary,
determinate thing, the payment shall be the performance must be at the domicile of the debtor, unless otherwise provided
made wherever the thing might be at the
moment the obligation was constituted. Since the law fixes the place of payment at the domicile of the debtor, it is the duty of the creditor to go there to receive payment; he
In any other case the place of payment should bear the expenses in this case, because the debtor cannot be made to shoulder the expenses which the creditor incurs in
shall be the domicile of the debtor. performing a duty imposed by law and which is for his benefit
If the debtor changes his domicile in bad
faith or after he has incurred in delay,
the additional expenses shall be borne by
him.
These provisions are without prejudice
to venue under the Rules of Court.
Application of payments Concept-Application of payment is the designation of the debt which is being paid by a debtor who has several obligations of the
same kind in favor of the creditor to whom payment is made
The rules contained in Articles 1252 to 1254 apply to a person owing several debts of the same kind of a single creditor. They
cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular; his liability is confined to
such obligation, and he is entitled to have all payments made applied exclusively to said obligation and to no other
Art. 1252. In order that the rules for application of payment may be applied, it is necessary that the obligations must all be due. It is only in
He who has various debts of the same case of mutual agreement of the parties, or upon the consent of the party in whose favor the term was established, that payments
kind in favor of one and the same may be applied to obligations which have not yet matured
creditor, may declare at the time of
making the payment, to which of them It is also necessary that all the debts be for the same kind, generally of a monetary character. This includes obligations which were
the same must be applied. Unless the not originally of a monetary character, but, at the time of application of payment, had been converted into an obligation to pay
parties so stipulate, or when the damages by reason of breach or non-performance
application of payment is made by the
party for whose benefit the term has been The law grants to the debtor a preferential right to choose the debt to which this payment is to be applied, because under equal
constituted, application shall not be circumstances the law favors the debtor. But the right of the debtor is not absolute; he cannot impair the rights granted by law to the
made as to debts which are not yet due. creditor
If the debtor accepts from the creditor a The right to select the obligation to which a payment is to be applied must be exercised at the time when the debt is paid, and after
receipt in which an application of the the debtor has exercised it by indicating the debt to which his payment should be applied, he cannot later claim that it should be
payment is made, the former cannot understood as applied to another debt
complain of the same, unless there is a
cause for invalidating the contract. If the debtor makes a proper application of payment, but the creditor refuses to accept it because he wants to apply it to another debt,
(1172a) such creditor will incur delay
If at the time of payment, the debtor does not exercise the right to apply it to any of his debts, the application shall be understood as
provided by law, unless the creditor makes theapplication and his decision is accepted by the debtor.
This application of payment can be made by the creditor only in the receipt issued at the time of payment. Once the debtor has
accepted the application made by the creditor, the former cannot contest such application, which is validated by his acquiescence. It
can be changed only by mutual agreement. But an application made by the creditor, without the knowledge and consent of the
debtor, is not binding upon the latter
The real intent of the law is that the application made by the creditor can be contested by the debtor if the latter’s assent to such
application was vitiated by such causes as mistake, violence, intimidation, fraud, etc., which can invalidate not only contracts but
also other judicial acts
When neither the debtor nor the creditor has made a valid application of payment, then the application shall take place by operation
of law under articles 1253 and 1254. The same is true if the application made by the creditor is annulled by the debtor whose
consent thereto is vitiated
The debtor and the creditor, by agreement, can validly change the application of payment already made, without prejudice to the
rights of third persons acquired before such agreement
Art. 1253. Once it is admitted that an obligation bears interest, partial payments are to be applied first on account of the interest and then to
If the debt produces interest, payment of reduce the principal. This principle is not merelysuppletory; it has an obligatory character, and cannot be dispensed with except by
the principal shall not be deemed to have mutual agreement. The creditor may oppose an application of payment made by the debtor contrary to this rule
been made until the interests have been
covered. (1173)
Art. 1254. In making the application of payments, the law considers particularly the interest of the debtor, as if the debtor himself were making
When the payment cannot be applied in the application. It is assumed that of the debtor had chosen the debt to be paid, he would relieved himself first of the more
accordance with the preceding rules, or
if application can not be inferred from burdensome debt. As to which of two debts is more onerous is fundamentally a question of fact, which courts must determine on the
other circumstances, the debt which is basis of the circumstances of each case.
most onerous to the debtor, among those
due, shall be deemed to have been The condition of being more burdensome is relative, and cannot be determined with precision by general rules
satisfied.If the debts due are of the same
nature and burden, thepayment shall be Where the debts are of the same nature and burden, there must always be a pro rata application of the payment, even if the sum paid
applied to all of them proportionately. is exactly the amount of one of the obligations.
(1174a)
The mere equality of the amounts does not imply a tacit application of the payment to the debt to which it is equal in amount
Payment by Cession
Art. 1255. The assignment or cession contemplated by this article is the abandonment of the universality of the property of the debtor for the
The debtor may cede or assign his benefit of his creditors, in order that such property may be applied to the payment of the credits. The initiative comes from the
property to his creditors in payment of debtor, but it must be accepted by the creditors in order to become effective; a voluntary assignment cannot be imposed upon a
his debts. This cession, unless there is creditor who is not willing to accept it. If the offer of the debtor is not accepted by the creditors, the same end may be attained by a
stipulation to the contrary, shall only proceeding in insolvency instituted in accordance with the provisions of the Insolvency Law. Thus, the assignment by the debtor has
release the debtor from responsibility for two forms; the voluntary and the legal, the latter being the judicial in nature under the Insolvency Law
the net proceeds of the thing assigned.
The agreements which, on the effect of The present article deals with the voluntary assignment. Such assignment does not have the effect of making the creditors the
the cession, are made between the debtor owners of the property of the debtor unless there is an agreement to that effect. The assignment gives to the creditors the right to
and his creditors shall be governed by proceed to the sale of the property, and to pay themselves in the amount which the proceeds of the sale permit and in the manner
special laws. (1175a) agreed upon
In the absence of agreement as to the order of preference among the creditors, they shall be paid in the order established by law, and
if the proceeds of the property should not cover all the obligations, the unpaid amount remains due and demandable
In assignment of property to creditors, the debtor must serve the amount needed to support that he is required to reserve in case of
donations. The assignment cannot include the family home, which is reserved for certain beneficiaries, but can include other
properties exempt from execution, if the debtor waives the exemption
Distinguished from Dation in Paymentcircumstances which render direct payment to the creditor impossible or inadvisable
The tender of payment, therefore, is a preparatory act which precedes consignation. The tender of payment by itself does not cause
the extinguishment of the obligation, unless completed by consignation. It is the consignation which constitutes a form of payment,
and must follow, supplement or complete to the tender of payment in order to discharge the obligation
In instances where no debt is owing, consignation is not proper

Art. 1256. In Roman Catholic Archbishop of Malolos v. IAC, 191 SCRA 411: Tender of payment involves a positive and unconditional act by
If the creditor to whom tender of the obligor of offering legal tender currency as payment to the obligee for the former’s obligation and demanding that the latter
payment has been made refuses without accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances.
just cause to accept it, the debtor shall
be released from responsibility by the Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his
consignation of the thing or sum due. obligation. Ab posse ad actu non vale illatio. “A proof that an act could have been done is no proof that it was actually done.”
Consignation alone shall produce the
same effect in the following cases:
(1) When the creditor is absent or Tender of payment before consignation is required by the present article only in case where the creditor refuses without just cause to
unknown, or does not appear at the place accept it. The tender is not required in the cases enumerated in the five numbered paragraphs of this article, in which the debtor may
of payment; make the consignation immediately without previous tender of payment. For reason of equity, a consignation may be held valid
(2) When he is incapacitated to receive even where there was no prior tender of payment
the payment at the time it is due;
(3) When, without just cause, he refuses When a tender of payment is made in such a form that the creditor could have immediately realized payment of he had accepted the
to give a receipt; tender, followed by a prompt attempt of the debtor to deposit the means of payment in court by was of consignation, the accrual of
(4) When two or more persons claim the interest on the obligation will be suspended from the date of such tender. But when the tender of payment is not accompanied by the
same right to collect; means of payment, and the debtor did not take any immediate step to make a consignation, then interest is not suspended from the
(5) When the title of the obligation has time of such tender
been lost. (1176a)
Requisites of an effective consignation:
1. That there was a debt due
2. That the consignation of the obligation was made because of some legal cause provided in the present article
3. That the previous notice of the consignation had been given to the person interested in the performance of the obligation
4. That the amount or thing due was placed at the disposal of the court
5. That after the consignation had been made the persons interested were notified thereof
Since consignation is merely a form of payment of obligations, there must be a debt to be paid. The provisions on consignation are
not applicable when there is no obligation to pay
For a valid consignation, it is necessary that the creditor must have refused without just cause to accept payment, or that there be
some other legal cause, such as those enumerated in this article. Mere consignation without one of these causes does not produce the
effect of releasing the debtor
If the reason for consignation is the unjust refusal of the creditor to accept payment, it must be shown:
1. That there was a previous tender of payment, without which the consignation is ineffective
2. That the tender of payment was of the very thing due, or in case of money obligations, that legal tender currency was offered
3. That the tender of payment was unconditional
4. That the creditor refused to accept payment without just cause
At the time the deposit is made, it is not necessary for the debtor to show the want of cause for the refusal of the creditor; this fact
may be established during the hearing of the case
The absence or incapacity of the creditor, to justify consignation, need not be legally declared. But it is not enough that the creditor
be absent or incapacitated; he must, furthermore, have no legal representative, or if he has one, the debtor, without his fault, does not
know such legal representative
As a cause for consignation, it is not enough that various persons capriciously claim the right to collect from the debtor.
They must have the appearance of a right to collect such that the debtor would have a reasonable doubt not based in negligence, as
to who is entitled to the payment
The enumeration in this article of the cases in which consignation is proper, must not be interpreted in a restrictive sense, but in the
light of the purpose of the institution of consignation, which is to avoid the performance of an obligation becoming more onerous to
the debtor by reason of causes not imputable to him.
This standard insures the correct interpretation of the causes enumerated, and allows the possibility of consignation in other cases
not expressly mentioned
Before consignation is made, it should be made known or announced to the creditor and to other persons interested in the obligation
(Article 1257). This would give a chance to the creditor to accept the payment. The lack of this notice does not invalidate the
consignation, but simply makes the debtor liable for the expenses occasioned thereby
Although technically the notice is subsequent to the tender of payment, the two can be made at the same time or in the same act with
respect to the creditor, the tender of payment can be made with the warning that if it is not accepted, the thing due will be deposited
in court. But in addition to this a separate notice must be given to other parties interested in the obligation, such as co-debtors,
sureties, guarantors, and solidary co-creditors
The thing or amount due must be placed at the disposal of the judicial authority (Article 1258)
The requirement that the thing be deposited at the disposal of judicial authority does not convert the consignation into a real contract
of deposit, but merely require that the thing be at the disposal of the court. Even immovable property can be placed at the disposal of
the court; this happens in attachment, administration of estates of deceased persons, and insolvency proceedings
After the consignation has been made, the interested parties must be notified thereof (Article 1258). This requirement may be
complied with by the service of summons upon the defendant creditor together with a copy of the complaint
After this notice, the creditor may:

1. Accept the thing or amount deposited, in which case the matter or payment is terminated
2. Refuse to accept the thing or amount, in which case a trial must be held to determine the validity of the consignation
3. The creditor may neither accept nor refuse, in which case the debtor may ask the court to cancel the obligation after showing that
the requisites of consignation have been complied with (Article 1260)
Art. 1257. The notice of consignation must be given to all persons interested in the fulfillment of the obligation, whether they be passive
In order that the consignation of the subjects, such as co-debtors, guarantors or sureties, or active subjects, such as solidary co-creditors, or possible litigants, such as all
thing due may release the obligor, it those who claim to be entitled to the payment
must first be announced to the persons
interested in the fulfillment of the The tender of payment and the notice of consignation sent to the creditor may be made in the same act. In case of absent or unknown
obligation.The consignation shall be creditors, the notice may be made by publication
ineffectual if it is not made strictly in
consonance with the provisions which The lack of notice does not invalidate the consignation, but simply makes the debtor liable for the expenses
regulate payment.
(1177)
Art. 1258. The very thing due must be placed at the disposal of the judicial authority
Consignation shall be made by
depositing the things due at the disposal In the procedure now in force, judicial authority includes the sheriff in cases of consignation of the amount for the redemption of
of judicial authority, before whom the property sold in execution by said sheriff
tender of payment shall be proved, in a
proper case, and the announcement of A seller who institutes an action to compel the buyer to accept the merchandise sold, thereby places such merchandise at the
the consignation in other cases. disposal of the court and admits that he is himself holding the property for his adversary. By renouncing his own right in the
property, and asking the court to compel the adverse party to accept it, the plaintiff may be said to constitute himself, for the time
The consignation having been made, the being, the agent or receiver of the court. As a consequence, it would undoubtedly be competent and proper for the court upon the
interested parties shall also be notified application of either party, to order that the property be taken into the custody o an officer of the court or of a receiver to be specially
thereof. (1178) appointed by it
This requirement is fulfilled by the service of the summons upon the defendant together with a copy of the complaint
Art. 1259. The consignation is properly made:
The expenses of consignation, when 1. When after the thing has been deposited in court, the creditor accepts the consignation without objection and without any
properly made, shall be charged against reservation of his right to contest it because of failure to comply with any of the requisites for consignation
the creditor. (1178) 2. When the creditor objects to the consignation but the court, after proper hearing, declares that the consignation has been validly
made. In these cases, the creditor bears the expenses of the consignation
The expenses incurred by a seller in the warehousing of the goods pending his action to compel the buyer to comply with the
contract of purchase and sale are properly chargeable against the buyer
Art. 1260. Consignation is completed at the time the creditor accepts the same without objections, or, if he objects, at the time the court
Once the consignation has been duly declares that it has been validly made in accordance with law.
made, the debtor may ask the judge to
order the cancellation of the obligation. The consignation, however, has a retroactive effect, and the payment is deemed to have been made at the time of the deposit of the
thing in court or when it was placed at the disposal of the judicial authority
Before the creditor has accepted the
consignation, or before a judicial Once consignation has been accepted by the creditor, or the court has declared that it has been validly made, the following effects
declaration that the consignation has arise as of the time when the thing was placed at the disposal of the court:
been properly made, the debtor may 1. The debtor is released in the same manner as if he had performed the obligation at the time of the consignation, because this
withdraw the thing or the sum deposited, produces the same effect as a valid payment
allowing the obligation to remain in 2. The accrual of interest on the obligation is suspended from the moment of consignation
force. (1180) 3. The deterioration or loss of the thing are transferred to the creditor, because the risks of the thing are transferred to the creditor
from the moment of deposit
4. Any increment or increase in value of the thing after the consignation inures to the benefit of the creditor
When the debtor is bound to perform simultaneously with the performance of a counter-prestation by the creditor, he can ask the
court that the thing be delivered to the creditor only upon compliance by the latter with the counter-prestation.
The debtor’s right to ask this is not barred by the fact that the tender of payment, which preceded the consignation, is unconditional
The right of the debtor to withdraw the thing or amount deposited in court, depends upon whether or not the consignation has
already been accepted or judicially declared proper. Before that time, the debtor is still the owner, and he may withdraw it; in this
case, the obligation will remain in full force as before the deposit
Before the consignation has been judicially declared proper, the creditor may prevent the withdrawal by the debtor, by accepting the
consignation, even with reservations
The consignation in itself does not create a lien over the thing in favor of the creditor. Before the consignation has been accepted by
the creditor or judicially declared to have been properly made, the debtor is still the owner thereof; therefore, during that time, other
creditors of the debtor may still attach the thing consigned as property belonging to the debtor
When money is deposited in court under the provisions of the law on consignation, it is in custodia legis, and, therefore, exempt
from attachment and execution
If the case in which the consignation is made, is dismissed, the consignation will become ineffectual
Art. 1261. There is a revival of the obligation, but third persons, solidary co-debtors, guarantors and sureties who were benefited by the
If, the consignation having been made, consignation, are not prejudiced by such revival
the creditor should authorize the debtor
to withdraw the same, he shall lose Guarantors and sureties, whose obligation is only subsidiary, are completely released from the obligation upon the consignation
every preference which he may have over
the thing. The co-debtors, guarantors But the liability of such co-debtor for his corresponding share of the obligation subsists, so that if later on the debtor who withdrew
and sureties shall be released. (1181a) the consignation cannot discharge the entire obligation, such co-debtor can be made to pay his share of the debt to the creditor; and
if the debt is paid in full by the debtor who withdrew the consignation, he can in turn recover from the co-debtor the latter’s share.
The withdrawal of the consignation releases the solidary co-debtor only from his solidary liability for the share of others, but not
from his liability for his own share
Loss of the thing due Concept-Loss of the thing in this part of the Code means, not the strict legal meaning of “loss” and is not limited to obligations to
give, but extends to those which are personal, embracing therefore all causes which may render impossible the performance of the
prestation. In some codes, this is designated as impossibility of performance
The impossibility of performance must be subsequent to the execution of the contract in order to extinguish the obligation; if the
impossibility already existed when the contract was made, the result is not extinguishment, but inefficacy of the obligation under
Article 1348 and 1493
Art. 1262. It is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is
An obligation which consists in the unknown or it can not be recovered. Thus, aside from the destruction of the thing due, loss would mean its disappearance by loss,
delivery of a determinate thing shall be theft or robbery; that is to say, its non existence in the hands of the obligor when, through any cause, the fulfillment of the
extinguished if it should be lost or obligation becomes impossible
destroyed without the fault of the debtor,
and before he has incurred in delay. In an obligation to deliver a determinate object, where there is no physical or legal loss, but the thing belongs to another, the
performance by the debtor of the obligation undoubtedly becomes impossible. This would not have happened if the thing had
When by law or stipulation, the obligor belonged to the debtor at the time the obligation was constituted. Therefore, this is a case of an original subjective impossibility on
is liable even for fortuitous events, the the part of the debtor, and the failure of performance is imputable to himself. The debtor, in cases like this, must indemnify the
loss of the thing does not extinguish the creditor for damages suffered. If the creditor acquired the thing by gratuitous title, such as by inheritance or donation, he is entitled
obligation, and he shall be responsible to the value thereof. But if he acquired it by onerous title, he is entitled to the price he paid for it
for damages. The same rule applies
when the nature of the obligation The happening of a fortuitous event in itself does not necessarily extinguish an obligation to deliver a determinate thing. An
requires the assumption of risk. (1182a) obligation consisting in the delivery of a specified thing, shall be extinguished when the said thing shall be lost or destroyed without
the fault of the obligor and before he is in default. In the absence of law or stipulation to the contrary, impossibility of performance,
without the negligence of the parties, prevents the enforcement of an obligation
If the thing has been lost through robbery with violence, the debtor must show that he could not resist the violence. If the loss is
through theft, the debtor is considered negligent in having placed the thing within reach of thieves and not in a secure or safe place;
hence, the debtor will be liable for damages
The extinguishment of the obligation due to loss of the thing or impossibility of performance affects both debtor and creditor; the
entire juridical relation is extinguished, so that if the creditor has himself an obligation, this is likewise extinguished.
The debtor must return to the creditor whatever the latter may have already delivered by reason of the obligation. This is a logical
consequence of the principle of res perit domino recognized in the code
Under the Argentine Code (Article 895), the extinguishment of the obligation because of impossibility of performance applies not
only to the debtor but also to the creditor
The following cases constitute exceptions to the rule that loss of the determinate object by fortuitous event extinguishes the
obligation; hence, in these cases, the debtor who is unable to perform becomes liable for damages:
1. When the law expressly provides that the debtor shall be liable even if the loss is due to fortuitous events (Art. 1174)See articles
1942, 1979, 2147 & 2159
2. When by express stipulation, the obligor is made liable even if loss occurs through fortuitous events (Art. 1174)
3. When the nature of the obligation requires the assumption of risk (Art. 1174)
4. When the fault or negligence of the debtors concurs with the fortuitous event in causing the loss
5. When the loss occurs after the debtor has incurred in delay (Art. 1165)
6. When the debtor has promised to deliver the same thing to two or more different parties (Art. 1165)
7. When the obligation to deliver a determinate object arises from a criminal act (Art. 1268)
Art. 1263. A determinate thing is a concrete particularized object, indicated by its own individuality, while a generic thing is onewhose
In an obligation to deliver a generic determination is confined to that of its nature, to the genus (genero) to which it pertains, such as a horse or a chair.
thing, the loss or destruction of anything
of the same kind does not extinguish The loss of the determinate object without fault of the debtor extinguishes the obligation to give; but the obligation is not
the obligation. (n) extinguished if the object is indeterminate or generic
Genus nunquam perit (the genus never perishes); But when all the things of the kind stipulated disappear or perishes, the obligation
to deliver a generic object is extinguished. Thus, when the manufacture of a particular kind of merchandise is discontinued, there
may be impossibility of performance
This rule has an exception in what is known in German law as delimited generic obligations. Under this exception, when there is a
limitation of the generic object to a particular existing mass or a particular group of things, the obligation is extinguished by the loss
of the particular mass or group or limited quantity from which the prestation has to be taken, or by the impossibility of getting from
it the things for the prestation
Art. 1264. The rule given in this article is based in the assumption that the partial loss is not imputable to the fault or negligence of the debtor,
The courts shall determine whether, but to fortuitous events or circumstances beyond his control. Ordinarily, such partial loss does not extinguish the obligation; the
under the circumstances, the partial loss thing should be delivered to the creditor in its impaired condition, without any liability for damages on the part of the debtor. But if
of the object of the obligation is so the portion that is lost is of such an extent or nature that the obligation would not have been constituted without it, then the
important as to extinguish the obligation. obligation is extinguished
(n)
The intention of the parties is the controlling factor in the solution of each case of partial loss
Art. 1265. Under this article, the burden of explaining the loss of a thing in the possession of the debtor rests upon the latter
Whenever the thing is lost in the
possession of the debtor, it shall be
presumed that the loss was due to his
fault, unless there is proof to the
contrary, and without prejudice to the
provisions of article 1165. This
presumption does not apply in case of
earthquake, flood, storm, or other
natural calamity. (1183a)
Art. 1266. There us a distinction between impossibility existing at the time the obligation is constituted (Art. 1348), which brings about the
The debtor in obligations to do shall nullity of the contract, and impossibility which supervenes at the time of performance (Art. 1266), which brings about a
also be released when the prestation modification or extinguishment of the obligation, depending on whether or not it is imputable to the debtor. This article refers to an
becomes legally or physically impossible impossibility which arises after the obligation has been constituted
without the fault of the obligor. (1184a)
Legal physical
When the act, by reason of a subsequent law, is prohibited When the act by reason of its nature cannot be
accomplished
In both cases, the obligation is extinguished
The objective impossibility and subjective impossibility produce the same effect. Thus, when the debtor dies, or when by some
accident or act of a third person he is disabled and incapacitated for the work to be done, the obligation should be extinguished, as
long as there was no fault or negligence on his part contributing to his death or disability
Objective subjective
When the act or service in itself, without considering When the act or service cannot be done by the debtor himself,
the person of the obligor, becomes impossible; i.e. but it can be accomplished by
when the prestation is subsequently prohibited by law so that others; i.e. when the debtor becomes so seriously ill that he
nobody can do it cannot perform the stipulated act or service, although it can be
done by anybody else
The impossibility of performance releases the debtor from his obligation. Because the obligation is legitimate in its origin, the
supervening impossibility of the prestation, independent of the will of the obligor, cannot render the latter liable beyond the
restitution of what he may have received in advance from the creditor; it cannot make him liable for damages
Where it is not the prestation that has become impossible, but an act to be performed after the fulfillment of the prestation, the
obligation is not extinguished
The effects of partial impossibility cannot be subjected to inflexible rules, but attention must be directed to the importance and
consequence of the partial impossibility and the purpose of the obligation in each case. These circumstances may indicate that the
partial impossibility be considered equivalent to total impossibility. The rule in Article 1264 may be applied
If at the time performance becomes impossible the debtor has already fulfilled part of the obligation, the creditor must pay part done
so long as he benefits from such partial compliance.
On the other hand, if the debtor has already received something from the creditor, he must return anything in excess of what
corresponds to the part already performed when the impossibility supervened
Temporary obstacles to the performance of the prestation, which may be expected to disappear in the near future, do not extinguish
the obligation but merely delay its fulfillment, unless by its nature or by the will of the parties it has to be performed at a determinate
time. But if the obstacles are of an unknown and unforeseen duration, the obligations may be considered juridically impossible of
performance; it is extinguished, and is not revived by the fact that it becomes possible later when circumstances change
In reciprocal obligations, the release of the debtor due to impossibility of performance, also releases the creditor fromthe counter-
prestation, because each obligation depends upon the other
Art. 1267. The general rule is that impossibility of performance releases the obligor. However, when the service has become so difficult as to
When the service has become so difficult be manifestly beyond the contemplation of the parties, the court should be authorized to release the obligor in whole or in part. The
as to be manifestly beyond the intention of the parties should govern, and if it appears that the service turns out to be so difficult as to have been beyond their
contemplation of the parties, the obligor contemplation, it would be doing violence to that intention to hold the obligor still responsible
may also be released therefrom, in whole
or in part. (n) Difficulty of service authorizes the release of the obligor but does not authorize the courts to remake, modify or revise the contract
stipulated with the force of law, so as to substitute its own terms for those covenanted by the parties themselves
This article states in our law the doctrine of unforeseen events.
This is said to be based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist.
Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a
right to relief in favor of the party prejudiced
The parties to the contract must be presumed to have assumed the risk of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that equity demands assistance for the debtor
Equity demands a certain economic equilibrium between the prestation and the counter-prestation, and does not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the obligatory force of contracts.
This is mainly a question of fact left to the discretion of the court
This rule does not apply to obligations for the payment of a sumof money when there is a change in the value of the stipulated
currency. In such case Article 1250 will apply
Requisites for the application of this article:

1. The event or change in circumstances could not have been foreseen at the time of the execution of the contract
2. It makes the performance of the contract extremely difficult but not impossible
3. The event must not be due to the act of any of the parties
4. The contract is for a future prestation
If the contract is of immediate fulfillment, the gross inequality of the reciprocal prestations may involve lesion or want of cause.
Excluded from the scope of this article, however, are the aleatory contracts and those which are purely speculative
It is necessary that the change in the circumstances should be greatly beyond what could have been reasonably foreseen by diligent
persons at the time of the celebration of the contract.
The contract must be respected as long as the injustice is not intolerable
With respect to the difficulty of performance, this should be such as to mean a manifest disequilibrium in the prestations, such that
one party would be placed at a disadvantage by the unforeseen event. The case would not come within the purview of this article if
the debtor merely suffers those small losses which constitute the normal risks of the contract
The disappearance of the creditor’s interest which is sought to be protected by the obligation, will extinguish the obligation. If an
obligation is based upon an interest of the creditor worthy of protection, the juridical protection cannot extend beyond that interest
Art. 1268. When the debtor tenders or offers payment, and the creditor refuses to receive it without reason, there are two alternatives open to
When the debt of a thing certain and the debtor; either (1) to consign the thing and thereby relieve himself from any further responsibility for such thing, or (2) to just
determinate proceeds from a criminal keep the thing in his possession, with the obligation to use due diligence, subject to the general rules of obligations, but no longer to
offense, the debtor shall not be exempted the special liability imposed by this article
from the payment of its price, whatever
may be the cause for the loss, unless the
thing having been offered by him to the
person who should receive it, the latter
refused without justification to accept it.
(1185)
Art. 1269. This article refers, not only to the rights and actions which the debtor may have against third persons, but also to any indemnity
The obligation having been extinguished which the debtor may have already received
by the loss of the thing, the creditor shall
have all the rights of action which the
debtor may have against third persons by
reason of the loss. (1186)
Condonation or Remission of the Debt
Art. 1270. Remission is an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of the
Condonation or remission is essentially obligation, which is extinguished in its entirety or in that part or aspect of the same to which remission refers. It is an essential
gratuitous, and requires the acceptance characteristic of remission that it be gratuitous, that there is no equivalent received forthe benefit given; once such equivalent exists,
by the obligor. It may be made expressly the nature of the act changes. It may become dation in payment when the creditor receives a thing different from that stipulated; or
or impliedly. novation, when the object or principal conditions of the obligation should be changed; or compromise, when the matter renounced is
in litigation or dispute and in exchange of some concession which the creditor receives
One and the other kind shall be subject
to the rules which govern inofficious Kinds of remission:
donations. Express condonation shall,
furthermore, comply with the forms of Total partial
donation. (1187) May refer to the amount of the indebtedness, or to an accessory obligation only (such as pledge or interest), or to
some other aspect of the obligation (such as solidary)
INTER VIVOS MORTIS CAUSA

Effective during the lifetime of the creditor Effective upon the death of the creditor; contained in a will or
testament
Express implied
When it is made formally, and it should be in accordance with When it can be inferred from the acts of the
the forms of ordinary donations (see rules below) parties
Condonation or remission is essentially a donation of the credit to the debtor. It is a bilateral act, which requires acceptance by the
debtor. It is, therefore, subject to the rule on donations with respect to acceptance, amount, and revocation. In relation to remission,
the rules on donation should be read so that “donor” refers to the creditor, “donee” to the debtor, and “donation” to the remission or
Condonation
Express Remission
On its acceptance:
Art. 745. The donee must accept the donation personally, or through an authorized person with a special power for the purpose, or
with a general and sufficient power; otherwise, the donation shall be void. (630)
Art. 746. Acceptance must be made during the lifetime of the donor and of the donee. (n)
On its forms:
Art. 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated.
If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing,
otherwise, the donation shall be void. (632a)
Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the
property donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be
noted in both instruments. (633)
On its amount:
Art. 750. The donations may comprehend all the present property of the donor, or part thereof, provided he reserves, in full
ownership or in usufruct, sufficient means for the support of himself, and of all relatives who, at the time of the acceptance of the
donation, are by law entitled to be supported by the donor. Without such reservation, the donation shall be reduced in petition of any
person affected. (634a)
Art. 752. The provisions of Article 750 notwithstanding, no person may give or receive, by way of donation, more than he may give
or receive by will.
The donation shall be inofficious in all that it may exceed this limitation. (636)
On its revocation:
Art. 760. Every donation inter vivos, made by a person having no children or descendants, legitimate or legitimated by subsequent
marriage, or illegitimate, may be revoked or reduced as provided in the next article, by the happening of any of these events:
(1) If the donor, after the donation, should have legitimate or legitimated or illegitimate children, even though they be posthumous;
(2) If the child of the donor, whom the latter believed to be dead when he made the donation, should turn out to be living;
(3) If the donor subsequently adopt a minor child. (644a)
Art. 761. In the cases referred to in the preceding article, the donation shall be revoked or reduced insofar as it exceeds the portion
that may be freely disposed of by will, taking into account the whole estate of the donor at the time of the birth, appearance or
adoption of a child. (n)
Art. 764. The donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the conditions
which the former imposed upon the latter.
In this case, the property donated shall be returned to the donor, the alienations made by the donee and the mortgages imposed
thereon by him being void, with the limitations established, with regard to third persons, by the Mortgage Law and the Land
Registration Laws.
This action shall prescribe after four years from the noncompliance with the condition, may be transmitted to the heirs of the donor,
and may be exercised against the donee's heirs. (647a)
Art. 765. The donation may also be revoked at the instance of the donor, by reason of ingratitude in the following cases:
(1) If the donee should commit some offense against theperson, the honor or the property of the donor, or of his wife or children
under his parental authority;
(2) If the donee imputes to the donor any criminal offense, or any act involving moral turpitude, even though he should prove it,
unless the crime or the act has been committed against the donee himself, his wife or children under his authority;
(3) If he unduly refuses him support when the donee is legally or morally bound to give support to the donor. (648a)
Requisites of Remission or Condonation:
1. The debt must be existing and demandable at the time the remission is made
2. The renunciation of the debt must be gratuitous, or without any equivalent or consideration
3. The debtor must accept the remission
To condone is an act of liberality by virtue of which the creditor renounces the right to enforce the obligation contracted in his favor.
To condone is to forgive or remit a debt
Remission, being an act of liberality, should be proved by clearer and mere convincing evidence than what is required to establish
payment
Remission requires acceptance by the obligor. But there is nothing that can prevent a creditor from making a unilateral renunciation
of his right, abandoning his credit, and thereby extinguishing it. Such a unilateral declaration of renunciation by the creditor is
expressly allowed by article 6 of the Code
Art. 1271. Implied Remission

The delivery of a private document
evidencing a credit, made voluntarily by This article refers to a case of implied or tacit remission. There may also be tacit remission when the creditor voluntarily destroys or
the creditor to the debtor, implies cancels the evidence of the credit, with the intent to renounce his right. The want of such intent, however, may be proved, the burden
the renunciation of the action which the of proof being upon the creditor who alleges it. Thus, it may be shown that the destruction was due to the mistake or want of care.
former had against the latter. When the destruction or cancellation is shown to have been made without the intent to remit, then the obligation subsists
If in order to nullify this waiver it should The Code presupposes that when the creditor delivers a private document evidencing a debt to his debtor, he surrenders the weapon
be claimed to be inofficious, the debtor for the enforcement of his right. This is not true in the case of a public document, because there is always a copy in the archives
and his heirs may uphold it by proving which can be used to prove the credit. Therefore the voluntary deliver to the debtor of the first original copy of a public document
that the delivery of the document was does not imply remission
made in virtue of payment of the debt.
(1188) The second paragraph of this article implies that the voluntary return of the title of the credit is presumed to be by reason of
remission, and not by reason of the payment of the debt (which is somewhat anomalous), unless the contrary is proved. As De Diego
says, however, this provision is absurd and immoral in that it authorizes the debtor and his heirs to prove that they paid the debt,
when the provision itself assumes that there has been a remission, which is gratuitous
Art. 1272. Voluntary Remission
Whenever the private document in which
the debt appears is found in the While the existence in the hands of the creditor of an instrument of credit, is evidence that the debt is still unpaid, until the contrary
possession of the debtor, it shall be is proved, the possession of the same instrument by the debtor, if it is a private document, gives rise to the presumption that the
presumed that the creditor delivered it creditor delivered it voluntarily to the debtor, implying a remission of the debt evidenced by such private document. This
voluntarily, unless the contrary is presumption, however, is only prima facie, and may be overcome by contrary evidence to show that notwithstanding the possession
proved. (1189) by the debtor of the private document of credit, it has not yet been paid
When the obligation is joint, and the private document evidencing a debt is found in the possession of one of the debtors, the
presumption of remission can refer only to the portion of the debtor who is in possession of the instrument; and if the delivery was
made by only one joint creditor, only the share pertaining to him shall be deemed remitted. But if the obligation is solidary, the
remission must be considered as total. In both cases, the presumption yields to contrary evidence
Art. 1273.
The renunciation of the principal debt
shall extinguish the accessory
obligations; but the waiver of the latter
shall leave the former in force. (1190)
Art. 1274. The presumption in this article is based on the assumption that the creditor voluntarily returned the thing pledged to the debtor. It
It is presumed that the accessory may, however, be shown that the debtor recovered the thing pledged without the consent of the creditor, who may have lost it, or
obligation of pledge has been remitted from whom it may have been stolen, or that the return to the debtor is for a limited time and a special purpose, such as to make
when the thing pledged, after its delivery repairs thereon or to allow the owner to make some particular use thereof. This is also provided by article 2110. If the presumption
to the creditor, is found in the possession of return is prima facie, the presumption of remission must likewise be prima facie
of the debtor, or of a third person who
owns the thing. (1191a) The remission of the pledge extinguishes only the security; it does not affect the principal obligation, which remains subsisting
– Confusion or Merger of Rights
Art. 1275. Merger or confusion is the meeting in one person of the qualities of creditor and debtor with respect to the same obligation. It erases
The obligation is extinguished from the the plurality of subjects of the obligation, and extinguishes the obligation because it is absurd that a person should enforce an
time the characters of creditor and obligation against himself.
debtor are merged in the same person.
(1192a) Furthermore, the purpose for which the obligation may have been created are considered as fully realized by the merger of the
qualities of debtor and creditor in the same person
Requisites:
1. It must take place between the creditor and the principal debtor (Art. 1276)
2. The very same obligation must be involved, for if the debtor acquires rights from the creditor, but not the particular obligation in
question there will be no merger
3. The confusion must be total or as regards the entire obligation
Merger or confusion arises from any act which brings about a succession to the credit, whether it be universal or particular, inter
vivos or mortis causa. The most frequent, however, is by way of testate or intestate succession in which the debtor inherits the credit
from the creditor
When the act which occasions the merger is susceptible of termination or revocation, the merger that has taken place is also
terminated or revoked, and the obligation is recreated in the same condition that it had when the merger took place
The effect of merger is to extinguish the obligation

Art. 1276. The extinguishment of the principal obligation through confusion releases the guarantors, because the obligation of the latter is
Merger which takes place in the person merely accessory
of the principal debtor or creditor
benefits the guarantors. Confusion which
takes place in the person of any of the
latter does not extinguish the obligation. When the merger takes place in the person of a guarantor, the obligation is not extinguished. Thus, if the guarantor acquires the
(1193) credit, his obligation as a guarantor is extinguished, but the principal obligation subsists and can be enforced by him against the
debtor and other co-guarantors
The same rule applies in cases of surety

Art. 1277.
Confusion does not extinguish a joint
obligation except as regards the share
corresponding to the creditor or debtor
in whom the two characters concur.
(1194)
Compensation
Art. 1278. It is a mode of extinguishment to the concurrent amount, the obligation of those persons who in their own right are reciprocally
Compensation shall take place when two debtors and creditors of each other. It is the offsetting of two obligations which are reciprocally extinguished if they are of equal
persons, in their own right, are creditors value, or extinguished to the concurrent amount if of different values. As its name indicates, compensation is a sort of balancing
and debtors of each other. (1195) between two obligations; it involves a figurative operation of weighing two obligations simultaneously in order to extinguish them
to the extent in which the amount of one is covered by the other. By this means, payment is simplified and assured between persons
who are indebted to each other
Payment compensation
Capacity to dispose of the thing paid and capacity to Such capacity is not necessary, because the compensation
receive payment are required for debtor and creditor, operates by law and not by the act of the parties
respectively
The performance must be complete There may be partial extinguishment of an
obligation
Compensation has two advantages over payment. In the first place, it is simple, taking effect without action by either party to
extinguish their respective obligations. In the second place, there is more guaranty in making the credit effective, because there is
less risk of loss by the creditor due to insolvency or fraud of the debtor
merger compensation
Involves only one obligation There must always be two
There is only one person in whom the characters of There are two persons who are mutually debtors and
creditor and debtor meet, with respect to the same creditors of each other in two separate obligations, each arising
obligation from a different cause
COUNTERCLAIM COMPENSATION
Must be pleadedto be effectual Takes place by operation of law, and extinguishes reciprocally
the two debts as soon as they existed simultaneously, to the
amount of their concurrent sums
Kinds of Compensation:
Total partial
When the two obligations are to the same amount When the amounts are not equal
Legal Facultative (unilateral)

When it takes place by operation of law because all When it can be claimed by one of the parties who,
the requisites are present. however, has the right to object to it, such as when one of the
True compensation obligations has a period for the benefit of one party alone and
who renounces that
period so as to makes the obligation due
Conventional (bilateral) judicial

When the parties agree to compensate their mutual When decreed by the court in a case where there is a
obligations even if some requisite is lacking, such as counterclaim, such as that provided in article 1283
that provided in article 1282
Art. 1279. (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other
In order that compensation may be
proper, it is necessary: For compensation to take place, the parties must be mutually debtors and creditors (1) in their own right, and (2) as principals. When
(1) That each one of the obligors be there is no relationship of mutual creditors and debtors , there can be no compensation
bound principally, and that he be at the
same time a principal creditor of the In Francia v. IAC, 162 SCRA 753: [T]here can be no off-setting of taxes against the claims that the taxpayer may have against the
other; government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the
(2) That both debts consist in a sum of tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.
money, or if the things due are
consumable, they be of the same kind, This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be
and also of the same quality if the latter the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other'…and a "claim
has been stated; for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."
(3) That the two debts be due;
(4) That they be liquidated and (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same
demandable; quality if the latter has been stated
(5) That over neither of them there be
any retention orcontroversy, commenced Under article 418, consumable things are those which cannot be used in a manner appropriate to their nature without their being
by third persons and communicated in consumed
due time to the debtor. (1196)
The things due in both obligations must be fungible, or things which can be substituted for each other. Whether prestations refer to
fungibles will depend largely on the will of the parties
(3) That the two debts be due

Both debts must be due to permit compensation. The fact that there is an existing debt not yet matured will not prevent the
enforcement by action of that which is already due. However, if before payment of that which matured first, the second debt also
matures, there will be compensation
(4) That they be liquidated and demandable

This means that the debts are enforceable in court, there being no apparent defenses inherent in them. The obligations must be civil
obligations, excluding those that are purely natural.
Obligations which are subject to suspensive conditions cannot be set up by way of compensation before the fulfillment of the
condition, although once fulfilled, the provisions of article1187 should be observed as to the retroactive effect of the happening of
the condition
A debt is liquidated when its existence and amount are determined
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to
the debtor
When one of the obligations sought to be compensated is subject to a suit between a third party and the party interested in the
compensation, each claiming to be the creditor in said obligation, there is a provisional suspension of the possible compensation. If
the party is adjudged the creditor, there will be no compensation; otherwise, compensation will take place
There can be no legal compensation if either of the obligations is alternative or facultative. But the mere fact that one obligation has
a penal clause, while the other has none, will not prevent legal compensation, because the penal clause is a mere guaranty of
fulfillment and does not affect the object of the obligation
Art. 1280. The liability of the guarantor is only subsidiary; it is accessory to the principal obligation of the debtor. If the principal debtor has a
Notwithstanding the provisions of the credit against the creditor, which can be compensated, it would mean the extinguishment of the guaranteed debt, either totally or
preceding article, the guarantor may set partially. This extinguishment benefits the guarantor, for he can be held liable only to the same extent as the debtor
up compensation as regards what
the creditor may owe the principal
debtor. (1197)
Art. 1281.
Compensation may be total or partial.
When the two debts are of the same
amount, there is a total compensation.
(n)
Art. 1282. Conventional or voluntary compensation is not limited toobligations which are not yet due. The parties may compensate by
The parties may agree upon the agreement any obligations, in which the objective requisites provided for legal compensation are not present. It is necessary,
compensation of debts which are not yet however, that the parties should have the capacity to dispose of the credits which they compensate, because the extinguishment of
due. (n) the obligations in this case arises from their wills and not from law
Art. 1283.
If one of the parties to a suit over an
obligation has a claim for damages
against the other, the former may set it
off by proving his right to said damages
and the amount thereof. (n)
Art. 1284. Although a rescissible or voidable debt can be compensated before it is rescinded or annulled, the moment it is rescinded or
When one or both debts are rescissible annulled, the decree of rescission or annulment is retroactive, and the compensation must be considered as cancelled.
or voidable, they may be compensated
against each other before they are Rescission or annulment requires mutual restitution; the party whose obligation is annulled or rescinded can thus recover to the
judicially rescinded or avoided. (n) extent that his credit was extinguished by the compensation, because to that extent he is deemed to have made a payment
Art. 1285.
The debtor who has consented to the
assignment of rights made by a creditor
in favor of a third person, cannot set up
against the assignee the compensation
which would pertain to him against the
assignor, unless the assignor was
notified by the debtor at the time he gave
his consent, that he reserved his right to
the compensation.
If the creditor communicated the cession

to him but the debtor did not consent
thereto, the latter may set up the
compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made without the

knowledge of the debtor, he may set up
the compensation of all credits prior to
the same and also later ones until he had
knowledge of the assignment. (1198a)
Art. 1286. This article applies to legal compensation, but does not apply to voluntary compensation
Compensation takes place by operation
of law, even though the debts may be
payable at different places, but there
shall be an indemnity for expenses of
exchange or transportation to the place
of payment. (1199a)
Art. 1287. The prohibition of compensation when one of the debts arises from a depositum36 or commodatum37 is based on justice. A deposit
Compensation shall not be proper when is made or a commodatum is given on the basis of confidence in the depositary or the borrower. It is, therefore, a matter of morality,
one of the debts arises from a depositum that the depositary or the borrower should in fact perform his obligation; otherwise, the trust or confidence of the depositor or lender
or from the obligations of a depositary would be violated
or of a bailee in commodatum.
With respect to future support, to allow its extinguishment by compensation would defeat its exemption from attachment and
Neither can compensation be set up execution (article 205, Family Code), and may expose the recipient to misery and starvation. Common humanity and public policy
against a creditor who has a claim for forbid this consequence. Support in arrears, however, can be compensated (article 301, paragraph 2)
support due by gratuitous title, without
prejudice to the provisions of paragraph Note: Only the depositary and the borrower (in commodatum) cannot set up compensation. The depositor can set up his deposit
2 of Article 301. (1200a) against the depositary, and the lender can set up his loan against a credit of the borrower. This is in reality a case of facultative
compensation
Art. 1288. It is believed that if one of the debts consists in civil liability arising from a penal offense, compensation would be improper and
Neither shall there be compensation if inadvisable because the satisfaction of such obligation is imperative
one of the debts consists in civil liability
arising from a penal offense. (n)
Although no qualification is made in this article, the person who has the civil liability arising from crime is the only party who
cannot set up the compensation; but the offended party entitled to indemnity can set up his claim in compensation of his debt. This is
another case of facultative compensation
Art. 1289.
If a person should have against him
several debts which are susceptible of
compensation, the rules on the
application of payments shall apply to
the order of the compensation. (1201)
Art. 1290. Legal compensation takes effect from the moment that the requisites of articles 1278 and 1279 co-exist, since thiscompensation
When all the requisites mentioned in takes place ipso jure, its effects arises on the very day on which all its requisites concur, so that when it is used as a defense or when
Article 1279 are present, compensation a judgment declares it to exist, it retroacts to the date when its requisites are fulfilled
takes effect by operation of law, and
extinguishes both debts to the concurrent Voluntary or conventional compensation takes place upon the agreement of the parties
amount, even though the creditors and
debtors are not aware of the Facultative compensation takes place when the creditor declares his option to set it up
compensation. (1202a)
Judicial compensation takes place upon final judgment
Effects of compensation:
1. Both debts are extinguished to the concurrent amount
2. Interests stop accruing on the extinguished obligation or the part extinguished
3. The period of prescription stops with respect to the obligation or part extinguished
4. All accessory obligations of the principal obligation which has been extinguished are also extinguished
Although compensation takes place by operation of law, it must be alleged and proved by the debtor who claims its benefits.
Once proved, however, its effects retroact to the moment when the requisites provided by law concurred
Compensation can be renounced, either at the time an obligation is contracted or afterwards. Compensation rests upon a potestative
right, and a unilateral declaration of the debtor would be sufficient renunciation
Compensation can be renounced expressly or impliedly
Even when all the requisites for a compensation concur, the compensation may not take place in the following cases:
1. When there is renunciation of the effects of compensation by a party
2. When the law prohibits its compensation, such as in the cases provided in articles 1287 and 1288
Novation
Art. 1291. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
Obligations may be modified by: extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or
(1) Changing their object or principal by subrogating a third person in the rights of the creditor
conditions;
(2) Substituting the person of the debtor; Classification of Novation:
(3) Subrogating a third person in the As to its nature:
rights of the creditor. (1203) SUBJECTIVE (Personal) OBJECTIVE (Real) Mixed
The modification of the obligation by the The change of the obligation by When there is a combination
change of subject; it is substituting the object with another or of the subjective and objective
passive if there is a substitution of the changing the novation
debtor, and it is active when a third principal conditions
person is subrogated in the rights of the
creditor
As its forms:
Express implied
When the parties declare that the old obligation is When there is such an incompatibility between the
extinguished and substituted by the new obligation old and the new obligations that they cannot stand
together
As to its effects:
Partial Total
When there is only a modification or change in some When the old obligation is completely extinguished
principal conditions of the obligation
In Iloilo Traders v. Heirs of Soriano, 404 SCRA 133, the Court said:“Novation may either be extinctive or modificatory, much being
dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an
express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the
old obligation as the moving consideration for the emergence of the new one.
Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old
obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having
an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first“An
extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in
its stead.“Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the
main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the
effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.”
In California Bus Lines v. State Investment House, 418 SCRA 297, the Court said:“Novation has been defined as the
extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either
by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights
of the creditor.
“Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the
extent it remains compatible with the amendatory agreement. An extinctive novation results eitherby changing the object or
principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Novation has two functions: one to extinguish an existing obligation, the other to substitute a new
one in its place. For novation to take place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new
obligation.
“Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties,
or by their acts that are too clear and unequivocal to be mistaken.
“The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly
or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new
contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is
prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine
what might constitute to be a sufficient change that can bring about novation, the for contrariety, however, would be an
irreconcilable incompatibility between the old and the new
obligations.
“There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal
terms. The second is when the old and the new obligations are incompatible on every point.
The test of incompatibility is whether the two obligations can stand together, each one having its independent existence.
If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must
be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the
obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature
and insufficient to extinguish the original obligation.
“The necessity to prove the foregoing by clear and convincing evidence is accentuated where the obligation of the debtor invoking
the defense of novation has already matured.
“With respect to obligations to pay a sum of money, this Court has consistently applied the well-settled rule that the obligation is not
novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not
incompatible with the old ones, or where the new contract merely supplements the old one.”
In Kabankalan Sugar Co. v. Pacheco, 55 Phil. 154, the Court said:“[W]hen an easement of right way is one of the principal
conditions of a contract, and the duration of said easement is specified, the reduction of said period in a subsequent contract,
wherein the same obligation is one of the principal conditions,constitutes a novation and to that extent extinguishes the former
contractual obligation.”
In Ajax Marketing & Development Corp. v. Court of Appeals, 248 SCRA 222, the Court said:“Novation will not be allowed unless
it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the
new obligation expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every point
incompatible with the new one. In the same vein, to effect a subjective novation by a change in the person of the debtor it is
necessary that the old debtor be released expressly from the obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person who has assumed the debtor's obligation becomes merely a
co-debtor or surety.
“Novation arising from a purported change in the person of the debtor must be clear and express because, to repeat, it is never
presumed.”
Requisites:
1. A previous existing valid obligation - There must be an original existing obligation at the time of novation. This means that the
obligation must not only be valid, but also that it has not been extinguished by any cause
2. The agreement of all the parties to the new obligation -
Novation requires the creation of a new contractual obligation, as well as the extinguishment of the old. There must be consent of all
the parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid one
3. The extinguishment of the old contract - This extinguishment may take place by express stipulation in the new agreement, or by
implication from the incompatibility between the old and the new contracts
4. The validity of the new one

Art. 1292. Novation is never presumed. There is no novation in the absence of a new contract executed by the parties. It must be established
In order that an obligation may be that the old and new contracts are incompatible in all points, or that the will to novate appear by express agreement of the parties or
extinguished by another which substitute in acts of equivalent import. The novation must be clearly proved since its existence is not presumed
the same, it is imperative that it be so
declared in unequivocal terms, or that Novation takes place only when the contracting parties expressly disclose that their object in making the new contract is to
the old and the new obligations be on extinguish the old contract, otherwise the old contract remains in force and the new contract is added to it, and each gives rise to an
every point incompatible with each obligation still in force
other. (1204)
No specific form is required for an implied novation. All that is required is incompatibility between the original and the subsequent
contracts
The test of incompatibility between two obligations or contracts is whether they can stand together, each one having an independent
existence. If they cannot, they are incompatible, and the subsequent obligation novates the first.
Upon such novation, the former obligation loses all its force and effect, and only the new obligation can be the basis of an action
In order that there may be an implied novation arising from incompatibility of the old and the new obligations, the change must refer
to the object, the cause, or the principal conditions of the obligation. In other words, it must be an essential change
Accidental modifications in an existing obligation do not extinguish it by novation. Mere modifications of the debt, agreed upon
between the parties, do not constitute novation.
When the changes refer to the secondary agreements, and not to the object or principal conditions of the contract, there is no
novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation
It is not proper to consider an obligation novated by unimportant modifications which do not alter its essence
Ultimately, the determination of whether the changes in any given contract or obligation are sufficient to bring about novation, must
depend upon the facts and circumstances of each case. The distinction between a principal and an accidental condition in the
contract or obligation is relative. The legal effect of any change made by the parties will depend upon a sound appreciation of their
importance. The court should consider, in each particular case, not only the nature of the clause that is modified, but also the
intention of the parties and the economic significance of the modification
Art. 1293. Expromision Delegacion
Novation which consists in substituting The initiative for the change does not emanate from the debtor The debtor offers and the creditor accepts a third
a new debtor in the place of the original and may be made even without his knowledge, since it consists person who consents to the substitution, so that the
one, may be made even without the in a third person assuming the obligation. It logically requires consent of these three is necessary; they are respectively
knowledge or against the will of the the consent of this third person and the creditor known as delegante, delegatario and
latter, but not without the consent of the delegado
creditor. Payment by the new debtor
gives him the rights mentioned in In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be
Articles 1236 and 1237. (1205a) released from the obligation, and the third person or new debtor take his place in the relation. Without such release, there is no
novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or asurety. If there is no
agreement as to solidarity, the first and the new debtors are considered obligated jointly
The consent of the creditor to the change of debtors, whether in expromision or delegacion, is an indispensable requirement.
The reason for the requirement of the creditor’s consent to such substitution is obvious. Substitution of one debtor for another may
delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of the new debtor, hence, the creditor
should agree to accept the substitution in order that it may be binding on him
The consent of the creditor to the substitution may be express or implied. It need not be given simultaneously with that of the debtor
and of the third party; nor is it required to be in any specific or particular form, but it must be given by the creditorin one way or
another. The creditor’s ratification of the substitution may be tacit, and may be given at any time, as long as the agreement between
the old and new debtors still subsists. Once given, in whatever form it may be, the novation takes place
Upon a creditor’s acceptance of the promise of another person to pay a part of a debt, which payment is secured by a real estate
mortgage, there is effected a substitution of debtors or a partial novation of the contract
When the original contract authorizes the debtor to transfer his obligation to a third person, the novation by substitution of debtor is
effected when the creditor is notified that such transfer has been made
The consent of the creditor, however, cannot be presumed from his acceptance of payments by a third party for the benefit of the
debtor, without further acts; there can be no novation from such acceptance of payments, because there is no consent to the transfer
of the debt itself
Consent of debtors:
Expromision Delegacion
The consent of the old debtor is not necessary, and the The old debtor always consents to the substitution,
substitution may be made even without his knowledge because the initiative comes from him
In both cases, the consent of the new debtor is necessary, because he is to assume the obligation. This consent of the new debtor is
as essential as that of the creditor for the novation to become effective
The novation has the effect of releasing the original debtor from the obligation, and of making the new debtor liable therefor
The second sentence of the present article provides that “Payment by the new debtor gives him the rights mentioned in Articles 1236
and 1237.” This would mean that if the novation is by delegacion, and the new debtor pays the obligation, he could demand from the
old debtor what he has paid. But if the novation is by expromision, and the new debtor pays the debt without the knowledge of the
old debtor, the former can recover only in so far as the payment has been beneficial to the old debtor. In this latter case, there can be
no subrogation because of the express provisions of Article 1237. But if the novation is by delegacion, such subrogation may take
place byvirtue of the provisions of Article 1302, par. (2), because the present article actually gives to the payment by the new debtor
the same legal effect as payment by a third person, as far as his rights against the old debtor are concerned
Art. 1294. If the novation was by expromision, no liability for the new debtor’s insolvency can be enforced against the old debtor, because the
If the substitution is without the latter did not have the initiative in making the change, which might have been made even without his knowledge
knowledge or against the will of the
debtor, the new debtor’s insolvency or This article, however, seems to imply that of the old debtor had knowledge of the substitution, or had consented thereto, the
non-fulfillment of the obligations shall exemption from liability provided in this article does not apply
not give rise to any liability on the part
of the original debtor. (n) The obvious intent of the Code is to generally release the old debtor from any further liability in passive subjective novation, except
in exceptional cases contemplated in Article 1295 which are limited to delegacion
The literal wording of the law should yield to its obvious intention, which is to exempt the old debtor from future liability when he
did not propose the new debtor
Art. 1295. The terms of this article show that it is applicable only to substitution by delegacion. In case of insolvency of the new debtor, this
The insolvency of the new debtor, who article permits the creditor to sue the old debtor only when insolvency was prior to the delegation and publicly known, or when the
has been proposed by the original debtor old debtor knew of such insolvency at the time he delegated the obligation
and accepted by the creditor, shall not
revive the action of the latter against the The knowledge of the creditor that the new debtor was insolvent at the time of delegation, will bar him from
original obligor, except when said recovering from the old debtor. He must bear the consequence of his acts knowingly done
insolvency was already existing and of
public knowledge, or known to the Some believe that aside from the two exceptions mentioned in this article, there are other cases in which the old debtor will be
debtor, when the delegated his debt. liable: (1) If the new debtor is only secondarily liable; (2) If the third person is only an agent of the debtor; and (3) Where the new
(1206a) debtor is bound solidarily with the old debtor. It is obvious that the old debtor is liable in these cases, because there is no novation;
the debtor has not been released from the obligation in any of these cases
Art. 1296. The extinguishment of the principal obligation by novation extinguishes the obligation to pay interests, unless otherwise stipulated.
When the principal obligation is It releases pledges and mortgages as well as guarantors and sureties, unless the latter is bound under the new obligation. The reason
extinguished in consequence of a for this is clear: the mortgage, pledge, or guaranty was given to answer for a particular obligation, or for the solvency of a particular
novation, accessory obligations may debtor; any change in either of this destroys the basis of the consent of the mortgagors, pledgor, surety, or guarantor. The rule in this
subsistonly insofar as they may benefit article is, thus, specially applicable to novation by substitution of debtors
third persons who did not give their
consent. (1207) The exception provided has reference to a stipulation in favor of a third person (Art. 1311, par. 2), which is subordinate to the
principal obligation. Although technically it is an accessory obligation, it is in reality a distinct obligation in favor of a third person,
and cannot be extinguished by novation without the consent of the latter
Art. 1297. In order that a contract may be considered as novated, it is indispensable that the new contract which purports to annul the previous
If the new obligation is void, the original one, be valid and effective
one shall subsist, unless the parties
intended that the former relation should Where a new contract was to become effective only after the signature of other parties thereto had been secured, a novation does not
be extinguished in any event. (n) take place when such other signatures are not obtained, because then it is no more than a mere executory agreement subject to a
condition
If the new obligation is not entirely void, but only voidable, the novation becomes effective. But if the action to annul is brought,
and the obligation is set aside, it will be deemed as if there had been no novation, and the original obligation subsists, unless the
parties intended to definitely extinguish it at all events
The original obligation may be pure, and the new obligation subject to suspensive condition. If the intention is merely to attach the
condition to the original obligation, there is no novation. But if the new conditional obligation is intended to substitute the original
pure obligation, the novation itself, and the consequent extinguishment of the original obligation, is subject to the condition.
Therefore, pending the happening of the condition, the old obligation cannot be considered as extinguished, nor can its performance
be enforced; it is as much in a state of suspense as the new one. If the condition is not fulfilled before one of the parties withdraws
from the proposed conditional contract, there is no novation at all
After novation has taken place, by the change of the object of the obligation, the old obligation can no longer be enforced. Hence, if
the new obligation is extinguished by the loss of its object, the creditor cannot demand the object of the original obligation
Art. 1298. When the original obligation is void, that is, wanting in some essential requisite or otherwise inexistent, there can be no novation,
The novation is void if the original because one of the requisites for novation would be lacking
obligation was void, except when
annulment may be claimed only by the The rule in this article applies to a voidable contract which has already been set aside or annulled by decree of a competent court.
debtor or when ratification validates acts And an obligation which has already been extinguished is also inexistent. Hence, it cannot be novated
which are voidable. (1208a)
When the original obligation has been ratified before novation, the novation is effective. And even if there has been no previous
ratification at the time of novation, if the nullity can be claimed only by the debtor, the consent of the debtor to the novation will
render the novation effective, because such consent is impliedly a waiver of the action for nullity
To have a valid novation when the original obligation is voidable at the instance of the debtor, it is necessary that such obligation
should have the essential requisites for its existence, and that the debtor consent to the novation with knowledge of the cause for
nullity and after it has ceased
The defect, however, is not completely cured if the novation takes place by expromission, where the old debtor has not intervened or
consented. In such case, the old debtor may avail himself of the defense of the nullity of the original obligation, in the event that an
action for reimbursement is brought against him by the new debtor. On the other hand, in his relation to the creditor, the new debtor
cannot set up the nullity as a defense or as a ground for recovery, if he knew of the cause of nullity
When a debt is already barred by prescription, it cannot be enforced by the creditor. But a new contract, recognizing and assuming
the prescribed debt, would be valid and enforceable.
The prescription, being available only to the debtor, can be waived by him; and he does so by voluntarily promising to pay the
prescribed debt. The novation of a prescribed debt is thus valid
Art. 1299. The original obligation may be conditional, and the new obligation pure. If the intention is merely to suppress the condition, there
If the original obligation was subject to a would be no novation; but if it is to extinguish the original obligation itself by the creation of a new obligation, the latter does not
suspensive or resolutory condition, the arise except from the fulfillment of the condition of the original obligation. The reason is, if the suspensive condition of the original
new obligation shall be under the same obligation is not performed, that obligation does not come into existence, and the cause for the new obligation would then be
condition, unless it is otherwise wanting. On the other hand, if the condition of the old obligation is resolutory, its happening would resolve the old obligation and
stipulated. (n) place it in the same category as a void obligation or one which has been extinguished. In either case, therefore, one requisite of
every novation--a pre-existing valid obligation--would be lacking. Therefore, where the original obligation is conditional, the
novation itself must be held conditional also, and its efficacy depends upon whether the condition which affects the former is
complied with or not
But the parties may by their express will substitute a pure obligation for a conditional one
It may happen that the old obligation and the new obligation are both conditional. If the conditions in the two obligations are not
incompatible with each other, and they can stand together, they must all be fulfilled in order that the novation may become effective
and the new obligation be enforceable. If only the conditions affecting the obligation are fulfilled, and those affecting the new
obligation are not, then there is no novation, and the old obligation subsists, because the requisite of a new valid obligation would be
lacking. Likewise, if only the conditions affecting the new obligation are fulfilled, but the conditions of the old obligation are not,
there will be no novation, since the requisite of a previous existing obligation would be wanting
If the conditions of the old and the new obligations are incompatible with each other, there is an obvious intention to substitute the
new conditional obligation for the old obligation, leaving only the new obligation, subject to its conditions. Only the conditions of
the new obligation, therefore, have to be fulfilled, in order that such obligation may become enforceable
Art. 1300. Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be
Subrogation of a third person in the legal or conventional
rights of the creditor is either legal or
conventional. The former is not Legal conventional
presumed, except in cases expressly That which takes place without agreement but by That which takes place by agreement of the parties; this kind of
mentioned in this Code; the latter must operation of law because of certain acts; this is the subrogation requires the intervention and consent of three
be clearly established in order that it subrogation referred to in article 1302 persons: the original
may take effect. (1209a) creditor, the new creditor, and the debtor
Art. 1301. In conventional subrogation, the consent of all the parties is essential. The consent of the original creditor is necessary, because his
Conventional subrogation of a third right is extinguished; that of the new creditor is needed, because he becomes a party to a new relation; and the consent of the debtor
person requires the consent of the is necessary, because the old obligation is extinguished, and he becomes liable under a new obligation
original parties and of the third person.
(n) Under our Code, conventional subrogation is not identical to assignment of credit. In the former, the debtor’s consent is necessary;
in the latter, it is not required. Subrogation extinguishes an obligation and gives rise to a new one; assignment refers to the same
right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that the new
obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor’s right to another
Art. 1302. Illustration:
It is presumed that there is legal Juan has two obligations: a mortgage debt of P10,000 in favor of Pedro, and a simple unsecured obligation for P5,000 in favor of
subrogation: Jose. If Jose pays the mortgage obligation of P10,000 to Pedro, even without the knowledge of Juan, then Jose will be subrogated in
(1) When a creditor pays another the rights of Pedro; in other words, Jose will become a mortgage creditor for P10,000, and an ordinary creditor for P5,000. It is not
creditor who is preferred, even without material what amount Jose actually pays to Pedro; so long as Pedro accepts such amount as full payment of the mortgage credit,
the debtor’s knowledge; there will be subrogation.
(2) When a third person, not interested in
the obligation, pays with the express or However, the debtor in cases like this can still set up against the new creditor the defenses which he could have used against the
tacit approval of the debtor; original creditor, such as compensation, payments already made, or vice or defect of the original obligation
(3) When, even without the knowledge of
the debtor, a person interested in the If a third person pays the creditor without the consent of the debtor, he is only entitled to reimbursement from the debtor for the
fulfillment of the obligation pays, without amount paid by him. If the amount he paid is less than the credit, even if the creditor has accepted it as full payment, the third person
prejudice to the effects of confusion as to is entitled to reimbursement only for what he actually paid. He cannot proceed against sureties, guarantors, or mortgages and
the latter’s share. (1210a) pledges. But if the debtor had consented, expressly or tacitly, to such payment by the third person, there will be subrogation, and the
payor can exercise all the rights of the creditor rising from the very obligation itself, whether against the debtor or against third
person
The person who have an interest in the fulfillment of the obligation are those who would be benefited by the extinguishment of the
obligation. Examples: co-debtors, sureties, guarantors, and owners of property mortgaged or pledged to secure the obligation
When a solidary debtor pays the obligation, he is subrogated in the rights of the creditor. The scope of this subrogation, however,
should not be misunderstood. The payor cannot take advantage of the solidarity and recover the amount in excess of his share of the
obligation form any of his co-debtors; the solidarity terminates by his payment, and the obligation amongthe co-debtors becomes
joint, each being liable to the payor for his respective share. This conclusion is made clearer by the express provisions of article
1217
Art. 1303 Subrogation transfers to the third person or new creditor the entire credit, with all the corresponding rights, either against the debtor
Subrogation transfers to the persons or against third persons. If a suspensive condition is attached to the credit so transferred, that condition must be fulfilled in order that
subrogated the credit with all the rights the new creditor may exercise his right; but prestations which could not have been required of the original creditor cannot be
thereto appertaining, either against the demanded of the new one
debtor or against third person, be they
guarantors or possessors of mortgages, Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against
subject to stipulation in a conventional the third person whose negligence or wrongful act caused the loss
subrogation. (1212a)
Art. 1304.
A creditor, to whom partial payment has
been made, may exercise his right for the
remainder, and he shall be preferred to
the person who has been subrogated in
his place in virtue of the partial payment
of the same credit. (1213)
COTRACTS General Provisions
Art. 1305. Concept; A contract, broadly speaking, is an agreement on the declaration of a common will. It has been defined in other codes as “a
A contract is a meeting of minds bilateral legal transaction to create, modify or terminate a legal tie between the parties”
between two persons whereby one binds
himself, with respect to the other, to give Out Code, however…seems to limit the definition to cases, where one party binds himself to perform a prestation in favor of
something or to render some service. another, excluding cases of reciprocal prestations
(1254a)
A better definition is given by Sanchez Roman, who defines it as “a juridical convention manifested in legal form, by virtue of
which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to
do or not to do”
As a consensual relation, a contract must be shown to exist as a fact, clearly and convincingly
Other conventions; Although a contract is a convention, or agreement of wills, not every convention is a contract; a contract is
limited to agreements which produce patrimonial liabilities. Contracts, therefore, are distinguished from other acts based on the
consent of two or more persons such asmarriage, donation, adoption, and succession, in the following ways
1. A contract creates obligations which are more particular, concrete and transitory, because it establishes a relation which is more
limited by reason of persons, effects, and importance
2. In contract, the freedom to stipulate predominates over necessity of the act; in other words, the intentions of the parties is the
determining factor in contracts, while the meeting of the minds is merely secondary in the other acts
3. The law is the principal source of rights and obligations in the other acts mentioned but in contracts the law has a suppletory
effect
Other terms;
CONTRACT Perfect Promise Imperfect
Promise
The latter establishes and determines the Tends only to assure and pave the way Also designated as policitacion,
obligations for the celebration of a contract in the constitutes a mere unaccepted
arising therefrom future; until the offer
contract is actually made, the rights and
obligations are not yet
determined
Pact Stipulation
A special part of the contract, sometimes Similar to a pact. When the contract is in an instrument,
merely incidental and separable from stipulation refers to the essential and dispositive part, as
the principal agreement distinguished from the exposition of the facts and antecedents
upon which it is based
Number of parties; The Code requires “two persons” for the existence of a contract; obviously, what is meant by the law is “two
parties.” For a contract to exist, therefore, there must be two parties to it
Auto-contracts; The existence of a contract is not determined by the number of parties thereto; not by the number of individual wills,
but by the number of declarations of will. A contract requires, not two persons, but two parties; not two wills, but two declarations
of will. The effective element is not the formation of the will but in its declaration.
In the auto-contract, there are two declarations, although made by the same person
Contracts of adhesion; There are cases in which one party has already a prepared form of a contract,containing the stipulations he
desires, and he simply asks the other party to agree to them if he wants to enter into the contract
Characteristics of Contracts:
1. Obligatory force - it constitutes the law as between the parties
2. Mutuality - its validity and performance cannot be left to the will of only one of the parties
3. Relativity - it is binding only upon the parties and their successors
Elements of Contracts:
1. The essential elements or those without which there can be no contract; these are consent, subject matter, and cause
2. The natural elements or those which exist as part of the contract even if the parties do not provide for them, because the law, as
suppletory to the contract, creates them; the warranty against eviction in contract of purchase and sale is an example
3. The accidental elements or those which are agreed upon by the parties and which cannot exist without being stipulated
Stages of Contract:
1. Preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of
the parties
2. Perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract
3. Consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract
Classification of Contracts:
1. According to the degree of dependence, into: preparatory, such as agency; principal, such as lease or sale; and accessory, such as
pledge, mortgage, or suretyship
2. According to perfection, into: consensual, such as purchase and sale; and real such as commodatum
3. According to solemnity or form, into: common form, such as a loan; and special form, such as donations and mortgages of
immovable property
4. According to purpose, into: transfer of ownership, such as sale or barter; conveyance of use, such as commodatum; and rendition
of service, such as agency
5. According to subject-matter, into: things, such as sale, pledge, mortgage; and services such as deposit, agency, and lease of
services
6. According to nature of obligation produced, into: bilateral, or sinalagmatico, such as purchase and sale; and unilateral, such as
commodatum or gratuitous deposit
7. According to cause, into: onerous, such as purchase and sale; and gratuitous or lucrative, such as commodatum
8. According to risk, into: commutative, such as lease; and aleatory, such as insurance
9. According to name, into: nominate, or those with particular names, such as purchase and sale, lease, agency, etc; and innominate,
or those without any particular name. In the Roman Law, the innominate contracts were classified into four groups: do ut des (I give
and you give), do ut facias (I give and you do), facio ut facias (I do and you do), and facio ut des (I do and you give)
Art. 1306. Freedom to contract; The right to enter into lawful contracts constitutes one of the liberties of the people of the state. If that right be
The contracting parties may establish struck down or arbitrarily interfered with, there is a substantial impairment of the liberty of the people under the constitution
such stipulations, clauses, terms and
conditions as they may deem convenient, Validity of stipulations; The contract is the law between the contracting parties. And where there is nothing in the contract which is
provided they are not contrary to law, contrary to law, morals, good customs, public policy, or public order, the validity of the contract must be sustained
morals, good customs, public order, or
public policy. (1255a) Compromises; The whole essence of a compromise is that by making reciprocal concessions, the parties avoid litigation orput an
end to one already commenced. Such agreements must not be contrary to law, good morals, public policy or public interest. The
court may not impose upon the parties a judgment different from their compromise agreement. Once approved by the court, the
parties are enjoined to comply strictly and in good faith with the agreement
Qualification of Contract; The law, not the parties, determines the juridical situation created by the parties through their contract and
the rights and obligations arising therefrom. A contract is to be judged by its character, and courts will look to the substance and not
to the mere form of the transaction
Limitations on stipulation; An act or a contract that is illegal per se is one that by universally recognized standards is inherently or
by its very nature, bad, improper, immoral or contrary to good conscience
Public order, which is found in the (old) Code, is not as broad as public policy, as the latter may refer not only to public safety but
also to considerations which are moved by the common good
Contrary to law; Freedom to contract is restricted by law for the good of the public
Statutes generally have no retroactive effect and only the laws existing at the time of the execution of the contract are applicable to
the transaction
Contrary to morals; Morals may be considered as meaning good customs; or those generally accepted principles of morality which
have received some kind of social and practical confirmation. Any contract which has an immoral purpose is contrary to good
customs
Contrary to public order; Pacts, clauses and conditions of a contract which are contrary to public order are null and void.
Public order signifies the public weal--public policy. “Public policy” is the English equivalent of “order public” in this article.
There is no difference in principle between “public policy” in the United States and in the Philippines as determined by the
constitution, the laws, and judicial decisions
Public order, which does not here signify the material keeping of public order, represents the public, social and legal interestsin
private law, that which is permanent and essential in institutions, that which, even if favoring an individual to whom the right
pertains, cannot be left to his own will. It is a notion which is manifested with clearness and force in cases of waiver of right
It may be said, in general, that a contract which is neither prohibited by law not condemned by judicial decision, nor contrary to
public legislation or constitutional prohibition, is not against public policy. In order to declare a contract void as against public
policy, a court must find that the contract as to the consideration or the thing to be done, contravenes some established interest of
society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights
Art. 1307. Innominate contracts; These are contracts which do not have specific name. They can be grouped into four classes:
Innominate contracts shall be regulated
by the stipulations of the parties, by the Do ut des (I give and you give) is an agreement in which A will give one thing to B, so that B will give another thing to A
provisions of Titles I and II of this Book,
by the rules governing the most Do ut facias (I give and you do) is a contract under which A will give something to B, in order that B may do something for A
analogous nominate contracts, and by
the customs of the place. (n) Facio ut des (I do and you give) is an agreement in which A binds himself to do something for B, so that B will give
something to A
Facio ut facias (I do and you do) is a convention whereby A is to do something for B, so that B will render some other service for A
Analogous contracts; Innominate contracts are, in the absence of stipulations and specific provisions of law on the matter, to be
governed by the rules applicable to the most analogous contracts
Art. 1308. Mutuality of contract; The binding effect of the contract on both parties is based on the principles (1) that obligations arising from
The contract must bind both contracting contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties based on
parties; its validity or compliance cannot their essential equality, to which is repugnant to have one party bound by the contract leaving the other free therefrom. The ultimate
be left to the will of one of them. purpose is to render void contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
(1256a) will of one of the contracting parties
Unilateral cancellation; Just as anybody can be forced to enter a contract, in the same manner once a contract is entered into, no
party can renounce it unilaterally or without the consent ofthe other. It is a general principle of law that no one may be permitted to
change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party
The unilateral act of one party in terminating the contract without legal justification makes it liable for damages
When stipulated; An agreement of the parties that either one of them may terminate the contract upon a reasonable period of notice,
is valid. Judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and
cancelled for the violation of any of its terms and conditions. The right of rescission may be waived
Express agreement; Under this article, it is perfectly licit to leave the fulfillment of the contract to the will of either of the parties in
the negative form of rescission, a case which is frequent in certain contracts, for in such case, neither is the article violated, nor is
there any lack of equality between the persons contracting, since they remain with the same faculties in respect to fulfillment. Thus,
this article creates no impediment to the insertion in a contract for personal services permitting the cancellation of the contract by
one of the parties
Art. 1309.
The determination of the performance
may be left to a third person, whose
decision shall not be binding until it has
been made known to both contracting
parties. (n)
Art. 1310.
The determination shall not be
obligatory if it is evidently inequitable.
In such case, the courts shall decide
what Is equitable under the
circumstances. (n)
Art. 1311. Parties bound by contract; Contracts produce effect as between the parties who execute them
Contracts take effect only between the
parties, their assigns and heirs, except in Third persons not bound; The rights of a party cannot be prejudiced by the act, declaration, or omission of another, and proceedings
case where the rights and obligations against one cannot affect another, except as expressly provided by law or the Rules of Court. A contract cannot be binding upon and
arising from the contract are not cannot be enforced against one who is not party to it, even if he is aware of such contract and has acted with knowledge thereof
transmissible by their nature, or by
stipulation or by provision of law. Third persons affected; Although contracts do not bind third persons, juridical situations may be created affecting them.
The heir is not liable beyond the value of Examples: (1) A contract creating a real right affects thirdpersons who may have some right over the thing (Article 1312). (2) A
the property he received from contract may reduce the properties of a debtor thus diminish the available security for the claims of creditors (Article 1313). (3) In
the decedent. some cases, as in composition in insolvency and in suspension of payments, certain agreements are made binding by law on
creditors who may not have agreed thereto.
If a contract should contain some
stipulation in favor of a third person, he Thus, one who is not a party to a contract cannot sue or be sued for the performance or cancellation thereof, unless he has a real
may demand its fulfillment provided he interest affected thereby
communicated his acceptance to the
obligor before its revocation. A mere Enforcement of contract; Only a party to the contract can maintain an action to enforce the obligations arising under said contract
incidental benefit or interest of a person
is Annulment of contract; Since a contract is binding only upon the parties thereto, a third person cannot ask for its annulment,
not sufficient. The contracting parties although, of course, he may ask for its rescission if it is in fraud of his rights. One who is not a party to a contract has no rights under
must have clearly and deliberately such contract, and even if the contract may be voidable, its nullity can be asserted only by one who is a party thereto; a third person
conferred a favor upon a third person. would have absolutely no personality to ask for the annulment
(1257a)
It was, however, held that a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for
nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment
which would positively result to him from the contract in which he had no intervention
Contracts bind heirs; As a general rule, rights and obligations under a contract are transmitted to the heirs of the parties. The heirs
cannot be considered as third parties, because there is privity of interest between them and their predecessors
Intransmissible contracts; Among contracts which are intransmissible are those which are purely personal, either by the provision of
law, such as in cases of partnership and agency, or by the very nature of the obligation arising therefrom, such as those requiring
special personal qualifications of the obligor.
It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge
against his estate
Stipulation for third parties; The second paragraph of this article creates an apparent exception to the first. Under the first paragraph,
the cardinal rule of contract is laid down that only parties thereto and their privies acquire rights and assume obligations thereunder;
while the second paragraph permits a third person to avail himself of a benefit extended to him by its terms
So stipulations in favor of third persons may be divided into two classes: those where the stipulation is intended for the sole benefit
of such third person, and those where an obligation is due from the promise to the third person and the former seeks to discharge it
by means of such stipulation
Requisites of article; The following are necessary for the application of the second paragraph of this article:
1. There must be a stipulation in favor of a third person
2. That the stipulation in favor of a third person should be a part, not the whole, of the contract
3. That the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit
or interest
4. That the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever
5. That the third person must have communicated his acceptance to the obligor before its revocation
6. Neither of the contracting parties bears the legal representation or authorization of the third party.
Note: If the third party is represented, then the principles of agency apply
Beneficiaries; A stipulation may validly be made in favor of indeterminate persons, provided that they can be determined in some
manner at the time when the prestation from the stipulation has to be performed
Test of beneficial stipulation; A mere incidental interest of a third person is not within the doctrine of stipulations pour autrui. The
third person acquires a right to the prestation only
when this is in accordance with the intention of the contracting parties, such as a contract between a foreign bank and a local bank
asking the latter to pay an amount to a beneficiary
It is not every promise made by one to another, from the performance of which a benefit may ensue to a third person, which gives a
right of action to such third persons, he being neither privy to the contract nor to the consideration. The contract must be made for
his benefit as an object, and he mustbe the party intended to be benefited
Hence, to constitute a valid stipulation pour autrui, it must be for the purpose and intent of the stipulating parties to benefit the third
person, and it is not sufficient that the third person may be incidentally benefitted by the stipulation. So, the fairest test, to determine
whether the interest of third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract.
In applying this test, it matters not whether the stipulation is in the nature of a gift or whether there is an
obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining
whether the parties intended to benefit a third person
Acceptance by third party; A stipulation in favor of a third person has no binding effect in itself before its acceptance by the party
favored. Before such acceptance, there is legally no “obligor.” Neither party to the contract can sue the other for non-performance
unless there has been an acceptance
The acceptance is optional to the third person; he cannot be obliged to accept a right against his will. Such acceptance, however,
does not necessarily determine the moment when rights are acquired by the third person; this moment depends upon the terms of the
stipulation, and the acceptance retroacts to the moment intended by the parties to the contract
The ordinary rules of offer and acceptance are applicable, and it is a cardinal rule of the law of contracts that in order to create a
binding agreement, the acceptance must be absolute, unconditional, and identical with the terms of the offer;otherwise, there is no
meeting of the minds, and one of the essential elements of a valid contract would be wanting
Rights of parties; Before acceptance by the third person, the contracting parties, by mutual agreement, may modify the contract or
revoke it
After acceptance of the stipulation by the third person, and there is failure of performance, he can sue either for specific performance
or resolution, with indemnity for damages, as authorized by article 1191
Dependence on contract; Since the right of the third person is based directly on the contract, it is also subject to all the defenses
available against the contract, such as those affecting the validity of the contract. Thus, the right of the third person does not exist if
the contract is void; it disappears if the contract is annulled or dissolved, either by the happening of a resolutory condition or by the
exercise of the right of rescission granted by article 1191
Who may revoke; The right to revoke does not pertain simply to the promisor. As a general rule, it pertains to the other contracting
party, or promise, who may exercise it without the consent of the promisor. But it may be agreed that the revocation should be
implied when the latter has an interest, even if moral, in the fulfillment of the promise
Collective contracts; There are cases where the law authorizes the will of the majority to bind a minority to an agreement
notwithstanding the opposition of the latter, when all have a common interest in the juridical act; these are commonly known as
collective contracts. The application of the principle of collective contracts is limited to specific cases provided by law, such as in
suspension of payments, or in composition in insolvency proceedings, or in collective bargaining by labor organizations. The basis
of the rule on collective contracts is that a co-ownership is legally presumed among the persons having a common interest; hence,
the rule of the required majority is imposed on the minority
Art. 1312. Real rights in property; A real right directly affects property subject to it; hence, whoever comes into possession of such property
In contracts creating real rights, third must respect the real right. For example: A mortgages his land to B, and then sells it to C. The mortgage contract creates a real right
persons who come into possession of the over the property, and if duly registered, is binding upon C, although the latter is not party to such mortgage contract; C has to
object of the contract are bound respect the mortgage in favor of B
thereby, subject to the provisions of the
Mortgage Law and the Land
Registration Laws. (n)
Art. 1313. When a debtor enters into a contract in fraud of his creditors, such as when he alienates property gratuitously without leavingenough
Creditors are protected in cases of for his creditors38, the latter, although not parties to such contract of alienation, may ask for its rescission
contracts intended to defraud them. (n)
Art. 1314. Interference by third persons; Under this article, a third person may be held liable for damages because he has induced a party to the
Any third person who induces another to contract to violate the terms thereof. An injured party may recover damages for unlawful interference with the contract by a third
violate his contract shall be liable for party
damages to the other contracting party.
(n) Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract relations.
But upon the authorities it is enough if the wrongdoer, having knowledge of the existence of the contract relation, in bad faith sets
about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the other party to the
contract, is immaterial. Malice in the sense of ill will or spite is not essential
The requisites of the action under this article are:

1. The existence of a valid contract
2. Knowledge of the third person of the existence of the contract
3. Interference by the third person in the contractual relation without legal justification
Extent of liability; Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting
one of the parties to evade performance, such stranger cannot become more extensively liable in damages for non-performance of
the contract than the party in whose behalf he intermeddles. To hold the stranger liable for the damages in excess of those that could
be recovered against the immediate party to the contract would lead to results at once grotesque and unjust
Their liability should be solidary, because in so far as the third person is concerned, he commits a tortuous act or a quasi-delict, for
which solidary responsibility arises
Art. 1315. Perfection of consensual contracts; The perfection of a contract is the moment from which it exists; the juridical tie between the
Contracts are perfected by mere parties arises from that time. Consensual contracts, to which the present article refers, are perfected by mere consentwhich is the
consent, and from that moment the meeting of the minds of the parties upon the terms of the contract. The consent need not be made expressly
parties are bound not only to the
fulfillment of what has been expressly Formal contracts, traditionally understood to mean those in which compliance with special external formalities is necessary for the
stipulated but also to all the validity of the contract, are no longer recognized under our law, as distinct from the consensual contracts
consequences which, according to their
nature, may be in keeping with good Binding effect of contracts; The binding force of a contract is not limited to what is expressly stipulated, but extends to all
faith, usage and law. (1258) consequences which are the natural effect of the contract, considering its true purpose, the stipulations it contains, and the object
involved. This extension is not determined by the name which the contracting parties may have given to the contract, for the exact
qualification of a contract is one of the limitations which are imposed on the liberty of the parties.
Contracts are not what the parties choose to call them, but what they really are as determined by the principles of laws.
The validity of the stipulations is one thing, and the juridical qualification of the contract resulting therefrom is very distinctly
another
Art. 1316. Perfection of real contract; A real contract is not perfected by mere consent; delivery of the thing is also required. The requirement
Real contracts, such as deposit, pledge of the delivery of the object, in addition to the consent, is neither arbitrary not formalistic, but is demanded by the very nature of real
and Commodatum, are not perfected contracts and their purpose. It is the delivery of the object which forms the basic obligations under the contract
until the delivery of the object of the
obligation. (n)
Art. 1317. Ratification necessary; Where a contract is entered into in behalf of another who has not authorized it, such contract is not valid and
No one may contract in the name of binding as against him, unless he ratifies the transaction and is estopped to question its legality. The nullity of such contract is of a
another without being authorized by the permanent nature and it will exist as long as it is not duly ratified. The mere lapse of time cannot give efficacy to such contract. The
latter, or unless he has by law a right to defect is sich that it cannot be cured except by the subsequent ratification of the person in whose name the contract was executed
represent him.
Express or implied; The ratification of an unauthorized contract may be either express of implied
A contract entered into in the name of
another by one who has no authority or Effect retroactive; The ratification of a contract by the person in whose name it has been entered into without authority, validates the
legal representation, or who has acted act from the moment of its celebration, and not merely from the time of its ratification, for the ratification operates upon or applies
beyond his powers, shall be to the act already performed
unenforceable, unless it is ratified,
expressly or impliedly, by the person on Before ratification; The unauthorized contract produces a state of suspense; its effectivity depends upon its ratification. But before
whose behalf it has been executed, such ratification by the person in whose name it was entered into, the other party, as in cases of suspensive conditions, may not do
before it is revoked by the other anything which would frustrate the rights of the former which may arise in the event of ratification.
contracting party. (1259a)
However, he may resolve the contract before the ratification, by means of revocation communicated to the principal or to the agent
Liability of representative; If the contract is not ratified by the person represented, the representative becomes liable in damages to
the other party, if he did not give notice of the absence or deficiency of his power. This liability is based on the fact that having
represented himself as having authority to act for another, he is responsible for the truth of such affirmation.
The third party, however, is not entitled to damages, if he knew or should have known that the authority does not exist
Under article 1897, an agent who exceeds the limits of his authority without giving the other party sufficient notice of his powers,
becomes personally liable to the latter. This is applicable also to cases of total want of authority, because the ratio legis is the same
Essential Requisites of Contracts -
General Provisions
Art. 1318. Parties to contract; There must be at least two parties to every contract, and their capacity and consent are essential to its existence.
There is no contract unless the following The number of parties, however, should not be confused with the number of persons.
requisites concur:
(1) Consent of the contracting parties; A single person can represent two parties, and one party can be composed of two or more persons
(2) Object certain which is the subject
matter of the contract; Capacity of parties; The legal capacity of the parties is an essential element for the existence of the contract. More accurately, it is an
(3) Cause of the obligation which is indispensable condition for the existence of consent, because there is no effective consent in law without the capacity to give such
established. (1261) consent. Because of this connection of cause and effect between capacity and consent, the law does not expressly enumerate the
former as a separate requisite for the validity of contracts; legal consent presupposes capacity
Want of consent; Consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent.
consent
Art. 1319. Concept of Consent; The essence of consent is the conformity of the parties on the terms of the contract, the acceptance by one of
Consent is manifested by the meeting of the offer made by the other; it is the concurrence of the minds of the parties on the object and the cause which shall constitute the
the offer and the acceptance upon the contract. The area of agreement must extend to all points that the parties deem material or there is no consent.
thing and the cause which are to
constitute the contract. The offer must be Where there is merely an offer by one party without an acceptance by the other, there is no consent
certain and the acceptance absolute. A
qualified acceptance constitutes a Elements; Consent presupposes the following requisites: (1) plurality of subjects, (2) capacity, (3) intelligent and free will, (4)
counter-offer. express or tacit manifestation of the will, and (5) conformity of the internal will and its manifestation
Acceptance made by letter or telegram Forms of Consent; The consent may either be express or implied. Not only is there an express and an implied or tacit consent which
does not bind the offerer except from the produce true contracts, but there is also a presumptive consent which is the basis of quasi-contracts, thus giving rise to the multiple
time it came to his knowledge. The juridical relations which results in obligations for the delivery of a thing or the rendition of a service
contract, in such a case, is presumed to
have been entered into in the place Manifestation of Consent; Consent is manifested by the concurrence of offer and acceptance with respect to the object and the cause
where the offer was made. (1262a) of the contract
Offer by One Party; An offer is a unilateral proposition which one party makes to the other for the celebration of a contract.
It exists only if the contract can come into existence by the mere acceptance by the offeree, without any further act on the part of the
offeror. It must, therefore, be definite, (2) complete, and (3) intentional
Definite; The offer must be definite, so that upon acceptance an agreement can be reached on the whole contract. The offer must be
distinguished from mere communications indicating that a party is disposed to enter into a certain contract, or inviting the other to
make an offer
Complete; The offer must be complete, indicating with sufficient clearness the kind of contract intended and definitely stating the
essential conditions of the proposed contract, as well as the non-essential ones desired by the offeror. Thus, in a contract of sale, the
offer must specify the object and the price
Intentional; An offer without seriousness, made in such a manner that the other party would not fail to notice such lack of
seriousness, is absolutely without juridical effects and cannot give rise to a contract
But if by reason of the form or the circumstances surrounding it, or because of the fault of the offeror, the offeree is induced to take
it seriously, it becomes necessary to determine whether the real intention or the manifested intention should prevail. In other
legislations, like the German (article 118), such declaration of will is considered void. In our Code, there is no provision on the
matter; but applying general principles, the rule is acceptable in our law, and the act must be held void, although the other party who
has been led to believe it to beserious and intentional should be indemnified for the damages he may suffer thereby
Mental Reservations; There is mental reservation when a party makes a declaration but secretly does not desire the effects of such
declaration. It exists when the manifestation of the will is made by one party for the purpose of inducing the other to believe that the
former intends to be bound, when in fact he does not
The mental reservation of the offeror, unknown to the other, cannot affect the validity of the offer
Acceptance by Offeree; An offer that is not accepted does not give rise to consent, and the contract does not come into existence.
Thus, where it appears that the offeree not only did not accept, but rejected the offer, no contract was created
To produce a contract, the acceptance must not qualify the terms of the offer
It is necessary that the acceptance be unequivocal and unconditional, and the acceptance and the proposition shall be without any
variation whatsoever; and any modification or variation from the terms of the offer annuls the latter and frees the offeror
Amplified Acceptance; Under certain circumstances, a mere amplification on the offer must not be understood as an acceptance of
the original offer, plus a new offer which is contained in the amplification
The intent of the offeree, however, controls

Complex Offers; In cases where a single offer involves two or more contracts, the perfection where there is only partial acceptance
will depend upon the relation of the contracts between themselves, whether due to their nature, or due to the intent of the offeror
Simultaneous Offers; As a rule, the offer and the acceptance must be successive in order that a contact may arise. One of the parties
to the future contract should take the initiative in making an offer. Although there is opinion to the contrary,40when there are
crossed offers, no contract is formed unless one of the parties accepts the offer received by him. The acceptance may, however, be
inferred from the failure of either party to immediately reject the offer of the other. Before acceptance, either party may still revoke
his own offer
Successive Agreements; A contract may be so complicated that the parties come to agreement on certain points at different
successive stages
It should be noted that the present article of the Code requires the concurrence of offer and acceptance only as to “the thing and the
cause which are to constitute the contract,” and not as to all matters. We believe that the intention of the parties should control
If the intention of one or both parties is that there be concurrence on all points, the contract is not perfected if there is a point of
disagreement, even if there is already agreement on the essential elements of the contract. Thus, in a contract of sale, the parties may
have already agreed on the thing and the price, but not on who should bear the expenses of transportation of the thing upon delivery;
if either or both parties have declared that there must be agreement on this point, the contract is not yet perfected
If there is no declaration that agreement on an accessory or subordinate matter is necessary, the contract will be perfected as soon as
there is concurrence on the object and the cause.
The regulation of the accessory points will then be determined by future agreement, and, if there is no agreement thereon, by the
general rules established by law for the particular case in the absence of agreement, such as the place of performance, expenses for
the delivery of the thing etc
Knowledge of Offeror; Even if there has been an unconditional acceptance of the offer by the offeree, no contract will arise unless
that acceptance is made known to the offeror. Unless the offeror knows of the acceptance, there is no meeting of the minds of the
parties, no real concurrence of offer and acceptance. This rule is expressly recognized in the second paragraph of this article with
respect to acceptance by letter.
The same rule should apply in case of acceptance by telegram, cable or even by telephone, although in the last case, the contract
may generally be considered as between persons present
Through Intermediaries; An intermediary who has no authority to contract, but is limited to the transmittal of the offer, the
acceptance, or both, may be treated in the same light as the mail service. If he carries the offer and the acceptance in written form,
the rule applicable to acceptance by letter will apply. If he carries the offer verbally, and the acceptance is also verbal, the perfection
of the contract will be at the moment he makes the acceptance known to the offeror
By Correspondence; When the offer to buy was written or prepared in Tokyo, Japan, and the acceptance thereof in Manila was sent
by the offeree by airmail to and received by the offeror in Tokyo, the contract is presumed to have been entered into in Tokyo.
Where the offeror delays in bad faith taking cognizance of the acceptance, by not reading or opening the letter of acceptance
although he can do so, the contract must be considered perfected. It cannot have been the intention of the law to leave the perfection
of the contract to the caprice of the offeror; the perfection must take place as soon as the will of the parties concur
By Telephone; A contract entered into by telephone is deemed to have been made between persons present. It is considered as
entered into at the place where the offer was made
Effect of Silence; Whether or not silence can be considered as an expression of the will, depends upon the circumstances
Modern jurists require the following in order that silence produce the effect of tacit acceptance: (1) that there is a duty or the
possibility to express oneself; (2) That the manifestation of the will cannot be interpreted in any other way; (3) that there is a clear
identity in the effect of the silence and the undisclosed will
Our Code does not have an express provision on the juridical effect of silence; hence, its effect depends upon what has been
stipulated, or on specific legal provision, or on mercantile usage
In the Code, however, we can find express provisions on consent deduced from silence. Thus, under article 1670 a contract of lease
may be renewed by the acquiescence of the lessor to the continuation of the enjoyment of the thing leased for fifteen days after the
expiration of the original period of lease. Under articles 1870 to 1873, acceptance of an agency may be implied from the silence of
the agent under certain circumstances
Applicable Doctrines; The following principles have been developed in French jurisprudence, and, with slight variations
by writers, have been recognized as acceptable doctrines:
1. As between persons present: If the silence is entirely unconnected with any fact, there can be no contract
2. As between persons absent: If there has been no antecedent relation between the parties, silence will not give rise to a contract
Withdrawal of Offer; Both the offer and the acceptance can be revoked before the contract is perfected. Since the contract is
perfected only from the time the acceptance is known to the offeror, it is clear that said offeror may withdraw his offer at any time
before he learns of the acceptance, even if such acceptance has already been made, but not made known to him. At that time there is
as yet no contract, and the withdrawal of the offer cannot legally give rise to any injury or damage which he would be bound to
repair
If the revocation is made in abuse of right, the other party may recover damages he may have suffered, in the belief that the contract
would be perfected
Lapse of Time; An offer without a period must be considered as becoming ineffective after the lapse of more than the time
necessary for its acceptance, taking into account the circumstances and social conditions
Revocation of Acceptance; The acceptance may be revoked before it comes to the knowledge of the offeror. Thus, where the offeree
has sent his acceptance, but then sends a rejection or a revocation of the acceptance, which reaches the offeror before the
acceptance, there is no meeting of the minds, because the revocation has cancelled or nullified the
acceptance which thereby ceased to have any legal effect
New Contract before Acceptance; Pending the acceptance of an offer, the offeror can perfect a new contract over the same thing
with another person. If the first offer is not revoked by him before it is accepted, then he becomes liable for damages to the first
offeree for culpable impossibility of performance. As between the two offerees, however, the one whose acceptance perfected a
contract first is given priority; the other party has only an action for damages
Public Offers; A promise may be made publicly by advertising a reward, compensation or prize for any person who performs or
executes a particular act or obtains a particular result, such as the making of a scientific discovery, the perfection of an invention, the
discovery of a crime, the apprehension of acriminal, the return of a lost object, the winning of a contest, or the giving of information
about a missing person
There are two theories as to the juridical nature of such promise: (1) that of an obligatory unilateral promise sufficient to create a
valid legal tie, and (2) that of an offer which gives rise to a contract upon acceptance. Under the first theory, the reward can be
recovered by one who performs the desired act, even when he did not do it in consideration of the promise; while under the second
theory, a binding obligation arises only when the act is done with the intention of accepting the promise
In principle, there is no objection to giving obligatory force to such a unilateral declaration of the will with intent to be bound.
The basis of the obligation is exclusively and directly the declaration of the promissor
Our Code, however, gives only the five sources of obligations enumerated in article 1157. A unilateral promise is not recognized by
our Code as having obligatory force. In order that such promise can be enforced, there must be an acceptance that will convert it into
a contract. The performance of the act for which a reward or prize is promised can be considered as an acceptance. This is the rule in
this jurisdiction, except as to things for sale
A revocation must be made with the same publicity as the offer itself, and expenses after such revocation are not recoverable against
the offeror. But when the act has already been accomplished, a subsequent revocation is ineffective, because the contract would
already have been formed
In Serra v. Court of Appeals, 229 SCRA 60, the Court said:“Article 1324 of the Civil Code provides that when an offeror has
allowed the offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, as something paid or promised.
On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.“In a unilateral
promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a
bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a
meeting of the minds of the parties as to the thing which is determinate and the price which is certain. In which case, the parties may
then reciprocally demand performance.“Jurisprudence has taught us that an optional contract is a privilege existing only in one party
— the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property,
at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to
buy before
the time expires.”
In Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602, the Court said:“Until the contract is perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about
the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees.“When the sale is not absolute
but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a
positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. In Dignos vs. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of
the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would
prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either
waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code).“An accepted unilateral promise which specifies the
thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what
may properly be termed a perfected contract of option.“Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:
“(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating
that withdrawal to the offeree. The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could
give rise to a damage claim under Article 19 of the Civil Code;
“(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract
to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance(exercise of the option) by the optionee-offeree, the latter may not sue
for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the
real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a
right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
“Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an
action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. It
is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 19 of the CivilCode, can warrant a recovery for
damages.
“The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of
petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so
conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a
writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.”
Art. 1320. Implied Acceptance; Implied acceptance may arise from acts or facts which reveal the intent to accept, such as the consumption of
An acceptance may be express or the things sent to the offeree, or the facts of immediately carrying out the contract offered. If the offeror asks for immediate
implied. (n) performance of the contract and does not ask for a previous answer of acceptance (the necessity of which may sometimes be
excluded by general commercial usage), the contract is perfected as soon as the other party begins to carry it out
Waiver of Acceptance; The German code (article 151) permits the offeror to waive the declaration of acceptance, and in such case,
as well as when according to usage of commerce such declaration need not be expected, the contract is perfected from the moment
the intention to accept can be inferred from the conduct of the offeree and according to the usages of commerce. This rule can be
accepted under our Code
Effect of Silence; As a rule, silence is not equivalent to consent, but there are specific legal provisions which make silence, under
certain circumstances, amount to consent. Silence of a party may constitute a manifestation of the will.
There is a Spanish saying “quien calla otorga.” But this cannot be accepted without qualification in law. Silence, because of its
ambiguity, lends itself to error, but there may be circumstances where silence may be as eloquent as the express manifestation of the
will
Art. 1321. Right of Offeror; The owner of property offered for sale at auction has the right to prescribe the manner, conditions and terms of
The person making the offer may fix the sale, and where these are reasonable and are made known to the buyer, they are binding upon him, and he cannotacquire a title in
time, place, and manner of acceptance, opposition to them and against the consent of the owner
all of which must be complied with. (n)
Period of Acceptance; The offer with a period lapses upon the termination of the period; hence, the acceptance, to become effective,
must be known to the offeror before the period lapses. An acceptance made beyond the time fixed in the offer is not legally an
acceptance, but constitutes a new offer, and may be accepted or rejected by the original offeror
Manner of Acceptance; The offeror may require that the acceptance be communicated to him personally or to a representative of his;
or that a certain condition be first fulfilled before the offeree can accept; or where two offers are made simultaneously, that only one
must be accepted (as the offer of a thing for sale or for lease), or that not must be accepted. An acceptance which is not made in the
manner prescribed by the offeror is not effective, but constitutes a counter-offer which the offeror may accept
Art. 1322. Contract through Intermediary; An intermediary who has no power to bind either the offeror or the offeree is not an agent; his
An offer made through an agent is situation is similar to that of a letter carrier. The communication of the acceptance to him does not perfect the contract; this occurs
accepted from the time acceptance is only when he in turn communicates suchacceptance to the offeror
communicated to him. (n)
Art. 1323. Reason for Article; It is fundamental in our law that the contract is not perfected except by the concurrence of two wills which exist
An offer becomes ineffective upon the and continue until the moment that they concur. The contract is not yet perfected at any time before acceptance is conveyed; hence,
death, civil interdiction, insanity, or the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed
insolvency of either party before
acceptance is conveyed. (n)
Art. 1324. Period of Acceptance; When the offeror has stated a fixed period for acceptance, the offeree may accept any time until such period
When the offerer has allowed the offeree expires. When the offeror has not fixed a period, and the offer is made to a person present, the acceptance must be made
a certain period to accept, the offer may immediately. But when the offer is made to a person absent, the acceptance may be made within such time that, under normal
be withdrawn at any time before circumstance, an answer can be received from him. There is deemed to be a reasonable tacit period, which is the time normally
acceptance by communicating such necessary to enable the offeree to know of the proposal and to make known his reaction. To determine this period, three points must
withdrawal, except when the option is be considered: (1) Under normalcircumstances, how long will it take the letter of the offeror to reach the offeree? (2) How long will
founded upon a consideration, as a person of ordinary prudence take to answer such an offer? (3)
something paid or promised. (n) How long will the answer normally reach the offeror? This period will, of couse,
vary according to the circumstance
Withdrawal of Offer; The law permits the offeror to withdraw the offer at any time before acceptance, even before the period for
acceptance has expired. The fact, however, that the offeror has the right to withdraw his offer before it is accepted, does not mean
that he can exercise this right absolutely without regard to the rights of others. He cannot abuse this right without incurring liability
An offer implies an obligation on the part of the offeror to maintain it for such a length of time as to permit the offeree to decide
whether to accept or not. If the offeror disregards this right of the offeree and arbitrarily revokes the offer, he must be held liable for
the damages which the offeree may suffer
This conclusion is strengthened in this jurisdiction by article 19 of the present Code, which provides: “Every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observed honesty and good
faith”
Although the offeror may be held liable for damages because of abuse of right, however, the withdrawal of the offer will cause it to
cease in law. Hence, notwithstanding a subsequent acceptance, there will be no contract, because there can be no concurrence of
wills
Crossing Revocation and Acceptance; The general rule is that the expression of the will of a person, addressed to another, does not
become effective except from the time it is received by the latter. The following distinction, however, may be made:
1. If the intention of the parties is not to demand an express acceptance, the tacit acceptance perfects the contract, and the subsequent
receipt of a letter of revocation is ineffective
2. If the parties intended that there should be an express acceptance, the contract will be perfected if the acceptance is the first to
reach the offeror; and it will not be perfected, if the revocation is the first and the acceptance cross, that which arrives first as its
destination is effective
Effect of Delay; It is not the moment of sending but the time of receipt of the revocation or acceptance which is controlling
Contract of Option; This is a preparatory contract in which one party grants to the other, for a fixed period and under specified
conditions, the power to decide whether or not to enter into a principal contract. It must be supported by an independent
consideration, and the grant must be exclusive. It binds the party who has given the option not to enter into the principal contract
with any other person designated, and, within that period, to enter into such contract with the one to whom the option was granted if
the latter should decide to use the option
If the “option” is not supported by an independent consideration, the offeror can withdraw the privilege at any time by
communicating the withdrawal to the other party, even if the “option” had already been accepted. This is particularly so in a promise
to buy or to sell, for under article 1279. “an accepted unilateral promise to buy or to sell a determinate thing for a price is binding
upon the promissor if the promise is supported by a consideration distinct from the price.”
This means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration
Art. 1325. A business advertisement of things for sale may or may not constitute a definite offer. It is not a definite offer when the object is not
Unless it appears otherwise, business determinate
advertisements of things for sale are not
definite offers, but mere invitations to When the advertisement does not have the necessary specification of essential elements of the future contract, it cannot constitute an
make an offer. (n) offer. Thus, an advertisement of things for sale, specifying prices but without stating the quantity of things to be sold, is not an offer
but a mere invitation to make an offer. The advertiser is free to reject any offer that may be made
Definite Offers to Public; Generally, an offer must be made to the person with whom a contract is desired. It is not necessary,
however, that the offeror should know the person who receives his offer. A valid offer to the public can be made. One who installs a
slot machine makes an offer to the public, and the offer becomes a contract with any person who puts in the necessary coin. A
merchant who places articles for sale in his store, with a price tag on each, makes an offer to the public, and anyone can accept the
offer by paying the priced fixed
Art. 1326. Effect of Bidding; When in the advertisement it can be inferredwith certainty that the best bid (highest or lowest, as the case may be)
Advertisements for bidders are simply will be considered as giving rise to a binding contract, each bid will imply the perfection of a contract, although subject to the
invitations to make proposals, and the condition that no better bid is made. If this is not especially provided in the advertisement, then each bid is merely an offer, which
advertiser is not bound to accept the the advertiser is free to reject
highest or lowest bidder, unless the
contrary appears. (n) Thus, where the notice calling for bids a public auction indicated that the party offering the property at an auction expressly reserved
the right to reject any and all bids, it was held that any party taking part in the auction and offering a bid, must be considered as
having submitted to the terms of the auction, and, if his bid is rejected, he cannot compel the party who called for bids to accept his
bid or execute a deed of sale in his favor
Judicial Sales; This provision is not applicable to bids in judicial sales, where the highest bid must necessarily be accepted
Art. 1327. Effect of Incapacity; Article 1318 requires consent of the contracting parties as an essential element for the validity of a contract,
The following cannot give consent to a and the present article says that the persons indicated “cannot give consent to a contract.” The logical consequence is that a contract
contract: entered into by one of these persons would be wanting in consent, and hence inexistent or void. This logical consequence, however,
(1) Unemancipated minors; is not the legal effect. Legally, if both parties are incapable of giving consent, the contract is unenforceable, and if only one is
(2) Insane or demented persons, and incapable, it is annullable or voidable
deaf-mutes who do not know how to
write. (1263a) By way of exception, however, it is provided by the Code that where necessaries are sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefor. Necessaries include everything that is indispensable for sustenance,
dwelling, clothing and medical attendance
Unemancipated Minors; Unemancipated minors cannot enter into valid contracts, and contracts entered into by them are not binding
upon them, unless upon reaching majority they ratify the same, or the contract has been entered into through a guardian and
approved by the guardianship court. But the mere fact that one of the parties to the contract was a minor does not necessarily render
it void ab initio, but merely voidable
Estoppel; The courts have laid down the rule that the sale of real estate, effected by minors who have already passed the age of
puberty and adolescence and are near the adult age, when they pretend to have already reached their majority, while in fact they
have not, is valid, and they cannot be permitted afterwards to excuse themselves from compliance with obligations assumed by them
or seek their annulment.
This is in consonance with the rules of estoppel, and does not violate the rules regarding the sale of property of minors
However, there is strong authority, with sound juridical resoning, to the effect that the misrepresentation of an
incapacitated person does not estop him from denying that he was of age, or from asserting that he was under age, at the time he
entered into the contract, for the breach of which an action is brought. In Young v. Tecson, 39 O.G. 953, it was held:“Under the
principle of estoppel, the liability resulting from misrepresentation has its juridical source in the capacity of the person making the
misrepresentation to bind himself. If the person making the misrepresentation cannot bind himself by contract, he cannot also be
bound by any misrepresentation he may have made in connection therewith. A person entering into a contract must see to it that the
other party has sufficient capacity to bind himself."
In his concurring and dissenting opinion in Sia Suan and Chiao v. Alcantara, Mr. Justice Padilla lucidly points out:
The contract of sale involved in the case of Mercado vs. Espiritu, supra, was executed by the minors on 17 May 1910.
The Law in force on this last-mentioned date was not Las Siete Partidas, which was the in force at the time the cases decided by the
Supreme Court of Spain referred to, but the Civil Code which took effect in the Philippines on 8 December 1889. As already stated,
the Civil Code requires the consent of bothparties for the valid execution of a contract (art. 1261, Civil Code). As a minor cannot
give his consent, the contract made or executed by him has no validity and legal effect. There is no provision in the Civil Code
similar to that of Law 6, Title 19, of the 6th Partida which is equivalent to the common law principle of estoppel. If there be an
express provision in the
Civil Code similar law 6, Title 19, of the 6th Partida, I would agree to the reasoning of the majority. The absence of such provision
in the Civil Code is fatal to the validity of the contract executed by a minor. It would be illogical to uphold the validity of a contract
on the ground of estoppel, because if the contract executed by a minor is null and void for lack of consent and produces no legal
effect, how could such a minor be bound by misrepresentation about his age? If he could not be bound by a direct act, such as the
execution of a deed of sale, how could he be bound by an indirect act, such as misrepresentation as to his age? The rule laid down in
Young vs. Tecson, 39 O. G. 953, in my opinion, is the correct one.
Insane Persons; It is not necessary that there be a previous judicial declaration of mental incapacity in order that a contract entered
into by a mentally defective person may be annulled; it is enough that the insanity existed at the time the contract was made. In case
of lunatics, it is possible that there are lucid intervals, and a contract executed during such interval will be valid
Deaf-Mutes; Being a deaf-mute is not by itself alone a disqualification for giving consent. The law refers to the deaf-mute who does
not know how to write. The old doctrine that a deaf-mute was presumed to be an idiot no longer prevails, and such persons are now
held capable of entering into contracts if shown to have sufficient mental capacity
Art. 1328. Lucid Intervals; Even in the execution of contracts, in the absence of a statute to the contrary, the presumption of insanity and
Contracts entered into during a lucid mental incapacity in a person under guardianship for mental derangement is only prima facie and may be rebutted by evidence
interval are valid. Contracts agreed to in
a state of drunkenness or during a Liquor and Drugs; The use of intoxicants does not necessarily mean a complete loss of understanding. The same may be said
hypnotic spell are voidable. (n) regarding drugs
It is, therefore, the result of the use of alcohol or drugs upon the condition of the mind which determines whether the user has
capacity to contract at a given moment; the mere use in itself does not incapacitate him. It has been held that drunkenness, if in such
degree that obscures completely the faculties and almost extinguishes the consciousness of acts,
may be a ground for annulment of a contract
Hypnotism and Somnambulism; Although the law mentions only hypnotism as avoiding a contract, the same is true of
somnambulism. The utter want of understanding is a common element of both
Art. 1329. Special disqualification; Aside from lack of contractual capacity, certain disqualifications may be specially provided by law to
The incapacity declared in Article 1327 invalidate contracts. Examples of these are: the incapacity of a person declared insolvent or bankrupt, prohibition of aliens from
is subject to the modifications acquiring real property, and the incapacity of the husband and the wife to sell property to each other
determined by law, and is understood to
be without prejudice to special There is a distinction between the incapacity to give consent to contracts, and the special disqualification to enter into contracts. The
disqualifications established in the laws. incapacity is a restriction upon the very right itself. The incapacity renders the contract merely voidable, while the disqualification
(1264) makes it void
Art. 1330. Requisites of Consent:
A contract where consent is given 1. It should be intelligent, or with exact notion of the mater to which it refers
through mistake, violence, intimidation, 2. It should be free
undue influence, or fraud is voidable. 3. It should be spontaneous
(1265a)
Intelligence in consent is vitiated by error; freedom by violence, intimidation, or undue influence; and spontaneous by fraud
Vitiated consent does not make a contract unenforceable but merely voidable
Defects of the Will; The circumstances mentioned in this article are generally known as defects of the will
Discretion of Courts; In determining whether consent is vitiated by any of the circumstances mentioned in this article, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe to have
actually occurred, considering the age, physical infirmity, intelligence, relationship, and the conduct of the parties at the time of
making the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing
Proof Necessary; Defect or lack of valid consent, in order to make the contract voidable, must be established by full, clear, and
convincing evidence, and not merely by a preponderance thereof
Art. 1331. Concept of Error; Ignorance and error are two different states of mind. Ignorance means the complete absence of any notion about a
In order that mistake may invalidate particular matter, while error or mistake means a wrong or false notion about such matter, a belief in the existence of some
consent, it should refer to the substance circumstance, fact, or event, which in reality does not exist. Juridically, however, ignorance and mistake produce the same effect
of the thing which is the object of the
contract, or to those conditions which In the concept of error under this article must be included both ignorance, which is the absence of knowledge with respect to a thing,
have principally moved one or both and mistake properly speaking, there is a lack of full and correct knowledge about the thing. But error should not be considered as
parties to enter into the contract. established, when alleged error is incomprehensible, absurd, and inexplainable in a person with capacity to contract
Mistake as to the identity or Mistake of Fact or Law; It is generally believed that the error to which this article refers, which vitiates consent in contracts, is an
qualifications of one of the parties will error of fact, and not of law. The latter kind of error is not a ground for annulment of contracts. An error of law is a mistake as to the
vitiate consent only when such identity or existence of a legal provision or as to its interpretation or application. Under article 3 of the Code, “ignorance of the law excuses no
qualifications have been the principal one from compliance therewith”
cause of the contract.
Our Supreme Court has accepted the doctrine that excusable ignorance of law can be the basis of good faith in possession.
A simple mistake of account shall give There is essentially to difference between good faith arising from ignorance of law and consent based on mistake of law.
rise to its correction. (1266a) In both cases, the mind rests or relies upon an erroneous concept of the state of the law
#1As to Object; Annulment of contract on the ground of error is limited to cases in which it may reasonably be said that without
such error the consent would not have been given. Hence, the error must refer to the substance of the thing, by which is meant not
only the material of which it is made up, but also in general its nature which distinguishes it, generically or specifically, from others
Nature of Contract; The error may refer to the very nature of the contract, in which case it is an essential mistake, because it is one
which has a determining influence upon the will of the party
Where the error refers, not to the nature of the contract or the object thereof, but to the rights of the parties thereto, the contract is not
invalidated
#2Principal Conditions; The principal condition of the thing is its essential or substantial character, without which the thing ceases
to be what it is. The substance of the thing refers to those qualities which determine its particular kind, distinguishing it, according
to common concept, from other things
However, where the real intention of the parties is the sale of a piece of land but there is a mistake in designating the particularlot to
be sold in the document, the mistake does not vitiate the consent of the parties, or affect the validity and binding effect of the
contract. The reason is that when one sells or buys real property, he sells or buys the property as he sees it, in its actual setting and
by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title. The remedy for such
mistake in designating the object of the sale is reformation of the instrument. This remedy is available when, there being a meeting
of the minds of the parties to a contract
Accidental, Accessory Conditions; In contrast to the essential or principal conditions, are the accidental conditions or
qualities,which may exist in varying proportions, without the thing ceasing to be what it is
Thus, the following mistakes do not in any manner affect the validity of the contract: (1) error with respect to accidental qualities of
the object of the contract, such as the quality of paper of a book…(2) error in the value of the thing…(3) error which refers, not to
the conditions of the thing, but to accessory matters on the contract foreign to the determination of the object
Effect of Intent; The effect of error must be determined largely by its influence upon the party. If the party would have entered into
the contract even if he had knowledge of the true fact, then the error does not vitiate consent. The importance and effect of the error,
therefore, depends to a great extent upon the purposes to be attained by the contract. The law must be interpreted broadly, bearing in
mind that the intent of the parties is what constitutes contractual obligations. Thus, there are cases where the substance or condition
of the thing would be essential to the contract, and others where they are not
#3Error As to Person; There may be error as to the name of the person, or as to the qualifications of the person. An error in the
name, without error as to person, will not invalidate the consent. An error as to person will invalidate consent when the
consideration of the person has been the principal cause of the same. This is generally the case in obligations to do which rest on
confidence or demand special qualifications
Mistake as to qualifications, even when there is no error as to person, is a cause vitiating consent, if such qualifications have been
principal cause of the contract. The proof of such mistake is difficult, but if established it also produces effect
An error as to the person will generally invalidate consent in gratuitous contracts, because affection, relationship, friendship and
gratitude are determining causes of the act of liberality. It will also invalidate consent in onerous contracts where the artistic or
intellectual qualifications, moral character or integrity, and other personal qualities of a party are the determining cause f the consent
of the other
But where the identity of the other party is not material to the contract, an error as to person will not vitiate consent
No absolute rule, however, can be laid down, because the effect of the error will always depend upon the extent to which it has
influenced the consent, considering the nature of the contract in questionSolvency of the Party; An error as to the solvency of the
other party is not a cause of nullity
Motive of Party; A mistake as to the motive of a party does not affect the contract; to give it such effect, would destroy the stability
of contractual relations
#4Error As to Accounts; An error of account is purely a mistake in computation; it is a mathematical error. It does not vitiate
consent, but the intention of the parties is to accept the amount or quantities involved as they should be and not as what they were
erroneously computed to be
Account and Quantity; There is a difference between mistake as to account and mistake as to quantity
Correction of Accounts; Once there has been a liquidation of accounts between two parties, and the accounts have been approved by
those affected thereby, no revision or correction of said accounts may be made at the instance of only one party, unless it is proved
that there was fraud or error in the approval of said accounts. The burden of proving such deceit or error lies upon the party seeking
the revision. But once the error has been proved, the accounts cannot be enforced as approved, but as it should have been without
the mistake
Error As to Basis of Contract; A mistake as to the existence of some circumstances or the occurrence of some event, which exerted a
determining influence in the creation of the contract, so that the contract would not have been entered without it, constitutes an error
in the basis of the contract. This is an error not expressly provided for by law. This mistake refers to circumstances which must be
considered as the basis of the contract, circumstances which the parties take for granted as existing, and which for both have an
equal importance, affecting some essential element of the contract. It would be contrary to good faith for one party to enforce such a
contract against the other
As to Estimates; Mistakes in estimating the results of a contract cannot vitiate consent, unless they were induced by fraud or deceit.
Error incurred by one party in estimating the benefits from the contract, such as overestimating the income and underestimating the
expenses, is not a cause of nullity, because it does not refer to any element of the contract itself
Error in Unilateral Decision; When the error of a party is not in relation to the contract, but in the decision unilaterally adopted, he
cannot demand responsibility from the persons who may have acted according to his decision. He who adopts a decision by himself
suffers the corresponding risks
Liability for Error; There is no provision in our Code making the party in error liable for damages which the other party may have
suffered by relying on his declaration. However, such liability can be base on the theory of fault or negligence
Art. 1332. Fraud or Mistake Alleged; The rule that a party is presumed to know the import of a document to which he affixes his signature and
When one of the parties is unable to is bound thereby, has been altered by the present article
read, or if the contract is in a language
not understood by him, and mistake or Under this article it has been held that the obligation to show that the terms of the contract had been fully explained to the party who
fraud is alleged, the person enforcing the is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to
contract must show that the terms thereof enforce it
have been fully explained to the former.
(n)
Art. 1333. Inexcusable Error; To invalidate consent, the error must be excusable. It must be real error, and not one that could have been
There is no mistake if the party alleging avoided by the party alleging it. The error must arise from facts unknown to him. He cannot allege an error which refers to a fact
it knew the doubt, contingency or risk known to him, or which he should have known by ordinary diligent examination of the facts. An error so patent and obvious that
affecting the object of the contract. (n) nobody could have made it, or one which could have been avoided by ordinary prudence, cannot be invoked by the one who made it
in order to annul his contract.
A mistake that is caused by manifest negligence cannot invalidate a juridical act. In determining the effect of an alleged error,
therefore, the courts must consider, not only the objective aspect of the case, but also the subjective, which is the intellectual
capacity of the person who committed the mistake
Art. 1334. Error of Law; Mistake of law is traditionally considered as having a different effect from mistake of fact in relation to consent in
Mutual error as to the legal effect of an contracts. The modern tendency, is to give to mistakes of law the same effects as mistakes of facts. It is believed that in spite of the
agreement when the real purpose of the provisions of article 3 of the Code…it is permissible to excuse errors of law, and an excusable mistake of law may be invoked as
parties is frustrated, may vitiate consent. vitiating consent
(n)
Legal Effects of Contract; The present article does not deal generally with ignorance or mistake of law. The original draft of this
article as proposed by the Code Commission was: “Mistake on a doubtful question of law, or on the construction or application
thereof, may vitiate consent.” That original provision referred clearly to every excusable mistake of law.
But the Congress, when it enacted the Code, changed that provision to the present one, which is limited to error on the legal effect of
an agreement
There are three requisites under this article:

1. The error must be as to the legal effect of an agreement
2. It must be mutual
3. The real purpose of the parties are frustrated
An error on the legal effects of an agreement necessarily involves a mistake of law. The “legal effects” include the rights and
obligations of the parties, not as stipulated in the contract,
Art. 1335. VIOLENCE INTIMIDATION
There is violence when in order to wrest Refers to physical force or compulsion; the Refers to moral force or compulsion; the degree of constraint
consent, serious or irresistible force is degree of constraint or danger actually inflicted or danger threatened or impending, sufficient to overcome the
employed. mind and will of a person
of ordinary firmness
There is intimidation when one of the External; generally serves to prevent an act from being done Internal; operating upon the will, and induces the performance
contracting parties is compelled by a of an act
reasonable and well-grounded fear of an
imminent and grave evil upon his person Influences the mind to choose between two evils, between the
or property, or upon the person or contract & the imminent injury; it influences the expression of
property of his spouse, descendants or the will, inhibiting the true intent and making it manifest
ascendants, to give his consent. something
apparently as that of the person who Consent
To determine the degree of intimidation,
the age, sex and condition of the person Requisites of Violence:
shall be borne in mind. 1. That the physical force employed must be irresistible, or of such a degree that the victim has no other course, under the
circumstances, but to submit
A threat to enforce one's claim through 2. That such force is the determining cause in giving the consent to the contract
competent authority, if the claim is just
or legal, does not vitiate consent. Requisites of Intimidation:
(1267a) 1. That the intimidation must be the determining cause of the contract, or must have cause the consent to be given
2. That the threatened act must be unjust or unlawful
3. That the threat be real and serious, there being an evident disproportion between the evil and the resistance which all men can
offer, leading to the choice of the contract as the lesser evil
4. That it produces a reasonable and well-grounded fear from the fact that the person from whom it comes has the necessary means
or ability to inflict the threatened injury
Enforcement of Claim; One who makes use of his right even if this be unpleasant to another, juridically does not prejudice the latter,
and the law cannot consider as unjust the very thing it protects. If in the exercise of a legal right or because of his legal situation, a
person obtains pecuniary benefit from another, he cannot be said to have employed intimidation
A threat to enforce one’s right cannot annul a contract made by the debtor in relation to the claim sought to be enforced
When Improper; One who uses illegal means to attain a legal objective, by infusing fear, is guilty of intimidation. It is not always
easy to determine when intimidation exists, where a legal right is sought to be enforced; but, generally, it can be said that there is
intimidation when a party goes beyond legal channels, or takes the law into his own hands, or by abuse of his right obtains a greater
advantage that is due him. Thus, the treat to exercise a right would be wrongful, and will cause the annulment of a contract, if it is
employed to exact an obligation which is excessive, disproportionate to or beyond the normal reparation due in favor of the creditor
The threat to enforce a right, should not be aimed at a result which is contrary to law or morals, or which is unjust and contrary to
good faith. Although it is lawful to exercise rights, it is not always lawful to use them for purposes different from those for which
they were created
Serious Evil or Wrong; The seriousness of the evil threatened is also determined by the victim’s idea of the injury to be suffered,
and this idea may result, not only from threats, but also from actual physical force. A purely subjective criterion, however, is
dangerous. The objective limitation contained in the Brazilian Code (article 98) can with advantage be adopted: the injury or evil
threatened must at least equal to that which would follow from the obligation incurred or the contract entered into, such that there
would be no intimidation if the threatened evil is less than the injury arising from the act demanded
Imminence of Evil; To be imminent, it is not necessary that the evil should follow immediately upon the refusal to do the act
demanded. It is enough that there be a real danger, although the realization of the threat may be suspended for a certain time due to
the very nature of the danger threatened
Object of Evil; Our Code provides that the threatened evil must fall upon the party himself, or upon his spouse, ascendants or
descendants
The same moral coercion can be produced in the mind of a party if the evil is directed to a brother, or to a lover or sweetheart, or to a
very close friend
Nature of Injury; Our Code refers to injury to person or property. The Argentine code expressly includes, injury to liberty and honor.
It must be accepted that a threatened evil upon liberty or honor can have the same moral effects as that upon person or property.
Hence, the term “person” in this article should not be limited to life and physical integrity, butshould include liberty and honor,
thereby covering all injuries which are not patrimonial in nature
Reasonable Fear; The fear occasioned by the threat must be reasonable and well-grounded; it must be commensurate with the threat.
This is a question of fact which must be determined from the circumstances of the case. The law requires that the age, sex and
condition of the persons should be taken into account
However, there is no intimidation from the mere knowledge of such severe penalties, which was common to all, in the absence of
any direct acts showing the imminence or seriousness of the infliction of such sanctions
Respect and Obedience; The old Civil Code provided that “fear of displeasing persons to whom obedience and respect are due shall
not annul a contract.” This provision was suppressed in the present Code
If the fear of a party is legitimate, and the other has not employed any unjust act, there is no intimidation. There is nothing wrongful
against which the sanction of nullity may be used. Reverence and respect in themselves may involve moral influence, but as long as
this is not wrongful, intimidation does not exist. It must be assumed that the moral influence of parents over their children, or of
employers over their employees, is free from wrong. Reverence and respect in themselves, therefore, cannot be a ground for
annulment of a contract
The moment, however, that the persons to whom respect and reverence are due, should wrongfully exert pressure upon their
dependents or subordinates, in order to exact from them their consent to a contract or act, there is intimidation, even if the gravity of
the threat would not be sufficient to annul the contract if it had been imposed on another person
Cause of Consent; It must be proved that the consent was obtained through the intimidation; the fear must be the direct and
determining cause which compelled the consent to be given. If such force or intimidation is not the cause of such consent, the
contract cannot be annulled
The intimidation must have been the determining factor in giving the consent. If the party would have consented, even without the
intimidation, the mere presence of the intimidation does not annul the contract
If the intimidation was only incidental, the contract is not annullable
Moral Coercion; When a person is in grave danger, and he is made to promise to pay a certain amount if he is saved by the person to
whom the promise is made, the contract is not avoided, because there is no intimidation which causes consent to be given, but
modern law does not favor strict enforcement of the agreement. If found excessive, the amount promised may be reduced by the
courts to a reasonable amount
Art. 1336. Duress by Third Person; Even if the intimidation or threat had been employed by a third person who was not a party to the contract,
Violence or intimidation shall annul the the agreement is still null and void
obligation, although it may have been
employed by a third person who did
not take part in the contract. (1268)
Art. 1337. UNDUE INFLUENCE INTIMIDATION
There is undue influence when a person There must be an unlawful or unjust act which is threatened
takes improper advantage of his power There need not be an unjust or unlawful act and which causes consent to be given
over the will of another, depriving the In both cases, there is moral coercion
latter of a reasonable freedom of choice.
The following circumstances shall be The wish of the party subjected to undue influence is subdued and displaced by some influence which he does not have the power to
considered: the confidential, family, resist, although it has not convinced his judgment.
spiritual and other relations between the
parties, or the fact that the person The moral coercion may be effected through threats, expressed or implied, or through harassing tactics
alleged to have been unduly influenced
was suffering from mental weakness, or Undue Influence, therefore, is any means employed upon a party which, under the circumstances, he could not well resist, and
was ignorant or in financial distress. (n) which controlled his volition and induced him to give his consent to the contract, which otherwise he would not have entered into. It
must be in some measure destroy the free agency of a party and interfere with the exercise of that independent discretion which is
necessary for determining the advantage or disadvantages of a proposed contract
Circumstances to Consider; The circumstances mentioned by this article, which may be taken into account in determining whether
there is undue influence, are not the only ones that may be considered
In connection with undue influence, it is proper to consider the provisions of article 24: “In all contractual, property or other
relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness,
tender age or other handicap, the courts must be vigilant for his protection
Employed by Third Person; Undue influence, although not identical, is similar to intimidation. By analogy to article 1336, undue
influence employed by a third person may annul the contract
Contracts of Adhesion
Art. 1338. Concept of Fraud; Fraud is every kind of deception, whether in the form of insidious machinations, manipulations, concealments or
There is fraud when, through insidious misrepresentations, for the purpose of leading another party into error and thus execute a particular act. It must have a determining
words or machinations of one of the influence on the consent of the victim. Error of one party is produced by the bad faith of the other contracting party; it presupposes
contracting parties, the other is induced an illicit act. Fraud produces qualified error; it induces in the other party an inexact notion of the facts. The will of another is
to enter into a contract which, without maliciously misled by means of a false appearance of reality. He who, in order to profit, proceeds maliciously in order to make
them, he would not have agreed to. another fall into error or remain in error, commits fraud
(1269)
Insidious Words and Machinations; “Insidious words or machinations” constituting deceit, includes false promises, exaggeration of
hopes or benefits, abuse of confidence, fictitious names, qualifications or authority; in short, all the thousand and one forms of
deception which may influence the consent of a contracting party, without necessarily constituting estafa or some offense under the
penal laws. The misrepresentation need not be by means of words. It exists where the party who obtains the consent does so by
means of concealing or omitting to state material facts, with intent to deceive, by reason of which omission or concealment the other
party was induced to give a consent which he would not otherwise have given
Kinds of Fraud:
Dolo causante Dolo incidente
That which determines or is the essential cause of the consent That which does not have such a decisive influence and by
itself cannot cause the giving of consent, but refers only to
some particular or accident of the
obligation
Can be a ground for annulment of the contract Cannot be a cause for annulment
FRAUD UNDER 1171 FRAUD UNDER 1338

The fraud occurs in connection with the fulfillment of the The fraud is prior or simultaneous to the consent or
obligation the creation of the obligation
Compared with Error; The result of fraud is error on the part of the victim. These two causes of nullity of consent, however, should
not be confused. Error will vitiate consent only when it refers to the matters mentioned in article 1331; while a mistake induced by
fraud will always vitiate consent, when the fraud had a decisive influence on such consent
Requisites of Fraud:
1. It must have been employed by one contracting party upon the other (articles 1342 and 1344)
2. It must have induced the other party to enter into the contract (article 1338)
3. It must have been serious (article 1344)
4. It must have resulted in damage or injury to the party seeking annulment
Effects of Fraud; The effects of dolo causante are (1) nullity of the contract, and (2) indemnification of damages. The party who
employs fraud commits an illicit act which invalidates thejuridical act obtained through it. The contract obtained through fraud,
however, is not void ab initio but merely voidable
Proof of Fraud; The misrepresentation constituting the dolo causante must be alleged and proved, otherwise the contract cannot be
annulled on this ground. The fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance
thereof
The mere fact that the bargain was a hard one and that the price is inadequate is not a sufficient ground for the annulment of the
contract, especially when the parties are dealing on speculative transactions
Art. 1339. Concealment as Fraud; The deceit which avoids the contract need not be by means of misrepresentation in words. It exists where the
Failure to disclose facts, when there is a party who obtains the consent does so by means of (deliberately) concealing or omitting to state material facts, with intent to
duty to reveal them, as when the parties deceive, by reason of which omission or concealment the other party was induced to give a consent which he would not otherwise
are bound by confidential relations, have given
constitutes fraud. (n)
Silence or concealment, by itself, however, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce the communication should be made
Art. 1340. Tolerated Fraud; This is lawful misrepresentation, known as dolus bonus. This is lawful astuteness. Practice has come to tolerate
such false affirmations. They are tolerated, and do not affect the validity of the contract, so long as they do not go to the extent of
The usual exaggerations in trade, when malice or bad faith, such as changing the appearance of the thing by false devices, and of preventing all verification or discovery of
the other party had an opportunity to the truth by the other party
know the facts, are not in themselves
fraudulent. (n) Opportunity to Know; Where the means of knowledge are at hand and equally available to both parties one will not be heard to say
that he has been deceived
Art. 1341. Expression of Opinion; The refusal of a seller to warrant his estimate should admonish the purchaser that that estimate was put forth
A mere expression of an opinion does not as a mere opinion; and the courts will not hold the seller to a liability equal to that which would have been created by a warranty, if
signify fraud, unless made by an expert one had been given
and the other party has relied on the
former's special knowledge. (n) Made by Expert; An opinion of an expert is like a statement of a fact, and if false, may be considered a fraud giving rise
toannulment. When the expert, however, was employed by the party who was misled, he cannot ask for annulment, because he is
chargeable with the acts and declaration of his employee
Art. 1342. Fraud by Third Person; As a general rule, the fraud employed by a third person upon one of the parties does not vitiate consent and
Misrepresentation by a third person cause the nullity of a contract; it merely gives rise to an action for damages by the party injured against such third person. There is
does not vitiate consent, unless such no reason for making one of the parties suffer for the consequences of the act of a third person in whom the other contracting party
misrepresentation has created may have reposed an imprudent confidence
substantial mistake and the same is
mutual. (n) Mutual Error; Deceit by a third person, even without connivance or complicity with one of the contracting parties, may lead to error
on the part of the parties to the contract; in this case, consent is vitiated, and the contract may be annulled
Two reasons advanced to justify the difference between fraud and intimidation when employed by a third person, are: (1) that the
party has nothing to do with fraud by a third person and cannot be blamed for it; (2) intimidation can be more easily resisted than
fraud
Art. 1343.
Misrepresentation made in good faith is
not fraudulent but may constitute error.
(n)
Art. 1344. Magnitude of Fraud; The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent
In order that fraud may make a contract person into error; that which cannot deceive a prudent person cannot be a ground for nullity
voidable, it should be serious and should
not have been employed by both Determining Cause; Besides being serious, the fraud must be the determining cause of the contract. It is this causal connection
contracting parties. between the fraud and the contract which vitiates the consent of the victim. In other words, the fraud must be dolo causante
Incidental fraud only obliges the person Fraud by One Party to Another; In order to be a ground for annulment of a contract, the fraud must be exercised by one party upon
employing it to pay damages. (1270) the other. When two persons constitute one party of the contract with respect to another, the deceit exercised by one of them upon
his co-party, is not a cause for annulment of the contract
Mutual Fraud; When both parties use fraud reciprocally, neither one has an action against the other; the fraud of one compensates
that of the other, and neither party can ask for the annulment of the contract
Plurality of Subjects; If the fraud has caused substantial error, the injured party can ask for annulment under the rules on error
Dolo Incidente; When the fraud is not the determining cause of the contract, it only gives rise to an action for damages, but not for
annulment of the contract
Art. 1345. Definition of Simulation; It is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce,
Simulation of a contract may be for the purposes of deception, the appearance of a juridical act which does not exist or is different from that which was really
absolute or relative. executed. Simulation of contract involves a defect in declaration.
The former takes place when the parties Absolute relative

do not intend to be bound at all; the There is color of a contract, without any substance The parties have an agreement which they conceal under the
latter, when the parties conceal their thereof, the parties not having any intention to be guise of another contract
true agreement. (n) bound
There are two juridical acts involved in relative simulation:

1. The ostensible act, also called apparent or fictitious, which is the contract that the parties pretend to have executed
2. The hidden act, also called real, which is the true agreement between the parties
If the concealed or [h]idden act is lawful, it is enforceable if the essential requisites are present, such as when the true consideration
was not stated
Art. 1346. Absolute Simulation; The nullity of the absolutely simulated contract is based on the want of true consent; there is no intent to be
An absolutely simulated or fictitious bound. The contract does not legally exist; it is illusory, a mere phantom. It is generally fraudulent and for the purpose of injuring
contract is void. third persons
A relative simulation, when it does not Recovery Under Contract; If the absolute simulation does not have an illicit purpose, the parties to the contract may prove the
prejudice a third person and is not simulation in order to recover whatever may have been given under such simulated act. But if the simulated contract has an illegal
intended for any purpose contrary to object, the provision of articles 1411 and 1412 will apply
law, morals, good customs, public order
or public policy binds the parties to their ABSOLUTE SIMULATION FRAUDULENT ALIENATION
real agreement. (n) Implies that there is no existing contract, no real act executed There is a true and existing transfer or contract
Can be attacked by any creditor, including one Can be assailed only by the creditors before the
subsequent to the contract alienation
The insolvency of the debtor making the simulated transfer is The action to rescind, or accion pauliana, requires that the
not a prerequisite to the nullity of the contract creditor cannot recover in any other manner what is due him
The action to declare a contract absolutely simulated The accion pauliana to rescind a fraudulent alienation
does not prescribe (article 1409 and 1410) prescribes in four years (article 1389)
Simulation Presumed; There are cases where relative simulation is presumed by law. Article 1602, for instance,
presumes as equitable mortgage a contract of sale with right to repurchase under the circumstances mentioned in said article
Relative Simulation; The relatively simulated contract is valid, except when it prejudices third persons or has an illicit purpose.
Its validity is based on the freedom to contract. The intention of the parties is upheld, whatever form or terminology they may use in
their contract
If the concealed contract is lawful, it is absolutely enforceable.
However, such concealed contract must have all the essential requisites, such as consent, object, and cause. Its validity and effects
will be governed by the rules applicable to it, and not by those applicable to the apparent contract
When the purpose of the simulation is illicit, or to prejudice a third person, the true contract of the parties cannot be enforced. It
would be void and inexistent, under the provisions of article 1409; and neither party can have an action against the other because of
the provisions of articles 1411 and 1412
Effect as to Third Persons; A third person may avail himself of the conduct of the parties to the simulated contract which is most
favorable to himself. The simulated contract will therefore be binding if it is favorable to him to consider it so…But a third person,
if he is prejudiced, may invoke the nullity of a simulated contract
Acquisitions of Title; The declaration that a contract is simulated destroys the title of a third person who has acquired rights in bad
faith to the property conveyed in the apparent contract
If the third person, however, has acted in good faith, he is given the protection of the law
Object of contracts Concept of Object - The object of a contract is its subject-matter. It is the thing, right, or service which is the subject-matter of the
obligation arising from the contract. Hence, it is said that under the Code, the object of the contract and the object of the obligation
created thereby are identical
Requisites of Object; In order that a thing, right , or service may be an object of contracts, it is necessary that the following
requisites concur:
1. The object must be within the commerce of man (Art. 1347)
2. It must be licit, or not contrary to law, morals, good customs, public policy, or public order (Art. 1347)
3. It must be possible (Art. 1348)
4. It must be determinate as to its kind (Art. 1349)
Object cause
Thing, service, or right one party expects to deliver or perform That which the party expects to receive or enjoy
Illustration:
Vendor Situation vendee
O: CAR CAR for O: P1,000,000
C: P1,000,000 P1,000,000 C: CAR
Note: What the object/ cause of the contract depends on the perspective of the party
Art. 1347. Within Commerce of Man; The object of contracts must be within the commerce of man. Modern writers include in the category of
All things which are not outside the things “outside the commerce of man” all kinds of things and interests whose alienation or free exchange is restricted by law or
commerce of men, including future stipulation, which parties cannot modify at will. It is believed, however, that it would be more accurate to understand this phrase in
things, may be the object of a contract. the Roman law concept; that is, including only those things which are not susceptible of appropriation or of private ownership, and
which are not transmissible
All rights which are not intransmissible
may also be the object of contracts. Existence of Object; It is essential that the object must be in existence at the time of the perfection of the contract, or that it has the
possibility or potentiality of coming into existence at some future tome. Thus, even future things can be object ofcontracts
No contract may be entered into upon By “future things” are understood those which do not belong to the obligor at the time the contract is made; they may be made,
future inheritance except in cases raised, or acquired by the obligor after the perfection of the contract
expressly authorized by law.
The term “future things” includes not only material objects but also future rights
All services which are not contrary to
law, morals, good customs, public order When the contract involves future things, it may either be (1) conditional, or subject to the coming into existence of thething, or (2)
or public policy may likewise be the aleatory, or one of the parties bears the risk of the thing never coming into existence
object of a contract. (1271a)
Future Inheritance; By way of exception to “future things” as objects of contracts, the law generally does not allow contracts on
future inheritance
In order that a contract may fall within the prohibition of this article, the following requisites are necessary: (1) that the succession
has not yet been opened, (2) that the object of the contract forms part of the inheritance, and (3) that the promissor has, with respect
to the object, an expectancy of a right is purely hereditary in nature
An agreement for the partition of the estate of a living person, made between those who, in case of death, would be in a position to
inherit from him, is void. And a contract renouncing the right to inherit from one who is still alive, is also void
After the death of a person, however, the properties and rights left by him by way of inheritance can be the subject-matter of a
contract among or by his heirs, even before a partition thereof has been made, because the rights of the heirs are transmitted to them
from the moment of death of the predecessor
Not Part of Inheritance; When the object of the contract is not a part of the inheritance, the prohibition does not apply, even if the
delivery of such object is dependent upon the death of one of the contracting parties. Thus, life insurance contracts, and stipulations
providing for reversion of property donated in marriage settlements in the event of the death of the done, are valid
Contrary to Law or Morals; The contract is void if at the time it is entered into, the object is contrary to law or morals. The law
violated need not be penal in nature; it is enough that it be mandatory or prohibitive
Prestation of Third Party; The prestation promised in a contract must be personal to the party. A person can obligate only himself;
he cannot obligate a third person. Third does not mean that a contract in which the prestation of a third person is promised, is void; it
is valid. The third person, however, is not bound; only the promissor is bound by the contract to use all means so that the third
person may perform the prestation
Art. 1348. Things are impossible when they are not susceptible of existing, or they are outside the commerce of man. Personal services or acts
Impossible things or services cannot be are impossible when they are beyond the ordinary strength or power of man. The impossibility must be actual and contemporaneous
the object of contracts. (1272) with the making of the contract, and not subsequent thereto
ABSOLUTE/ OBJECTIVE RELATIVE/ SUBJECTIVE

When the act or service in itself, without considering the When the act or service cannot be done by the debtor himself,
person of the obligor, becomes impossible; i.e. when the but it
prestation is subsequently prohibited by law so that nobody can can be accomplished by others; i.e. when the debtor becomes
do it so
seriously ill that he cannot perform the stipulated act or service,
although it can be done by anybody else
When nobody can perform it When due to the special conditions or qualifications of the
debtor it
cannot be performed
Nullifies the contract If temporary, does not nullify the contract, such as when a
partner
agrees to contribute to the partnership an amount more than is
permissible by his means; if permanent, it nullifies the
contract, such as blindness in contracts which required the use
of eyesight
The impossibility, therefore, must be absolute, not relative, and must be determined objectively, and not in relation to the debtor
personally, with rare exceptions
Liability for Damages; When the object is impossible, the contract is void and inexistent; hence, it cannot give rise to any juridical
relation
If [the obligor] knew of the impossibility, or could have known of it, his bad faith or negligence makes him liable for damages.
The amount of damages, however, will be limited in this case to the losses the creditor may have suffered by having relied on the
contract; he cannot recover all the damages arising from non-performance of the contract
But if the debtor is also ignorant of the impossibility, and his ignorance thereof is justifiable, or unavoidable, the reason for his
responsibility ceases, and he cannot be held liable for the damages suffered by the creditor
There is no liability for damages if both parties have knowledge of the impossibility
Partly Impossible; If the thing is partly possible and partly impossible, the effect will depend upon the divisibility of the thing. If it is
indivisible, by its nature or by the intention of the parties, there is no contract; the consent would be wanting, because it was either
for the whole obligation or for none at all.
But if the thing is divisible, then the contract is valid to the extent that it is possible
Difficulty of Performance; Impossibility of performance should not be confused with mere difficulty. It is elemental that the law
requires parties to do what they agreed to do. If a party charges himself with an obligation difficult of performance, he must abide
by it. A showing of mere inconvenience, unexpected impediments, or increased expenses is not enough to relieve him of the
obligation. Equity cannot relieve from bad bargains simply because they are such. The debtor who does not perform in such cases
must be held liable for damages
But if the obstacles to the performance of the prestation are so great that they can only be overcome with sacrifices which are
absolutely disproportionate, the prestation must be considered impossible, taking into account the rational, ethical, and economic
considerations in the light of the presumed intention of the parties and of good faith
Thus, one may not obligate himself to do something which, when accomplished, will prove to be dangerous to life and property. It is
contrary to law and public policy to force the performance of a contract that is undesirable and harmful
Art. 1349. Determination of Kind; The object of the contract need not be individualized; but it must be determinate as to its kind or species
The object of every contract must be
determinate as to its kind. The fact that But if the object is merely “something” or “an animal,” the species is not determined, and the contract would be void
the quantity is not determinate shall not
be an obstacle to the existence of the The thing must have definite limits, not uncertain or arbitrary
contract, provided it is possible to
determine the same, without the need of Determination of Quantity; the quantity of the object may be indeterminate, so long as the right of the creditor is not rendered
a new contract between the parties. illusory. Its future determination must, however, depend upon circumstances already provided in the contract itself
(1273)
Cause of contracts Concept of Cause; The cause of a contract is the “why of the contract,” the immediate and most proximate purpose of the contract,
the essential reason which impels the contracting parties to enter into it and which explains and justifies the creation of the
obligation through such contract
Cause is the essential reason which moves the parties to enter into the contract. It is the immediate, direct and proximate reason
which justifies the creation of an obligation through the will of the contracting parties
Distinguished from Object; There can be no confusion between the object and the cause in remuneratory and gratuitous contracts.
But a confusion between the object and the cause may arise in onerous contracts, or contracts giving rise to reciprocal or bilateral
obligations
The subject-matter or object in onerous contracts is the thing, service or act, which forms the basis of the entire contract, the starting
point of agreement, without which the negotiations or bargaining between the parties would never even have begun.
Thus, while the object of the onerous contract is the same as to both parties and determined irrespective of them, the cause is
different with respect for it is the impelling or essential reason for his entering into the contract
Distinguished from Consideration; Applied to contracts, cause represents, as it signified in Rome, the why of contracts, the essential
reason which impels the contracting parties to celebrate the contract. A consideration in its widest sense is the reason, motive, or
inducement, by which a man is moved to bind himself by an agreement. It is not for nothing that he consents to impose an obligation
upon himself, or to abandon or transfer a right
The concept of consideration is narrower than that of cause

Unlike the principle of consideration, the principle of cause never rejects any cause as insufficient. Whatever inducement is
sufficient to satisfy the parties, is sufficient to satisfy the law, even though it is nothing more than the causa liberalitatis of a
voluntary gift. In other words, while consideration requires a legal detriment to the promisee which must be more than a moral duty,
cause need not be material at all, and may consist in a moral satisfaction for the promissor
Distinguished from Motive; The cause of a contract is the essential reason for the contract, while motive is the particular reason for
a contracting party, which does not affect the other, and which does not impede the existence of a true distinct cause. Motive
predetermines the contract43
Requisite of Cause; The cause of a contract must have the following requisites: (1) it must exist, (2) it must be true, and (3) it must
be licit
Art. 1350. Onerous Contracts; In onerous contracts, the cause need not be adequate or an exact equivalent in point of actual value,
In onerous contracts the cause is especially in dealing with objects which have a rapidly fluctuating price. Thus, a consideration of one peso is just as
understood to be, for each contracting effectual and valuable consideration, if stipulated in good faith, and in the absence of fraud, as a larger sum
party, the prestation or promise of a
thing or service by the other; in Where the cause is a natural obligation, or one of conscience, there is a sufficient cause to sustain an onerous contract; and the cause
remuneratory ones, the service or benefit will not be one of mere liberality
which is remunerated; and in contracts
of pure beneficence, the mere liberality But a moral obligation arising wholly from ethical considerations not constituting a natural obligation, is not a
of the benefactor. (1274) sufficient cause for onerous contracts
Mutual Promises; A promise made by one party, if made in accordance with the forms required by law, may be a good
cause or consideration for a promise made by the other party.
In other words, the consideration or cause need not pass from one to the other at the time the contract is entered into
Accessory Contracts; A person may secure the performance of another’s contract, either by acting as surety on a bond or by giving
his property by way of mortgage to secure such person’s contract. It has been held that, as a mortgage is an accessory contract, its
cause or consideration is the very cause or consideration of the principal contract, from which it receives its life, and without which
it cannot exist as an independent contract, although it may secure an obligation incurred by another. In the contract of bond, the
cause or consideration, generally, is no other, as in all contracts of pure beneficence, than the liberality of the benefactor. In
exceptional cases, a bond may be given for some other consideration, according tothe agreement and free stipulation of the parties,
which may be, as in onerous contracts, something remunerative stipulated as an equivalent given by the beneficiary of the bond of to
the bondsman or surety
Accommodation Parties; Where one of the signers of a joint and several promissory note affixes his signature thereto for
the accommodation of a co-maker and a third person advances the face value of the note to the accommodated party at the time of
the creation of the note, the consideration for the note, as regards both makers, if the money so advanced to the accommodated
party; and it cannot be said that the note is lacking in consideration as to the accommodating party because he himself received none
of the money. It is enough that value was given for the note at the time of its creation
Remuneratory Contracts; A remuneratory contract is one where a party gives something to another because of some service or
benefit given or rendered by the latter to the former, where such service or benefit was not due as a legal obligation
Gratuitous Contracts; Gratuitous contracts are essentially agreements to give donations. The generosity or liberality of the
benefactor is the cause in such contracts. For this reason, a voluntary conveyance, without any valuable consideration whatever, is
good as between the parties and cannot be set aside, unless made in fraud of existing creditors
Art. 1351. Cause and Motive; The fundamental distinction between cause and motive is that cause is the objective, intrinsic and juridical
The particular motives of the parties in reason for the existence of the contract itself, while motive is the psychological, individual or personal purpose of a party to the
entering into a contract are different contract. The cause is the objective of a party in entering into the contract, while the motive is a person’s reason for wanting to get
from the cause thereof. (n) such objective. The cause in each kind of contract is always the same; the motive differs with each person
Effect of Motive; As a general principle, the motives of a party do not affect the validity or existence of a contract. The motives of a
contracting party cannot be the basis for the annulment of
the contract, unless the realization of such motives has been made a condition upon which the contract is to depend. On the other
hand, the mere presence of motives cannot cure the absence of consideration
There are exceptional cases, however, where the motives of a party may affect the juridical act, such as: (1) When the motive of a
debtor in alienating property is to defraud his creditors, the alienation is rescissible. (2) When the motive of a person in giving his
consent is to avoid a threatened injury, as in case of intimidation, the contract is voidable. (3) When the motive of a person induced
him to act on the basis of fraud or misrepresentation by the other party, the contract is likewise voidable. While the general rule is
that the cause of a contract should not be confused with the motives of the parties, the motive may be regarded as cause when it
predetermines the purpose of the contract
Art. 1352.
Contracts without cause, or with
unlawful cause, produce no effect
whatever. The cause is unlawful if it is
contrary to law, morals, good customs,
public order or public policy. (1275a)
Art. 1353. Statement of False Cause; Where the cause stated in the contract is false, the latter may nevertheless be sustained by proof of
The statement of a false cause in another licit cause
contracts shall render them void, if it
should not be proved that they were Where a contract is a simulated or fictitious contract of sale with a false consideration, it is not null and void per se; it is not a
founded upon another cause which is contrato inexistente, but merely a contrato nulo, or an annullable contract, under the provisions of the present article
true and lawful. (1276)
Art. 1354. Presumption of Lawful Cause; Unless the contrary is proved, a contract is presumed to have a good and sufficient consideration.
Although the cause is not stated in the Even when the contract falls under the Statute of Frauds, it is not necessary that the consideration for the agreement be stated in
contract, it is presumed that it exists and writing, because it is presumed. And when it is alleged that the consideration or cause of a promissory note is a debt incurred in a
is lawful, unless the debtor proves prohibited game or a game of chance, and there is no proof of the nature of the game, it cannot be assumed that such game was a
the contrary. (1277) prohibited game, because the law presumes that the cause or consideration is licit
This presumption applies when no cause is stated in the contract. But if a cause is stated in the contract, and it is shown to be false,
the burden of proving the legality of the cause is upon the party enforcing the contract. Hence, if the cause is partly legal and partly
unlawful, and there is no proof as to what part is supported by the lawful cause, there can be no recovery on the contract
Ex: Checks
Art. 1355. Inadequacy of Cause; In case of lesion or inadequacy of cause, the general rule is that the contract is not subject to annulment; in
Except in cases specified by law, lesion cases provided by law, however, such as those mentioned in article 1381, the lesion is a ground for rescission of the contract
or inadequacy of cause shall not
invalidate a contract, unless there has Gross inadequacy naturally suggests fraud and is evidence thereof, so that it may be sufficient to show it when taken in connection
been fraud, mistake or undue influence. with other circumstances. But the fact that the bargain was a hard one, coupled with mere inadequacy of price, when both parties are
(n) in a portion to form anindependent judgment concerning the transaction, is not sufficient ground for the cancellation of a contract.
Where also, a compromise of doubtful rights is voluntary and there is no fraud or imposition, it will be upheld, however,
disadvantageous
Forms of contracts
Art. 1356. Intent over Form; Modern law recognizes the autonomy of the will over strict formalism in the execution of contracts
Contracts shall be obligatory, in
whatever form they may have been The present article, however, provides for two cases where form is absolute and indispensable. The first is when the form is essential
entered into, provided all the essential to the validity of the contract; and the second is when the contract is unenforceable unless it is in a certain form, such as those under
requisites for their validity are present. the Statute of Frauds as formulated in Art. 1403
However, when the law requires that a
contract be in some form in order that it Contracts Valid in any Form; Our law upholds the spirit over the form of contracts. Hence, it is a general principle that a contract,
may be valid orenforceable, or that a having the essential requisites provided for in article 1318, will be valid as between the parties whatever the form it may have been
contract be proved in a certain way, that entered into
requirement is absolute and
indispensable. In such cases, the right of Formalities Required by Law; These formalities may be classified into three groups: (1) those which are required for the validity of
the parties stated in the following article the contract ad essential, ad solemnitatem, (2) those required to make the contract effective as against third parties, such as those
cannot be exercised. (1278a) mentioned in articles 1357 and 1358, and (3) those required for the purpose of proving the existence of the contract, or formalities
ad probationem, such as those provided in the Statutes of Frauds in article 1403
For Validity of Contract; There are some contracts which require certain formalities for their validity, i.e. Negotiable Instruments
Law; Donations of personal property in excess of P5,000 made and accepted in writing44; Interests in loans expressly stipulated45;
the principal and interests in antichresis specified in writing46; sale or transfer of large cattle registered and certified by the Cattle
Registration Act; Registration is also essential to a chattel mortgage; etc
Execution of Instrument; Where the validity of a contract is made to depend upon a particular formality, an action under 1357
cannot be brought to compel the other party to execute such formality. Article 1357 presupposes the existence of a valid contract
and cannot possibly refer to the form required to make it valid, but rather to that required simply to make it effective
In Dauden-Hernaez v. De los Angeles, 27 SCRA 1276, the Court said:“The contract sued upon by petitioner herein (compensation
for services) does not come under either exceptions in Article 1356 of the Civil Code. It is true that it appears included in Article
1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing,
even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid
or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable
by action or suit despite the absence of writing.”
Art. 1357. Compliance with Formality; This article grants to each contracting party the power to compel the other to execute the formalities
If the law requires a document or other required by the law, as soon as the requisites for the validity of the contract are present. Far from making the enforceability of the
special form, as in the acts and contracts contract depend upon any special extrinsic form, this article recognizes its enforceability by the mere fact of granting to the
enumerated in the following article, the contracting parties an adequate remedy whereby to compel the execution of a public writing, or any other special form, whenever
contracting parties may compel each such form is necessary in order that the contract may produce the effect which is desired, according to whatever may be its object.
other to observe that form, once the This, in substance, is equivalent to establishing as an implied condition of every contract, that these formal requisites shall be
contract has been perfected. This right complied with, notwithstanding the absence of any express agreement by the contracting parties to that effect, but does not
may be exercised simultaneously with the subordinate the principal action to the secondary action concerning the form. Such subordination would be unnecessary, as the cause
action upon the contract. (1279a) of action would be the same in both cases, i.e., the existence of a valid contract
Cause of Action; This article does not impose an obligation, but confers a privilege upon both parties, and the fact that the plaintiff
has not made use of the same does not bar his action on the contract. Neither this article, the preceding one, nor the following one,
requires that the exercise of the action to compel the execution of the deed must precede the bringing of the action derived from the
contract
Although the provision of this article, in connection with article 1358, do not operate against the validity of the contracts nor the
validity of the acts voluntarily performed by the parties for the fulfillment thereof, even before the execution of the corresponding
public instrument, yet from the moment when any of the contracting parties invokes said provisions it is evident that under them the
question involving the execution of the public instrument must precede the determination of the other obligations derived from the
contract
Survival of Action; When a party to a contract dies and is survived by his heirs, the latter may be compelled to execute the proper
documents. They are not third parties, and theysucceed to whatever interest their predecessor may have in the property covered by
the contract. All of the heirs, however, must be made parties to such an action
Art. 1358. Writing Not for Validity; This article enumerates the certain contracts that must appear in public or private documents. this
The following must appear in a public provision does not require such form in order to validate the act or contract but to insure its efficacy. It is limited to an enumeration
document: of the acts and contracts which should be reduced to writing in a public or private instrument. The reduction to writing in a public or
(1) Acts and contracts which have for private document, required by this article, is not an essential requisite for an existence of the contract, but is simply a coercive power
their object the creation, transmission, granted to the contracting parties by which they can reciprocally compel the observance of these formal requisites. Contracts
modification or extinguishment of real enumerated by this article are, therefore, valid as between the contracting parties, even when they have not been reduced to public or
rights over immovable property; sales of private writings.
real property or of an interest therein as
governed by Articles 1403, No. 2, and Except in certain cases where public instruments and registration are required for the validity of the contract itself, the legalization
1405; of a contract by means of a public writing and its entry in the register are not essential solemnities or requisites for the validity of the
(2) The cession, repudiation or contract as between the contracting parties, but are required for the purpose of making it effective as against third persons
renunciation of hereditary rights or of
those of the conjugal partnership of
gains;
(3) The power to administer property, or
any other power which has for its object
an act appearing or which should appear
in a public document, or should
prejudice a third person;
(4) The cession of actions or rights
proceeding from an act appearing in a
public document.
All other contracts where the amount

involved exceeds five hundred pesos
must appear in writing, even a private
one. But sales of goods, chattels or
things in action are governed by Articles,
1403, No. 2 and 1405. (1280a)
Reformation of instruments Reason for Reformation; Equity dictates the reformation of an instrument in order that the true intention of the contracting parties
may be expressed. The courts by the reformation do not attempt to make a new contract for the parties, but to make the instrument
express their real agreement. The rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a
written instrument which does not reflect or disclose the real meeting of the minds of the parties. The rigor of the legalistic rule that
a written instrument should be the final and inflexible criterion and measure of the rights and obligation of the contracting parties is
thus tempered, to forestall the effects of mistake, fraud, inequitable conduct, or accident
Art. 1359. Basis of Reformation; Once the minds of the contracting parties meet, a valid contract exists, whether the agreement is reduced to
When, there having been a meeting of the writing or not. There are instances, however, where in reducing their agreements to writing, the true intentions of the contracting
minds of the partiesto a contract, their parties are not correctly expressed in the document, either by reason of mistake, fraud, inequitable conduct or accident. It is in such
true intention is not expressed in the cases that reformation of instruments is proper. The action for such relief rests on the theory that the parties came to an
instrument purporting to embody the understanding, but in reducing it to writing, through mutual mistake, fraud or some other reason, some provision was omitted or
agreement, by reason of mistake, fraud, mistakenly inserted, and the action is to change the instrument so as to make it conform to the contract agreed upon
inequitable conduct or accident, one of
the parties may ask for the reformation Requisites of Reformation:
of the instrument to the end that such 1. There must have been a meeting of the minds upon the contract
true intention may be expressed. 2. The instrument or document evidencing the contract does not express the true agreement between the parties
3. The failure of the instrument to express the agreement must be due to mistake, fraud, inequitable conduct, or accident
If mistake, fraud, inequitable conduct, or
accident has prevented a meeting of the Reformation annulment
minds of the parties, the proper remedy Presupposes that there is a valid existing contract between the If the minds of the parties did not meet, or if the consent of
is not reformation of the instrument but parties, and only the document or instrument which was drawn either one was vitiated by violence or intimidation or mistake
annulment of the contract. up and signed by them does not correctly express the terms of or fraud, so that no real and valid contract was made
their agreement
Gives life to it upon certain corrections Involves a complete nullification of the contract
Operation and Effect; Upon the reformation of an instrument, the general rule is that it relates back to, and takes effect from the time
of its original execution, especially as between the parties
Effect on Statute of Frauds; According to the weight of authority, the statute of frauds is no impediment to the
reformation of an instrument, whether by way of correcting a description which by mistake includes property other than that
intended, or omits property from the description, or conveys too much
Art. 1360. Observation on Article; Commenting on the adoption of “the general law on the reformation of instruments” in this article, Mr.
The principles of the general law on the Justice J.B.L. Reyes says: “This is another of those vague references that abound in the Code. Such indefiniteness amounts to a
reformation of instruments are hereby delegation of power to the Court to determine what the law is, since no standards are set to enable one to determine which law is
adopted insofar as they are not in meant”
conflict with the provisions of this Code.
Art. 1361. Requisites of Mistake:
When a mutual mistake of the parties 1. That the mistake is one of fact
causes the failure of the instrument to 2. That it was common to both parties
disclose their real agreement, said 3. The proof of mutual mistake must be clear and convincing
instrument may be reformed.
The amount of evidence necessary to sustain a prayer for relief where it is sought to impugn a fact in a document is always more
than a mere preponderance of evidence
Mistake of Fact; There is a mistake of fact when the written evidence of the agreement includes something which should be there, or
so expresses their agreement that it set forth something different from what was intended
A mere mistake of law, without any other circumstance, constitutes no ground for the reformation of an instrument(annulment)
Must be Mutual; Where mistake alone is relied on as a ground for reformation, the mistake must be a mutual mistake. It must appear
that by reason of the mistake something is to be done which neither party intended; that is, the contract must be written in terms
which violate the understanding of both parties, and the mistake must be in reference to the same matter. The parties must have
come to an oral agreement before they attempted to reduce it to writing, which attempt failed by reason of mistake, and reformation
enforces the original agreement. The rule that mistake in expression must be mutual means, therefore, that to obtain reformation the
parties must show that there was a valid contract between them, which contract is not correctly set forth in the writing to be
reformed
But where the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to
express the true intention of the parties, and the deed has not been assailed on the ground of mutual mistake which would require its
reformation, the same should be given its full force and effect. When a party sues on a written contract and no attempt is made to
show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord. His omission cannot be
arbitrarily supplied by the courts by what their own notions of justice or equity may dictate
Effect of Negligence; Where the evidence of a mutual mistake is clear and decisive, the refusal to rectify on the sole ground of the
negligence of the complaining party may well work the gravest injustice and defeat the intention of both parties in entering into the
agreement. Where there has been a mutual mistake, and one party has been as negligent as the other, refusal to reform a contract
made under such circumstances would have the effect of penalizing one party for negligent conduct, and at the same time permitting
the other party not merely to escape the consequences of his negligence, but in most cases to profit thereby
Art. 1362. Mistake by One Party; A written instrument may be reformed where there is a mistake on one side and fraud or inequitable conduct
If one party was mistaken and the other on the other, as where one party to an instrument has made a mistake and the other knows it and conceals the truth from him. In this
acted fraudulently or inequitably in such case, where the mistake is only on one side, in order to be a ground for reformation the fraud or inequitable conduct of the other
a way that the instrument does not show party must be clearly shown, and must be at the time of the execution of the instrument; it may be actual or constructive. Inequitable
their true intention, the former may ask conduct, to warrant relief by way of reformation, has been held to consist in doing acts, or omitting to do acts, which the court finds
for the reformation of the instrument. to be unconscionable; as in taking advantage of one party’s illiteracy, in drafting or having drafted an instrument contrary to the
previous understanding of the parties and making such party believe the instrument to be other than what it actually is
The mistake of one party, under this article, must refer to the contents of the instrument, and not the subject matter or principal
conditions of the agreement; in the latter case an action for annulment of the contract is the proper remedy
Art. 1363.
When one party was mistaken and the
other knew or believed that the
instrument did not state their real
agreement, but concealed that fact from
the former, the instrument may be
reformed.
Art. 1364. Mistake of Draftsman; Whenever an instrument is drawn with the intention of carrying an agreement previously made, but which,
When through the ignorance, lack of due to mistake or inadvertence of the draftsman or clerk, does not carry out the intention of the parties, but violates it, there is
skill, negligence or bad faith on the part ground to correct the mistake by reforming the instrument
of the person drafting the instrument or
of the clerk or typist, the instrument does The clerk, in reducing to writing the agreements of the contracting parties, acts upon the direction of the parties and, as such, he
not express the true intention of the stands as an agent of the parties to that extent;satisfactory proof of the agent’s mistake is proof of the mutual mistake of the
parties, the courts may order that the contracting parties. Furthermore, since the written contract fails to express the agreement on which the minds of the parties met, it is
instrument be reformed. not theirs, and the true intention has not been executed; hence, the necessity of reformation
Art. 1365. Deed Held to be Mortgage; When the intention of the contracting parties was to enter into a contract of mortgage, said intention
If two parties agree upon the mortgage shall prevail although the deed executed may seem to be one of sale with the right to repurchase. The intention of the parties may be
or pledge of real or personal property, inferred from their simultaneous or subsequent acts, as well as from the stipulations themselves in the contract
but the instrument states that the
property is sold absolutely or with a
right of repurchase, reformation of the
instrument is proper.
Art. 1366. Donations and Wills; Both donations and wills are gratuitous dispositions of property. It is said that one reason why courts will not
There shall be no reformation in the interfere to reform these instruments is that an action to reform a written instrument is in the nature of an action for specific
following cases: performance and requires valuable consideration--an element lacking as between donor and donee, and between testator and
(1) Simple donations inter vivos wherein beneficiary
no condition is imposed;
(2) Wills; In providing that there shall be no reformation in cases of will, this article seems to be inconsistent with article 789 which
(3) When the real agreement is void. provides:“When there is an imperfect description, or when no person or property exactly answers the description, mistakes and
omissions must be corrected, if the error appears from the context of the will or from extrinsic evidence, excluding the oral
declarations of the testator as to his intention; x x x”
The two articles, however, can be reconciled by considering the present article as stating the general rule, and article 789 as an
exception thereto. Not every mistake in a will can be corrected.
Only imperfect or erroneous descriptions of persons or property can be corrected; but the manner in which the
testator disposes of his property cannot be changed by a reformation of the instrument
Void Agreements; The power of a court to reform a written instrument is not accomplishing a vain thing. Therefore, an instrument
which when corrected will be void or inoperative, will not be reformed
Art. 1367.
When one of the parties has brought an
action to enforce the instrument, he
cannot subsequently ask for its
reformation.
Reason for Article; Courts deny relief of

reformation when the party seeking
reformation has brought an action to
enforce the instrument, because there
has been an election as between
inconsistent remedies, one in affirmance
of the written contract and the other in
disaffirmance. The party suing under the
written contract may be said to have
ratified the same
Art. 1368.
Reformation may be ordered at the
instance of either party or his successors
in interest, if the mistake was mutual;
otherwise, upon petition of the injured
party, or his heirs and assigns.
Art. 1369.
The procedure for the reformation of
instrument shall be governed by rules of
court to be promulgated by the Supreme
Court.
Interpretation of Contracts
Art. 1370.
If the terms of a contract are clear and
leave no doubt upon the intention of the
contracting parties, the literal
meaning of its stipulations shall control.
If the words appear to be contrary to the

evident intention of the parties, the latter
shall prevail over the former. (1281)
Art. 1371.
In order to judge the intention of the
contracting parties, their
contemporaneous and subsequent acts
shall be principally considered. (1282)
Art. 1372.
However general the terms of a contract
may be, they shall not be understood to
comprehend things that are distinct and
cases that are different from those upon
which the parties intended to agree.
(1283)
Art. 1373.
If some stipulation of any contract
should admit of several meanings, it
shall be understood as bearing that
import
which is most adequate to render it
effectual. (1284)
Art. 1374.
The various stipulations of a contract
shall be interpreted together, attributing
to the doubtful ones that sense which
may result from all of them taken jointly.
(1285)
Art. 1375.
Words which may have different
significations shall be understood in that
which is most in keeping with the nature
and object of the contract. (1286)
Art. 1376.
The usage or custom of the place shall be
borne in mind in the interpretation of the
ambiguities of a contract, and shall fill
the omission of stipulations which are
ordinarily established. (1287)
Art. 1377.
The interpretation of obscure words or
stipulations in a contract shall not favor
the party who caused the obscurity.
(1288)
Art. 1378.
When it is absolutely impossible to settle
doubts by the rules established in the
preceding articles, and the doubts
refer to incidental circumstances of a
gratuitous contract, the least
transmission of rights and interests shall
prevail. If the contract is onerous, the
doubt shall be settled in favor of the
greatest reciprocity of interests.
If the doubts are cast upon the principal

object of the contract in such a way that
it cannot be known what may have been
the intention or will of the parties, the
contract shall be null and void. (1289)
Art. 1379.
The principles of interpretation stated in
Rule 123 of the Rules of Court shall
likewise be observed in the construction
of contracts. (n)
Rescissible Contracts Defective Contracts; In designating defective contracts, the present Code has departed from the terminology of the old
Code
Under the present Code, there are four defective contracts:

1. The rescissible contract, which is a contract that has caused a particular damage to one of the parties or to a third person, and
which for equitable reasons may be set aside even if it is valid
2. The voidable or annullable contract, which is a contract in which the consent of one party is defective, either because of want of
capacity or because it is vitiated, but which contract is valid until set aside by a competent court
3. The unenforceable contract, which is a contract that for some reason cannot be enforced, unless it is ratified in the manner
provided by law
4. The void or inexistent contract, which is an absolute nullity and produces no effect, as if it had never been executed or entered
into
Relative Ineffectiveness; These are contracts which are ineffective only with respect to certain parties, but are effective as to other
persons
A relatively ineffective contract is distinguished from the voidable contract in that its ineffectiveness, with respect to the party
concerned, is produced ipso jure, while voidable contract does not become inoperative unless an action to annul it is instituted and
allowed. It differs from the void or inexistent contract, in that the ineffectiveness of the latter is absolute, because it cannot be
ratified, while the relatively ineffective contract can be made completely effective by the consent of the person as to whom it is
ineffective, or by the cessation of the impediment which prevents its complete ineffectiveness
Art. 1380. Concept of Rescission; Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the
Contracts validly agreed upon may be reparation of damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their
rescinded in the cases established by condition at the moment prior to the celebration of said contract. It is a relief for the protection of one of the contracting parties and
law. (1290) third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the
contract. It implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone. It sets aside the act
or contract for justifiable reasons of equity
Nature of Contract; The present article means that even if the contract is valid, it can be rescinded, but does not limit rescission to
valid contracts. Rescission is perfectly compatible with the validity of the contract, but it does not require such validity as an
essential condition. Hence, a voidable contract may also [be] rescinded
Rescission in Reciprocal Obligations;
ART. 1911 ART. 1380

May be demanded only by a party to the contract May be demanded by a third party prejudiced by the contract
May be denied by the court when there is sufficient reason to Such reason does not affect the right to ask rescission
justify extension of time to the defendant in which to perform
Non-performance is the only ground for the right There are various reasons of equity provided as grounds for
rescission
Applies only to reciprocal obligations where one party has not Applies whether the contract produces unilateral or reciprocal
performed obligations and even when the contract has been fully fulfilled
Both presuppose contracts validly entered into and existing
Both require mutual restitution when declared proper
Rescission and Mutual Dissent; Rescission should also be clearly distinguished from an agreement of the parties to cancel their
contract and mutually return the object and the cause thereof.
Courts have sometimes loosely called this act of the parties as rescission, although it is not properly so
Requisites of Rescission; In order that an action for rescission of a contract may prosper, the following requisites must concur:
1. The contract must be a rescissible contract, such as those mentioned in articles 1381 and 1382
2. The party asking for rescission must have no other legal means to obtain reparation for the damages suffered by him
(article 1383)
3. The person demanding rescission must be able to returnwhatever he may be obliged to restore if rescission is granted
(article 1385)
4. The things which are the object of the contract must not have passed legally to the possession of a third person acting in good
faith (article 1385)
5. The action for rescission must be brought within the prescriptive period of four years (article 1389)
Direct proceedings to Rescind; Rescindible contracts are not void, and until set aside in a rescissory action they are legally effective,
convey title, and cannot be attacked collaterally upon the grounds for rescission in a land registration proceeding. In justice to the
party who would be entitled to ask for rescission, however, the court may expressly reserve such right of rescission so that such
reservation may be noted upon the certificate of title
Art. 1381. Rescission on Legal Grounds; A valid contract can be rescinded only for legal cause
The following contracts are rescissible:
(1) Those which are entered into by Contracts with Lesion; Under paragraphs 1 and 2 of this article, contracts entered into by guardians for their wards, or by trustees or
guardians whenever the wards whom administrators for the absentees represented by them, are rescissible if the party represented suffers lesion by more than one-fourth
they represent suffer lesion by more than of the value of the things which are the objects of the contracts“Lesion” is the injury which one of the parties suffers by virtue of a
one-fourth of the value of the things contract which is disadvantageous for him. To give rise to rescission, the lesion must be known or could have been known at the
which are the object thereof; time of making the contract, and not due to circumstances subsequent thereto or unknown to the parties.
(2) Those agreed upon in representation
of absentees, if the latter suffer the lesion In view of the basis of lesion, great difficulties arise in its actual determination and appreciation because of its eminently subjective
stated in the preceding number; character. The idea is to establish parity between the value of the thing and its price, so that if the price is less than the true value of
(3) Those undertaken in fraud of the thing at the time of perfection of the contract, there is a lesion. Modern legislation is hostile to the principle of lesion, and our
creditors when the latter cannot in any Code admits it only in special cases, such as those provided in the present article, in article 1098 on position of inheritance, and in
other manner collect the claims due articles 1539 and 1542 on sales
them;
(4) Those which refer to things under Contract of Guardians; As a rule, when a guardian enters into a contract, involving the disposition of the ward’s property, he must
litigation if they have been entered into secure the approval of the guardianship court. A guardian is authorized only to manage the estate of his ward; hence, he has no
by the defendant without the knowledge power to dispose of any portion thereof without approval of the court. He cannot without judicial approval, enter into any contract
and approval of the litigants or of which would be more than a mere act of administration. In case of sale, mortgage, or otherencumbrance of real estate, the requisites,
competent judicial authority; procedure, and court approval, provided by the Rules of Court, are indispensable
(5) All other contracts specially declared
by law to be subject to rescission. Contracts for Absentees; The powers and duties of a legal representative of an absentee, appointed by the court, are the same as
(1291a) those of guardians (article 382). Therefore, the principles we have discussed in relation to contracts by guardians apply also to
contracts by representatives or trustees for the estate of absentees
Contract in Fraud of Creditors; These are contracts executed with the intention to prejudice the rights of creditors, and should not be
confused with those entered into without such intention, even if, as a consequence thereof, some particular damage may be caused to
a creditor; the existence of the intention to prejudice creditors should be determined, either by the presumption established by article
1387 or by the proofs presented in the trial of the case.
And since the patrimony of the debtor includes not only things but also rights, the remission of credits should be considered as
included within the provision of the law
Accion Pauliana and Simulation; The rescissory action to set aside contracts in fraud of creditors is known as accion pauliana. It
differs from an action to declare a contract absolutely simulated or fictitious on the following points:
1. In the case of rescission, there is a real alienation, but it is fraudulent; in the case of simulation, there is in fact no alienation but a
mere pretense that one has been made
2. The former can be alleged only by the creditors prior to the act; the latter by all the creditors, before or after the simulation
3. Impossibility of satisfying the plaintiff’s claim is required in the first; it is not required in the latter
4. The accion pauliana is an action to set aside a valid contract; while an action to declare simulation does not seek to set aside the
simulated contract, but merely declare its inexistence
Requisites for Rescission; The following requisites are necessary in order that a contract may be rescinded as one made in fraud of
creditors: (1) That the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; (2) that the
debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) that the creditor has no other legal
remedy to satisfy his claim, but would benefit by the rescission of the conveyance to the third person; (4) that the act being
impugned is fraudulent; and (5) that the third person whoreceived the property conveyed, if it is by onerous title, has been an
accomplice in the fraud
Existence of Credit; Only creditors can ask for the rescission of the contract, and the mere fact that a person filed a suit against the
debtor and secured an attachment is not sufficient evidence that the latter owes him anything. But where an estate, in the course of
administration, appears to be insolvent, any creditor who believes that a conveyance of property executed by the decedent in his
lifetime was made in fraud of creditors may, upon leave of the court, bring an action in the name of the executor or administrator to
recover property thus fraudulently conveyed away
Priority of Credit; Rescission requires the existence of creditors at the time of the fraudulent alienation, and this must be proved as
one of the basis of the judicial pronouncement setting aside the contract; without prior existing debts, there can be neither injury nor
fraud. The credit must be existing at the time of the fraudulent alienation, even if it is not yet due.
But at the time the accion pauliana is brought, the credit must already be due. Therefore, credits with suspensive term or condition
are excluded, because the accion paulianapresupposes a judgment and unsatisfied execution, which
cannot exist when the debt is not yet demandable at the time the rescissory action is brought. Rescission is a subsidiary action,
which presupposes that the creditor has exhausted the property of the debtor, which is impossible in credits which cannot be
enforced because of the term or condition
While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive
effect to the date when the credit was constituted.
In cases of quasi-delict, the act or omission giving rise to the liability to indemnify must be prior to the alienation, even if the
judgment declaring it be rendered afterwards
Exception; Writers generally recognize the availability of the accion pauliana, even when the alienation is prior to the credit, when
the debtor purposely and in bad faith deprives himself of the ability to meet the consequences of obligations he intends to incur in
the future. The alienation can be rescinded if it is made precisely in view of such future obligation and for the purpose of depriving
in advance the creditor of the guaranty on which he could have relied
Furthermore, there are parties who may appear to have become creditors after the alienation, but who may be considered as having a
prior right and entitled to the accion pauliana
They are:
1. Those whose claims were acknowledged by the debtor after the alienation, but the origin of which antedated the alienation; the
recognition does not give rise to the credit, but merely confirms its existence. For instance, the claim for damages arising before the
alienation, but acknowledged by the debtor only after the alienation
2. Those who become subrogated, after the alienation, in the rights of creditors whose credits were prior to the alienation
Creditors Included; The remedy of rescission is available to all creditors who were already such at the time of the fraudulent
alienation, when they cannot collect what is due them
Even secured creditors or lienholders are entitled to the accion paulianaUnder the French code, which makes no distinction in the
quality of creditors, the traditional rule is that even secured creditors can bring this action, so long as their credit existed before the
fraudulent alienation and they are prejudiced thereby. It would be unjust to consider the secured creditor, who has taken precautions
to protect his interests by stipulation a security, as having less rights than the unsecured creditor who did nothing to guaranty himself
against theinsolvency of the debtor. The French rule is applicable under our Code which makes no distinction among creditors
Fraudulent Conveyance; It must be shown that the conveyance was fraudulent or with intent to prejudice creditors of the party
making the conveyance. The fraud may be established by presumption, under article 1387, or from the whole evidence,
independently of such presumption. If the case is not one for which the law establishes a presumption of fraud, the creditor seeking
the rescission of the contract must prove by competent evidence the existence of fraud. Even if there are circumstances giving rise to
the presumption of fraud, if such presumption is overcome by sufficient evidence, the creditor must prove facts showing actual
fraudulent intent on the part of the debtor
Without such proof of fraudulent intent, the contract cannot be rescinded
Test of Fraud; In determining whether or not a certain conveyance is fraudulent, the question in every case is whether the
conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it conserves to the debtor a special
right. It is not sufficient that it is founded on good consideration or is made with bona fide intent; it must have both elements. If
defective in either of these particulars, although good between the parties, it may be set aside as to creditors. The rule is universal
both at law and in equity that whatever fraud creates justice will destroy. The test as to whether or not a conveyance is fraudulent is,
does it prejudice the rights of creditors?
Others sustain that such intention is not necessary, that it is enough that the debtor knows he would cause injury, that is, he can
foresee injury to creditors because he knows of his own insolvency which would result from the alienation
The fraud that justifies the accion pauliana is not characterized by the intention to injure the creditor, but by the knowledge that
damage would be inflicted. This knowledge exists when the debtor knows that his property cannot be alienated without producing
the evident injury to his creditors with existing claims, whether they be due or not yet due
It is sometimes held that in gratuitous alienation, the simple knowledge by the debtor that his act would cause injury to his creditors
is enough; while in onerous alienations, it is necessary that he must be motivated by an intention to prejudice them.
However, there is really no distinction, because the knowledge of the injury which the act will cause, implies the acceptance of the
effect, and, therefore, the willfulness of such injury. The knowledge of harm implies the intention to cause it
Signs of Fraud; In the consideration of whether or not certain transfers were fraudulent, courts have laid down certain rules by which
the fraudulent character of the transaction may be determined
As to transferee; As to the transferee, a distinction is made between those who acquire by onerous title and those by gratuitous title.
When the alienation is gratuitous, the goodfaith of the transferee does not protect him, because he gave nothing and so he is not
prejudiced by the rescission. But if the alienation is by onerous title, the transferee must be a party tothe fraud; if he acts in good
faith, there can be no rescission, because having given something, his position would be similar to that of the creditor, and being
already in possession his acquisition will be respected
No other Remedy; In order that rescission of a contract made in fraud of creditors can be decreed, it is necessary that the
complaining creditors must prove that they cannot recover in any other manner what is due them. The action for rescission is
essentially subsidiary. The alienation must have been prejudicial to the creditor, it must have had the effect of making the debtor
insolvent, having diminished his property to such an extent that he cannot pay the debt
Creditors Benefitted; As a rule, the rescission should benefit only the creditor who obtained the rescission, because the rescission is
to repair the injury caused to him by the fraudulent alienation. This is justified by the provisions of article 1384. But there may be
other creditors who could also bring the accion pauliana; they should be given the benefit of rescission, instead of requiring them to
bring the claim of the creditor who brought the action. However, creditors who became such only after the fraudulent alienation, and
who themselves could not have asked for rescission, cannot benefit from the rescission; they cannot get indirectly what they cannot
obtain directly
Contracts on Things in Litigation; The fourth paragraph of this article refers to a contract executed by the defendant in a suit
involving the ownership or possession of a thing when such contract is made without the knowledge and approval of the plaintiff or
of the court
As in the case of a contract in fraud of creditors, the remedy of rescission in this case is given to a third person who is not a party to
the contract. Essentially, the purpose is the same in both cases; it is to prevent injury to the plaintiff. But while in the rescission of a
contract in fraud of creditors a personal right is protected by giving it the guaranty of the debtor’s property, in the rescission of a
contract in things in litigation a real right is rendered effective with respect to particular property
Right of Transferee; Where the claim of the plaintiff in the pending litigation has not been registered, and there is nothing in the land
registry or records showing any legal obstacles to the transfer, the transferee of a property in litigation, who acquires the same in
good faith and for valuable consideration, without knowledge or notice of the litigation or claim of the plaintiff, cannot be deprived
of such property by a rescissory action. The good faith of the transferee protects him, and rescission will not lie. But where the
transferee knew of the claim of the plaintiff, either actually or constructively through the registry, he acts in bad faith, and the
transfer can be rescinded
If the transfer is gratuitous, the transferee loses nothing by the rescission, and the contract may be rescinded even if he acted in good
faith. The right of the plaintiff being prior to his, the former should prevail as it causes no injury to the transferee
Art. 1382. Payment When Insolvent; The insolvency referred to in this article is insolvency in fact, not requiring any judicial proceeding on
Payments made in a state of insolvency insolvency. It is a matter of evidence, and can be established by proving that the debtor did not have properties with which to satisfy
for obligations to whose fulfillment the his creditor except that which was given in payment.
debtor could not be compelled at the
time they were effected, are also A creditor need not have a judgment or execution in order to rescind the payment made during insolvency of what was not
rescissible. (1292) then due
Art. 1383. No Other Remedy; The plaintiff asking for rescission must prove that he has no other legal means to obtain reparation. Where he
The action for rescission is subsidiary; it does not show that he has no other legal course to obtain satisfaction of his claim, he is not entitled to the rescission asked. The
cannot be instituted except when the action for rescission is but a subsidiary remedy, available only when the aggrieved party has no other legal means to obtain
party suffering damage has no other reparation for damages suffered. But where it is shown that the property transferred by the debtor to another was his only property, it
legal means to obtain reparation for the is obvious that the creditor can have no other recourse to satisfy his claim except by rescission
same. (1294)
Art. 1384. Extent of Rescission; The rescission is only in favor of the plaintiff creditor, not of all the creditors. This is the almost unanimous
Rescission shall be only to the extent view of writers and jurisprudence. The extent of the revocation is only to the amount of the prejudice suffered by the creditor. As to
necessary to cover the damages caused. the excess, the alienation is maintained
(n)
If the claim of the creditor is less than the value of the thing fraudulently alienated, the excess remains with the transferee even if he
had acted in bad faith, because the alienation is valid.
Those who are strangers to the accion pauliana cannot benefit from its effects
Who May Bring Action; The action for rescission may be instituted by (1) the person who is injured by the rescissible contract, such
as the ward or absentee in the case of lesion, the creditors prejudiced by a fraudulent alienation, and the plaintiff in a case where a
thing in litigation is alienated by the defendant; (2) the heirs of these persons; and (3) their creditors by virtue of the right granted by
article 1177
Art. 1385. Mutual Restitution; The only possible application of the rule that the party seeking rescission must offer to restore that which he has
Rescission creates the obligation to received from the other, is in contracts executed by guardians or administrators under Nos. 1 and 2, article 1381.
return the things which were the object
of the contract, together with their Our Supreme Court, however, has applied the rule to cases of mutual dissent and of rescission of reciprocal obligations under article
fruits, and the price with its interest; 1191
consequently, it can be carried out only
when he who demands rescission can Transfer of Third Person; The “third person” under the present article includes not only one who is not a party to the party to the
return whatever he may be obliged to rescissible contract, but also one who is a party thereto
restore.
The acquisition by a third person is an obstacle to the efficaciousness of the action for rescission, where the following two
Neither shall rescission take place when circumstances are present: (1) that such third person is in lawful possession of the realty, that is to say, [that] he is protected by the
the things which are the object of the law against said action by the registration of the transfer to him in the registry; and (2) that he did not act in bad faith
contract are legally in the possession of
third persons who did not act in bad Right of Transferee; The right of the transferee to retain the property fraudulently alienated by a debtor, depends upon the nature of
faith. the transfer upon the complicity of the former in the fraud.
In this case, indemnity for damages may If the transfer is gratuitous, the creditor will have a better right than the transferee who has given nothing and who would unjustly be
be demanded from the person causing enriched at the expense of the creditor if the transfer were upheld. The rescission will, therefore, be allowed, irrespective of the good
the loss. (1295) or bad faith of the transferee.
But if the transfer was by onerous title, the transferee in good faith is protected. As far as prejudice is concerned, the creditor and the
transferee would be in the same position; hence, the transferee, who acquired ownership by tradition, must be maintained in his
rights.
To deprive the transferee of the thing in such case would cause him injury to the extent of the consideration he has paid, because he
cannot recover this from the insolvent debtor.
Besides, as between two persons who both stand to suffer loss, the possessor of the property should be preferred in that possession,
the ownership having been transferred by delivery.
To permit rescission when the alienation is by onerous title, the transferee must be a party to the fraud; that is, he must have
knowledge that the transfer to him would prejudice existing creditors of the transferor
Transferee in Good Faith; The transferee in good faith to whom the thing has been alienated gratuitously, is obliged to restore the
thing, because nobody is allowed to enrich himself at the expense of another. But being a possessor in good faith, he is not obliged
to pay the fruits received by him; on the other hand, he is entitled to reimbursement for the necessary and useful expenses incurred
on the thing. He returns the thing in the condition that it may be found; he is not liable for losses or deteriorations, except in cases
which it is proved that he has acted with fraudulent intent or negligence after judicial summons
Transferee in Bad Faith; The transferee in bad faith is not entitled to indemnity for damages from the debtor, in the event that
rescission is decreed
If the price exists in the patrimony of the debtor, as contemplated by the Roman rule, then the acion pauliana would not lie, because
then there would still be available property in the possession of the debtor. But on the assumption that the debtor is already
insolvent, which is a prerequisite for the action, it is clear that there can be no reimbursement; on this point, the two opinions
coincide. We may conclude, therefore, that the transferee in bad faith is not entitled to reimbursement. This conclusion is also
strengthened by the provision of article 1412, under which the parties to an unlawful contract cannot recover from each other when
they are both guilty
Right to Damages; When the contract cannot be rescinded, because the thing has been acquired in good faith by a third person, the
party who caused the loss shall be liable for damages. This would include the guardian of minors, the representative or administrator
of absentees, the transferee in bad faith of things fraudulently alienated by a debtor, or the defendant who has transferred the thing in
litigation, in the proper cases
Art. 1386.
Rescission referred to in Nos. 1 and 2 of
Article 1381 shall not take place with
respect to contracts approved by the
courts. (1296a)
Art. 1387. Fraud Presumed; This article presumes the existence of fraud made by a debtor. Thus, in the absence of satisfactory evidence to the
All contracts by virtue of which the contrary, the alienation was held fraudulent because it was made after a judgment had been rendered against the debtor making the
debtor alienates property by gratuitous alienation. This presumption, however, does not apply where the alienation of property was made before the judgment against the
title are presumed to have been entered transferor was rendered
into in fraud of creditors, when the donor
did not reserve sufficient property to pay To raise the presumption of fraud in case of attachment, it is enough that it be issued. Any alienation after such issuance of an
all debts contracted before the attachment, even if made before service or execution of such attachment, will be presumed fraudulent
donation.
Rebuttable Presumption; The presumption of fraud established by this article is not conclusive, and may be rebutted by satisfactory
Alienations by onerous title are also and convincing evidence
presumed fraudulent when made by
persons against whom some judgment In order to overcome the presumption of fraud established by this article, it is necessary to establish affirmatively that the
has been issued. The decision or conveyance was made in good faith and for a sufficient and valuable consideration. Proof of these two circumstances is sufficient to
attachment need not refer to the property negative the existence of fraud, and the presumption created by this article will be considered as overthrown
alienated, and need not have been
obtained by the party seeking the When the presumption of fraud has been satisfactorily overthrown, it is incumbent upon the party asking for rescission to prove by
rescission. sufficient evidence that there was actual mala fidesin the alienation; otherwise, the contract will not be rescinded
In addition to these presumptions, the Proof of fraud; In the consideration of whether or not certain transfers were fraudulent, courts have laid down certain rules by which
design to defraud creditors may be the fraudulent character of the transaction may be determined
proved in any other manner recognized
by the Effect of Fraud; The existence of fraud, whether presumed or proved, does not necessarily make the alienation rescissible.
law of evidence. (1297a)
Fraud is only one of the requisites for the accion pauliana. And even if the debtor who made the alienation acted fraudulently, if the
transferee acquired the thing in good faith and for valuable consideration, rescission will not be allowed
Art. 1388. Subsequent Transfers; The creditor can have an action against subsequent transferees only when an action lies against the first
Whoever acquires in bad faith the things transferee. If the first transferee acquired the thing in good faith, he is not liable; in such case, the thing is considered to have
alienated in fraud of creditors, shall definitely left the patrimony of the debtor and beyond the reach of the creditor, under the second paragraph of article 1385
indemnify the latter for damages suffered
by them on account of the alienation, If the first transferee, however, acted in bad faith, and then he alienates the property to another, the rescissible character of the
whenever, due to any cause, it should be second alienation depends upon how the subsequent transferee acquired the thing. If the second transferee acted in good faith, the
impossible for him to return them. transfer to him cannot be rescinded, and since the property cannot be returned, the first transferee will have to indemnify for
damages. But if the subsequent transferee also acts in bad faith, he can be required to return the property; the first transferee cannot
If there are two or more alienations, the be held liable for damages where such return is possible.
first acquirer shall be liable first, and so But if the property cannot be returned, the transferees shall be successively liable for damages, although acting in good faith,
on successively. (1298a) received the property gratuitously
Bad Faith of Transferee; In order that there be bad faith on the part of the transferee, it is not necessary that he should have connived
with the transferor to defraud the latter’s creditors. It is enough that the transferee knows of the intention of the transferor to defraud
creditors. To determine this, the court should consider the relations between the parties, the conditions of the sale, and other
circumstances from which knowledge of the transferee may be inferred. If the conditions of the sale, and other circumstances,
should awaken suspicion on the part of the vendee, but he does not make an inquiry to verify the fraud, then he will be charged with
knowledge thereof
Art. 1389. Minority of Party; A minor is a party to a contract of sale must bring the action for rescission within four years after attaining the
The action to claim rescission must be age of majority, because under the present article the claim for rescission prescribes in four years from removal of one’s incapacity
commenced within four years.
For persons under guardianship and for
absentees, the period of four years shall
not begin until the termination of the
former's incapacity, or until the domicile
of the latter is known. (1299)
Voidable Contracts
Art. 1390. Concept of Voidable Contracts; Voidable or annullable contracts are existent, valid, and binding, although they can be annulled
The following contracts are voidable or because of want of capacity or vitiated consent of one of the parties; but before annulment, they are effective and obligatory between
annullable, even though there may have the parties
been no damage to the contracting
parties: NULLITY RESCISSION
(1) Those where one of the parties is Declares the inefficacy which the contract already carries in Merely produces that inefficacy, which did not exist essentially
incapable of giving consent to a itself in the contract
contract; To be cured, requires an act of ratification To be ineffective, needs no ratification
(2) Those where the consent is vitiated The direct influence of the public interest is noted Private interest alone governs
by mistake, violence, intimidation, undue Based of a vice of the contract which invalidates it Compatible with the perfect validity of the contract
influence or fraud. A sanction; by law A remedy; on equity
Can be demanded only by parties to the contract May be demanded even by third parties affected by it
These contracts are binding, unless they
are annulled by a proper action in court. Grounds for Annulment; The different grounds for the annulment of contracts, mentioned in this article, are discussed under the
They are susceptible of ratification. (n) corresponding provisions elsewhere in this work
Repentance is not a ground for nullification of a contractIncapacity to Consent; The capacity of a party is not a requisite sine qua
non of a contract; its want is only a ground for annulment. The failure to incorporate the idea in our Code is a serious defect
How Annulment Obtained:

1. Directly by an action for that purpose
2. Indirectly by way of defense to an action to enforce the same
In this respect, the voidable contract differs from the void contract
void voidable
The court merely declares the contract as void and inexistent, The court has first to set aside and render ineffective by its
which is its condition from the very beginning, and therefore judgment the contract which theretofore is valid and producing
the attack against its validity can be made collaterally or legal effect, before the defendant can be exempt from
indirectly compliance therewith; hence, the attack against its validity
must be directly made in an action or in a counterclaim for that
purpose, with the consequences flowing from the declaration of
nullity
Art. 1391. The action for annulment shall be brought within four years: for purposes of prescription only
The action for annulment shall be
brought within four years. In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases: may be annulled even before
intimidation, violence or undue influence ceases
This period shall begin:
In cases of intimidation, violence or In case of mistake or fraud, from the time of the discovery of the same, And when the action refers to contracts entered into by
undue influence, from the time the defect minors or other incapacitated persons, from the time the guardianship ceases: Must be brought within four years by the minor (upon
of the consent ceases. reaching the age of majority), insane (upon regaining sanity), or other incapacitated person (when incapacity ceases)
In case of mistake or fraud, from the time
of the discovery of the same. Q: Will the prescriptive period start to commence during the lucid interval of insane persons?
And when the action refers to contracts A: No.49
entered into by minors or other
incapacitated persons, from the time the
guardianship ceases. (1301a)
Art. 1392. Ratification can be exercised by the party whose consent was defective or vitiated50
Ratification extinguishes the action to
annul a voidable contract. (1309a) Requisites of Ratification:
1. That the contract is a voidable or annullable contract, or one in which the consent of one party is defective, either because
of lack of capacity to contract or because of error, fraud, violence, intimidation or undue influence
2. That the ratification is made with knowledge of the cause for nullity
3. That at the time the ratification is made, the cause of nullity has already ceased to exist
Transmission of Right; The right to ratify is transmitted to the heirs of the party entitled to such right
Art. 1393. Express Ratification; This article does not define the nature and requisites of express ratification. As to the nature, it seems clear that
Ratification may be effected expressly or any oral or written manifestation of the person entitled to ask for annulment that he agrees to be bound by the contract or that he will
tacitly. It is understood that there is a not seek its annulment, would be express ratification. As to the requisites, they are the same as those for implied ratification; it is
tacit ratification if, with knowledge only in the form that these two kinds of ratification differ
of the reason which renders the contract
voidable and such reason having ceased, Implied Ratification; The ratification of an annullable contract may be implied from the conduct or acts of the party entitled to ask
the person who has a right to invoke it for annulment. Any act evincing an intent to abide by the contract is evidence of the affirmance of the contract and a waiver of the
should execute an act which necessarily right to ask for annulment. It may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of
implies an intention to waive his right. the contract; or by acceptance and retention of benefits flowing therefro
(1311a)
Art. 1394. Ratification may be exercised by (1) the guardian of the incapacitated person, (2) his heirs, or (3) his successors-in-interest, i.e.,
Ratification may be effected by the
guardian of the incapacitated person. (n)
Art. 1395. Right to ratify is solely given to the person who can bring the action for annulment
Ratification does not require the
conformity of the contracting party who
has no right to bring the action for
annulment. (1312)
Art. 1396. Effect of Ratification; After a contract has been validly ratified, no action to annul the same can be maintained based upon defects
Ratification cleanses the contract from relating to its original validity
all its defectsfrom the moment it was
constituted. (1313) Retroactivity of Ratification; Its effect retroact to the moment when the contract was entered into
Art. 1397. Personal Requisites; The two different requisites are necessary to confer the capacity for the exercise of the action for annulment of
The action for the annulment of contracts. The first is that the plaintiff must have an interest in the contract. The second is that the victim and not the party
contracts may be instituted by all who responsible for the defect is the person who must assert the same
are thereby obliged principally or
subsidiarily. However, persons who are
capable cannot allege the incapacity of
those with whom they contracted; nor
can those who exerted intimidation,
violence, or undue influence, or
employed fraud, or caused mistake base
their action upon these flaws of the
contract. (1302a)
Art. 1398. Mutual Restitution; The effect of annulment of the contract is wipe it out of existence, and to restore the parties, in so far as legally
An obligation having been annulled, the and equitably possible, to their original situation before the contract was entered into. If there has been no performance by either
contracting parties shall restore to each party, the contract simply ceases to have any force and effect. But if one or both of the parties have already performed, each party
other the things which have been must return to the other whatever he may have received by reason of the contract, unless there are fundamental reasons recognized
the subject matter of the contract, with by the law which will prevent such restitution
their fruits, and the price with its
interest, except in cases provided by law. Contracts Not Covered; The principle of mutual restitution, contained in this article, cannot be applied to all contracts. The principle
against unjust enrichment must be taken into account
In obligations to render service, the
value thereof shall be the basis for This principle of unjust enrichment is the basis of the second paragraph of the present article. In contracts of services, where the
damages. (1303a) service has already been rendered, the party benefited by the service must pay for its value in spite of the annulment of the contract;
otherwise, he would unjustly enriched to theextent of the benefit derived by him from such service rendered by the other party
Art. 1399. Incapacitated Party; The provisions of this article refer exclusively to nullity arising from incapacity of one of the contracting
When the defect of the contract consists parties; hence, if the nullity arises from some other cause, the provisions of article 1398 shall apply, if an incapacitated person is
in the incapacity of one of the parties, interested in the contract whose nullity
the incapacitated person is not obliged to is declared for some other cause
make any restitution except insofar as he
has been benefited by the thing or price A person entering into a contract must see to it that the other party has sufficient capacity to bind himself. For while as a general
received by him. (1304) rule, if the contract is declared null, the parties are bound to restore or return reciprocally the thing with its fruits and the price with
interest, if nullity is on account of incapacity of one of the contracting parties, the party suffering from such incapacity is only bound
to return what he has profited by the thing sold or by the price received
Profit by Incapacitated; The profit or benefit received by the incapacitated person, which obliges him to make restitution, is not
necessarily a material and permanent increase in fortune, but any prudent and beneficial use by the incapacitated of the thing he
received, for his necessities, social position, or discharge of duties to others; thus, there is benefit or profit, even without increase of
fortune, if the thing received is used for food, clothing, dwelling, health requirements, etc
However, where the thing received by the incapacitated party is still existing in his patrimony at the time incapacity ceases, he will
be deemed to have benefited thereby. If he asks for annulment, he must return it to the other party. If, instead of asking annulment,
he alienates or squanders it, he will be deemed to have ratified the contract
Art. 1400.
Whenever the person53 obliged by the
decree of annulment to return the thing
can not do so because it has been lost
through his fault, he shall return the
fruits received and the value of the thing
at the time of the loss, with interest from
the same date. (1307a)
Art. 1401.
The action for annulment of contracts
shall be extinguished when the thing
which is the object thereof is lost through
the fraud or fault of the person who has
a right to institute the proceedings.
If the right of action is based upon the
incapacity of any one of the contracting
parties, the loss of the thing shall not be
an obstacle to the success of the action,
unless said loss took place through the
fraud or fault of the plaintiff. (1314a)
Art. 1402. Loss of Thing by Plaintiff; The person who is entitled to bring the action for nullity may not be in a position to return the thing
As long as one of the contracting parties which is the object of the contract, because of its loss, either by his fault or fraud, or by fortuitous event and without
does not restore what in virtue of the his fault
decree of annulment he is boundto
return, the other cannot be compelled to If the loss of the object is due to his fault or fraud, he cannot ask for annulment, because under article 1401, the action for annulment
comply with what is incumbent upon is extinguished in such case. The provisions of article 1400 cannot be applied. The action is extinguished, even if at the time of the
him. (1308) loss the plaintiff was still a minor or was insane
Evidently, the action for annulment is not extinguished, because article 1401 limits the extinguishment of the action to the case
where the loss is due to the fault or fraud of the plaintiff. But the defendant cannot be obliged to make restitution to the plaintiff.
Until the annulment of the contract, it is valid and produces legal effect; hence, the plaintiff, who was in possession of the object at
the time of its loss, must still be considered the owner thereof and he must bear the loss by fortuitous event; res perit domino. He
would not really be bearing such loss if he were to be given back the consideration that he had paid to the defendant; this would
constitute unjust enrichment. In this case, article 1402 must apply; since the plaintiff cannot be compelled to make restitution
But if the plaintiff in such case offers to pay the value of the thing at the time of its loss, as a substitute for the thing itself, the
defendant should be obliged to make restitution, by applying the rule contained in article 1400, except that the plaintiff need not pay
interest on the value of the thing at the time of its loss by fortuitous event, in order to compel the defendant to make restitution, then
we will reach the absurd result that the action for annulment would in effect be extinguished by loss of the thing even by fortuitous
event; this certainly cannot be correct, because article 1401 limits such extinguishment to loss by fault or fraud of the plaintiff.
Besides, it would be illogical to allow a party to replace by its value the thing lost by his fault, and deny this right to one who was
without faultLoss of Thing by Defendant; If it is the defendant who loses the thing which is the object of the contract, by his fault,
article 1400 applies; he will return the fruits received, the value of the thing at the time of its loss, with interest from the same date
If the loss is without fault on the part of the defendant, but by fortuitous event, can there be annulment of the contract? This must be
answered in the affirmative, because under article 1401 the action for annulment is extinguished by loss of the thing only when such
loss is due to the fault or fraud of the plaintiff (person entitled to ask for annulment)
The action for annulment cannot be extinguished or defeated by any event not imputable to the fault or fraud of the plaintiff
The most logical and equitable solution is to apply the principle contained in article 1400, by requiring the defendant to pay the
value of the thing at the time of its loss by fortuitous event, but without interest thereon. The defendant must suffer the loss, because
he is still the owner at the time of loss; he should, therefore, pay the value of the thing, but not the interest thereon because the loss
was not due to his fault
Loss of Fruits and Accessions; This rule in article 1400 is applicable also to the fruits and accession of the thing. The party obliged
to restore them must pay for their value if they cannot be returned
Unenforceable Contracts Concept and Distinctions; An unenforceable contract is one which cannot be enforced unless it is first ratified in the manner
provided by law. It is distinguished from the rescissible and the annullable contracts in that the latter two contracts produce
legal effects unless they are set aside by a competent court, while the unenforceable contract does not produce any effect unless it is
ratified
As regards the degree of defectiveness, voidable or annullable contracts are farther away from absolute nullity than unenforceable
contracts. In other words, an unenforceable contract occupies an intermediate ground between the voidable and the void contract
Art. 1403. Unauthorized Contracts; When a person enters into a contract for and in the name of another, without authority to do so, the contract
The following contracts are does not bind the latter, unless he ratifies the same.
unenforceable, unless they are ratified:
(1) Those entered into in the name of The agent who has entered into the contract in the name of the purported principal, but without authority from him, is liable to third
another person by one who has been persons upon the contract; it must have been the intention of the parties to bind someone, and, as the principal was not bound, the
given no authority or legal agent should be
representation, or who has acted beyond
his powers Statute of Frauds; The term “statute of frauds” is descriptive of statutes which require certain classes of contracts to be in writing.
This statute does not deprive the parties of the right to contract but merely regulates the formalities of the contract necessary to
(2) Those that do not comply with the render it enforceable
Statute of Frauds as set forth in this
number. In the following cases an The statute does not apply to actions which are neither for specific performance of the contract nor for the violation thereof
agreement hereafter made shall be
unenforceable by action, unless the Purpose of Statute; The purpose of the statute of frauds is to prevent fraud and perjury in the enforcement of obligations depending
same, or some note or memorandum, for their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be
thereof, be in writing, and subscribed by evidenced by a writing signed by the party to be charged
the party charged, or by his agent;
evidence, therefore, of the agreement Action to Enforce; The statute of frauds has been uniformly interpreted to be applicable to executory and not to completed or
cannot be received without the writing, executed contracts. Performance of the contract takes it out of the operation of the statuteThe statute of frauds is not applicable to
or a secondary evidence of its contents: contracts which are either totally or partially performed, on the theory that there is a wide field for the commission of frauds in
(a) An agreement that by its terms is not executory contracts which can only be prevented by requiring them to be in writing, a fact which is reduced to a minimum in
to be performed within a year from the executed contracts because the intention of the parties becomes apparent by their execution, and execution concludes, in most cases,
making thereof; the rights of parties
(b) A special promise to answer for the
debt, default, or miscarriage of another; Performance Within One Year; Contracts that by their terms are not to be performed within one year from the making thereof, must
(c) An agreement made in consideration be in writing. The “making” of an agreement, for the purpose of determining whether or not the period for performance brings the
of marriage, other than a mutual agreement within the statute of frauds, means the day on which the agreement is made, and the time begins to run from the day the
promise to marry; contract is entered into, and not from the time that performance of it is entered upon
(d) An agreement for the sale of goods,
chattels or things in action, at a price not The broad view is that the statute of frauds applies only to agreements not to be performed on either side within a year from the
less than five hundred pesos, unless the making thereof. Agreements to be fully performed on one side within the year are taken out of the operation of the statute
buyer accept and receive part of such
goods and chattels, or the evidences, or In Hernandez v. Court of Appeals, 160 SCRA 821, the Court said:“The Statute of Frauds finds no application to this case. Not every
some of them, of such things in action or agreement ‘affecting land’ must be put in writing to attain enforceability. Under the Statute of Frauds, Article 1403(2) (e) of the
pay at the time some part of the purchase Civil Code, such formality is only required of contracts involving leases for longer than one year, or for the sale of real property or
money; but when a sale is made by of an interest therein. “
auction and entry is made by the
auctioneer in his sales book, at the time In Vda. De Espina v. Abaya, 196 SCRA 312, the Court said:“Anent the issue of oral partition, We sustain the validity of said
of the sale, of the amount and kind of partition. "An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in
property sold, terms of sale, price, names common is valid and enforceable upon the parties.
of the purchasers and person on whose
account the sale is made, it is a sufficient The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a
memorandum; segregation and designation of the part of the property which belong to the co-owners." (Tolentino, Commentaries and
(e) An agreement of the leasing for a Jurisprudence on the Civil Code of the Philippines, Vol. II, 1983 Edition, 182-183 citing Hernandez v. Andal, et. al., G.R. No. L275,
longer period than one year, or for the March 29, 1957)”
sale of real property or of an interest
therein; Partial performance, however, removes the contract from the operation of the statute
(f) A representation as to the credit of a Guaranty of Another’s Debt; A promise to answer for the debt, default, or miscarriage of another has been defined as an undertaking
third person. by a person, not before liable, for the purpose of securing or performing the same duty for which the original debtor continues to be
liable
(3) Those where both parties are To bring a promise within the operation of the statute, there must be a debt or obligation of one other than the promisor for whose
incapable of giving consent to a default the latter undertakes to be responsible
contract. The test as to whether a promise is within the statute has been said to lie in the answer to the question whether the promise is an
original or a collateral one. If the promise is an original or an independent one, that is, if the promisor becomes thereby primarily
liable for the payment of the debt, the promise is not within the statute. But on the other hand, if the promise is collateral to the
agreement of another and the promisor becomes thereby merely a surety, the promise must be in writing
In Consideration of Marriage; It is well-settled that any verbal executory promise or agreement other than mutual promise to marry,
made in consideration of marriage, is embraced within the provisions of the statute of frauds requiring that agreements made upon
consideration of marriage should be in writing, and signed by the party to be charged therewith
Representation as to Credit; A representation made by a stranger to the contract with the intent that the person for whom it is made
should obtain credit thereby, must be in writing in order to be a basis of an action for damages against the party who made the
representation, if this turns out to be false or incorrect
Parties Incapacitated; Where both the contracting parties do not have the capacity to consent, the contract is unenforceable.
Neither party or his representative can enforce the contract unless it has been previously ratified. The ratification by one party,
however, converts the contract into a voidable contract—voidable at the option of the party who has not ratified; the latter, therefore,
can enforce the contract against the party who has already ratified. Or, instead of enforcing the contract, the party who has not
ratified it may ask for annulment in the ground of his incapacity
Art. 1404. Ratification Validates Contract; The sale of property made by a person without authority of the owner is null and void in the
Unauthorized contracts are governed by beginning, but afterwards it becomes perfectly valid and is cured of the defects of nullity which it bore at its execution by the
Article 1317 and the principles of agency ratification solemnly made by the said owner upon his stating under oath in court that he himself consented to the former’s making
in Title X of this Book. the said sale
Art. 1405. Failure of Object; If the parties to the action, during the trial, make no objection to the admissibility of oral evidence to support a
Contracts infringing the Statute of contract covered by the statute of frauds, and thereby permit such contract to be proved orally, it will be just as binding upon the
Frauds, referred to in No. 2 of Article parties as if it had been reduced to writing
1403, are ratified by the failure to object
to the presentation of oral evidence to Acceptance of Benefits; The statute of frauds cannot be invoked when the contract has already been partly executed; it applies only
prove the same, or by the acceptance of to executory contracts
benefit under them.
Art. 1406.
When a contract is enforceable under the
Statute of Frauds, and a public document
is necessary for its registration in the
Registry of Deeds, the parties may avail
themselves of the right under Article
1357.
Art. 1407.
In a contract where both parties are
incapable of giving consent, express or
implied ratification by the parent, or
guardian, as the case may be, of one of
the contracting parties shall give the
contract the same effect as if only one of
them were incapacitated.
If ratification is made by the parents or

guardians, as the case may be, of both
contracting parties, the contract shall be
validated from the inception.
Art. 1408. Defense is Personal; The defense of the statute of frauds is personal to the party to the agreement. It is like minority, fraud, mistake,
Unenforceable contracts cannot be and other similar defenses which may be asserted or waived by the party affected. Hence, it can be relied upon only by the parties to
assailed by third persons. the contract or their representatives, and cannot be set up by strangers to the agreement
Void and Inexistent Contracts
Art. 1409. Void or Inexistent Contracts; A void or inexistent contract is one which has no force and effect from the very beginning, as if it had
The following contracts are inexistent never been entered into, and which cannot be validated either by time or by ratification. This definition includes not only those
and void from the beginning: contracts in which one of the essential requisites is totally wanting, but also those which are declared void by positive provision of
(1) Those whose cause, object or law or statute. A void or inexistent contract is equivalent to nothing; it is absolutely wanting in civil effects
purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated
or fictitious;
(3) Those whose cause or object did not
exist at the time of the transaction;
(4) Those whose object is outside the
commerce of men;
(5) Those which contemplate an
impossible service;
(6) Those where the intention of the
parties relative to the principal object of
the contract cannot be ascertained;
(7) Those expressly prohibited or
declared void by law.
These contracts cannot be ratified.

Neither can the right to set up the
defense of illegality be waived.
Characteristics of Void Contracts:
1. The contract produces no effect whatsoever either against or in favor of anyone; hence, it does not create, modify, or extinguish
the juridical relation to which it refers
2. No action for annulment is necessary, because the nullity exists ipso jure; a judgment of nullity would be merely declaratory
3. It cannot be confirmed or ratified
4. If it has been performed, the restoration of what has been given is in order
Parties Affected; Any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted
against him
Action on Contract; Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has
already been fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to
declare the absolute nullity of the contract and to decree the restitution of what has been given under it. The judgment, however, will
retroact to the very day when the contract was entered into
If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action
to enforce it, the other party can simply set up the nullity as a defense
Ratification; The nullity of these contracts is definite and cannot be cured by ratification. The nullity is permanent, even if the cause
thereof has ceased to exist, or even when the parties have complied with the contract spontaneously. The ratification, however, may
take the form of a new contract, in which case its validity shall be determined only by the circumstances at the time of execution of
such contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract
Art. 1410. Defect Incurable; The defect of inexistence of a contract is permanent and incurable; hence, it cannot be cured either by ratification
The action or defense for the declaration or by prescription
of the inexistence of a contract does not
prescribe. As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy
Nature of Action; There is no need of an action to set aside void or inexistent contract; in fact, such action cannot logically exist.
However, an action to declare the non-existence of the contract can be maintained; and in the same action, the plaintiff may recover
what he has given by virtue of the contract. The power to ask for the declaration of non-existence of the contract cannot be assigned
Art. 1411.
When the nullity proceeds from the
illegality of the cause or object of the
contract, and the act constitutes a
criminal offense, both parties being in
pari delicto, they shall have no action
against each other, and both shall be
prosecuted. Moreover, the provisions of
the Penal Code relative to the disposal of
effects or instruments of a crime shall be
applicable to the things or the price of
the
contract.
This rule shall be applicable when only
one of the parties is guilty; but the
innocent one may claim what he has
given, and shall not be bound to comply
with his promise. (1305)
Art. 1412. Application of Articles; Articles 1411 and 1412 are not applicable to fictitious or simulated contracts, because they refer to contracts
If the act in which the unlawful or with an illegal cause or subject-matter, whether it constitutes an offense, or whether the cause is only rendered illegal, or to contracts
forbidden cause consists does not which are null and void ab initio. These articles, therefore, presupposes, the existence of a cause, although such cause may be
constitute a criminal offense, the vitiated and may render the contract void. Hence,they cannot refer to fictitious or simulated contracts which are in reality non-
following rules shall be observed: existent. As between the annullable and inexistent contracts, however, those contemplated by these articles must be considered
(1) When the fault is on the part of both before the law as inexistent
contracting parties, neither may recover
what he has given by virtue of the Mere knowledge of the illegality of the object/ cause makes the party guilty
contract, or demand the performance of Illegality Common to Parties; Each must bear the consequences of his own acts.
the other's undertaking; The doctrine of in pari delicto is not applicable where the contract is merely prohibited by law, not illegal per se, and the prohibition
(2) When only one of the contracting is designed for the protection of the rights of the party seeking to recover
parties is at fault, he cannot recover Only One Party Guilty; Where the parties to an illegal contract are not equally guilty, and where public policy is considered
what he has given by reason of the asadvanced by allowing the more excusable of the two to sue for relief against the transaction, relief is given to him
contract, or ask for the fulfillment of
what has been promised him. The other, Cases of Usury; The Usury Law contains all the provisions necessary for its application. With regard to the capital loaned, the law
who is not at fault, may demand the did not intent to close the courts to the creditor for relief in the recovery of his principal. Articles 1411 and 1412, therefore, are not
return of what he has given without any applicable to a usurious contract and will not justify the recovery by the debtor of the amounts he has already paid on account of the
obligation to comply his promise. (1306) principal borrowed by him; the
Usury Law limits his right to a recovery of usurious interest paid during the two years preceding the making of the claim. But where
the only consideration for a deed of sale is accumulated usurious interest, the entire consideration is illicit, the contract is null and
void, and the borrower may recover the property conveyed, together with its fruits
Art. 1413. Recovery of Usurious Interest; Section 6 of Act No. 2655, known as the Usury Law, provides that in such case the person who paid
Interest paid in excess of the interest usurious interest “may recover the whole interest, commissions, premiums, penalties and surcharges paid or delivered” if the action
allowed by the usury laws may be to recover is brought within two years
recovered by the debtor, with interest after such payment or delivery; in other words, the whole usurious interest paid within the last two years preceding the action can be
thereon from the date of the payment. recovered under the Usury Law
Art. 1414. Repudiation of Illegal Contract; Where the parties to an illegal contract are not equally guilty, and where public policy is considered
When money is paid or property as advanced by allowing the more excusable of the two to sue for relief against the transaction, relief is given to himThe provisions
delivered for an illegal purpose, the of this article may modify some rulings or decision rendered under Articles 1305 and 1306 (now 1411 and 1412), of the old Civil
contract may be repudiated by one of the Code
parties before the purpose has been
accomplished, or before any damage has
been caused to a third person. In such
case, the courts may, if the public
interest will thus be subserved, allow the
party repudiating the contract to recover
the money or property.
Art. 1415.
Where one of the parties to an illegal
contract is incapable of giving consent,
the courts may, if the interest of justice
so demands allow recovery of money or
property delivered by the incapacitated
person.
Art. 1416. Illegal Per Se; An act or contract that is illegal per se is one that by universally recognized standards inherently or by its very nature
When the agreement is not illegal per se bad, improper, immoral or contrary to good conscience
but is merely prohibited, and the
prohibition by the law is designated for
the protection of the plaintiff, he may, if
public policy is thereby enhanced,
recover what he has paid or delivered.
Art. 1417.
When the price of any article or
commodity is determined by statute, or
by authority of law, any person paying
any amount in excess of the maximum
price allowed may recover such excess.
Art. 1418.
When the law fixes, or authorizes the
fixing of the maximum number of hours
of labor, and a contract is entered into
whereby a laborer undertakes to work
longer than the maximum thus fixed, he
may demand additional compensation
for service rendered beyond the time
limit.
Art. 1419.
When the law sets, or authorizes the
setting of a minimum wage for laborers,
and a contract is agreed upon by which a
laborer accepts a lower wage, he shall
be entitled to recover the deficiency.
Art. 1420. Divisible or Separable Contracts; As a general rule, the provisions of this article must be applied if there are several stipulations in
In case of a divisible contract, if the the contract, some of which are valid and some void. If the stipulations can be separated from each other, then those which are void
illegal terms can be separated from the will not have any effect, but those which are valid will be enforced. In case of doubt, the contract must be considered as divisible or
legal ones, the latter may be enforced. separable
The rule of divisibility given in this article, however, has two exceptions: (1) when the nature of the contract requires indivisibility,
and (2) when the intention of the parties is that the contract be entire
Nature of Contract; The very nature of the contract in some cases requires that the nullity be total. For instance, in the case of the
contract of compromise
Intention of Parties; The rule of divisibility and partial enforceability stated in this article must yield to the contrary intention of the
parties. In spite of the divisibility or separability, the entire contract will be void if it is clear that the parties would not have entered
into it without the void part. If the illegality, for instance, affects an essential part of the contract, without which the parties would
not have entered into the contract, the entire contract is void. Thus, if there are principal and accessory clauses, the nullity of the
former carries that of the latter
If the illegality does not affect the principal part, or that which the parties must have contemplated as the desired minimum in
relation to the whole contract, as projected, then only the illegal parts are void. Generally, therefore, the divisibility will be followed
when the nullity affects only the secondary or accessory obligations
Art. 1421. Nullity as Defense; The right to set up the nullity of a void or inexistent contract is not limited to the parties, as in the case of
The defense of illegality of contract is annullable or voidable contracts; it is extended to third persons who are directly affected by the contract. Thus, where a contract is
not available to third persons whose absolutely simulated, third persons who may be prejudiced thereby may set up its existence
interests are not directly affected.
Third persons whose interests are served by the nullity of the contract may attack it, especially creditors of those who dispose of
their property under a void contract. The creditor may attach the property thus alienated, asserting the nullity of the alienation
Art. 1422. Adjunct Contracts; All contracts emanating from a void contract will also be void
A contract which is the direct result of a
previous illegal contract, is also void
and inexistent.

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OBLIGATION AND CONTRACTS

FIRST YEAR 2020

Article 1157 Sources of Obligation

Extinguishment of Negotiorum Gestio

2|SHERLYN LOVE D. YUNGOT

*The recipient has duty to return what was received.

Rules that govern

Civil Liability arising from crimes

Effects of acquittal in criminal case

*Acquittal does not affect civil liability

 The fault or negligence is the proximate cause of the damage injury

Culpa Aquiliana Culpa Contractual

Requisites of liability under quasi-delict:

5|SHERLYN LOVE D. YUNGOT

Civil and Natural Obligations (Kinds of Obligation)

3 kinds of prestations in obligation

Obligation to give may refer either to :

In an obligation to deliver a determinate thing, there are 3 incidental or accessory obligations:

Duties of debtor in obligation to give determinate thing:

2. Deliver the fruits of the thing- art 1164

Duties of debtor in obligation to deliver a generic thing :

7|SHERLYN LOVE D. YUNGOT

When obligation to deliver fruits arises:

Meaning of personal right and real right

Personal right and real right, Distinguished

8|SHERLYN LOVE D. YUNGOT

Article 1165 Remedies of a Creditor

Article 1167 Situations contemplated in Article 1167 ( an obligation to do)

When demand is not necessary to put the debtor in delay:

 The fulfilment by the parties should be simultaneous

Effect of negligence on the part of the injured party—

Article 2179 of the new civil code provides:

Negligence is simply the absence of due care required by the obligation

In determining the issue of negligence, the following factors must be considered:

Kinds of diligence required:

Fortuitous Event Force Majeure

Kinds of fortuitous event:

1. When expressly specified by law

Article 1175 Simple loan or Mutuum

Requisites for recovery of interest :

When presumptions in Article 1176 do not apply:

2. Rights or relations of a public character;

3. Rights of an honorary character;

2. Prohibited by stipulation of the parties

A. By their juridical quality or efficaciousness:

SIMPLE (Individual) MULTIPLE (Collective)

FIDE JUSORIAS HIPOTECARIAS

WITH A PENAL CLAUSE SIMPLE

D. By their juridical perfection and extinguishment

A conditional obligation is one which is subject to a condition.

Potestative Casual Mixed

An obligation is demandable at once--

a. X is liable if B marries C before he reaches the age of 23

1. Intent of the obligor to prevent fulfillment of the condition, and

3. To demand security if the debtor becomes insolvent;

5. To register the deeds of sale or mortgages evidencing the contract;

6. To set aside fraudulent alienations made by the debtor; and

(4) If it deteriorates through the fault of the debtor,

(6) If it is improved at the expense of the debtor,

Note these following cases on Notice of Cancellation:

Obligations with a resolutory period take CONDITION PERIOD

SUSPENSIVE (ex die) RESOLUTORY (in diem)

LEGAL VOLUNTARY JUDICIAL