Civil Law Review

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SOURCES OF OBLIGATIONS Law

When it comes to an obligation created by law, it presupposes that it has
Prestations to be express.
1. to give
2. to do Q: Why? What is the requirement before anything becomes a law?
3. not to do
A: It requires publication.
Atty. SBM: These are the only three prestations. Prestation is not the
same as subject matter. When we say prestation, this is all about to give, Atty. SBM: Obligations arising from law are never presumed. Conversely,
to do, or not to do. It is part of that definition under Art. 1156. if it is not presumed, then it has to be express. It will have to become
expressed by way of publication.
Definition of Obligation
Contracts
Article 1156. An obligation is a juridical necessity to give, to do or not The three requisites of a contract are consent, object or subject matter,
to do. and cause or consideration.

Q: What is the difference between cause and consideration?

Atty. SBM: But when we say juridical necessity, there is that juridical tie.
There is that relationship between one party and the other which caused
A: Essentially, they are the same, which is why the law uses the terms
and created that obligation.
interchangeably. The reason why there are two different concepts is
because one comes from civil law and the other comes from common law.
Q: How will you compare it with a moral obligation? How about a
But they are essentially the same.
natural obligation?
Atty. SBM: In general, contracts are consensual. There are some
A: In moral obligations, there is no juridical tie. Natural obligation is
contracts that will require further perfection, like delivery. Some will
something also included in our law, but does not necessarily mean that
require a certain form, which are called formal contracts.
there is an obligation that can be enforceable.
Quasi-Contracts
Sources of Obligation
It is called quasi-contract because it does not have the complete elements
Article 1157. Obligations arise from: – consent is missing. The law supplies the element of consent to prevent
(1) Law; unjust enrichment.
(2) Contracts;
(3) Quasi-contracts; Common Examples of Quasi-Contracts:
(4) Acts or omissions punished by law; and 1. Negotiorum Gestio
(5) Quasi-delicts. a. It is unfair for the inofficious manager to take over the
business and not be compensated by reimbursement.
Thus, the law supplies consent to prevent injustice.
Atty. SBM: This juridical tie can only come from five sources found in
2. Solutio Indebiti
Article 1157. Nothing else. Outside of these sources, it will not be a legal
a. Payment by mistake
or civil obligation. The five sources are exclusive.

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Delicts
For every criminal offense, there will be a corresponding civil liability. If a
person is found not guilty of the crime, he can still be held civilly liable
because of the difference in the quantum of proof (civil cases only require
preponderance of evidence, while criminal cases require proof beyond
reasonable doubt). Thus, extinguishment of a criminal liability does not
necessarily result in the extinguishment of the civil liability.
Atty. SBM: If it is answerable by a yes or no, the first word should either
be yes or no. Highlight the word: SITUATIONS. Delicts, Quasi-Delicts, etc
are examples but not examples of situations. I like the answer here of
SSS contributions. Also, don’t rush your answers, maximize your time.
Q: How is a civil obligation distinguished from a natural obligation?
Give an example of a natural obligation.

There is also the concept of (separate) independent civil actions.

Civil Obligation Natural Obligation
Against the same person of which the liability arises from the same act,
Based on positive law Based on equity
but for the civil liability is a civil case and the criminal liability will be a
criminal case.
Can be enforced Cannot be enforced
If no express reservation, then when you file a criminal action, the claim
for civil liability is generally included in that criminal action. Bar Tip: If you are asked to “distinguish,” try to discuss the commonalities
first of the two, then put the distinction. If you are asked to “differentiate,”
Quasi-Delicts just spell out the differences.
The basis is negligence and no intention to commit a wrong.
Q: What is estoppel? What are the kinds of estoppel?
Elements:
1. Injury/Damage A: Estoppel by Deed and Estoppel in pais.
2. Negligence
3. Proximate Cause Juridical Necessity
When it comes to obligations, any question that you will encounter, don’t
You always need to discuss how negligence is the proximate cause that forget the phrase “juridical necessity.”
connects to the damage or injury sustained.
1. “Juridical” because it is created by law. There is that juridical tie
These are the foundations of the principles. between the parties.
2. “Necessity” gives that compulsion and coercion measures in case
the obligation is not complied with.

Dela Cruz v. Northern Theatrical Prestation

There can never be an obligation if there is no law requiring the When we say prestation, it is only to give, to do, or not to do. Only these
reimbursement of legal expenses incurred in the official tour of duty by a three. These prestations are not interchangeable with the concept of
security guard. subject matter or objects of contracts.

Q: (Bar 2007 Question) Are there any obligations without an

agreement? If yes, give examples of situations giving rise to this
type of obligation.

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Active and Passive Subject
It is important to determine who is the active and passive subject in an
obligation.
1. Active subject - the creditor; the one interested in enforcing the
obligation
2. Passive subject - the debtor; the one who is just waiting for a
demand, if necessary, from the creditor for him to perform the
obligation either by delivering the goods or performing the service
It is important for us to determine who is the active and who is the passive
subject because in our discussion of potestative discussions, it is
important to determine who is the debtor in that relationship.
Moral Obligations
When it comes to moral obligations, we cannot find these in any legal
book. Maybe in the bible, you will find what are the moral obligations.
Natural Obligations
You can say that they are based on morality. But, the more accurate and
precise term to use is that, a natural obligation is based on equity.
Because there might be confusion as to whether an obligation is a moral
or a natural obligation.
Q: Are natural obligations found in any legal book?
A: Yes. The Code Commission decided to codify the definition of natural
obligations and gave some of the examples of which they are not
exclusive. Articles 1423 up to 1430.
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
fulfillment 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.
Law
When it comes to an obligation arising by law, they are not presumed.
That finds support in the requirement of publication found in Article 2 of
the Civil Code.
Contracts
It has the force of law between the parties. Therefore, the law is behind
you in making the passive subject comply with his obligation.
Article 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.
Q: “Complied with in good faith” What does good faith mean?
A: Just being fair. Let’s say something between good and evil, you stay in
the middle. “Huwag ka manglalamang.” Basically, just fairness.
Quasi-contracts
The principle behind is unjust enrichment. Examples are:
1. Negotiorum Gestio or Inofficious Manager
2. Solutio Indebiti
There are other quasi-contracts listed in the Code, but at the same time,
the list is not exclusive. There could always be other quasi-contracts not
mentioned in the Civil Code but will be considered as such for as long as
it will now promote that principle of unjust enrichment.
Delicts
Article 2177. Responsibility for fault or negligence under the preceding
article is entirely separate and distinct from the civil liability arising from
negligence under the Penal Code. But the plaintiff cannot recover
damages twice for the same act or omission of the defendant.
For delicts, the commission of a crime can give rise to either criminal or
civil liability. Delicts can also be seen in Chapter 2, Article 19 in particular.
By virtue of a commission of a crime, Article 19 can also be violated, and
then damages as well.
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Q: (Bar 2007 Question) Are there any obligations without an
agreement? If yes, give examples of situations giving rise to this
type of obligation.
A: Yes, obligations may arise without an agreement. For example, the law
requires employers to pay SSS or to pay taxes under the Internal
Revenue Code. Another example is a quasi-contract, like when an
individual manages the businesses of another without the latter’s consent.
Q: (Bar 1989 Question) How is a civil obligation distinguished from a
natural obligation? Give an example of a natural obligation.
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
fulfillment 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.
An example of a natural obligation is when a right to sue upon a civil
obligation has lapsed by extinctive prescription, the obligor who voluntarily
performs the contract cannot recover what he has delivered or the value
of the service he has rendered.
Atty. SBM: Start by saying both are obligations and that –
Civil Obligation Natural Obligation
Based on law. Based on equity.
There is a force of compulsion. There is no force of compulsion.
In fact, it allows for retention. Art.
1423 uses the term after voluntary
fulfillment of the debtor. Thus, by
reason of equity, he is entitled to
keep the same because there
was payment and the action
prescribed.
Atty. SBM: Due to his conscience was used by the student to describe
natural obligations. But the more appropriate term is a violation of equity
for purposes of natural obligations. Equity is something that is borrowed
from the common law systems in other jurisdictions. Since our Code
Commission decided to codify such equitable positions, it now forms part
of our Civil Code. Thus, a natural obligation does not come from nature
nor morality. It comes from the Code, the basis of which is equity.
Q: What do you understand by estoppel? What are the different
kinds of estoppel? Explain.
Article 1433. Estoppel may in pais or by deed.
A: It is a doctrine that precludes one from asserting a claim which he has
established. It can be either by deed or in pais.
The requisites for estoppel by conduct are:
a. There must have been a representation or concealment of
material facts.
b. Representation was made with knowledge of the facts.
c. The party to whom it was made must have been ignorant of the
truth of the matter.
d. It must have been made with the intention that the other party
would act upon it.
The requisites for estoppel in pais are:
a. There must be conduct, act, language, or silence amounting to a
representation or concealment of material facts.
b. These facts must be known to the party estopped at the time of
his said conduct, or, at least, the circumstances must be such that
knowledge of them is necessarily imputed to him.
c. Truth concerning the facts must be unknown to the party claiming
benefit of the estoppel at the time when it was acted upon him.
d. The conduct must be done with the intention, or, at least, with the
expectation that it will be so acted upon.
e. The conduct must be relied upon by the other party and, thus
relying, he must be led to act upon it.
f. He must in fact act upon it in such a manner as to change his
position for the worse.
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KINDS OF OBLIGATIONS Article 1180 Article 1182 Article 1197

Coverage: Articles 1179-1229. But the focus will be on the more When the debtor When the fulfillment If the obligation does
complicated ones or topics of multiple bar exams or exams in law school. binds himself to pay of the condition not fix a period,
when his means depends upon the but from its nature
Pure Obligations permit him to do so, sole will of the debtor, and the
the obligation shall be the conditional circumstances it can
Article 1179. Every obligation whose performance does not depend deemed to be one obligation shall be be inferred that a
upon a future or uncertain event, or upon a past event unknown to the with a period, subject void. If it depends period was intended,
parties, is demandable at once. xxx to the provisions of upon chance or upon the courts may fix the
article 1197. (n) the will of a third duration thereof.
It has no term or condition upon which depends the fulfillment of the person, the obligation The courts shall also
obligation, it is immediately demandable. It does not depend on any shall take effect in fix the duration of the
contingent event (future or uncertain). conformity with the period when it
provisions of this depends upon the will
Term v. Condition Code. (1115) of the debtor. In every
case, the courts shall
Term Condition
determine such
period as may, under
Necessarily must come. For Uncertain event.
the circumstances,
example, death.
have been probably
contemplated by the
parties.
CONDITIONAL OBLIGATIONS
Once fixed by the
(Types of Conditions) Resolutory v. Suspensive courts, the period
cannot be changed
Resolutory Suspensive by them. (1128a)

Happening of a condition The happening of the condition

extinguishes a right.
Results to Resolution of Rights
Ex: I will give you the car now, but
if you fail the bar, I will take it
back.
gives rise to the right.
Results to Acquisition of Rights
Ex: If you pass the bar, I will give
you a car.
Patente v. Omega
The relevant portion of the promissory note reads: "I am going to pay debt
to her, her heirs, assigns and successors, in the said sum of P1,600 in
Philippine currency, as soon as possible or as soon as I have money."
When the time for payment of an obligation is left to the sole will of the
debtor, and the condition is annulled, the obligation does not become a
pure and unconditional obligation. The recourse of the creditor is to go to
court and ask for setting time limit for the payment. (Compare with Gaite
vs. Fonacler)

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“I am going to pay 1600 php as soon as possible or as soon as I
have money."
● This is actually a term under Art. 1180
● A condition can be attached to an obligation. If a condition is left
to the sole will of the debtor, what is the effect? - VOID
Example of 1182?
A: “I promise to sell this cellphone if my brother gives me his iPhone 13.”
There is a third person here. Not solely left to the will of a debtor.
“I promise to give you this pen if I buy a new one”. The condition here is
dependent on you. So can you also apply Art. 1180? No, just 1182.
Q: In this example: “I will pay you when I am able”, does this fall
under 1180 or 1182?
A: 1180 because the obligation to pay is certain. It is just that the “when
the person will pay” is not.
Q: “I will pay you when I feel like it.” 1180 or 1182?
A: 1182.
Q: What would be the guidelines?
A: 1180 - debtor determines the time when to pay but the obligation to pay
is already absolute. 1182 - fulfillment of the obligation itself is dependent
on the debtor.
The difference is the time element. If the time element is dependent on
the debtor, that’s 1180.
Q: “I will pay you when I am able.” 1180 or 1182?
A: 1180
Q: “I will pay you when I am capable.” 1180 or 1182?
A: 1180
Atty. SBM: Remember the time element or there is that capacity/
willingness to pay. In Article 1182, the condition is dependent upon the
sole will of the debtor which will make the conditional obligation void. That
is why it is important for us to distinguish whether a condition is
potestative or by chance or upon the will of a 3rd person. Because if it is
by chance, the obligation is still valid. But if it is potestative; upon the will
of the debtor, and it is attached to an obligation that makes the conditional
obligation void.
Take note: even if it is dependent upon the sole will of the debtor but the
condition is resolutory, the condition may be valid. But even if the
condition is dependent upon the will of the creditor, both the condition and
the obligation are valid as well because the creditor is interested in the
fulfillment of the condition.
Q: “I will give you a car if you will use it as a taxi.” Resolutory
suspensive?
A: Resolutory
Q: “I will give you a car if you pass the BAR.” Resolutory
suspensive?
A: Suspensive
Q: “I will give you a car if you dance.” Resolutory suspensive?
A: Suspensive
Atty. SBM: At first glance, if you use the word “if”, it becomes suspensive.
But not at all times. Take the case of Parks v. Province of Tarlac. Same
thing if we use the word “provided.” (Note: According to sir, Parks is a
very important case. Read and reread!)
Parks v. Province of Tarlac
Cirer and Hill donated 2 parcels of land to the municipality of Tarlac on the
condition it build a school and a public park there. Cicer and Hill then sold
the land to Parks. The Municipality transferred the land to the Province of
Tarlac. Parks alleges the conditions of the sale were not complied with
and wants to invoke the sale of the lands made to him.
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W/N there was a condition precedent to the donation of the land to the
municipality (such that since the same was not complied with, there is no
effective donation)? NO.
W/N the action to revoke donation has prescribed? YES
Doctrine: 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.
In the present case the condition that a public school be erected and a
public park made of the donated land, work on the same to commence
within six months from the date of the ratification of the donation by the
parties, could not be complied with except after giving effect to the
donation. The donee could not do any work on the donated land if the
donation had not really been effected, because it would be an invasion of
another's title, for the land would have continued to belong to the donor so
long as the condition imposed was not complied with.
Under the laws in force, the period of prescription of this class of action is
ten years. The action for the revocation of the donation arose on April 19,
1911, six months after the ratification donation of October 18, 1910. The
complaint in this action was presented July 5, 1924, more than ten years
after this cause accrued.
Atty. SBM: A condition will be a condition precedent if it is not totally
related to the subject matter of the obligation. But in this particular case,
how can the condition be fulfilled which is the creation of a public school;
that erection of a public park. How can it be complied with if you do not
get the land first.
In order to distinguish whether one is suspensive or resolutory, despite
the language or the phrases used, look at the correlation or relationship
between the (1) object of the obligation, and the (2) condition itself. If they
are connected, most likely that is resolutory, just as in the case of Parks v.
Province of Tarlac.
In all of these other cases, the conditions were: "if the house were sold,
babayaran ko lahat pagkatapos na ako ay makapaghuli ng isda" or "as
soon as he receives funds derived from the sale of his property in Spain".
These appear to me as dependent upon the sole will of the debtor.
Q: Distinguish whether a condition falls under Art. 1182 or Art. 1180.
A: The conditions abovementioned fall under Art. 1180 because, in these
cases, there are interventions of a third party, so it is not solely upon the
will of the debtor. It cannot be considered to fall under Art. 1182.
Q: If you say, "if the house is sold", what does that mean?
A: It is not really the sole will of the debtor because there is an element of
a third party intervention. In order for a house to be sold, there is a buyer,
not only the seller.
Q: What if I say, "if I get married"?
A: In that case, it is still Art. 1180 because in a marriage there are two
persons involved. That is not in the sole will of the debtor.
Atty. SBM: There is significance in determining whether one is
potestative or mixed. Taking the Bar exam is not potestative. Getting
married? No. Selling a house? No.
Q: How about, "babayaran ko lahat pagkatapos na ako ay
makapaghuli ng isda"? Can you apply the same argument that this
is not potestative?
A: It is not potestative, not because it is with the intervention of a third
party but because of an intervention of a natural phenomenon. It is not
really based on the sole will of the debtor because what if there was no
fish in the sea?
Atty. SBM: Take note of these three other cases that will help you
understand how the court perhaps contradicted certain principles in the
case of Patente v. Omega. Correlate Osmeña, Trillana, Hermosa,
Patente, as you read Arts. 1180 and 1182.
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OBLIGATIONS WITH A PERIOD Q: At what point in time do you determine whether a condition is
impossible or not?
A period must be:
● Future A: It must be ascertained at the time of the inception of the contract.
● Certain; and
● Possible Q: Why?

A: There is a ruling that a subsequent event that renders an initially

Article 1193. Obligations for whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate
upon arrival of the day certain.
A day certain is understood to be that which must necessarily come,
although it may not be known when.
If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the
preceding Section. (1125a)
Q: What happens if an impossible condition is attached to an
obligation?
possible condition into an impossible one will not affect the nature of the
condition.
Article 1197. If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended,
the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends
upon the will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them. (1128a)
(Take note Art. 1197 was cross-referenced by Art. 1180.)

A: It will render the obligation void.

Q: Why?
A: Because it is the same as saying that the obligation will never arise.
Article 1183. Impossible conditions, those contrary to good customs or
public policy and those prohibited by law shall annul the obligation
which depends upon them. If the obligation is divisible, that part thereof
which is not affected by the impossible or unlawful condition shall be
valid.
The condition not to do an impossible thing shall be considered as not
having been agreed upon. (1116a)
Article 1180. When the debtor binds himself to pay when his means
permit him to do so, the obligation shall be deemed to be one with a
period, subject to the provisions of article 1197. (n)
Q: When do we use Art. 1197?
A: Just by its wording, "if the obligation does not fix a period, but from its
nature and the circumstances" it opens the door to what we call as a
case-to-case basis. "It can be inferred that a period was intended", which
means that the parties had the intention but since intention is a mental
act, you will have to look at the prior, contemporaneous and simultaneous
acts that will somehow reveal the intent of the parties therefore the courts
will fix a duration. If there is that time element (payable when able) when
you will have the financial capability or means to permit you to pay, then
apply Art. 1197.

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The status of the obligation is suspended before the period of compliance
has been fixed. Rationale for fixing a period is to prevent debtors from not
fulfilling their obligations forever without being liable for delay.
Situations When the Court Will Fix a Period
● When no period is mentioned, but it is inferable from the nature
and circumstances of the obligation that a period was intended.
● When the period is dependent upon the sole will of the debtor.
Atty. SBM: TAKE NOTE OF THE DIFFERENCE WITH 1182. Here, it is
not the happening of the condition that is dependent upon the will of the
debtor. Rather, it is the duration of the period.
original contract or agreement and is not subject to change or extension
by the court.
Principles in Article 1197
● It is determined on a case-to-case basis.
● There must be an ascertainment of intention [of the parties to fix a
period] before the Courts can fix a period.
● If the period is dependent upon the will of the debtor, Courts will
have to fix the period.
● The moment the period is fixed by the Court, it cannot be
changed.

Significance of the Court’s Fixing of the Period

● Duty of the court to fix the period if the parties intended it.
● Court fixes the period as it merely ascertains the will of the
parties and gives effect thereto.
● Period was clearly intended by the parties.

Specific performance cannot be demanded simultaneously with the

petition for fixing a period because the former is premature, unless the
latter action will only be a formality and serves no purpose but to delay.
Once the court has fixed the period, such period acquires the nature of
the contract, becoing the law governing the contract and once it has been
agreed upon by the parties, IT CANNOT BE CHANGED OR MODIFIED
through any subsequent action. (Barreto v. City of Manila)

Barreto v. City of Manila

There was a specific performance trying to eject people from the property.
But, at the same time, how can you make that claim for that rescission of
a contract if the period has not yet arrived. How come? Because there
was no period to speak of in the first place, but the parties intended a
period. Therefore, it was fixed by the Court.

Here, the lower court tried to change or modify period already fixed. Thus,
the SC came up with the categorical statement that it cannot be changed
or modified once it is fixed by the Court.

Doctrine: When a term is fixed by the court under such circumstances and
accepted by the parties, it is supplementary to and becomes a part of the

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ALTERNATIVE OBLIGATIONS
Article 1199. A person alternatively bound by different prestations shall
completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the
other undertaking.
Article 1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable.
There is only one obligation but different prestations. The different
prestations can be an obligation to give, to do, etc.
Right of Choice Belongs to the Debtor, By Default
Article 1200. The right of choice belongs to the debtor, unless it has
been expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the
obligation. (1132)
Until then the responsibility of the debtor shall be governed by the
following rules:
(1) If one of the things is lost through a fortuitous event, he shall
perform the obligation by delivering that which the creditor
should choose from among the remainder, or that which
remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the
debtor, the creditor may claim any of those subsisting, or the
price of that which, through the fault of the former, has
disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the
choice by the creditor shall fall upon the price of any one of
them, also with indemnity for damages.
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. (1136a)
The power of choice has been expressly granted to the creditor by
stipulation.
Alternative Obligation v. Facultative Obligation
Basis Alternative Obligation Facultative Obligation

The power of choice belongs to the debtor, by default unless it has been As to Contents of the There are various things Only one thing is
expressly granted to the creditor. The debtor will then choose which Obligation due but the complete principally due but a
among these prestations he will perform so that one obligation will be performance of one of substitute upon the
them is sufficient for the choice of the debtor
complied with.
payment of the may be delivered in
obligation. payment of the
But the debtor CANNOT choose prestations: obligation.
● Impossible
● Unlawful Right of Choice The right of choice may The right of choice –
● Cannot have been the object of the obligation be given that is, whether to make
either to the debtor or a substitution or not,
EXCEPTION: Right of Choice Expressly Granted to the Creditor the creditor. pertains to the debtor
alone. The creditor is
Article 1205. When the choice has been expressly given to the never given this right.
creditor, the obligation shall cease to be alternative from the day when
the selection has been communicated to the debtor.

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As to Nullity If one of the prestations If the principal obligation

is void, the others which is void, the creditor
are without vices cannot compel delivery
preserve the validity of of the substitute.
the obligation.

Effect of Loss or If the various prestations If there physical or legal

Impossibility are impossible of impossibility to deliver
performance except the principal thing or
one, this one must be prestation, the obligation
delivered to settle the is extinguished.
obligation. If all
prestations are
impossible of
performance, the
obligation is
extinguished.

Atty. SBM: When we speak of prestations, it is about to give, to do or not

to do. The case of Agoncillo v. Javier is a good reference.

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JOINT OBLIGATIONS
Joint obligation
● An obligation whereby there is that presumption that it is divided
into as many shares as there are creditors and debtors.
● Multiple parties on one side or the other. Either multiple creditors
or multiple debtors.
● As a consequence, each one of the debtors is liable only for a
proportionate part and each one of the creditors is entitled to
demand only to a proportionate part of the credit.

Article 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does not
appear, the credit or debt shall be presumed to be divided into as many
shares as there are creditors or debtors, the credits or debts being
considered distinct from one another, subject to the Rules of Court
governing the multiplicity of suits. (1138a)

Rule: When two or more are liable for an obligation - PRESUMPTION is

that their liability is joint.

Q: Why are joint obligations presumed when there are 2 or more

people liable for an obligation?

A: Because solidary obligations are more onerous in nature compared to

joint obligations so the law imposes a presumption in cases of obligations
that do not provide for a nature.

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SOLIDARY OBLIGATIONS the other solidary creditors

Q: What gives rise to solidarity?
A: If it is expressly provided for in the agreement, if it is provided for by
law, and the nature of the obligation.
Atty. SBM:
● General Rule: Obligation is a joint obligation due to the
presumption.
● Exception: If provided for by the agreement, by law, or by the
nature and circumstances of the obligation, that the obligation is
solidary.
Q: What can the parties use to indicate that the obligation is a
solidary obligation without using the word “solidarily”?
A: “Joint and severally”, “In solidum”, “Collectively”, “Individually”
● If you have multiple demands, whoever demands first should be
paid ahead.
● Judgment against a solidary creditor can be set up against the
other creditors in a subsequent case
Q: Can any solidary creditor make the condonation of the debt?
A: Yes, he can but he will be liable to his co-solidary creditors.
Q: For solidary debtors, what are the rights, benefits, and
restrictions?
A: The creditor can ask from any one of the solidary debtors. And such
solidary debtor would have to pay the creditor, subject to reimbursement
from his co-solidary debtors. If one of the solidary debtors gets a
remission of the entire obligation, he cannot ask for a reimbursement from
the other debtors.

Q: What happens if one of the solidary debtors becomes insolvent?

Article 1207. The concurrence of two or more creditors or of two or
more debtors in one and the same obligation does not imply that each A: The share of such solidary debtor would have to be paid by the
one of the former has a right to demand, or that each one of the latter is co-debtors in proportion to his supposed share.
bound to render, entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when Atty. SBM: If it is a solidary obligation, each solidary creditor can enforce
the law or the nature of the obligation requires solidarity. (1137a) the entire obligation. If the relationship between the debtors is also
solidary, each debtor may be obliged to pay in full.
Solidary Obligation - each creditor may enforce the entire obligation,
and each debtor may be obliged to pay it in full.
● Active Solidarity - if there are multiple creditors who are bound
solidarily
● Passive Solidarity - if there are multiple debtors who are bound
solidarily

Rights, benefits, restrictions of a solidary creditor

● Each one of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to
the latter.
● A solidary creditor cannot assign his rights without the consent of

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DIVISIBLE OBLIGATIONS
Divisible obligations
● Susceptible of Partial Performance
● Debtor can legally perform the obligation by parts
● Creditor cannot demand a single performance of the entire
obligation
Article 1223. The divisibility or indivisibility of the things that are the
object of obligations in which there is only one debtor and only one
creditor does not alter or modify the provisions of Chapter 2 of this Title.
Divisibility of the object does not necessarily determine the divisibility of
the obligation.
Test of Divisibility: Whether or not it is susceptible of partial
performance?
Q: How can we distinguish whether the issue is divisibility or
solidarity?
A: Divisibility pertains to the object (bagay), while solidarity pertains not to
object but the parties (tao) in the obligation.
Q: If the object is inherently indivisible, can the parties stipulate that
it will be divisible?
A: Yes. Divisibility of the object does not necessarily determine the
divisibility of the obligation. The true test is WON it is susceptible of partial
performance.
Ex. The obligation is to sing 10 songs for P10M. Is the obligation
divisible or indivisible?
A: It would depend on the intention of the parties. If the same is for a
concert, then the obligation is indivisible since it would be absurd for the
obligor to sing the 10 songs at different times as he has to sing all the
songs in the said concert. Here, even if the object is susceptible of partial
performance, they all have to be performed at the same time in the
concert.
Atty. SBM: That's why the divisibility of the object does not necessarily
determine the divisibility of the obligation. If the parties would want the
particular object to be susceptible of partial performance, they could have
easily agreed that one song would be performed for P1M. If the obligor
sings 12 songs, then he would get paid P12M.
Article 1225. Article 1225. For the purposes of the preceding articles,
obligations to give definite things and those which are not susceptible
of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number
of days of work, the accomplishment of work by metrical units, or
analogous things which by their nature are susceptible of partial
performance, it shall be divisible.
However, even though the object or service may be physically divisible,
an obligation is indivisible if so provided by law or intended by the
parties.
In obligations not to do, divisibility or indivisibility shall be determined by
the character of the prestation in each particular case. (1151a)
Atty. SBM: General Rule: In the absence of any stipulation, if the
obligation has for its object an obligation to give definite things, which is
not susceptible of partial performance, it will be considered as indivisible.
If it were so, the parties would have to say it.
If the metrics in the 2nd paragraph of Art. 1225 are present, then it would
be considered as divisible.
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OBLIGATIONS WITH A PENAL CLAUSE
Q: What is the purpose of a penal clause?
A: The existence of a penal clause will add more force for the obligor to
comply with the obligation. Moreover, it substitutes for any indemnity of
damages and interests, so it will be easier to claim from breaching party.
Q: If the obligation has no penal clause, does it mean you cannot
claim damages anymore?
A: No, you can still claim but you have to prove the damages incurred.
The penal clause only dispenses with the proof component.
Article 1226. In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in
case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code. (1152a)
Q: What does it mean for damages to be liquidated?
A: Liquidated damages only means that the damages have already been
computed or measured. There is a prior agreement to that amount.
Atty. SBM: Under Art. 1226, the penalty will now include liquidated
damages, which means that the parties already agreed on the amount of
damages in case of breach. This means that there will be no need for
actual proof as the parties already determined at
The parties already agreed on the amount of damages in case of breach.
This means there would be no need for actual proof because the parties
already determined at the onset that in case of breach/non-compliance,
this is the amount that will be paid.
Q: Can you still claim damages even if there is a penal clause
already and the penal clause clearly states that it is a substitute for
damages and the payment of interest?
A: Yes. You can further claim damages aside from the penalty. There are
two ways according to Article 1226.
Article 1226: xxx Nevertheless damages shall be paid if the obligor (1)
refuses to pay the penalty or (2) is guilty of fraud in the fulfillment of the
obligation..
Atty SBM: This time around, the damages needed to be proven to show
that damages are incurred because of the refusal to pay or fraudulent act.
Q: Pedro promised to give his grandson a car if the latter will pass
the Bar examinations. When his grandson passed the said
examinations, Pedro refused to give the car on the ground that the
condition was a purely potestative one. Is he correct or not?
A: No, passing the examination is not a purely potestative condition. It will
not purely depend on the person taking the examination or the debtor.
Q: Four medical students rented the apartment of Thelma for a
period of one year. After one semester, three of them returned to
their home country and the fourth transferred to a boarding house.
Thelma discovered that they left unpaid telephone bills in the total
amount of P80,000.00. The lease contract provided that the lessees
shall pay for the telephone services in the leased premises. Thelma
demanded that the fourth student pay the entire amount of the
unpaid telephone bills, but the latter is only willing to pay one fourth
of it. Who is correct? Why?
A: The fourth student is correct. The fourth student cannot be compelled
to pay the entire amount of the unpaid telephone bills. According to law
and jurisprudence, if there are multiple parties and there is no statement
that will express solidarity, the obligation is merely joint. In this case,
nothing herein shows solidarity on the part of the debtors. Hence, the
fourth student is only liable for his proportionate share.
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COMPLIANCE AND BREACH diligence. By default, if there is no stipulation, the standard of diligence
required is “good father of a family.”
In general, as soon as there is an obligation between the parties, there
are duties of the obligor and the rights of the obligee. Q: Aside from delivering the thing in obligations to give, or
performing the service or not performing the service when it comes
Duties of the obligor to obligations to do and not to do, what are the other duties of the
obligor in an obligation?
Article 1163. Every person obliged to give something is also obliged to
take care of it with the proper diligence of a good father of a family,
A: Delivery of the fruits, accessories, and accessions.
unless the law or the stipulation of the parties requires another
standard of care.
Q: What is the difference between accessory and accession?
Article 1164. The creditor has a right to the fruits of the thing from the
time the obligation to deliver it arises. However, he shall acquire no real
right over it until the same has been delivered to him. Accession Accessory

Article 1165. When what is to be delivered is a determinate thing, the The fruits of, or additions to, or Things joined to, or included with,
creditor, in addition to the right granted him by article 1170, may compel improvements upon, a thing (the the principal thing for the latter’s
the debtor to make the delivery. principal), e.g., house or trees on embellishment, better use, or
a land; rents of a building; air completion, e.g., key of a house;
If the thing is indeterminate or generic, he may ask that the obligation conditioner in a car; profits or frame of a picture; bracelet of a
be complied with at the expense of the debtor. dividends accruing from shares of watch; machinery in a factory;
stocks; etc. bow of a violin.
If the obligor delays, or has promised to deliver the same thing to two
or more persons who do not have the same interest, he shall be Q: When it comes to fruits, what is the difference between a
responsible for any fortuitous event until he has effected the delivery.
personal right and a real right?
Article 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may not Personal Right Real Right
have been mentioned.
Can be invoked only against the Can be invoked against the whole
Q: What are these duties on the part of the obligor? debtor world

A: The basic ones are duty to deliver and duty to perform. But more
importantly when it comes to an obligation to deliver a determinate thing,
it will require that diligence of a good father of a family. It is not ordinary

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Q: What is the reckoning point? Q: How will you distinguish fraud and negligence?

A: The reckoning point when the rights to the fruits become real or
Fraud Negligence
personal is the point of delivery.
1. Personal Right: The moment there is that obligation created up to Deliberate or intentional evasion Any voluntary act or omission,
the point of delivery, you only have that personal right to the fruits of the normal fulfillment of an there being no malice, which
as against the debtor obligation prevents the normal fulfillment of
2. Real Right: After delivery, that is when the creditor acquires real an obligation
rights over the fruits, and even up to the thing itself.
Q: Distinguish between dolo causante and dolo incidente.
BREACHES OF OBLIGATION

Dolo Causante Dolo Incidente

Q: How are obligations breached?
Article 1170. Those who in the performance of their obligations are Article 1338. There is fraud when, Article 1170. Those who in the
guilty of fraud, negligence, or delay, and those who in any manner through insidious words or performance of their obligations
contravene the tenor thereof, are liable for damages. machinations of one of the are guilty of fraud, negligence, or
contracting parties, the other is delay, and those who in any
induced to enter into a contract manner contravene the tenor
A: Article 1170 - which, without them, he would not thereof, are liable for damages.
1. Fraud have agreed to.
2. Negligence
3. Delay Fraud in the perfection. Fraud in the performance.
4. In contravention
Occurs before the perfection or Occurs after the perfection of the
the creation of the contract. contract or the creation of the
Q: What is the effect if there is a breach of an obligation? obligation.

A: Person breaching the obligation is liable for damages, even if there is No juridical tie yet. Juridical tie is present.
no stipulation to that effect.
Makes the contract defective, There is no defect in the contract.
because of a vice of consent.

Remedy of annulment of the Gives rise to damages.

voidable contract.

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Q: When it comes to liability, how will you compare the extent of Diligence of a Good Father of a Family
damages for breaches arising from fraud and for breaches arising Article 1163. Every person obliged to give something is also obliged to
from negligence? Is there a difference? take care of it with the proper diligence of a good father of a family,
unless the law or the stipulation of the parties requires another
standard of care.
Arising from fraud Arising from negligence

Article 1171. Responsibility arising
from fraud is demandable in all
obligations. Any waiver of an
action for future fraud is void.
The moment there is fraud,
responsibility is demandable in all
obligations.
Article 1172. Responsibility arising Atty. SBM: Pertains only to obligations to give determinate things. Thus if
from negligence in the it is an obligation to give a specific thing, or an obligation to do or not to
performance of every kind of do, this level of diligence is the default. For obligations to give generic
obligation is also demandable, but things, there is no more metric of diligence as it would be impractical to
such liability may be regulated by impose any kind of diligence on something that is not within the control of
the courts, according to the the obligor.
circumstances.
Article 1173. The fault or negligence of the obligor consists in the
Reasonable connection or
omission of that diligence which is required by the nature of the
correlation between the negligent
obligation and corresponds with the circumstances of the persons, of
act and the damage caused must
the time and of the place. When negligence shows bad faith, the
first be established.
provisions of articles 1171 and 2201, paragraph 2, shall apply.

Q: Who establishes that there is negligence? If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father of
a family shall be required.
A: The courts will determine.

Q: How is negligence determined? When negligence shows bad faith, the provisions of 1171 will apply.

Article 1171. Responsibility arising from fraud is demandable in all

Article 1173. The fault or negligence of the obligor consists in the
obligations. Any waiver of an action for future fraud is void.
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the Thus, even if the basis for damages is 1173 (which is negligence), if there
provisions of articles 1171 and 2201, paragraph 2, shall apply. is bad faith, it will be as if you are committing fraud.

Delay
Metrics of negligence
1. Nature of the obligation Article 1169. Those obliged to deliver or to do something incur in delay
2. Circumstances of the persons, time, and place from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.

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3. Demand is useless.
However, the demand by the creditor shall not be necessary in order
a. There has to be an element of fault on the part of the obligor.
that delay may exist:
Let’s say instead of me delivering a car to you on a certain day, I
1. When the obligation or the law expressly so declare; or
could not deliver it because it became a total wreck because of
2. When from the nature and the circumstances of the obligation
my negligence or fault. No need for demand kasi kasalanan na
it appears that the designation of the time when the thing is to
nga ni obligor.
be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
Delay: When the other is ready and the other is not. So neither party
3. When demand would be useless, as when the obligor has
incurs delay if the other party is not ready to comply with what is
rendered it beyond his power to perform.
incumbent upon him.
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is Article 1170. Those who in the performance of their obligations are
incumbent upon him. From the moment one of the parties fulfills his guilty of fraud, negligence or delay, and those who in any manner
obligation, delay by the other begins. contravene the tenor thereof, are liable for damages.

General rule: If there is no demand, there is no delay (judicial or In Contravention

extrajudicial). The mere fixing of a time for delivery will not exempt the This means that the performance of the obligation is not in full compliance
general rule of Prior Demand before incurring delay. or is unsatisfactory compliance.

Exceptions:
Article 1163. Every person obliged to give something is also obliged to
1. When the law or obligation expressly declares. For example, the
take care of it with the proper diligence of a good father of a family,
law defines a specific deadline for the payment of taxes.
unless the law or the stipulation of the parties requires another
● If an obligation provides that the car must be delivered on
standard of care. (1094a)
December 31, 2021, but on that day no delivery was
made, a demand is still needed. The mere fixing of a
Article 1164. The creditor has a right to the fruits of the thing from the
period is insufficient. It must be clear that there is no
time the obligation to deliver it arises. However, he shall acquire no real
longer any need for further demand.
right over it until the same has been delivered to him. (1095)
2. When time is essential. For example, an obligation to deliver a
wedding cake.
Article 1165. When what is to be delivered is a determinate thing, the
● There is no need for demand for there to be delay.
creditor, in addition to the right granted him by Article 1170, may
● How about in the prior example, Instead of Dec. 31, let’s
compel the debtor to make the delivery.
make it February 14? If the motive is clear is that the
delivery is for valentine's day, do you still need the
If the thing is indeterminate or generic, he may ask that the obligation
stipulation of the need for demand? No more as long as
be complied with at the expense of the debtor.
the intention is (clear) that time is of the essence.
● Atty. SBM: Actually, it does not have to be “clear”. The
If the obligor delays, or has promised to deliver the same thing to two
moment it appears that the time is of essence or the time
or more persons who do not have the same interest, he shall be
is controlling motive, no need to be expressed as
responsible for any fortuitous event until he has effected the delivery.
compared to number 1.

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In Article 1170, the moment you fail to do, to give, or the moment you
Article 1166. The obligation to give a determinate thing includes that of
violate any of these provisions provided in the law and in the obligation
delivering all its accessions and accessories, even though they may not
itself, then you are already considered in contravention. What happens
have been mentioned. (1097a)
now? You have Article 1191, but prior to that, if there is an obligation to do
or not to do, the consequence is that the performance will be executed by
Article 1167. If a person obliged to do something fails to do it, the
someone else at the cost of the obligor. If it is poorly done, it will be
same shall be executed at his cost.
undone by another at the expense of the obligor. The damages entail will
now be the cost of executing that obligation to do or the cost of redoing
To give that obligation to do because it was done poorly.
● Diligence
● Delivery
Article 1167. If a person obliged to do something fails to do it, the
● Fruits, Accessions, Accessories
same shall be executed at his cost. This same rule shall be observed if
he does it in contravention of the tenor of the obligation. Furthermore, it
Atty. SBM: You have an obligation to give. You must have that degree of
may be decreed that what has been poorly done be undone. (1098)
diligence which includes the duty to deliver the fruits and accession and
such must be complete. Obligation to give 100 laptops, and you only gave
Article 1168. When the obligation consists in not doing, and the obligor
99. Clearly a case of contravention already. There is still entitlement of
does what has been forbidden him, it shall also be undone at his
damages even applying the Doctrine of Substantial Compliance and in
expense. (1099a)
Good Faith or Acceptance by Estoppel. Obligation is extinguished but
there can still be claims of damages due to performance of obligation “in
contravention thereof.” To do
● Executed at his cost
What can be considered in contravention ● Poorly done, be undone
● Failure to take care of specific thing with the proper diligence of a
good father of a family (kahit onting gasgas sa laptop). Not to do
● Undone at his expense
Accessions and Accessories
Article 1166. The obligation to give a determinate thing includes that of
Atty SBM: In fraud, the liability for damages encompass all of the
delivering all its accessions and accessories, even though they may not
damages arising from the fraudulent act. In negligence, unless it is done
have been mentioned. (1097a)
with bad faith, you have to establish that reasonable connection between
the negligent act and the resulting damage or injury. In delay, it is the
Q: If you fail to deliver any of these accessories, are you still liable same thing. You have to establish that because of the delay in the
for damages? delivery, there is damage that has to be connected. If “In contravention”
kahit slight damage lang, let say it was not done properly or there was
A: Yes. substantial compliance (substantial compliance extinguishes the
obligation less damages)
Atty SBM: Take note, in payment there is full and total extinguishment of
obligation if you fall under substantial compliance and acceptance by
estoppel. But in both cases, you are liable for damages.

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REMEDIES FOR BREACH Q: What is accion pauliana?

General Remedies
Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the
rights and bring all the actions of the latter for the same purpose, save
those which are inherent in his person; they may also impugn the acts
which the debtor may have done to defraud them.
A: Action for the rescission of acts or contracts entered into by the debtor
designed to defraud the creditor.
Rescission
Article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.

I. Extrajudicial Remedies The injured party may choose between the fulfillment and the
II. Judicial Remedies rescission of the obligation, with the payment of damages in either
1. Principal Remedies case. He may also seek rescission, even after he has chosen
a. Action for Performance (Specific Performance or fulfillment, if the latter should become impossible.
Obtain Compliance) The court shall decree the rescission claimed, unless there be just
b. Action for Damages (Exclusively or in addition to cause authorizing the fixing of a period.
either of the first actions)
c. Action for Rescission (In a reciprocal obligation) This is understood to be without prejudice to the rights of third persons
2. Subsidiary Remedies who have acquired the thing, in accordance with articles 1385 and
a. Accion subrogatoria 1388 and the Mortgage Law. (1124)
b. Accion Pauliana - Action for the rescission of
acts/contracts entered into by the debtor Notes on Rescission
designed to defraud the creditor ● Specific performance or fulfillment of the obligation WITH
damages
Extrajudicial: Out of court settlement. You send a demand letter. ● Rescission of the contract WITH damages
Judicial Remedies: Article 1191 ● Injured parties CANNOT seek both remedies
● Specific performance and rescission are ALTERNATIVE
Q: What is accion subrogatoria? remedies, not conjunctive.

A: Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the rights
and bring all the actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.
Q: Why is it considered subsidiary?
A: Because it is only permitted after the creditor has already exhausted
the properties of the debtor.
Q: Is it possible for a person to exercise any of these subsidiary
remedies all at the same time?
A: No. Not simultaneously, but alternatively.
Atty. SBM: When you talk of principal remedies, you have a, b, or c. B will
always be present because, in Art. 1170, that is always included if there is
a breach. When it comes to subsidiary remedies, there is no restriction
when it comes to using all of these. If, say, you can avail of this writ of
attachment whereby you can attach properties of the debtor so that it can

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be used to pay the debt owing to you, then that should be fine. At the A: No, the party that can demand the rescission is the one who is ready,
same time, before you can pursue all the other properties in possession willing, and able to comply with his own obligation.
of the debtor, which in Art. 1177, the first part here is what we call the writ
of attachment. Before you can exercise that subrogatory action or accion Q: Aside from being the non-breaching party, what if he is not ready
subragatoria, you need to exhaust first the properties in possession of the to return whatever he has received? Can he still rescind?
debtor. The last one is the more complicated one because you need to
establish fraud; creditor can also impugn the acts which is called the A: No, he cannot demand rescission.
accion pauliana. In the hierarchy of difficulty, the easiest is the first - writ
of attachment; second - subratory action; finally - accion pauliana. Atty. SBM: Remember, the power to rescind is implied in reciprocal ones,
which means that even if it is a unilateral obligation can you still exercise
Q: When it comes to principal remedies, can you seek damages at the power to rescind? In a unilateral obligation, the obligor in this case,
all times? Can the injured party seek both remedies? who is only one person, can exercise that right to rescind for specific
grounds if it is stated in the obligation itself.
Article 1191. xxx The injured party may choose between the
Article 1191: The power to rescind in reciprocal obligation is already
fulfillment and the rescission of the obligation, with the payment of
implied in the obligation.
damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible. xxx
As a requirement, there has to be mutual restitution. If the party is going
to abrogate the obligation, then he should be bound to return whatever he
Q: What do you think is the rationale behind that? has received as if there was no obligation or juridical tie between the
parties.
A: Principle against double recovery.
Resolution (Article 1191) v. Rescission (Article 1381)
Atty. SBM: Take note that specific performance and rescission as
Article 1191 Resolution Article 1381 Rescission
principal remedies are alternative. You cannot seek both at the same
time. But if in case you avail of specific performance first, and it can no
A principal action which seeks A subsidiary action limited to
longer be possible, then rescission can still be availed of. But you cannot
the resolution or cancellation of cases or rescission for lesion as
argue the other way around (i.e., rescission first, then ask for specific
the contract. enumerated in Article 1381.
performance). The moment you file that rescission, it presupposes that
you want to abrogate or terminate the particular obligation.
Prescriptive period: 10 years Prescriptive period: 4 years
General Rule: To rescind a contract is not merely to terminate it, but to
Only ground is the Five grounds enumerated in Art.
abrogate and undo it from the beginning. Mutual Restitution of the
non-performance of one’s 1381. Non-performance by the
benefits received is required.
obligation or what is incumbent other party is not important.
upon him.
Q: Rescission intends to abrogate and undo the obligation from the
very beginning. Is it correct to say that if one party seeking Applies only to reciprocal Applies to both unilateral and
rescission is not ready to return or to have this mutual restitution of obligations. reciprocal obligations, for as
the benefits, he cannot avail of rescission. long as the 5 grounds in Art. 1381

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Extrajudicial rescission
are existing.
It has to be stipulated by the parties. Otherwise, the parties have to go to
court to ask for rescission.
Only the party to the contract Even a third person who is
may demand the fulfillment or prejudiced by the contract may
Heirs of JBL Reyes v. CA
seek the rescission of the demand the rescission of the
Doctrine: The law on obligations and contracts does not prohibit parties
contract. contract.
from entering into an agreement providing that a violation of the terms of
the contract would cause its cancellation even without judicial
Courts may fix a period or grant Courts cannot grant extension
intervention.
extension of time for the of time for the fulfillment of the
fulfillment of the obligation obligation.
Atty. SBM: Extrajudicial rescission is allowed only if it is stipulated. The
case of Heirs of JBL Reyes v. CA is a good reference in rescission.
Purpose is to cancel the contract. Purpose is to seek reparation for
the damage or injury caused,
Specific Performance
thus allowing partial rescission of
In rescission, if there is an express stipulation of automatic rescission
the contract.
without need of judicial action, rescission is authorized without court
intervention.
Exceptions to Rescission
1. If fulfillment was chosen but the same had become impossible, Q: Can there be extrajudicial specific performance?
rescission may still be sought.
2. If there is a valid basis for the extension of the performance of the Atty. SBM: When we speak of specific performance as a technical term in
reciprocal obligation, the court will not decree rescission but will law, there is a sense of compulsion that if you do not do it, you will be
rather fix a period for the fulfillment of the obligation penalized. When it comes to giving that demand letter, to asking the
3. Partial rescission and partial fulfillment may be allowed. obligor, “Pakigawa naman nito.”, “Magbayad na po kayo.”, these are
4. Not applicable in the following cases: Sales of real or personal essentially extrajudicial remedies, but do not equate to specific
property by installments [where Maceda Law and Recto Law performance. It is the parties’ way of settling the issue without having the
governs, respectively] need to go to court. But if you want to avail of specific performance as
contemplated in Art. 1191, you will always have to go to court.
Who has the Right to Rescind?
The party who can demand rescission is the one who is ready, willing and
Rescission Specific Performance
able to comply with his own obligation while the other is not capable to
perform his own. Must be in a position to return whatever he may be
Can be extrajudicial, if there is Can only be judicial
obliged to return.
stipulation
No right to rescind: A party who has not performed his part of the
obligation cannot rescind. A guilty party cannot rescind because he has Q: Can you avail of the remedy of specific performance in
unclean hands. obligations to do and not to do?

Power to rescind is given to the injured party in reciprocal obligations. A: No, because it would amount to involuntary servitude.

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Atty. SBM: Generally, when it comes to specific performance, it will only
pertain to an obligation to give.
Restrictions to the Power to Rescind
1. Due process must be observed.
○ Simply means you have notice, and opportunity to be
heard. That is why a demand letter and the requirement
for a complaint to be furnished to the defendant is
imposed.
2. Right to rescind is subordinated to the rights of 3rd persons who
acquired the thing in good faith.
3. Power of the court to fix period in lieu of decreeing Rescission.
○ If the obligation falls under Art. 1180, in relation to Art.
1997
4. Slight breaches of the contract will not justify rescission.
○ Under Arts. 1130-1132, substantial breach is needed,
because rescission is a punitive measure given to the
non-breaching party.
○ If it is a slight breach, go to Art. 1170 (in contravention of
the tenor of the obligation) and just claim for damages.
5. A judicial or notarial act is necessary before a valid rescission can
take place, whether or not automatic rescission has been
stipulated.
○ Because it will serve as a proof that due process was
observed.
○ If it is a judicial act, all the rules of procedure will be
observed, such that there can be a valid rescission.
○ Why is there a requirement for a notarial act? Only in
case where the parties stipulated that there will be an
automatic rescission without the need for judicial
intervention. Such notarial act will serve as proof that due
process was observed.
6. Proof of validation of the agreement is a condition precedent to
the declaration of rescission
Necessity of Judicial Approval
In specific performance, there is always a need for judicial action if the
other party refuses to make the delivery of the thing promised.
In rescission, if there is an express stipulation of automatic rescission
without need of judicial action, rescission is authorized without court
intervention.
Atty. SBM: Specific performance always needs judicial action. For
rescission:
● General Rule: Court intervention is necessary.
● Exception: If there is an express stipulation of automatic
rescission, then rescission will be allowed (Heirs of J.B.L. Reyes).
However, case law mentions that even if there is that extrajudicial
rescission, such rescission will still be subject to judicial scrutiny.
Atty. SBM: The lesson is whether it is stipulated or not, you might as well
seek court intervention kasi babalik din kayo sa court. That is the practical
significance of the cases of Heirs of J.B.L. and Nissan Motors.
Fortuitous Events
Art. 1174. xxx no person shall be responsible for those events which
could not be foreseen, or which, though foreseen, were inevitable.
Art. 1165. xxx If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same interest, he
shall be responsible for any fortuitous event until he has effected the
delivery.
Essential Conditions
1. Cause of the breach must be independent of the debtor's will
2. Event must either be unforeseeable or unavoidable
3. Event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner
4. Debtor must be free from any participation in, or aggravation of,
the injury to the creditor
Atty. SBM: The first two conditions are provided by the Civil Code, while
the 3rd and 4th are provided by jurisprudence. In item #3 the keywords
there: Impossibility and Fulfillment in a normal manner. It is not necessary
to be absolute or complete impossibility. Ex. The obligation is for the
construction of a house in a certain period. Then the pandemic struck.
The debtor could not construct it because there are many restrictions, e.g.
delivery of goods, road blocks, lockdown, etc.
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Q: What “debtor must be free from any participation” does mean?
A: Essentially there would be no fault or negligence on the part of the
debtor. For example, an earthquake (like the case of Nakpil) and it
collapsed. In all cases, an earthquake would fulfill conditions 1 and 2. In
terms of 3 and 4, it failed because of defective plans and construction of
the building.
Q: Do you have an obligation to attend online classes?
A: Yes, there is. There is also an obligation for Mison to teach.
Q: Can poor internet connection be considered a Fortuitous Event?
A: Case to case basis, if the four elements are present.
Q: Can you provide a scenario where a bad internet connection is
not a fortuitous event?
A: A scheduled blackout or your internet got cut off do not necessarily fall
under Fortuitous events that would exempt you from performing the
obligation to attend classes. This is because you can connect to your
neighbor or you can go to an internet cafe. Therefore, it cannot be
considered a fortuitous event.
Exceptions to exonerating liability as to fortuitous events
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk xxx
List of the Exceptions
1. Express stipulation by the parties that there is liability even
though non-performance is due to fortuitous events
2. Nature of the obligation requires assumption of risk
3. Obligor is in delay
4. Obligor promised the same thing to 2 or more persons who do not
have the same interest
5. Possessor in bad faith and thing is lost or deteriorated due to
fortuitous event
6. Obligor contributed to the loss of the thing
7. Obligor is guilty of fraud, negligence, delay, or violation of the
tenor of the agreement
8. If the adverse consequence is found to be partly the result of a
person's participation or neglect to act and take steps in
forestalling the damage/injury.
Q: What is an example of obligation which requires assumption of
risk?
A: Insurance. Insurer assumes the risks of the insured, which would
include fortuitous events. Let’s say the house is damaged because of a
fortuitous event, the insurer cannot pose the defense of FE.
Q: In #3, what does it take for a person to be in delay?
A: There must be a prior demand, unless it falls under the exceptions.
Q: In #4, what is the rationale there? This is in the codal provision.
A: There is a bad faith because you cannot comply with both obligations.
If you gave the determinate thing to one person, you will not be able to
comply the other obligation.
Q: (Bar 1994) Dino sued Ben for damages because the latter had
failed to deliver the antique Marcedes Benz car Dino had purchased
from Ben, which was–by agreement–due for delivery on December
31, 1993. Ben, in his answer to Dino's complaint, said Dino's claim
has no basis for the suit, because as the car was being driven to be
delivered to Dino on January 1, 1994, a reckless truck driver had
rammed into the Mercedes Benz. The trial court dismissed Dino's
complaint, saying Ben's obligation had indeed, been extinguished
by force majeure. Is the trial court correct?
A: Demand is still necessary; it is not enough that a date is merely stated
in the obligation for it to be considered as a demand and therefore, to be
held in delay.
The mere fixing of the period is not enough; there must be a provision that
if payment is not made when due, default or liability for damages or
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interests automatically arises. (Paras, 124. See also De la Rosa v. Bank

of P.I., 51 Phil. 926).]

Q: (Bar 2008) AB Corp. entered into a contract with XY Corp.

whereby the former agreed to construct the research and laboratory
facilities of the latter. Under the terms of the contract, AB Corp.
agreed to complete the facility in 18 months, at the total contract
price of P10 million. XY Corp. paid 50% of the total contract price,
the balance to be paid upon completion of the work. The work
started immediately, but AB Corp. later experienced work slippage
because of labor unrest in his company. AB Corp.'s employees
claimed that they are not being paid on time; hence, the work
slowdown. As of the 17th month, work was only 45% completed. AB
Corp. asked for extension of time, claiming that its labor problems is
a case of fortuitous event, but this was denied by XY Corp. When it
became certain that the construction could not be finished on time,
XY Corp. sent written notice cancelling the contract, and requiring
AB Corp. to immediately vacate the premises.

(a) Can the labor unrest be considered a fortuitous event?

(b) Can XY Corp. unilaterally and immediately cancel the contract?

(c) Must AB Corp. return the 50% downpayment?

A: Not answered.

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EXTINGUISHMENT: PAYMENT
Q: What is payment?
A: Payment is the fulfillment of the prestation due.
Q: What is to be paid?
A: “What” means complete and full. Complete means it is the thing itself
subject to the agreement or of the source of obligation. Nothing more,
nothing less. This is what we call the principle of integrity of payment.
There has to be strict compliance. The debtor cannot compel the creditor
to accept an incomplete payment. But the debtor can compel the creditor
to accept a full and complete payment. If the creditor refuses to accept,
and the refusal is considered as without just cause, you proceed with that
other mode of extinguishing an obligation which is a subset of payment
called consignation.
If it is not strictly complied, therefore the creditor has a just cause for
refusing to accept payment. In such a way, if the debtor resorts to
consignation, the same is not valid because the integrity of payment is
violated. It has to be full and complete.
No payment or delivery of a different thing
● General Rule: Creditor shall be paid only what has been agreed
even if the thing offered is worth more than the thing agreed to.
● Exception: If the creditor consents, his acceptance of the
substitute extinguishes the obligation. This happens in novation,
and also in dacion en pago.
Article 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 that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
Rule on Partial Payment
Creditors can accept partial payment if:
1. There is an express stipulation; or
2. When the debt allows for partial performance whereby the debt is
partly liquidated and partly unliquidated. Therefore, you could
only pay what is liquidated without waiting for the uniquidated
portion of the debt.
Article 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.
Q: If payment is not complete, can there be an extinguishment of the
obligation?
A: Yes, in the following circumstances:
1. Substantial performance in good faith
2. Acceptance by estoppel or waiver of the balance of the obligation
Substantial Performance in Good Faith
This is on a case-to-case basis. You just cannot say that if it’s more than
the majority or more than 50%. In law and in jurisprudence, substantial is
defined as something that will not defeat the intent of the parties in
entering in that particular obligation. No matter how close or how deficient
the breach or the incomplete performance or delivery, for as long as the
intent of the parties is not defeated, then that will be considered as
substantial. Substantial performance has to be coupled with good faith.
That there is that honest and fair intention of one party to actually
completely fulfill the obligation.
Waiver of the Balance
If the creditor knows that it is not complete but if the creditor knows and
says “it’s okay.” The obligation is extinguished.
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Article 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
Article 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
The obligation is extinguished by payment
1. If debtor pays the creditor, and the payment is:
a. Complete and full
b. Accepted by the creditor
2. Even if it is not complete, there is substantial performance in good
faith. The creditor is still entitled to damages.
3. If the creditor waives the balance.
a. Creditor accepts the payment
b. Creditor knows that the payment is incomplete
c. Creditor fails to protest or object to such incompleteness
Atty. SBM: For the second scenario (substantial performance), the
creditor is entitled to damages because if the debtor does not deliver what
is agreed upon, he or she is in contravention of the tenor of the obligation.
Applying Article 1170, there is damages. Nonetheless, the obligation is
already extinguished.
To whom payment is made
1. Creditor himself
● Person in whose favor the obligation has been
constituted. He may not necessarily be a principal party
to the contract but he has the power to demand fulfillment
of the obligation.
2. Creditor’s successors-in-interest
● This refers to the creditors at the time of payment, not the
original creditor at the time the obligation was constituted.
Such as the heirs when the creditor dies.
3. Any person authorized to receive it, agent or legal representative.
4. Person in possession of the credit
5. The court, in cases where consignation is proper.
Article 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any
person authorized to receive it.
Atty. SBM: The debtor must pay to the proper person, and such proper
person has to be with legal capacity.
To whom payment should NOT be made
1. Persons incapacitated to administer their properties, except:
a. Such incapacitated person kept the thing delivered
b. Insofar as the payment has been beneficial to him
2. The creditor, if the debtor has been judicially ordered to retain the
debt. Such payment will not be valid.
3. Third persons, except:
a. When it has redounded to the benefit of the creditor (but
only up to the extent of such benefit)
b. If after the payment, the third person acquires the
creditor's rights
c. If the creditor ratifies the payment to the third person
d. If by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the
payment
e. When without notice of the assignment of the credit, he
pays to the original creditor
f. When in good faith, the debtor pays to one in possession
of the credit
Who should make the payment
Article 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of
the obligation, unless there is a stipulation to the contrary. Whoever
pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial
to the debtor.
General rule: Only the debtor himself, or his authorized representative,
can make the payment.
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Exceptions:
1. If there is a stipulation to the contrary
2. Third person has an interest in the fulfillment of the obligation
(co-debtor or guarantor)
3. Creditor voluntarily accepts payment from third person
When the third-party makes the payment, the creditor can refuse the
payment. But if the creditor accepts payment from the third-party, the
obligation will be extinguished, and will be subject to different rules.
Effects of Payment by Third Person
Rule: Payment by third person and acceptance by creditor produces the
effect of payment.
1. Third person pays with the consent of the debtor
a. Full Reimbursement: third person may recover from the
debtor what he has paid
b. Subrogation: third person can compel the creditor to
subrogate him in his rights.
2. Third person pays without the consent of the debtor
a. Beneficial Reimbursement: third person may recover only
insofar as the payment has been beneficial to the debtor
b. No subrogation
3. Third person pays without intent to be reimbursed
a. Third person cannot recover if debtor accepts
b. It will be deemed as a donation
Rules on the What, How, By whom, and To Whom to Clarify
Extinguishment by Payment
Requisites of a Valid Payment
1. Delivery of the full amount or the full performance of the
prestation
2. Capacity of the person paying
3. Capacity of the person receiving payment
4. Propriety of the time, place, and manner of payment
5. Acceptance of the payment by the creditor
Atty. SBM: Take note of numbers 1 and 5. There has to be the full
amount or performance due to the integrity of payment. There must also
be an acceptance even if there is full payment or performance. If there is
unjustified non-acceptance, the remedy of the debtor is to have the thing
consigned in court, and it will be up to the court to make the acceptance
though judicial order to extinguish the obligation.
Payment is essentially extra-judicial. Consignation will always be judicial.
The What
Article 1232. Payment means not only the delivery of money but also
the performance, in any other manner, of an obligation.
Payment is the fulfillment of the prestation due. It may be the delivery of
money or the performance of service. Prestation is the to give, to do, or
not to do. It can be in an agreement, contract, or any of the sources of
obligations.
The How
● Monetary Obligation - by delivery of the money
○ Must be paid in full, unless otherwise stipulated
● To Give - by delivery of the thing/s
● To Do - by performance of the said personal undertaking
● Not to Do - by refraining from doing the action
Article 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 that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
Integrity of Payment Rule
General Rule: Creditor shall be paid only what has been agreed even if
the thing offered is worth more than the thing agreed to.
Exception: If the creditor consents, his acceptance of the substitute
extinguishes the obligation. This happens in novation, and also in dacion
en pago. Because of such acceptance, the obligation is novated. This
also happens by way of Dacion en Pago in such a way that you deliver
not the thing (the “what”), but something else it will produce the
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extinguishment of the obligation.
In integrity of Payment: Even if there is substantial compliance, there can
still be room for damages if incomplete payment.
In obligations to do or not to do, that is the “how” in terms of performing
the obligation and extinguishing the obligations by way of payment.
Article 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. (1169a)
This article reinforces 1244 (Integrity of Payment).
There must be delivery and must be complete. If not, then the creditor can
reject. If complete, the creditor cannot reject. If the creditor still rejects, go
to consignation.
If payment is not full and complete and still the creditor accepts, then you
apply the exceptions of waiver of balance or completeness by estoppel or
substantial compliance in good faith.
Always remember:
Article 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
Article 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with. (n)
For Art. 1234 - There can still be damages applying 1170.
For Art. 1235 - 2 elements:
1. Creditor has to know that the “WHAT” is not complete or irregular.
2. Without expressing any protest or objection, thus intentional.
Article 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances have
not been stated, the creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality.
The purpose of the obligation and other circumstances shall be taken
into consideration. (1167a)
Quality and Quantity
● The law speaks of Quality. If the obligation is to deliver a generic
thing. Quality is not stipulated. The creditor cannot demand of
superior quality neither debtor can deliver something of inferior
quality. The “what” when it comes to generic things, not superior ;
not inferior looking at the purpose of obligations and other
circumstances.
● Quantity must be mentioned, otherwise the contract is VOID. Part
of the essential element of a contract in such a way that the
object is specific without need of agreement.
In obligations to do or not to do, that is the “how” in terms of performing
the obligation and extinguishing the obligations by way of payment.
Article 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of
the obligation, unless there is a stipulation to the contrary.
Payment By Whom?
General Rule: Debtor
Exceptions:
● If there is a stipulation to the contrary
● Third person has an interest in the fulfillment of the obligation
(Example: co-debtor or guarantor)
● Creditor voluntarily accepts payment from a third person.
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Effects of Payment by Third Person
RULE: Payment by Third Person AND acceptance by Creditor produces
the effect of payment.
1. Third Person pays WITH consent of Debtor
a. Full reimbursement - third person may recover from
debtor what he has paid
b. Subrogation - third person can compel creditor to
subrogate him in his rights
2. Third Person pays WITHOUT consent of Debtor
a. Beneficial Reimbursement - third person may recover
only insofar as the payment has been beneficial to the
debtor
b. No subrogation
3. Third Person pays WITHOUT intent to be reimbursed
a. Third person cannot recover if debtor accepts
b. Deemed as a donation
Article 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the creditor
to subrogate him in his rights, such as those arising from a mortgage,
guaranty, or penalty. (1159a)
Article 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. (n)
A person who has possession of the credit is also a 3rd person but the
moment he has possession of the promissory note, it presupposes that
payment to such person can also have the effect of extinguishing an
obligation.
Payment should not be made, in general, to 3rd persons. If it is done to
3rd persons, look at Article 1241.
How can we say that it has benefited the creditor?
If such acceptance would have the effect of fulfilling that obligation, then
there is such benefit. There should be proof. However, in Art. 1241, it
mentions some instances whereby there is no need to say that there is
benefit of the creditor if these instances happen.
Payment To Whom?
Article 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any
person authorized to receive it. (1162a)
● Creditor himself (person in whose favor the obligation has been
constituted) - he may not necessarily be a principal party to the
contract but he has the power to demand fulfillment of the
obligation.
● Creditor’s successors-in-interest - this refers to the creditors at
the time of payment, NOT the original creditor at the time the
obligation was constituted, such as the heirs when the creditor
dies.
● Any person authorized to receive it (creditor’s agent or legal
representative)
● Court - in cases where consignation is proper.
To Whom Payment Should NOT be Made
1. Third Persons EXCEPT:
● It has redounded to the benefit of the creditor (but only up
to the extent of such benefit) (Art. 1241)
● If after the payment, the third person acquires the
creditor’s rights (Art. 1241)
● If the creditor ratifies the payment to the third person (Art.
1241)
● If by the creditor’s conduct, the debtor has been led to
believe that the third person had authority to receive the
payment (Art. 1241)
● When without notice of the assignment of the credit, he
pays to the original creditor (Art. 1626)
● When in good faith, he pays to one in possession of the
credit (Art. 1242)
2. Persons Incapacitated to Administer their Properties EXCEPT:
● Such incapacitated person kept the thing delivered
● Insofar as the payment has been beneficial to him
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3. Creditor if debtor has been judicially ordered to retain the debt

Article 1241. Payment to a person who is incapacitated to administer

his property shall be valid if he has kept the thing delivered, or insofar
as the payment has been beneficial to him.

Payment made to a third person shall also be valid insofar as it has

redounded to the benefit of the creditor. Such benefit to the creditor
need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor’s
rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor’s conduct, the debtor has been led to believe
that the third person had authority to receive the payment.
(1163a)

Article 1242. Payment made in good faith to any person in possession

of the credit shall release the debtor. (1164)

Article 1243. Payment made to the creditor by the debtor after the
latter has been judicially ordered to retain the debt shall not be valid.

Atty. SBM: In both cases, by whom and to whom, both parties should
have the legal capacity without any defect such as the usual defects of
minority, insanity, drunkenness, and others from Persons & Family
Relations.

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EXTINGUISHMENT:
APPLICATION OF PAYMENTS
Application of payments is the designation of the particular debt being
paid by the debtor who has 2 or more debts or obligations of the same
kind in favor of the same creditor to whom the payment is made. In
application of payments, you are talking of one debtor and one creditor,
and multiple debts or obligations of the same kind.
Q: Can you give an example of multiple debts or obligations of the
same kind, not in money?
A: If the debtor is a vendor of apples. He has an agreement with one
buyer to give him one crate of 50 apples, and then he makes another
batch of orders for 100 apples. Then a third batch for 200 apples. So 50 +
100 + 200. We can apply the rules on application of payments.
Q: What is the general rule on who has the power of choice in
application of payments?
A: Debtor.
Article 1252. He who has various debts of the same kind in favor of
one and the same creditor, may declare at the time of making the
payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made by the
party for whose benefit the term has been constituted, application shall
not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application
of the payment is made, the former cannot complain of the same,
unless there is a cause for invalidating the contract. (1172a)
Choice in application of payments belongs primarily to the debtor
● Debtor has the right to choose which debt of the several debts
due shall be paid.
● Designation of the debt to which payment shall be made must be
made at the moment of payment.
● If the debtor fails to exercise such right, the creditor may exercise
it by issuing a receipt wherein the debt paid is indicated. If the
debtor accepts the receipt without objection, payment is deemed
applied to the debt indicated in the receipt.
● If the assent or the acceptance of the receipt by the debtor is
tainted with fraud, intimidation, violence, or undue pressure, the
application of payment shall be invalid.
● If both do not exercise the right, or if the application is void,
Articles 1253 and 1254 shall apply.
● By mutual agreement, application of payment already made may
be changed, unless a third person is adversely affected, i.e, when
payment is applied to a debt for the release of a mortgage, and
subsequently, a third party caused the inscription of a lien over
the property which was just released. Changing such application
of payment would then adversely affect the third party.
Q: When will you make that proper announcement of the designation
or the selection of the debt?
A: It must be made at the moment of payment. In the earlier example, I
am bringing to the creditor 100 apples. It is incumbent upon me (as
debtor) to say, "These 100 apples will be applied to Batch 3, which
obligation consists of delivering 200 apples." It is my choice to which debt
to apply it to for as long as all three debts are due and demandable.
If I (still as debtor) do not say my selection and the creditor accepts it, the
creditor will now exercise the choice by issuing a receipt to me: "These
100 apples will be applied to Batch 2." If the debtor accepts that receipt
without objection, the payment is deemed to be made in Batch 2, not
Batch 3 as debtor wanted to in his mind because he did not announce it
at the moment of payment.
Atty. SBM: Take note that selection must be made at the moment of
payment.
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EXTINGUISHMENT: the consent of the latter.

SPECIAL FORMS OF PAYMENT Dation in Payment applies only to monetary obligation.
● In effect, it is a form of novation, but at the same time, the
Dation in Payment novation does not create that second obligation, but simply
Article 1245. Dation in payment, whereby property is alienated to the changes the object of the obligation.
creditor in satisfaction of a debt in money, shall be governed by the law ● And the thing that is offered as an accepted equivalent is the
of sales. (n) object of the contract of sale.

Important element: The extinguishment of the obligation.

Concept ● The moment the parties agree, even if the property is not the
● Alienation by the debtor of a particular property in favor of his exact equivalent, the obligation is deemed extinguished.
creditor, with the latter' consent, for the satisfaction of the former's
money obligation to the latter Dation in Payment v. Sale
● Form of novation in which there is a change in the object involved
in the original contract. Dation in Payment Sale
● Thing offered as an accepted equivalent of the performance of
the obligation is considered as the object of the contract of sale, There is a pre-existing credit. There is no pre-existing credit.
while the pre- existing debt is considered as the purchase price.
It extinguishes the obligation It gives rise to obligations, to
Elements completely or partially depending deliver on the part of the seller
1. Existence of a money obligation upon the agreement of the and to pay on the part of the
2. Alienation to the creditor of a property by the debtor with the parties. buyer.
consent of the former
3. Satisfaction of the money obligation of the debtor From the viewpoint of the creditor, From the viewpoint of the buyer,
the cause is the acquisition of the the cause is the object.
Dation in payment extinguishes the whole obligation, unless otherwise object offered as payment.
provided by the parties. From the viewpoint of the seller,
From the viewpoint of the debtor, the cause is the price.
Atty SBM: It shall be governed by the law on Sales, because there is an the cause is the extinguishment of
actual transfer of ownership of the property subject thereof. Moreover, his debt.
pursuant to the law on Sales, it is the actual delivery of such property that
will extinguish the obligation. There is less freedom to bargain There is greater freedom in the
in the determination of the price determination of the price as the
NOTE: A sale is perfected upon delivery, and not upon the meeting of the because if the creditor refuses, parties stand on equal footing at
minds. Thus, the debtor has to actually deliver the property subject of the the debtor will suffer more. The the bargaining table.
dation in payment to effect the extinguishment of the obligation. In Dation debtor is forced to yield to the
in Payment, what is involved is a monetary obligation. But instead of dictates of the creditor to save
paying with money, the debtor is paying with property and there is an himself from more inconvenience
actual transfer of ownership of such property in favor of creditor, with and embarrassment.

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Cession v. Dation in Payment
Dation in Payment
What is delivered is only a
particular property considered as
an equivalent of the performance
of the obligation.
There may be only one creditor.
Debtor is not necessarily in a
state of insolvency.
Ownership is transferred to the
creditor upon delivery.
It is an act of novation of the
contract.
A: Checks are not considered as legal payment, even if it is a manager’s
check.
Cession
Q: Why is a manager’s check not a legal tender, even if we all know
What is ceded is the universality
that it is good as cash?
of ALL the debtor’s property
excluding those exempt from
A: Checks will only be considered good as cash when they are actually
execution.
encashed.
There is plurality of creditors.
Q: Why is there a need for us to determine what is legal tender?
Debtor is necessarily in a state of
A: If you determine what legal tender is, the creditor will have no right to
insolvency.
refuse to accept payment.
Ownership is not transferred to
Q: I borrowed PHP 1 Million from you. If I give as payment:
the creditors.
● PHP 1 Million cash, can you refuse? - No.
It is not an act of novation of the ● PHP 1 Million in check, can you refuse? - Yes.
contract. ● PHP 1 Million in equivalent dollars, can you refuse? - Yes.

Legal Tender Legal Tender Tender of Payment

● Such currency which may be used for payments of debts,
Currency Offering that thing so it can
whether public or private, and which the creditor cannot refuse to
extinguish the obligation
accept.
● P.D. No. 72 set a limit in the use of coins as legal tender.
“Show me the money.” “Give it to “Show me the object.” “Offer me
me.” the object.”
Article 1249 of the Civil Code was amended by subsequent statutes. The
latest amendment is provided for by R.A. 8183.
Q: If the obligation is for a red Ferrari and I delivered a pink Ferrari.
Can you refuse?
Section 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties
A: I can refuse, but I can also accept, with damages
may agree that the obligation or transaction shall be settled in any
other currency at the time of payment. (R.A. 8183, Sec. 1)
Atty. SBM: Remember, when it comes to substantial compliance, for as
long as the intent of the parties for the purpose of the obligation is not
Q: What is legal tender in the Philippines? impaired, it's fine. But if she really wanted a red Ferrari and I delivered to
her a light red Ferrari, then there would be a problem. You can't apply
A: All Philippine notes and coins issued by the BSP substantial compliance even if malapit na. Take note, every time you
invoke substantial compliance will depend on the purpose why the
Q: How about a check? obligation was constituted. And there has to be good faith as well.

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EXTINGUISHMENT: CONSIGNATION
AND TENDER OF PAYMENT
Q: A owes B a red Ferrari. B refused to accept the red Ferrari from A.
Was B's refusal with just cause?
A: No. Since A complied with the agreement to deliver a red Ferrari.
What will be A's remedy?
A: A can consign the red Ferrari to an authorized party. By consigning the
car to the authorized party, the obligation is extinguished.
Atty. SBM: When it comes to who shall receive the prestation, it is usually
the creditor, 3rd parties whose receipt will redound to the creditor, or
authorized representatives of the creditor. However, if these persons
refuse, the law provides the remedy of consignation. In consignation, it
will not be the creditor anymore that will accept and extinguish the
obligation. The payment will now be consigned to the court, and it will be
the court who will make the acceptance which will produce, by way of
judicial decree, the extinguishment of the obligation.
Q: What are the instances whereby tender of payment is no longer
necessary?
A: The instances in Art. 1256.
Article 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following
cases:
a) When the creditor is absent or unknown, or does not appear at
the place of payment;
b) When he is incapacitated to receive the payment at the time it
is due;
c) When, without just cause, he refuses to give a receipt;
d) When two or more persons claim the same right to collect;
e) When the title of the obligation has been lost.
Atty. SBM: When you look at these exceptions, you want to release your
responsibility in your possession therefore you go to court.
Article 1256 pertains to obligations to give only
The way law defines it: “consignation of the thing due.” Thus, it cannot be
an obligation to do or not to do.
First Notice
Article 1257. In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons interested
in the fulfillment of the obligation. The consignation shall be ineffectual
if it is not made strictly in consonance with the provisions which
regulate payment. (1177)
There has to be the first announcement interested in the fulfillment
of the obligation. Otherwise, without that first notice, consignation would
be defective. It will not lead to a valid payment.
Deposit at the disposal of judicial authority; Second notice
Article 1258. Consignation shall be made by depositing the things due
at the disposal of judicial authority, before whom the tender of payment
shall be proved, in a proper case, and the announcement of the
consianation in other cases. The consignation having been made, the
interested parties shall also be notified thereof. (1178)
Atty. SBM: The law uses the word “deposit.” It has a technical meaning:
you actually give the physical thing to the courts. If it is too large (e.g.
House and lot), it can be delivered through constructive delivery (e.g.
keys to a house, keys to a truck). There has to be that subsequence
notification by the court of consignation. Again, the first notice would be
made prior to the deposit of the thing. Then, the court would make the
second notice to interested persons. Otherwise, there would be a defect
on the process of consignation.
Consignation is essentially judicial. The point in time the obligation is
extinguished is when the judge will issue a judicial decree stating that the
consignation is valid. The judge can only do so after giving notice to the
interested parties.
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Tender of Payment Requisites

Article 1259. The expenses of consignation, when properly made,
● It must be made in legal tender (lawful currency).
shall be charged against the creditor. (1179)
● It must include whatever interest is due
● Generally, it must be unconditional
Article 1260. Once the consignation has been duly made, the debtor
● The obligation must already be due.
may ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
Consignation Requisites
declaration that the consignation has been properly made, the debtor
● Existence of a valid debt which is due
may withdraw the thing or the sum deposited, allowing the obligation to
● Tender of payment by the debtor and refusal without justifiable
remain in force.
reason by the creditor to accept it
● Previous notice of consignation to persons interested in fulfillment
Article 1261. If, the consignation having been made, the creditor
of the obligation
should authorize the debtor to withdraw the same, he shall lose every
● Consignation of the thing or sum due with the proper court
preference which he may have over the thing. The co-debtors,
● Subsequent notice of consignation made to the interested parties
guarantors and sureties shall be released.
(Not discussed) Atty. SBM: Take note of the previous notice of consignation and the
subsequent notice. Otherwise, there would be a defective payment and
no valid payment.
Tender of Payment Consignation
PNB v. Chan (Not discussed but was in the slides)
Act of offering the creditor what is Act of depositing the thing due
Instead of depositing the money representing rental payments with the
due him together with a demand with the court or judicial
court for consignation, PNB, the debtor, merely opened a non-drawing
that the creditor accept the same. authorities whenever the creditor
savings account at its Paco Branch. There, it deposited monthly rentals.
cannot accept or refuses to
accept payment.
Was the deposit proper? No. Consignation is necessarily judicial and
Tender of payment is: Consignation is also: must be made with the court. Consequently, PNB's obligation to pay rent
● Act Precedent to ● Principal act which remained subsisting as the deposit of the rentals in its non-drawing
consignation extinguishes the savings account cannot be considered to have the effect consignation.
● An attempt to make a obligation
private settlement ● Judicial
● Extrajudicial ● Sufficient equivalent to
● Not yet considered delivery of property
delivery of property

Atty. SBM: Take note that Tender of Payment would not be produced if
there is no acceptance by the creditor.

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Extraordinary Inflation or Deflation

Article 1250. In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary. (n)
Applicability:
● Applies only to contractual obligations.
● Applies only if there is an extraordinary inflation or deflation of the
currency stipulated, and when there is an official pronouncement
or declaration of the existence of an extraordinary inflation or
deflation.
● As a declaration by the competent authorities is needed,
extraordinary inflation or deflation cannot be presumed.
● If the inflation or deflation is just ordinary, it is a universal trend
which did not spare the country, Article 1250 will not apply.
Atty. SBM: In other sources of obligations, you cannot apply Art. 1250.
Only in contractual obligations.
Q: Where must the payment be made in case of extraordinary
inflation or deflation?
Article 1251. Payment shall be made in the place designated in the
obligation.
There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made wherever the
thing might be at the moment the obligation was constituted.
Student: A check becomes stale after 6 months. So if it is issued by
a 3rd party, and the creditor failed to encash it within that period,
then is it considered as implied already after 6 months?
A: Yes. But it is not really to the fault of the creditor because the creditor
can validly refuse. Whether it is a cash or a check, or any other check,
then it is still not a valid legal tender. So, it’s not the creditor’s fault.
Q: How about payment in GCASH? Is that a legal tender?
A: Like PayMaya, GCASH or PayPal, it’s good as cash. Same thing when
I issue a manager’s check, it’s good as cash. Therefore, can I validly
refuse if I am the creditor? Given that the money will be transferred to me
realtime, in my phone.
Student: There is jurisprudence that when a check has been encashed
and deposited to your bank account, then it is already considered as
payment. Just the same, in GCASH, when the money is transferred to
your account, then it is already a payment since the money is in your
account already, electronically transferred to you.
Atty. SBM: Yes. You can argue that. In another way, you can also apply
by analogy, that it is not a legal tender unless you convert it to cash (the
money that has been transferred to your GCASH account).
Under e-Commerce Rules, an electronic transmission of currency is a
valid tender of payment. And if that person refuses, then that particular
debtor has no other remedy but to consign it in court.

In any other case the place of payment shall be the domicile of the
debtor.

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. (1171a)

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EXTINGUISHMENT: LOSS
Effects of Loss of a Specific Thing (General Rule & Exceptions)
Article 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
Article 1174. Except in cases expressly specified by the law, or when it
is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
Situations when the law makes the obligor liable even if due to
fortuitous events
1. Art. 1165 - When the debtor is in default, or when the debtor has
promised to deliver the same thing to two or more persons with
different interests
2. Art. 1174 - When the nature of the obligation requires assumption
of risk
3. Art. 1263 - When the obligation consists in the delivery of a
generic thing
4. Art. 1268 - Obligation to deliver a determinate object arising from
a criminal act
5. Art. 1942 - Liability of Bailee
6. Art. 1979 - Liability of Depositary
7. Art. 2147 - Liability of Officious Manager
8. Art. 2159 - Acceptance in bad faith of undue payment
Article 1165. xxx If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have the same interest,
he shall be responsible for any fortuitous event until he has effected the
delivery.
Article 1174. Except in cases expressly specified by the law, or when it
is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
Article 1263. In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation.
Article 1268. When the debt of a thing certain and determinate
proceeds from a criminal offense, the debtor shall not be exempted
from the payment of its price, whatever may be the cause for the loss,
unless the thing having been offered by him to the person who should
receive it, the latter refused without justification to accept it.
Article 1942. The bailee is liable for the loss of the thing, even if it
should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has
been constituted;
(3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a
member of his household;
(5) If, being able to save either the thing borrowed or his own
thing, he chose to save the latter.
Article 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have
been authorized to use the same.
Article 2147. The officious manager shall be liable for any fortuitous
event:
(1) If he undertakes risky operations which the owner was not
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accustomed to embark upon; that what has been poorly done

(2) If he has preferred his own interest to that of the owner; be undone.
(3) If he fails to return the property or business after demand by
the owner; Released from his prestation: -
(4) If he assumed the management in bad faith. depending upon the degree of
difficulty or performance.
Article 2159. Whoever in bad faith accepts an undue payment, shall
pay legal interest if a sum of money is involved, or shall be liable for Not applicable for minor or -
fruits received or which should have been received if the thing insignificant losses which are
produces fruits. normal risks.

He shall furthermore be answerable for any loss or impairment of the

Unforeseen Difficulty of Service
thing from any cause, and for damages to the person who delivered the
● Based on the principle of rebus sic stantibus used in international
thing, until it is recovered.
law which provides that a treaty remains valid only if the same
conditions existing and prevailing at the time of its execution shall
Loss of a generic thing; Partial loss continue to exist at the time of performance.
● This cannot be absolutely applied in contractual relations, as it
Article 1263. In an obligation to deliver a generic thing, the loss or
can undermine the stability of contracts.
destruction of anything of the same kind does not extinguish the
● Only in extremely unusual change of circumstances that equity
obligation.
shall come to help the debtor
● Unforeseen events or circumstances must be greatly beyond
Article 1264. The courts shall determine whether, under the
what could have been reasonably anticipated by diligent persons
circumstances, the partial loss of the object of the obligation is so
at the time of the execution of the contract.
important as to extinguish the obligation.
● The debtor cannot be required to overcome the difficulties if to do
so would mean economic ruin on his part.
Difficulty v. Impossibility
Difficulty Impossibility

Article 1167. If a person obliged Article 1266. The debtor in

to do something fails to do it, the
same shall be executed at his
cost.
This same rule shall be observed
if he does it in contravention of
the tenor of the obligation.
Furthermore, it may be decreed
obligations to do shall also be
released when the prestation
becomes legally or physically
impossible without the fault of the
obligor. (1184a)

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EXTINGUISHMENT: EXTINGUISHMENT: CONFUSION

CONDONATION OR REMISSION
Article 1275. The obligation is extinguished from the time the
Article 1270. Condonation or remission is essentially gratuitous, and characters of creditor and debtor are merged in the same person.
requires the acceptance by the obligor. It may be made expressly or (1192a)
impliedly.
Article 1276. Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors. Confusion which takes place
One and the other kind shall be subject to the rules which govern
in the person of any of the latter does not extinguish the obligation.
inofficious donations. Express condonation shall, furthermore, comply
(1193)
with the forms of donation. (1187)
Article 1277. Confusion does not extinguish a joint obligation except as
Notes: Gratuitous, acceptance is required, express or implied, not be regards the share corresponding to the creditor or debtor in whom the
inofficious (the creditor must reserve sufficient means for his own support two characters concur. (1194)
and of all relatives who are entitled to be supported by him at the time of
the acceptance of the condonation or remission.
Requisites for Confusion or Merger of Rights:
Requisites of Condonation or Remission
1. There is a merger in the same person of the characters of a
1. Existence of a demandable debt
creditor and a debtor.
2. Purely Gratuitous
2. The merger must be in the characters of a principal creditor and a
3. Acceptance by the debtor
principal debtor.
4. Compliance with formalities required by law on donation
3. The merger is definite and complete.
5. Must not be inofficious

IMPLIED CONDONATION

Implied
● Delivery of a private document evidencing a credit
● Presumption of voluntariness by the creditor (Art.s 1271-72)

Presumptions
● Accessory obligations are deemed condoned whenever principal
obligations are condoned ( Art. 1273)

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EXTINGUISHMENT: COMPENSATION
Legal Compensation Requisites
Article 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(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 quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to
the debtor. (1196)
Article 1286. 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)
Article 1290. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation. (1202)
Article 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)
Compensation
● Total or Partial
● Legal or Voluntary
ARTICLE 1281. Compensation may be total or partial. When the two
debts are of the same amount, there is a total compensation. (n)
ARTICLE 1282. The parties may agree upon the compensation of
debts which are not yet due. (n)
Offset
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. (Art. 1283)
Q: Is writing-off a loan equal to a condonation or release of a debt by
the creditors?
Compensation Jurisprudence
● A share of stock or certificate is not an indebtedness or an
evidence of indebtedness of the owner to stockholder.
Stockholders are not creditors of a corporation. (Garcia v. Lim)
● With respect to the forest charges, they are in the coffers of the
government as taxes collected. The Republic of the Philippines
and the Mambulao Lumber Company are not creditors and
debtors of each other. (Republic v. Mambulao)
● As a rule, a bank has a right to set off the deposits in its hands for
the payment of any indebtedness to it on the part of a depositor.
The relationship existing between a depositor and a bank is that
of a creditor and debtor. (Gullas v. PNB)
No Compensation
Article 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary or of a
bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim
for support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of article 301. (1200a)
Article 1288. Neither shall there be compensation if one of the debts
consists in civil liability arising from a penal offense. (n)
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EXTINGUISHMENT: NOVATION
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Requisites of Novation
● The existence of a valid and existing original obligation.
● The intent to extinguish or to modify the old obligation by a
substantial difference.
● The capacity and consent of all the parties.
● The validity of the new obligation
Article 1293. Novation which consists in substituting a new debtor in
the place of the original one, may be made even without the knowledge
or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in
articles 1236 and 1237. (1205a)
Article 1294. If the substitution is without the knowledge or against the
will of the debtor, the new debtor's insolvency or non-fulfillment of the
obligations shall not give rise to any liability on the part of the original
debtor. (n)
Kinds of Novation
1. Objective novation - deals with change in the object or change in
the principal condition
2. Subjective novation - change in debtor or change in the creditor
(subrogation); Expromision and Delegacion
Expromision requisites
1. The initiative must come from a third person (who will be the new
debtor
2. The new debtor and the creditor must consent.
3. The old debtor must be excused or released from his obligation.
Delegacion Requisites
1. The initiative comes from the old debtor.
2. All the parties concerned must consent or agree.
3. The old debtor must be released from the obligation
Kinds of Novation
1. Mixed - change of the object or principal conditions of an
obligation occurs at the same time with the change of either the
person of the debtor or the creditor
2. Implied - the test is the incompatibility, in every point (this relates
to the object, consent, and cause of the contract). When the old
obligation is completely incompatible with the new obligation in
every aspect
3. Total or Extinctive - the old obligation is completely extinguished
4. Partial or Modificatory - old obligation is merely modified; remains
in force except insofar as it was modified
NOTE: If there is doubt between extinctive or modificatory novation, it is
presumed modificatory.
Exception to the rule that novation is not presumed
Article 1302. It is presumed that there is legal subrogation:
a) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
b) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
c) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter's share.
Subrogation is the transfer to a third person of all the rights appertaining
to the creditor. There are two kinds of subrogation:
● Conventional or Voluntary Subrogation
● Legal Subrogation
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CONTRACTS
Essential Elements of a Contract
1. Consect
2. Object
3. Cause
Consent
By definition, consent is defined as meeting of the minds. It implies that by
definition, consent is a mental exercise. By definition, we also know that a
contract can be between two or more persons.
Necessarily, it will bind both parties or all parties if there will be a
reciprocal contract. The prestation is to give, to do, or not to do. There
can be nominate contracts whereby the law says we name it as sale,
pledge, or mortgage whereby there is a specific name attached to it by
law. But there are contracts also that even if there are no specific names
given by law, it is still considered as a contract provided the prestation is
either to give, to do, or not to do.
Consensual
Contracts are perfected by mere consent, and this consent is given by the
other party who accepts an offer. Perfection of the contract is the second
stage whereby it is preceded by the preparatory stage where parties will
have to exchange offers and acceptance if ever which will give rise to the
birth of the contract.
Based on Art. 1315, the moment there is a perfection of the contract,
parties are bound not only to the fulfillment, but also as to the stipulations
provided in the offer. Correlating it with the definition based on Art. 1305, it
is a meeting of the minds, therefore, consent can be given mentally.
General Rule: Contracts are perfected by mere consent (consensual)
Exceptions:
1. Real contracts as provided in Art. 1316
2. Formal contracts by which the law provides certain solemnities to
be done before the contract can be valid
Q: How is consent manifested?
A: Consensual as it is, it is manifested by the meeting of the offer and the
acceptance.
Article 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something
or to render some service.
Article 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and
law.
Article 1316. Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of the object of the
obligation.
Article 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was
made.
Qualifications of an Offer
1. Certain
2. Complete and intentional
Acceptance
Acceptance must also be absolute. Meaning, there are no conditions
attached to the acceptance. Otherwise, it will be considered as a
counter-offer.
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Jardine Davies v. CA
Purefoods held a bidding with six conditions, it awarded the contract to
FEMSCO. Was there a perfected contract between Purefoods and
Femsco? YES.
Doctrine: There was already a perfected contract since the conditions in
the letter were not conditions where the perfection of contract was
dependent, rather they were conditions in performing the obligation. Even
if we assume that the letter was a conditional counteroffer, subsequent
acts such as the return of the bidding bond and the payment of the all-risk
insurance policy confirmed that there was already a perfected contract.
Atty. SBM: This case also tells us that acceptance need not be express,
but it can also be implied. Although there were six conditions, those
conditions does not affect the offer itself but post-offer or post-perfection.
Therefore, you would have a perfected contract.
DEFINITE OFFER
Rosenstock vs. Burke
Seller Burke and potential buyer Elser began negotiations for the
purchase of a yacht. Elser had been using the yacht even before they
produced a finalized sale agreement. Elser even paid for the repairs of
the yacht. Elser wrote a letter to Burke saying “I am in position and willing
to entertain the purchase of Yacht” followed by several terms.
After 2 days, Elser wrote another letter to Burke saying it is impossible for
him to take charge of the boat and he returned the yacht to Burke. Burke
is now demanding from him the performance of the offer to purchase the
yacht based on their agreement.
Doctrine: The word "entertain" applied to an act does not mean the
resolution to perform said act, but simply a position to deliberate for
deciding to perform or not to perform said act. Taking into account only
the literal and technical meaning of the word "entertain," it seems to us
clear that the letter of Elser cannot be interpreted as a definite offer to
purchase the yacht.
Atty. SBM: The words used were “I am in a position and willing to
entertain the purchase of a yacht.” The word “entertain” itself is not a
definite offer. It simply means that he is just considering or thinking, but it
was not a definite offer. Aside from being a definite offer, the acceptance
must be absolute and unconditional.
Zayco v. Serra
They entered into an option contract to buy Palma Central for P1,000,000
and that in case the party cannot pay the whole, then he will be given a
period not exceeding 3 years to pay the balance. Zayco wrote a letter to
Serra accepting the contract and placing at his disposal a cash order of
BPI of P100,000, in part payment. Serra argued that since the contract
does not specify the amount of initial payment and the part to be paid
within 3 years in the contract, Zayco's acceptance is not sufficient to
perfect the contract. There was no perfected contract between since
Zayco's acceptance did not imply conformity with the offer of Serra, but
only when the latter shall, in turn, have accepted his proposal that the
amount to be paid in the first payment was P100,000. When Zayco
accepted the offer, tendering the sum of P100,000 as first payment, his
acceptance involved a proposal, not contained in the offer, that this
precisely, and not any other, should be the amount of the first payment.
This proposal, in turn, required the acceptance on the part of Serra.
Doctrine: In order for an acceptance to convert an offer of sale into a
perfect contract, it must be plain and unconditional, and it will not be so if
it involves any new proposal, for in that case it would not mean conformity
with the offer, which is what gives rise to the generation of the contract.
Article 1319. xxx The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was
made.
Atty. SBM: The Code uses the words “certain” and “absolute.” Therefore,
the acceptance made by letter does not bind the parties until the
acceptance comes to the knowledge of the offeror.
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Offer
An offer is a unilateral proposition which one party makes to the other for
the celebration of the contract. It exists only if the contract can come into
existence by the mere acceptance of the offer, without any further act on
the part of the offeror.
Atty. SBM: It means that the last person responsible for the creation or
perfection of the contract falls on the offeree, and not the offeror.
Requisites of a valid offer
1. Certain or definite offer so that, upon acceptance, an agreement
can be reached.
2. Complete offer to indicate with sufficient clearness the kind of
contract intended and stating the essential conditions of the
proposed contract.
3. Intentional offer with seriousness made in such manner that the
other party would not fail to notice the juridical effects of his or her
acceptance.
Acceptance
● A contract is perfected only from the time an acceptance of an
offer is made known to the offeror.
● It must be unconditional and absolute.
● If there is no complete acceptance, or if the offer is expressly
rejected, there is no meeting of the minds.
Atty. SBM: The moment the agent becomes aware of or has knowledge
of the acceptance by virtue of his authority, knowledge of the agent
becomes knowledge of the principal. Thus, there is a contract.
Article 1320. An acceptance may be express or implied.
Acceptance may be done
1. Expressly in writing;
2. Verbally; or
3. Impliedly by conduct.
Special forms of acceptance
1. Silence - In certain specific cases, silence puts the silent party in
estoppel (Articles 1670-1673)
2. Presumption - The law presumes acceptance of an inheritance if
within 30 days from the approved partition, the heir has not
repudiated the inheritance (Article 1057)
Qualified acceptance
● Variation from the proposal by omission, addition, or alteration
● Considered as a counter-offer
● Not acceptance; neither party is bound
● BUT an acceptance is not conditional if the acceptor expresses
dissatisfaction with the offer, yet gives his unqualified assent, or if
he adds immaterial words (basically, obiter)
When offer becomes ineffective
1. When any of the following occurs to any of the parties
a. Death
b. Civil interdiction
c. Insanity
d. Insolvency
2. When the offense expressly or impliedly reject the offer
3. When the offer is accepted with a qualification or condition (for
here, there would merely arise a counter-offer)
4. When before acceptance is communicated, the subject matter
has become illegal or impossible
5. When the period of time given to the offeree within which he must
signify his acceptance has already lapsed (Option Contracts)
6. When the offer is revoked in due time (that is, before the offeror
has learned of its acceptance by the offeror)
a. The offer, being a unilateral proposition coming from the
offeror, can be withdrawn anytime.
Article 1323. An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is
conveyed.
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Q: What do you mean by death? valuable consideration, the privilege to accept (to buy or not buy) an offer
at anytime within a specified period and for a fixed price.
A: Under the Civil Code, death is the cessation of the juridical personality
when a person dies. An option contract is a preparatory contract to the principal contract
should the parties finally consummate their transaction which is under
negotiation. The matter is said to be still under negotiation.
Civil A mandatory accessory penalty deemed imposed
Interdiction whenever the sentence rendered is within the range
Time When Acceptance Should Be Made
of reclusion temporal to death.
a. If a period is fixed: acceptance should be made within the period
fixed. If after the lapse of the period, there is no more offer to
Insanity The legal term for mental disorder. It is a manifestation
accept.
of disease or defect of the brain characterized by the
b. If no period is fixed: Acceptance must be made immediately.
disordered function of the sensory or intellective
faculties, or by impaired or disordered volition. Thus it
Q: Do option contracts always need consideration?
affects the meeting of the minds.
A: No. There are instances when the option contract, being a preparatory
Insolvency A condition where current assets are not sufficient to
contract, can have compensation or not.
pay current liabilities. It is the inability or the lack of
means to pay one’s debt, or the condition of a person
who is unable to pay his debts as they fall due. Option Contracts Option Contracts
With Consideration Without Consideration
Note: There is a difference between being insolvent
and being bankrupt. If the offeror withdraws his offer If the option without a
after the offeree had given a consideration, it is a mere offer to
consideration for the option sell, which is not binding until
Note on Offeree Rejects the Offer
granted, which consideration is accepted. So, it may be
No amount of acceptance after the rejection can give rise to the contract,
distinct from the purchase price or withdrawn by communicating the
The offer must be reiterated because there was nothing to accept after
cause of the principal contract, withdrawal to the offeree. In other
the rejection.
the offeror is liable for damages words, it is a mere offer. Not
which may be suffered by the binding until accepted.
The same concept applies to before acceptance is communicated, thing
offeror. Thus, if before the
becomes illegal or impossible.
expiration of the option period, if If there is a withdrawal, there is no
the offeror unilaterally withdraws, liability as long as it was done
Option Contracts
he is already liable for damages before the offeree accepted. The
Article 1324. When the offerer has allowed the offeree a certain period for breaching that contract. offeror incurs no liability for the
to accept, the offer may be withdrawn at any time before acceptance withdrawal of the offer. The
by communicating such withdrawal, except when the option is founded Within the period for acceptance, reason is because there is no
upon a consideration, as something paid or promised. the offeror must not deal with any contract perfected yet and the
other party involving the same offeror is free to withdraw his
subject matter of the option offer.
An option contract is a contract where the offeror grants the offeree, for a

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Q: Roland, a basketball star, was under contract for one year to

contract until the lapse of the If, however, acceptance is made
play-for-play exclusively for Lady Love, Inc. However, even before
option period. Thus, the offeree before a withdrawal, it constitutes
the basketball season could open, he was offered a more attractive
has exclusivity. a binding contract of sale. So if
pay plus fringes benefits by Sweet Taste, Inc. Roland accepted the
there is acceptance, it will give
offer and transferred to Sweet Taste. Lady Love sues Roland and
If the offeree exercises his right to rise to the principal contract.
Sweet Taste for breach of contract. Defendants claim that the
accept within the period fixed, the
restriction to play for Lady Love alone is void, hence, unenforceable,
offeror cannot just back out from
as it constitutes an undue interference with the right of Roland to
his commitment.
enter into contracts and the impairment of his freedom to play and
enjoy basketball. Can Roland be bound by the contract he entered
into with Lady Love or can he disregard the same?
Obligatory Force
Article 1159. Obligations arising from contracts have the force of law A: Yes. Roland is bound by the contract he entered into with Lady Love
between the contracting parties and should be complied with in good under the Principle of Obligatoriness of Contract. Since there has been a
faith. perfected contract between Roland and Lady Love, such must be
complied with in good faith by both parties and one cannot simply
disregard such contract.
When you say force of law, there can be legal compulsion. It must be
complied with in good faith.
Atty. SBM: Answer Yes or No. State legal basis or legal principle then
relate the principle of law with the facts (that there has been an exclusive
Correlating such Article of 1159 with consensual nature of contracts, the
contract with Lady Love, such must be complied with in GF).
moment there is meeting of minds, contracts such be obligatory in
whatever form.
Q: Merle offered to sell her automobile to Violy for P60,000. After
inspecting the automobile, Violy offered to buy it for P50,000. This
Article 1159. Obligations arising from contracts have the force of law offer was accepted by Merle. The next day, Merle offered to deliver
between the contracting parties and should be complied with in good the automobile, but Violy being short of funds, secured
faith. (1091a) postponement of the delivery, promising to pay the price "upon
arrival of the steamer, Helena" the steamer however never arrived
because it was wrecked by a typhoon and sank somewhere off the
Exception: Formal Contracts. Provided all the essential requisites for
Coast of Samar. Is there a perfected contract in this case? Why?
validity are present. When law requires contract to be in some form, such
is generally needed for:
A: Yes, there is a perfected contract because there is already a
1. Its validity
concurrence between the offer and the acceptance with respect to the
2. Its enforceability
object and the cause which shall constitute the contract. Such
concurrence is manifested by the acceptance made by Merle of the offer
There are also contracts that must be in writing under the SOF for their
made by Violy.
enforceability.

There are also Implied contracts or Oral or Verbal.

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General Rule
Form is not required in consensual contracts. As long as all the essential
requisites of the contract are present, they are binding upon the
contracting parties regardless of whatever form they may have been
entered into.
Exceptions:
1. When the law requires that a contract be in certain form for its
validity.
2. When the law requires that a contract be in certain form for its
enforceability.
ARTICLE 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1255a)
Limitations
1. Law
2. Morals
3. Good customs
4. Public order
5. Public policy
Good Customs and Public Policy
Cui v. Arellano University
To be able to take the bar examinations, recipient of scholarship grants,
plaintiff Cui tried to secure his transcript of record from his previous
school. School refused to issue him his transcripts unless he paid them
back the fees corresponding to his previous scholarships. To ensure the
payment, Cui was made to sign a contract of waiver which states that he
waives his right to transfer to another school until he has refunded his
scholarship fees to Arellano.
Contract is NOT valid since scholarships are granted in recognition of
merit, not to keep outstanding students in school to bolster its prestige.
The contract of waiver was contrary to public policy, and hence, null and
void. Awarding scholarships to attract students and to keep them in
school is not good customs.
Q: What if in the case of Cui, he was an athletic scholar not an
academic scholar. Will the decision be the same?
Atty. SBM: Scholarships are given because of merit, talent, etc. Not really
to keep students in schools for prestige purposes. Scholarship is imbued
with public interest such that it will be against public policy if you were to
require students to refund scholarship grants. So whether academic or
athletic, you can make use of Cui v. Arellano if there is the same question
in the BAR.
Ferrazzini v. Gsell
A provision in their contract states that once his employment is
terminated, he cannot work anywhere in the Philippines for the next five
years after his termination.
Such stipulation is an undue and unreasonable restraint of trade and
therefore against public policy. It would force the employee to leave the
Philippines in order to seek employment. Public Policy is the principle
under which freedom of contract or private dealing is restricted by law for
the good of the public.
Atty. SBM: Employment contracts are generally given all of these
stipulations: noncompete, confidentiality, etc. All of these are valid
stipulations provided they are not unreasonable and they are limited as
to time and as to the field or industry.
A perpetual, or long, prohibition from working in the Philippines, like in this
case of Gselle (5 years), is a blanket authority. It is an unreasonable
restraint of employment, therefore it is against public policy.
These are two good examples to help us define what are good customs
and what is public policy as it affects that principle of autonomy of
contracts.
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Relativity of Contracts
ARTICLE 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value
of the property he received from the decedent. xxx
Atty. SBM: In Art. 1311, it simply says only those parties in the contract
should be bound, except: heirs and assigns. An exception to the
exception is if the rights and obligations arising from these contracts are
not transmissible.
General Rule
Only the parties can be bound because they were the only ones whose
minds have met.
Exception: Heirs and assigns can also be bound, unless the object is not
transmissible either by their nature, by stipulation, or by provision of law.
Q: Baldomero leased his house with a telephone to Jose. The lease
contract provided that Jose shall pay for all electricity, water and
telephone services in the leased premises during the period of the
lease. Six months later, Jose surreptitiously vacated the premises.
He left behind unpaid telephone bills for overseas telephone calls
amounting to over P20,000.00. Baldomero refused to pay the said
bills on the ground that Jose had already substituted him as the
customer of the telephone company. The latter maintained that
Baldomero remained as his customer as far as their service contract
was concerned, notwithstanding the lease contract between
Baldomero and Jose. Who is correct, Baldomero or the telephone
company? Explain.
SUGGESTED ANSWER: The telephone company is correct because as
far as it is concerned, the only person it contracted with was Baldomero.
The telephone company has no contract with Jose. Baldomero cannot
substitute Jose in his stead without the consent of the telephone company
(Art. 1293, NCC). Baldomero is, therefore, liable under the contract.
Exceptions to the Principle of Relativity
1. If the obligation is by their nature, not transmissible such as
personal obligations, i.e., obligation to give support.
2. If by stipulation of the parties, the obligation shall be performed
only by the parties himself.
3. If under the provision of law, the obligation is intransmissible,
i.e., obligations arising from a contract of partnership.
Stipulation Pour Autrui
Article 1311. (2nd par). xxx If a contract should contain some
stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person.
Requisites:
1. There is a stipulation in favor of a third person
2. The stipulation is just a part of and not the whole obligation in the
contract
3. The favor or benefit must have been clearly and deliberately
conferred by the parties upon a third person
4. The favor or benefit conferred is not just an incidental benefit or
interest
5. Neither of the parties bears the legal representation or
authorization of the third party
This kind of stipulation is usually seen in insurance contracts.
Even if the third person is not part of the contract, by virtue of stipulation,
the parties have allowed this third person to become a beneficiary thereto.
This is an exception to the rule on relativity.
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Mutuality
Article 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them. (1256a)

Article 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)

Article 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)

The determination of the validity or compliance of a contract should not be

left to one of the parties.

It can also be given to a 3rd person, in which case the courts will decide
whether such contract is valid or if already complied with.

Contract of Adhesion: A take-it-or-leave-it situation. This does not

necessarily mean that the parties are not on equal footing in terms of
validity or compliance.

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OBJECT
Article 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights which
are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in
cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract. (1271a)
Article 1348. Impossible things or services cannot be the object of
contracts. (1272)
Article 1349. The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the
parties. (1273)
Requisites of a valid object:
1. It must be determinate as to its kind although not definite as to its
quantity provided the quantity can be determined without need of
a new contract;
2. It must be existing or has the potentiality to exist subsequent to
the contract or in the future (may include future things);
3. It must be licit, that is, not contrary to law, morals, good customs,
public order, or public policy;
4. It must be within the commerce of man which means, it is
susceptible of appropriation or capable of being owned privately
and is at the same time transmissible.
All future things, except future inheritance, can be a valid object of
contracts.
Future Inheritance: Any property or right not in existence or capable of
determination at the time of the execution of the contract which a person
may acquire in the future by succession.
It is an inchoate right which comes into realization only after the death of
the predecessor. Its amount cannot exactly be determined until the final
settlement of the estate of the deceased AND cannot be the subject of
compromise.
Blas v. Santos
The contract was valid because the object was existing at the time of the
agreement. The properties subject of the contract Exhibit "A" are
well-defined properties, existing at the time of the agreement, which
Simeon Blas declared in his statement as belonging to his wife as her
share in the conjugal partnership. The actual share in the conjugal
properties may not be considered as future inheritance because they
were essentially in existence at the time Exhibit "A" was executed.
Doctrine: What is prohibited to be the subject matter of a contract under
Article 1271 of the Civil Code is “future inheritance.” Future inheritance is
any property or right not in existence or capable of determination at the
time of the contract, that a person may in the future acquire by
succession.
Uson v. Del Rosario
Common-law wife claimed ownership over said parcels saying that the
first wife renounced her right to inherit from her husband by virtue of a
public document whereby they agreed to separate as husband and wife
and, in consideration of their separation, wife was given a parcel of land
by way of alimony and in return she renounced her right to inherit any
other property that may be left by her husband upon his death.
Doctrine: Future inheritance cannot be the subject of a contract nor can it
be renounced.
In order that a donation of real property may be valid, it shall be made in a
public document and must be accepted either in the same document or in
a separate one.
Atty. SBM: In both cases, Both contracts were entered into prior to the
death of one party to such contract.
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The perfection of a contract prior to the death of a person, and if it

pertains to the inheritance of that person, is an indication that it is a
contract involving future inheritance.

Requisites of Object of Contract

● It must be determinate as to its kind although not definite as to its
quantity, provided the quantity can be determined without need of
a new contract.
● It must be existing or has a potential to exist subsequent to the
contract or in the future.
● It must be licit that is, not contrary to law, morals, good customs,
public order, or public policy.
● It must be within the commerce of man which means, it is
susceptible of appropriation or capable of being owned privately
and is at the same time transmissible.

Atty. SBM: In contrast to objects that are public property, which is not
susceptible of being owned privately.

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CAUSE alienated his properties

with the motive to defraud
his creditors, the
Article 1354. Although the cause is not stated in the contract, it is alienation is rescissible.
presumed that it exists and is lawful, unless the debtor proves the
contrary. (1277)
When Motive Becomes the Cause
Article 1350. In onerous contracts the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service Liguez v. CA
by the other; in remuneratory ones, the service or benefit which is There was a donation, but the donation was made in view of the desire of
remunerated; and in contracts of pure beneficence, the mere liberality the donor to have sexual relations with the donee. The donor confessed
of the benefactor. (1274) his love for the donee, because the parents of the donee would not allow
cohabitation unless there was a donation. The donation was void for
having an illicit cause or consideration, which was the plaintiff’s entering
Cause into marital relations with Salvador P. Lopez, a married man.
● The reason why a party entered into the contract
● The essential reason which moves the parties to enter a contract Lopez would not have conveyed the property in question had he known
● The immediate, direct, and proximate reason which justifies the that Liguez would refuse to cohabit with him; so that the cohabitation was
creation of an obligation through the will of the contracting parties an implied condition to the donation, and being unlawful, necessarily
● Used interchangeably with “consideration” tainted the donation itself. In making the donation, Salvador P. Lopez was
not moved exclusively by the desire to benefit Liguez, but also to secure
her cohabiting with him, so that he could gratify his sexual impulses.
Cause Motive
Atty. SBM: In donation, the cause is pure liberality.
An essential element of a contract Not an essential element of a
contract The Supreme Court said that the condition of cohabitation, which was the
motive by the donor, necessarily became the cause. Therefore, the
The immediate, direct, and The psychological or personal donation was considered void. The motive of the donor was not moved
proximate reason which justifies purpose why parties enter into a exclusively by pure liberality.
the creation of an obligation contract
Lesion or Inadequacy of Cause
A contract without cause is void. GR: A contract without motive ● General Rule: A contract is not subject to annulment simply
does not make the contract void. because of lesion.
● Exception: In rescissible contracts, where lesion or inadequacy of
EXC: If the motive predetermines cause can be a ground to rescind the contract
the purpose of the contract,
motive may be regarded as the
case.
● Ex. If a debtor has

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Article 1355. Except in cases specified by law, lesion or inadequacy of
cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. (n)
Atty. SBM: If there is gross inadequacy of the cause, it can be an
indicator of the presence of fraud, mistake, or undue influence, which can
invalidate a contract. It is not really the inadequacy of the cause, but the
presence of fraud, mistake, or undue influence which makes the cause
invalidate the contract.
Q: Lolita was employed in a finance company. Because she could
not account for the funds entrusted to her, she was charged with
estafa and ordered arrested. In order to secure her release from jail,
her parents executed a promissory note to pay the finance company
the amount allegedly misappropriated by their daughter. The finance
company then executed an affidavit of desistance which led to the
withdrawal of the information against Lolita and her release from jail.
The parents failed to comply with their promissory note and the
finance company sued them for specific performance. Will the action
prosper or not?
civil liability of Lolita. If you were to answer that that was the cause for
entering into that particular provision.
If you were to say that the cause was to stifle criminal prosecution, which
is against public policy then you can say the action will not prosper. But if
you look at the effects and not allow this action to prosper, “lugi si
financing company.”
My answer here is that the action will prosper because the promissory
note was entered into for the purpose of extinguishing the civil liability
which is not illegal under the law. However, if the cause was for the
purpose of preventing criminal justice, then the action will not prosper.
I would rather go for the first answer because in practice, there have been
numerous affidavits of desistance and the courts allow even during the
pendency of the case, not necessarily considered as an illegal cause
because you want parties to settle the controversy by themselves instead
of the court.

Suggested Answer: The action will not prosper. Even though there is a
presumption that a cause of a contract exists and is lawful, if proven
otherwise that the cause is unlawful, then the contract will be void. Here,
the cause of the contract is to file an affidavit of desistance and to release
Lolita from jail. The main purpose is to prevent the criminal prosecution
against her, which is contrary to public policy. As the consideration for the
contract is unlawful, then the contract is void.

Q: Can it not be argued that the cause is to (a) extinguish the civil
liability and (b) declog the court dockets?

A: Yes, it can be argued that way as well.

Atty. SBM: In that particular question, it can go either way. It depends on

the legal basis that you will put. The cause by itself, the execution of that
affidavit of desistance, which lead to the withdrawal of the information, is
not illegal per se because you can argue that it would decongest court
dockets. The consideration actually is more of the extinguishment of the

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DEFECTS OF CONTRACTS RESCISSIBLE

RESCISSIBLE VOIDABLE UNENFORCEABLE VOID Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
There must be Damage or prejudice Damage or prejudice Damage or prejudice
damage or lesion or is not necessary. is not necessary. is not necessary. wards whom they represent suffer lesion by more than
prejudice to a one-fourth of the value of the things which are the object
contracting party or thereof;
third person.
(2) Those agreed upon in representation of absentees, if the latter
Valid and legally Valid, binding, and Inoperative until They do not produce suffer the lesion stated in the preceding number;
enforceable until enforceable until ratified. Not legal effects, with a (3) Those undertaken in fraud of creditors when the latter cannot
judicially rescinded. judicially annulled. enforceable in court few exceptions (void in any other manner collect the claims due them;
without proper marriages produce
ratification. legitimate children) (4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
Remedy is Remedy is Just a personal Remedy is approval of the litigants or of competent judicial authority;
rescission or annulment of the defense when the declaration of nullity (5) All other contracts specially declared by law to be subject to
rescissory action. contract. plaintiff pursues a of contract.
specific performance rescission.
case or complaint for
damages based on
breach of contract. The last paragraph (no. 5) is all-embracing as it covers all other contracts
specially declared by law as rescissible as those stated in Articles 1189,
Direct action. Direct action, either Indirect attack is Attacked directly or 1382, 1098, 1526, 1534, 1539, 1542, 1556, 1560, 1567, and 1659. (For
Collateral attack is in the complaint or allowed in the form indirectly.
not allowed. as a counterclaim. of a defense. purposes of review, stick with the general principles.)

Who can file? Who can file? Only a Who can file? Who can file? Third Atty. SBM: Note that when it comes to rescissible contracts, all of the
Contracting party. contracting party Contracting party. persons cannot
principally or Third persons cannot assail the contract
requisites (COC) are present. The Code allowed this particular contract to
Exceptions: creditors subsidiarily obliged assail it. unless his interests be defective because of damage, which is why rescissible contracts were
who are defrauded. under the contract. are directly affected. included based on common law principles of equity.
Exception: a third
person who is There is nothing wrong when it comes to the essential requisites, but the
prejudiced. effects post-perfection of the contract includes damage, so there has to
be a remedy of rescission as found in Articles 1380 and 1381.
Susceptible of Can be ratified. Can be ratified. Cannot be ratified.
convalidation but not
of ratification proper. Requisites for an Article 1381 Rescission
1. The contract subject of the action must be a rescissible one, that
Prescribes in four Prescribes in four Prescribes in ten Does not prescribe. is, it must be one of those mentioned in Articles 1381 and 1382.
years. years. years if written, six
years if unwritten.
2. The plaintiff must have no other recourse to obtain reparation for
the damages he suffered since the action is only subsidiary.
3. The plaintiff must be able to return whatever he is obliged to
restore, if the action would be sustained (Art. 1385)

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4. The object/s of the contract must not have already passed unto
the ownership or possession of a third person who is acting in
good faith (Art. 1385)
5. The action must be brought within the prescriptive period, four
years from the accrual of the cause of action. (Art. 1389)
Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381
shall not take place with respect to contracts approved by the courts.
Economic lesion of more than 25%
This refers to contracts entered by guardians whenever the wards whom
they represent suffer lesion by more than 1/4 of the value of the things
disposed of can be rescinded.
However, whether such contracts involve acts of ownership or acts of
administration, if the contracts are with judicial approval, they will not be
rescissible. (Article 1386)
Atty. SBM: These contracts which have judicial approval were already
scrutinized by a third party (a judge), such that there should be no
damage, or if ever there is or there will be, it will be very minimal. So,
contracts with judicial approval will not be rescissible.
Contracts undertaken deliberately in fraud of creditors
1. Not all fraudulent transactions can be the subject of rescission by
the creditor.
2. The contract must be intended to defraud the creditor, and that
the creditor cannot in any manner collect the claim due to him.
3. Without the needed proof establishing fraudulent intent, the
contract cannot be rescinded.
Atty. SBM: The law itself said that there has to be clear intent to defraud
the creditors. If there are no other available remedies, there has to be that
accompanying requirement that there was fraudulent intent.
Possible remedies
1. Creditors can avail of an action to obtain a writ of attachment
2. Article 1191, but only in cases of reciprocal obligations
3. Accion pauliana and accion reivindicatoria
True test: Intent to defend creditors.
Atty. SBM: The problem here is that intent is mental. It is a state of mind
which resides in the brain of the person doing those transactions. So, the
Court, in many instances, denominated certain circumstances as badges
of fraud. These are indicators whereby intent can be established.
Badges of fraud
1. Consideration of the conveyance is fictitious or inadequate
2. The transfer is made by the debtor after suit has begun and while
it is pending against him
3. A sale upon credit by an insolvent debtor
4. Evidence of large indebtedness or complete insolvency
5. The transfer of all or nearly all his property by a debtor, especially
when he is insolvent or greatly embarrassed financially
6. Transfer is made between father and son, when the other
circumstances above are present
7. Failure of vendee to take exclusive possession of all the property
China Bank v. CA
The Court held that the Assignment of Rights to Redeem in favor of
Paulino is to be rescinded since it was done to defraud China Bank.
Despite Alfonso Roxas Chua's knowledge that it is the only property he
had which his other creditors could levy, he still assigned his right to
redeem his one-half share of the conjugal property in question from
Metrobank in favor of his son, Paulino. Also, the presumption that the
conveyance is fraudulent has not been overcome. This presumption is
strengthened by the fact that the conveyance has virtually left Alfonso's
other creditors with no other property to attach.
Doctrine: Article 1387 of the Civil Code provides that alienations made by
a debtor by gratuitous title are presumed fraudulent when the donor did
not reserve sufficient property to pay his outstanding debts. Likewise,
alienations by onerous title are presumed fraudulent when made by
persons against whom some judgment has been rendered or some writ of
attachment has been issued. These, however, are mere presumptions
which are in no way conclusive. The presumption of fraud can be
overthrown by evidence showing that the conveyance was made in good
faith and for a sufficient and valuable consideration.
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Oria v. McMicking
Hermans received a favorable judgment against Oria Hermans which was
under liquidation. When execution was placed in the hands of the sheriff,
Oria Hermans replied that there were no funds to pay the civil liability. A
steamship was then subjected to public auction where the highest bidder
was Hermanos. Oria claims that he is the owner of the steamship to the
earlier sale by the company to him. The sale in the form in which it was
made leaves the creditors substantially without recourse. The property of
the company is gone, its income is gone, the business itself is likely to fail,
the property is being dissipated, and is depreciating in value.
Statutory presumptions of fraud
Article 1387. All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered into in
fraud of creditors, when the donor did not reserve sufficient property to
pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made
by persons against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, and need not have
been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may
be proved in any other manner recognized by the law of evidence.
Statutory presumptions under Article 1387
1. Alienation by gratuitous title - when a debtor donates his property
without reserving sufficient property to pay all his pre-existing
debts, the law presumes that the gratuitous dispositions are made
in fraud of creditors.
2. Alienation by onerous title - when a debtor alienates property by
onerous title, that is, even for a valuable consideration, the
contract is presumed fraudulent if at the time of the alienation:
a. Some judgment has been rendered against him, whether
it is on appeal or has already become final and executory;
b. Some writ of attachment has been issued against him in
any case.
Atty. SBM: Take note, when it is a “presumption,” it is subject to rebuttal.
It just transfers the burden of proving otherwise to the other party.
Other Requirements for Rescission
Article 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to
restore. Neither shall rescission take place when the things which are
the object of the contract are legally in the possession of third persons
who did not act in bad faith. In this case, indemnity for damages may
be demanded from the person causing the loss.
What are to be returned
1. The thing itself
2. The fruits or interest
Atty. SBM: The parties are trying to restore everything as if there was no
contract between them. Therefore, magsaulian po tayo.
Persons Liable for Indemnity for Damages
● For creditors, their recourse is to go after the person who had
caused the loss.
● For a guardian who is involved, he will be liable to indemnify the
ward for the value of the economic damage or lesion suffered by
the latter.
● If alienated in favor of a third person in good faith, the transfer of
the property to him will be respected.
● If with bad faith, the property transferred to him could still be
recovered, aside from the imposition of damage for the injury
suffered by the complaining party.
● Although a transferee is in good faith, if he got the property
gratuitously from the debtor, he is obliged to return the thing.
● He is entitled to reimbursement or necessary and useful
expenses which he incurred. But he is not liable for the
deterioration or loss of the thing possessed except when he acted
with fraudulent intent or negligence, after judicial summons had
been received by him.
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Atty. SBM: There is mutual restitution. A party can no longer avail of
rescission if the object of the contract is already legally in the possession
of a third person in good faith, simply because said party can no longer
return the thing itself. If it was transferred in bad faith, the property to such
a third person could still be recovered aside from the imposition of
damages. This is why in Article 1385, the law carefully says that “the
object of the contract is legally in possession of third persons who did not
act in bad faith.”
Article 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to
restore.
Neither shall rescission take place when the things which are the object
of the contract are legally in the possession of third persons who did
not act in bad faith.
alleged that petitioner violated the terms and conditions of the contract by
failing to pay the stipulated installments. Petitioners, on the other hand,
posed that the rescission is ineffective, because a remedy of foreclosure
was stipulated in the contract.
The remedy of rescission was not the correct remedy since the breach of
obligations was not with respect to the perfected contract of sale but in
the obligations created by the mortgage contract. Since foreclosure was a
specific provision found in the contract as the principal remedy, the action
of respondents must first be foreclosure.
Atty SBM: Here, the contract provided for installments and foreclosure of
mortgage as a remedy if there is failure to pay installments. The other
party filed an action for rescission. The SC said the breach of obligations
was not with respect to the sale, but on the mortgage contract – the
accessory to the sale. Since the foreclosure was found in the contract as
the principal remedy, before one can go to rescission, there must be a
mortgage itself. Subsidiary action.

In this case, indemnity for damages may be demanded from the person
causing the loss.

Article 1383. The action for rescission is subsidiary; it cannot be

instituted except when the party suffering damage has no other legal
means to obtain reparation for the same. (1294)

Article 1384. Rescission shall be only to the extent necessary to cover

the damages caused. (n)

Atty. SBM: The law also states that the action for rescission, considering
it is an equitable remedy, which was not in place prior to the Civil Code, it
is subsidiary. Also, trying to restore them where they were, the rescission
shall only be up to the extent to cover the extent of the damage caused.

Suria v. IAC
The contract in question is a Deed of Sale with Mortgage. Respondents

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VOIDABLE
Voidable Contracts
Binding, unless annulled by a proper action in court. They are susceptible
of ratification.
Consent
Concurrence of the wills of the offeror and offeree (acceptor) as to the
object and cause of the contract. It will be affected if there is no legal
capacity to give consent. It can be impacted by legal capacity, and vices
of consent where even if you have legal capacity, your consent will still be
affected if these 5 vices are present.
Requisites of Consent
a. There must be a meeting of the minds;
b. There must be at least 2 parties to the contract who are legally
capacitated;
c. It must be voluntarily, willfully, and intelligently given;
d. It must have been intended and truly given (intent to be bound).
Effect of Absence in the Requisites
a. If no consent: void
b. If consent is defective (no capacity or vitiated): voidable
Who Can Give Consent to A Contract
Article 1390. The following contracts are voidable or annullable, even
though there may have been no damage to the contracting parties:
1. Those where one of the parties is incapable of giving consent
to a contract;
2. Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification. (n)
Article 1327. The following cannot give consent to a contract:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who do not know
how to write. (1263a)
Article 1328. Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during a hypnotic spell
are voidable. (n)
Article 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
Cannot give consent to a contract (lack of legal capacity)
1. Minors
2. Insane
3. Deaf-mutes who do not know how to write
4. Contracts agreed to in a state of drunkenness & hypnotic spell
Five Vices of Consent:
1. Mistake
2. Violence
3. Intimidation
4. Undue Influence
5. Fraud
Minority
Before you turn 18, you do not have any legal capacity to enter into
contracts. Thus, if a minor enters a contract, the general rule is the
contract is voidable due to lack of legal capacity to give consent.
Exceptions
1. When the minor actively misrepresented his age on the contract
by stating that he is of age, and the other party was misled, the
contract shall be binding upon him based on estoppel. If there is
merely silence in the contract as to the age of the minor, the fraud
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is not actual but only constructive, the minor is not bound by his
signature. Yet, he must still make restitution up to the extent that
he was benefitted. If the other party knew of the minority of the
minor, he is bound thereby.
● Atty SBM: You can also say passive misrepresentation
instead of constructive misrepresentation.
2. When the contract involves the sale and delivery of necessaries
(or those which constitute support), he is bound thereby.
3. When the minor, upon reaching the age of majority, ratified the
contract, he becomes bound thereby.
Bambalan v. Maramba
There was an alleged contract between Isidro Bambalan and Maramba
regarding the sale of the land in question wherein Isidro Bambalan at time
of execution of the contract was a minor.
The contract was not valid since the consent is vitiated to the extent of
being void as regards the said plaintiff at the time, he signed it due to
minority. It is clearly shown by the record, and it does not appear that it
was his real intention to sell the land in question.
Plaintiff did not pretend to be of age; his minority was well known to the
purchaser, who was the one who purchased the plaintiff’s first cedula
used in the acknowledgment of the document.
Atty. SBM: During the sale, one of the parties was unmistakably a minor.
The Court said the contract was invalid since consent was vitiated by the
fact that he was a minor. There was also no intent to sell the land. Here,
the one who filed the complaint did not really pretend that he was already
of age. The other party knew he was a minor. Thus, there was no active
misrepresentation on the part of the minor, therefore, the contract was
considered not valid. More accurately, VOIDABLE.
Braganza vs. de Ville Abrille
Rosario Braganza and her sons Rodolfo (18 yrs old) and Guillermo (16
yrs old) issued a note in favor of Abrille for the loan they received from
him. Because of failure to pay, Abrille sued Braganza.
The defense of the minority can be invoked even though there was failure
to disclose the minority in the note.
In order to hold the minor liable, the fraud must be actual and not
constructive. There was no active misrepresentation on the part of the
minors and no explicit mention of majority was made by the minors in
executing the instrument (not in the instrument that they are of legal age).
However, they shall make restitution to the extent that they have profited
by the money they received.
Atty SBM: This is one case you would want to cite when a minor is
involved or minority is put as an issue.
Ratification
It is an act or means by virtue of which efficacy is given to a contract
which suffers from a vice of curable nullity.
Forms of Ratification:
1. Express - When the desire of the innocent party to convalidated
the contract, or his waiver or renunciation of his right to annul the
contract is clearly manifested verbally or formally in writing.
2. Tacit or Implied - When the innocent party with full knowledge of
the vice which renders the contract voidable, and the same
having ceased already, he executed act/s or displayed conduct
which necessarily implies his intention to waive his right to annul
the contract.
Requisites of Ratification:
1. The contract is voidable.
2. The confirmation is made by the injured contracting party
3. The confirming party has full knowledge of the vice or defect of
the contract
4. The cause of voidability should have already ceased or
disappeared at the time of the ratification.
(Both voidable and unenforceable are ratifiable, but these are elements
for voidable contracts)
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Prescription (Art 1391) Time of Reckoning of the Four Year Period Mutual Restitution; Not Absolute
If the vice consists in intimidation, violence, or undue influence, the
Article 1398. An obligation having been annulled, the contracting
reckoning begins from the cessation of such vice.
parties shall restore to each other the things which have been the
1. If it consists in mistake or fraud, the reckoning begins from the
subject matter of the contract, with their fruits, and the price with its
discovery thereof.
interest, except in cases provided by law. In obligations to render
2. If it consists in the incapacity of the contracting parties who is
service, the value thereof shall be the basis for damages.
under guardianship, the reckoning begins from the cessation of
the guardianship.
Article 1399. When the defect of the contract consists in the incapacity
of one of the parties, the incapacitated person is not obliged to make
Fraud Thru Public Instruments; Special Reckoning Period
any restitution except insofar as he has been benefited by the thing or
● With regard to fraudulent conveyances registered with the
price received by him.
Registry of Property, the prescriptive period is counted not from
the actual knowledge of the fraud by the plaintiff but from the
Article 1402. As long as one of the contracting parties does not restore
registration of the public document with the said registry.
what in virtue of the decree of annulment he is bound to return, the
● The act of registration is a notice to the whole world. It is the
other cannot be compelled to comply with what is incumbent upon him.
operative act which binds registered lands under the Torrens
System.
Atty. SBM: Incapactited is not obliged to make restitution except so far he
Effects of Ratification has benefited, IF the defect of the contracts consists in the incapacity of
Under Article 1396, ratification cleanses the contract from all its defects the parties. Example: Minority (like in the case of Brazanga, no obligation
from the moment it was constituted. to return, but court said minor still benefited so he will return only to the
extent you benefitted.
Innocent party has the prerogative to annul or not to annul a voidable
contract. The one who cause the vice of consent personally or through a Vices of Consent
third person is not allowed to file a case of annulment because of the 1. Mistake
principle that he who comes to court, must come with clean hands, and a 2. Violence
guilty party is not allowed to benefit from his own wrong. No such 3. Intimidation
conformity from the guilty party is required. 4. Undue influence
5. Fraud
Consequences of Ratification
● Legal purification of the voidable contract retroacts to the time of Two grounds to nullify a voidable contract:
its constitution. 1. One of the consenting parties does not have legal capacity
● Action for annulment of the contract can no longer prosper after (minority, insanity, deaf mute who does not know how to write,
its due ratification or confirmation. people who are drunk, and under a hypnotic spell)
2. Vices of consent
Exceptions to the Effect of Retroactivity
The rule of retroactivity shall not prejudice the rights of innocent third
persons for that will result in injustice which is not the intention of the law.

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MISTAKE
A simple mistake of account shall give rise to its correction.
Article 1331. In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of the contract, or
to those conditions which have principally moved one or both parties to
enter into the contract.
Mistake as to the identity or qualifications of one of the parties will
vitiate consent only when such identity or qualifications have been the
principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1266a)
Atty. SBM: For mistake to invalidate a consent
● Substance of the thing
● Principal conditions
● Identity only when it is the principal cause
● Mutual error as to the legal effect (Art. 1334)
Special Rule on Illiterates
Q: If there is an illiterate person, does it automatically make the
contract voidable?
A: No. The effects are the following –
1. If a contracting party is an illiterate or even if literate, but he could
not understand the language used in a contract which he signed,
and later, he alleged that there was fraud and mistake in the
execution thereof, there is a presumption created that there was
fraud or mistake when he signed or gave his conformity to the
contract.
2. The burden of proof of subsequent explanation is shifted now to
the party who is enforcing the agreement.
Article 1332. When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former. (n)
Blas v. Santos
Before his death, the seller, totally blind and was crippled for about 10
years, conveyed the subject properties to his common law wife’s relatives.
Such sale was challenged by the seller's children stating that the sale of
subject properties by their father was fictitious, and without any
consideration.
The sale between Mandap Sr. and the Vasquez spouses was not valid
since the purported seller, totally blind and paralyzed, could not possibly
have read the contents of the deeds. As the party seeking to enforce the
contract, the petitioners should have presented evidence showing that the
terms of the deeds of sale to the Vasquez spouses were fully explained to
Mandap Sr.
Dela Cruz v. Dela Cruz
The Court held that for Art. 1332 to apply, it must first be convincingly
established that the illiterate or disadvantaged party could not read or
understand the language in which the contract was written or that the
contract was left unexplained to said party.
Seller failed to discharge this burden. The sale was valid. Buyer declared
the property in his name for taxation purposes and paid the realty taxes,
without any protest from the seller.
VIOLENCE OR INTIMIDATION
Article 1335. There is violence when in order to wrest consent, serious
or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled
by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent.
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Notes on undue influence

To determine the degree of intimidation, the age, sex and condition of
● When influence consists in persuasive arguments or appeals to
the person shall be borne in mind.
the affections, the consent is an exertion of due influence which is
allowed by law.
A threat to enforce one's claim through competent authority, if the claim
● Solicitation, importunity, argument, and persuasion do not
is just or legal, does not vitiate consent. (1267a)
constitute undue influence.
● Giving of reluctant consent cannot be considered as vitiated
consent because it is clear that the person acted voluntarily and
Article 1336. Violence or intimidation shall annul the obligation, freely though he is reluctant.
although it may have been employed by a third person who did not take ○ Atty. SBM: Even the reluctant consent (e.g. "sige na nga
part in the contract. (1268) Sir kahit ayaw ko") is not considered as a vice of consent
for as long as there is still that reasonable freedom of
choice. There is influence because I am your teacher, but
Violence Intimidation it is not undue.
● Reverential fear is the fear of displeasing persons to whom
Physical force which is serious or Moral force operating in the will of respect, and obedience are due, and this does not vitiate
irresistible. a person. consent.
External because it is exerted Internal because it operates in the Q: Beadle says “Sir wala nalang recitations today” or Sir says “Okay
upon the body of the victim. mind of the person. It is a moral lang ba extended class tayo?” Is it considered as undue influence?
compulsion.
A: No. Appeal to affection. Nakikiusap lang naman.
There is no space of time to There is a brief space of time
choose between the physical between the threat and the actual
Atty. SBM: This is somehow confused with undue influence when applied
compulsion and the act. They are act giving the victim a chance to
to certain facts or circumstances. That reverential fear does not vitiate
simultaneously done. choose between two evils.
consent because there is that certain respect and obedience given to
those people who are revered. Some examples: the holy Pope, Dean
UNDUE INFLUENCE Joey, President Duterte. It does not necessarily mean we have to follow,
but if we follow it out of reverence then it is not considered as undue
Article 1337. There is undue influence when a person takes improper influence.
advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be Martinez v. HSBC
considered: the confidential, family, spiritual and other relations Petitioner was given the opportunity to take the advice of her attorneys
between the parties, or the fact that the person alleged to have been and if ever there were threats, it was not made directly to her because it
unduly influenced was suffering from mental weakness, or was ignorant was her attorneys who negotiated.
or in financial distress. (n)
Atty. SBM: Petitioner here was given the opportunity to take the advice of
her attorneys. Her attorneys were threatened that there would be cases
filed against their clients. The Court said this is not a case of undue
influence. First, the threats of filing a case are legitimate and presenting

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one's claim before a competent authority. Second, the petitioner was be implied from the facts of the case that the transfer was approved solely
saying he did not have ample time to consult counsel. The Court said that on the strength of such letter, for the approval of the transfer was
was a flimsy excuse and it was impossible for her not to consult her recommended as "extremely meritorious" by the Homesite Sales
lawyers. Supervisor.

Cases where duress is applicable or present:
● In cases where there was no time within which to deliberate the
matter
● There was no time or opportunity to take the advice of friends or
of disinterested persons
● There was no time or opportunity to take the advice of counsel
● The threats made to secure the performance of the act
complained of were made directly to the complaining party
● There was no consideration for the performance of the act
complained of except immunity from the prosecution threatened
● The property transferred or encumbered was the separate
property of the person performing the act in which the person for
whom the act was performed claimed no interest whatever
● There was no dispute as to the title of the property transferred or
encumbered, no claim made by anybody and no pretension that it
could be taken for the debts of the husband or any other person.
Atty. SBM: The Court said these circumstances were not present to show
that this can be a case of undue influence.
Solicitation, importunity, argument and persuasion are not undue
influence. Such may be termed "due influence."
Fraud
Insidious Machinations refers to a deceitful scheme or plot with an evil
design, or a fraudulent purpose.
ARTICLE 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to.
Requisites of Dolo Causante:
1. Fraud is applied or utilized by one contracting party upon the
other. (If both committed fraud, contract is valid) (Art. 1344)
2. It must be serious deception or misrepresentation. (Art. 1344)
3. It must have induced the victim to enter into the contract. (Art.
1338)
4. It must have resulted in damage or injury to the victim.

Banez v. CA Atty. SBM: Art. 1338 must also be compared with the fraud we
CA held that the approval of the transfer of the rights to the lot was due to encountered in Art. 1170.
the intercession of the then Senator Estanislao Fernandez.

Atty. SBM: There was a transaction that needed approval before the
National Housing Authority (NHA). It was granted but one party here was
saying that it was approved by virtue of a letter coming from a certain
sitting Senator.

PHHC (predecessor of NHA) accommodated petitioner because of the

intercession of whoever wrote "Exhibit C, has no evidentiary basis, for
Exhibit C was rejected by the trial court" for being immaterial, irrelevant,
impertinent and not properly identified.

But assuming that the letter was written by Senator Fernandez, it cannot

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Kinds of Fraud The following are not necessarily fraud, subject to the codal
provision exceptions:
Basis Fraud in the Fraud in the
1. Failure to disclose facts
performance perfection
2. Usual exaggerations in trade
3. Mere expression of an opinion
Time of occurrence After the valid Occurs before or
4. Misrepresentation by a third person
execution of the simultaneous with the
5. Misrepresentation made in good faith
contract creation or perfection
of the obligation
Atty. SBM: These instances, on their bare allegations, are not instances
of fraud.
Consent Consent is free and Consent is vitiated by
not vitiated. serious deception or
misrepresentation. Article 1339. Failure to disclose facts, when there is a duty to reveal
them, as when the parties are bound by confidential relations,
Effect Not a ground for A ground for constitutes fraud. (n)
annulment annulment
Article 1340. The usual exaggerations in trade, when the other party
Remedy Action for damages Action for annulment had an opportunity to know the facts, are not in themselves fraudulent.
only with damages
Article 1341. A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on the former's
special knowledge. (n)
Basis Dolo causante Dolo incidente
Article 1342. Misrepresentation by a third person does not vitiate
Nature Efficient cause to the NOT the efficient consent, unless such misrepresentation has created substantial
giving of consent cause for the giving of mistake and the same is mutual. (n)
consent
Article 1343. Misrepresentation made in good faith is not fraudulent
Effect Renders the contract Does NOT affect the but may constitute error. (n)
voidable validity of the contract

Remedy Annulment with Remedy is claim for Atty. SBM: Regarding Art. 1342, if there is substantial mistake, then it is
damages damages only also a ground for nullifying a voidable contract. Regarding Art. 1343, this
is not fraud. But it can be a ground for mistake or error which can also
lead to a voidable contract.
Atty. SBM: Some commentaries say that dolo causante is the same as
fraud in the perfection, and dolo incidente is the same as fraud in the Araneta v. De Paterno
performance. Either way, these are the differences between the two kinds It was alleged that Attorneys Salvador Araneta and J. Antonio Araneta
of fraud as they are found under the Civil Code. who Paz Tuason said had been her attorneys and had drawn Exhibit A,
and not informed or had misinformed her about its contents; that being
English, she had not read the deed of sale; that if she had not trusted the

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said attorneys, she would not have been so foolish as to affix her
signature to a contract so one-sided.
There was NO fraud in obtaining the consent of Paz Tuason.
● It is difficult to believe that the defendant was deceived into
signing Exhibit A, as she had been intelligent and well-educated
in managing her affairs, she had an able attorney who was
assisting her in the suit against Vidal, a case which was instituted
precisely to carry into effect Exhibit A or Exhibit 1, and a son who
is leading citizen and a business-man and knew the English
language very well if she did not.
● If the defendant signed Exhibit A without being apprised of its
import, it can hardly be conceived that she did not have her
attorney or her son read it to her afterward. Only after she was
confronted with the signed copy of the document on the witness
did she spring up the defense of fraud.
Doctrine: No person in his or her right senses would knowingly have
agreed to a covenant so iniquitous and unreasonable. However, from the
unreasonableness and inequity of a stipulation or an agreement, it is not
to be presumed that the party did not understand it.
Songco v. Sellner
Sellner bought Songco's cane as it stood in the fields for the agreed sum
of P12,000. The promissory note in question was obtained from the
defendant by means of certain false and fraudulent representations based
on estimates (3,000 piculs of the sugar). The crop turned out it produced
2,017 piculs, gross, and after the toll for milling was deducted the net left
to Seller was very much less.
There was NO fraud since Songco knew at the time he made the
representation in question that he was greatly exaggerating the probable
produce of his fields. While Songco had better experience and better
information on which to form an opinion on this question than Seller, the
latter could judge with his own eyes as to the character of the cane.
He knew what these same fields had been producing over a long period
of years; and he knew that, judging from the customary yield, the harvest
of this year should fall far below the amount stated.
The representation in question can only be considered matter of opinion
as the cane was still standing in the field, and the quantity of the sugar it
would produce could not be known with certainty until it should be
harvested and milled.
A misinterpretation upon a mere matter of opinion is not an actionable
deceit, nor is it a sufficient ground for avoiding a contract as fraudulent.It
must be as to matters of fact substantially affecting the buyer's interest,
not as to matters of opinion, judgment, probability, or expectation.
Doctrine: It is not every representation relating to the subject matter of a
contract which will render it void. It must be as to matters of fact
substantially affecting the buyer's interest, not as to matters of opinion,
judgment, probability, or expectation. When the purchaser undertakes to
make an investigation of his own, and the seller does nothing to prevent
this investigation from being as full as he chooses to make it, the
purchaser cannot afterwards allege that the seller made
misrepresentations.
Atty SBM: If there is misrepresentation, but it is only a matter of opinion,
it is not an actionable deceit. This is especially true in usual exaggerations
in trade which is not considered as fraud, unless the other party did not
have an opportunity to verify such exaggeration.
Simulated Contracts
Article 1345. Simulation of a contract may be absolute or relative. The
former takes place when the parties do not intend to be bound at all;
the latter, when the parties conceal their true agreement. (n)
Article 1346. An absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement. (n)
These are actually found under Consent.
In absolutely simulated contracts, there is no intention to be bound at all.
For relatively simulated contracts, the parties conceal their true
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agreement, provided such agreement does not prejudice third persons,
and is not contrary to law, morals, good customs. The parties are bound
to their real agreement, not to the simulated contract.
Gonzales v. Trinidad
The sale was simulated but the supposed vendors did not receive the
alleged price, the idea being to save the property, which was fictitiously
sold, from attachment by Dr. Ramon Papa to whom Lorenzo Perez had
endorsed a note for P4,000 executed and signed by Primitivo.
The contract of sale was null and void for being simulated.
The contract of sale, being onerous has for its cause or consideration the
price of P10,000; and both this consideration as well as the subject matter
of the contract namely, the property, are lawful and not penalized by law.
However, as the contract was fictitious and simulated and the supposed
vendors did not receive the stipulated price, the consideration being thus
lacking, said contract is null and void per se or non-existent.
Doctrine: Consideration – The why of the contracts, the essential reason
which moves the contracting parties to enter into contract. Subject matter
– In this case, the thing and the price are the subject matter of the
contract. These are the particular reasons of a contracting party which do
not affect the other party and which do not preclude the existence of a
different consideration. However, as the contract was fictitious and
simulated and the supposed vendors did not receive the stipulated price,
the consideration being thus lacking, said contract is null and void per se
or non-existent.
Atty SBM: Even if the consideration is insufficient, this – alone, or by itself
– does not render a contract void.
Bravo-Guerrero v. Bravo
Mauricio carried out a Deed of Sale to his son Roland, and grandchildren,
Ofelia and Elizabeth (as vendees). The sale was conditioned on the
payment of Php1,000. Mauricio and Simona died. Edward, one of the
spouses' grandchildren, filed for the annulment of the Deed of Sale on the
ground that it was simulated to prejudice the other heirs as shown by the
grossly inadequate consideration.
Was the deed of sale simulated? NO.
● The deed only has gross inadequacy (two parcels of land for only
Php1,000) of price.
● Simulation of contract and gross inadequacy of price are distinct
legal concepts. The former shows no real agreement between the
parties, hence, void. The latter may embody a true agreement
between the parties, especially as to the price negotiation in
contracts of sale. It does not affect the validity of the contract.
Doctrine: Simulation of contract and gross inadequacy of price are distinct
legal concepts, with different effects. When the parties to an alleged
contract do not really intend to be bound by it, the contract is simulated
and void. A simulated or fictitious contract has no legal effect whatsoever
because there is no real agreement between the parties.
In contrast, a contract with inadequate consideration may nevertheless
embody a true agreement between the parties. A contract of sale is a
consensual contract, which becomes valid and binding upon the meeting
of minds of the parties on the price and the object of the sale. The
concept of a simulated sale is thus incompatible with inadequacy of price.
When the parties agree on a price as the actual consideration, the sale is
not simulated despite the inadequacy of the price.
Gross inadequacy of price by itself will not result in a void contract. Gross
inadequacy of price does not even affect the validity of a contract of sale,
unless it signifies a defect in the consent or that the parties actually
intended a donation or some other contract. Inadequacy of cause will not
invalidate a contract unless there has been fraud, mistake or undue
influence.
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UNENFORCEABLE
Three kinds of unenforceable contracts
1. Those entered into in the name of another person by one who
has no authority/who acted beyond his power.
2. Those that do not comply with the Statute of Frauds.
3. Those where both parties are incapable of giving consent to a
contract.
Article 1403. The following contracts are unenforceable, unless they
are ratified:
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted
beyond his powers xxx
Article 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked
by the other contracting party. (1259a)
Atty SBM: Article 1403, paragraph 1 is very similar to Article 1317. They
are considered as unenforceable unless ratified. Ratification cures all the
legal defects of an unenforceable contract.
In the name of another without authority/acted beyond his powers
Rallos v. Go Chan
Agent entered into the contract whereby he knew that the principal was
already dead. Under the rules of Agency, the moment the principal is
dead, the power granted to the agent is deemed removed by operation of
law. The sale was unenforceable, because the agent already knew that
his principal was already dead. Yet, he acted and clearly exceeded his
authority. Under Art. 1931, an act done by the agent after the death of his
principal is valid and effective only under two conditions:
● That the agent acted without the knowledge of the principal’s
death, and
● That the third person who contracted with the agent himself acted
in good faith.
Note: These 2 requisites must concur and the absence of one will render
the act of the agent invalid and unenforceable.
Both Parties are Incapable of Giving Consent
Article 1403. The following contracts are unenforceable, unless they
are ratified:
(3) Those where both parties are incapable of giving consent to
a contract.
Atty. SBM: The law uses “incapable,” meaning incapacity. Both parties
are minors, insane. Those circumstances that the law has provided that
such persons do not have legal capacity. More of incapacity, not vice of
consent.
Article 1403. The following contracts are unenforceable, unless they
are ratified: xxx (2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum, thereof, be in writing, and subscribed by
the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary
evidence of its contents:
(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action,
at a price not less than five hundred pesos, unless the buyer
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accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at
the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
Atty. SBM: (Bar Tip) Memorize because there is a previous bar exam
where the examiner asked, “What are the 6 contracts under the Statute of
Frauds?”
Atty. SBM: These contracts are considered unenforceable if there is no
note or memorandum that can establish the existence of the agreement. If
there is a note or a memorandum in writing, then these 6 “contracts” will
not be considered as unenforceable.
Kinds of Unenforceable Contracts
● Lack of Consent
● No Written Proof
● Vitiated or Lack of Consent
Similarities of Unenforceable Contracts
● They cannot be enforced or pursued in courts.
● They can be ratified, which means, they can be convalidated and
become enforceable in court.
● They cannot be attacked or assailed by third persons. The
remedy of the third person is against the agent who acted without
authority or acted beyond his authority.
Statute of Frauds
● Purpose: To prevent fraud and perjury in the enforcement of
obligations, depending for their existence on the unassisted
memory by witnesses, by requiring certain enumerated contracts
and transactions to be evidenced by a writing signed by the party
to be charged
● Atty. SBM: Back in the 16th century, the English Parliament
thought that these 6 agreements have the tendency to be easily
forgotten, if they are not reduced into writing.
Applicability of Statute of Frauds
Only applies to executory contracts. When there has been performance
by one party in an oral contract, equity dictates that all evidence be
admitted to prove the existence of the alleged contract.
Atty. SBM: Because when the contract is already partially executed,
equity is saying that even if your contract is found under Article 1403,
secondary evidence should be allowed to establish the existence of the
contract.
Note or Memorandum
● No form/language is required, but it must contain practically the
contract itself.
● The note/memorandum must contain the following details:
○ Names of the Parties
○ Terms and Conditions of the Agreement
○ Description of the Subject Matter for the Proper
Identification Thereof
○ Place and Date of the Making of the Agreement
● Basically a representation that there is already a contract, but not
the contract itself.
○ Cause or consideration: Need not be stated; Presumed to
be present and legal
Atty. SBM: The Statute of Frauds is really concerned with the
admissibility of the evidence. That is why when evidence is presented in
court, there is that duty to object. Otherwise, if you fail to object to
testimony that tries to establish the existence of an unenforceable
contract, the defense of Statute of Frauds will be considered waived.
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Specific Actions where the Statute of Frauds May Be Invoked:

● A matter of personal defense
○ Can actually raise this defense in court the moment one
party is already enforcing or implementing a particular
contract
● A ground for a motion to dismiss
● Can be invoked before an answer is filed as a ground for a
motion to dismiss, or it can be interposed as an affirmative
defense provided it is not waived during the trial.
○ Deemed waived by failure to object to the presentation of
oral evidence or by cross-examining the witness on the
issue

Statute of Frauds Can Only Be Invoked in 2 Kinds of Cases:

● In complaints for specific performance where the defendants may
frustrate the actions by showing that the contracts in issue are
among those covered by Article 1403, par. 2 and are not
evidenced by any written document, not or memorandum.
● In complaints for damages for violation of the contract. If there is
no enforceable contract, naturally, there can be no basis for
damages grounded on violation thereof.

Atty. SBM: It is important that, whenever there is an action where the

party is trying to enforce an unenforceable contract, and it is being done
in court, there is a need for the opposing counsel to raise as an affirmative
defense, or if there is a failure to object to the presentation of testimony,
then that defense cannot be raised.

Effects of Ratification
● Ratification validates the act and purges the contract of its defect
from the moment it was constituted and not from the time of
ratification.
● Liability of the Person who contracted without authority: The
person who contracted in the name of another without authority
shall be liable for damages to the party with whom he dealt with.
● Availability of Ratification: Ratification may be effected only
before the contract had been revoked by the other contracting
party. Once it has been revoked, there is nothing more to ratify.
● Atty. SBM: Very similar to the effect of ratification in voidable
contracts.

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VOID
Atty. SBM: There is a defect on the object or cause of the contract.
Article 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
Atty. SBM: Aside from item (7) which is an express prohibition declared
by law, items 1-6 are those which affect either the (a) object or the (b)
cause. When it comes to void contracts, walang problema sa consent.
The problem is with the object or the cause.
Object or Subject Matter
Article 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights which
are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in
cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract. (1271a)
Article 1348. Impossible things or services cannot be the object of
contracts. (1272)
Article 1349. The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the
parties. (1273)
Requisites of a valid object or subject matter
1. The object must be within the commerce of man;
2. It must be licit, not contrary to law, morals, good customs, public
policy or public order;
3. It must be possible; and
4. It must be terminate as to its kind (generic at least)
Atty. SBM: If any contract would have a subject matter that would fail any
of these four, then you will have a void contract.
Cause or Consideration
The cause is the immediate and the most proximate purpose of the
contract, the essential reason which impels the contracting parties to
enter into a contract. It need not be stated because it is always presumed.
Article 1350. In onerous contracts the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality
of the benefactor. (1274)
Article 1351. The particular motives of the parties in entering into a
contract are different from the cause thereof. (n)
Atty. SBM: Gross inadequacy of the cause by itself does not nullify a
contract, unless there is fraud or mistake.
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Who can attack? courts leave them as they are, because they are deemed in pari
● Void contracts - may be attacked even by strangers whose delicto (in equal fault).
interests are directly affected. 8. They cannot give rise directly to another contract.
● Unenforceable contracts - third persons cannot attack based on
privity or relativity of contracts Nullity of Contract Due to Illegality
● Voidable contracts - may also be attacked by third persons who
are prejudiced thereby
Article 1411. When the nullity proceeds from the illegality of the cause
● Rescissible contracts - only the contracting parties themselves or
or object of the contract, and the act constitutes a criminal offense, both
a third party, such as a creditor, who is prejudiced thereby.
parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the provisions of the
When to attack
Penal Code relative to the disposal of effects or instruments of a crime
Article 1410. The action or defense for the declaration of the shall be applicable to the things or the price of the contract.
inexistence of a contract does not prescribe.
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
Atty. SBM: Void contract may be attacked anytime because the action to
to comply with his promise. (1305)
declare a null or void contract does not prescribe.

Characteristics of a Void Contract
1. Generally, they produce no civil effects either in favor of or
against anyone.
2. They are not susceptible to ratification. The nullity of void or
inexistent contract is permanent and fixed and the same cannot
be cured by ratification.
3. The right to set up the defense of their inexistence or absolute
nullity cannot be waived.
4. The action or defense for the declaration of the inexistence of the
contracts does not prescribe.
5. The defense of illegality of contracts cannot be invoked by third
persons whose interests are not directly affected.
6. No action is needed to set them aside because their nullity exists
ipso jure. However, if there has been performance already, the
intervention of the court is necessary to declare its nullity and
decree the restitution of what has been given by virtue thereof.
No one should take the law into his own hands. The judgment of
nullity is merely declarator. If the void contract is still completely
executory, no action is needed to declare its nullity. Anybody who
tries to enforce it may be resisted by the other party by putting up
the defense of nullity of contract.
7. Parties to a void agreement cannot expect the aid of the law–the
If a contract is void because of the illegality of the cause or object
constitutes a criminal offense:
● Both parties are in pari delicto–they cannot compel one another
to fulfill their respective promises.
● If there is partial execution–same thing, they cannot expect aid
from the law. They cannot get back what they had already paid or
delivered to one another. The law will leave them where they are.
● There will be (a) prosecution, and (b) forfeiture.
When Unlawful or Forbidden Cause is Not Constitutive of a Crime
Article 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following rules shall
be observed:
(1) When the fault is on the part of both contracting parties, neither
may recover what he has given by virtue of the contract, or
demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot
recover what he has given by reason of the contract, or ask for
the fulfillment of what has been promised him. The other, who
is not at fault, may demand the return of what he has given
without any obligation to comply his promise. (1306)

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If both parties are at fault, they cannot recover what they have given
under the contract. Moreover, they cannot demand the performance or
promise of the other party. Similar to Article 1411, the law will leave them
as they are.

But if only one of the parties is at fault, then the one at fault cannot
recover what he has given under the contract.
● Only the party at fault cannot demand the fulfillment of the
promise of the other.
● The one who is not at fault may demand the return of what he has
given, without any obligation to comply with his own undertaking
(this is the difference between Arts. 1411 and 1412)

Timely Repudiation of Unlawful Contract; Effects

Article 1414. When money is paid or property delivered for an illegal
purpose, the contract may be repudiated by one of the 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.

Notes:
● After the accomplishment of the purpose/s of the illegal contract,
the parties can no longer repudiate the act already performed.
● If the act constitutes a crime, they will be prosecuted for the
commission of the crime.
● Even if the contracting parties are not equally guilty, the article will
apply if public policy will be subserved.
○ Relief will be given to the less guilty of the two parties or
to the one more excusable.

Atty. SBM: There is an allowance for timely repudiation. If there is that

timely repudiation (meaning repudiation prior to the fulfillment of the
purpose), then the law will allow persons to recover what he has paid.

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FORM A note or memorandum is not necessary for the contract of partition. A

GENERAL RULE: Form is not required in consensual contracts: if the
essential requisites of the contracts are present, they are binding
regardless of whatever form they may have been entered into.
EXCEPTIONS:
1. when the law requires that a contract be in certain form for its
validity
2. when the law requires that a contract be in certain form for its
enforceability
Examples the law requires a certain form, either for validity or
enforceability:
writing is not constitutive of its validity but merely evidentiary
Tan v. Lim
Lim argues that since there was no note, memorandum or any deed of
partition which evidenced the oral agreement of co-owners, he owns the
entire property.
Was the oral partition of the land valid and binding? Contracts are
obligatory in whatever form. Both the lease contract and deed of sale
provided a definite portion of the land (1/18th share, southeastern
portion), which indicated that there was a partition. Moreover, there was a
judicial admission by flora et al that there was indeed a partition

Formal Contracts Form for Convenience

● donation of real property which requires a public instrument for its
validity.
● donation of personal property the value of which is more than five
thousand pesos
● sale or transfer of large cattle requires registration and a
certificate of transfer.
● negotiable instruments
● sale of a piece of land through an agent requires the authority of
the agent to be in writing.
Examples Of Agreements Which Must Be In Writing To Be Enforced:
● an agreement that by its terms is not to be performed within a
year from the making thereof
● a special promise to answer for the debt, default, or miscarriage
of another.
● an agreement made in consideration of marriage, other than a
mutual promise to marry.
Article 1357. If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form, once
the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract. (1279a)
Article 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or
of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which
has for its object an act appearing or which should appear in a
public document, or should prejudice a third person;

Another Example: Case for Partition (4) The cession of actions or rights proceeding from an act
appearing in a public document.

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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)
Article 1357-58 are couched in mandatory terms. However, even if the
contract is not in writing, it does not automatically mean that the contract
is void. The form (public document) is only for convenience, not validity or
enforceability.
Atty. SBM: “Must appear in a public document” - must be read in relation
to Article 1357. It says there that “once the contract has been perfected”.
So this presupposes a valid contract already. So, the right to compel to
reduce into a public instrument can be exercised simultaneously with the
action upon the contract.
Here the law requires that it must appear in a public document, but not
necessarily mean that it will become invalid.
Shaffer vs. Palma
Shaffer filed a complaint against the defendant Sps. Palma to recover
sums of money and shares of stock. Lower court ruled that the action is
based on an agreement which involves the amount of P118,000.00 and
that unless the agreement is in writing it is unenforceable.
Was the agreement involving 118k pesos unenforceable for not being in
writing? NO. The contract is valid even if it is not in writing because
contracts are binding upon the parties in whatever form. It is true that
article 1358 of the civil code provides that contracts involving more than
P500.00 must appear in writing but such requirement is necessary only
for convenience, and not for their validity or enforceability.
Atty. SBM: Article 1358 is for convenience, not for validity or
unenforceability.
Dauden vs. Delos Angeles (Illustrative case)
Petitioner motion picture actress filed a complaint against herein private
respondents to recover P14k representing a balance allegedly due said
petitioner for her services. The respondent court ordered the complaint
dismissed, mainly because the "claim of plaintiff was not evidenced by
any written document, either public or private" and the complaint "was
defective on its face" for violating articles 1356 and 1358 of the Civil
Code. The court held that the contract (compensation for services) may
appear to be included in article 1358, last clause all other contracts where
the amount involved exceeds five hundred pesos must appear in writing,
even a private one."
However, article 1357 clearly indicates that contracts covered by article
1358 are binding and enforceable by action or suit despite the absence of
writing. The law must further prescribe that without the writing the contract
is not valid or not enforceable by action.
Atty SBM: In both the cases, the judges dismissed the cases and the
petitioners were not able to enforce. The judges here were wrong. The
intent of the law must be very clear to say “for its validity, this contract
must be in writing; for its enforceability, the contract must be in writing”. In
1358, it only says that it must be in a public document.
If the parties has already a perfected contract and a party wants to
compel the other party in a public document. Otherwise if the legislative
intent was to make 1358 as a requirement for the validity of those
contracts, it would clearly stated so.
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REFORMATION intention of the parties is mistake, fraud, inequitable conduct, or

Reformation
A remedy in equity by means of which a written instrument is made or
construed to express or confirm the real intention of the parties when
some error or mistake is committed.
accident.
4. The said intervening mistake, fraud, inequitable conduct, or
accident did not prevent the meeting of the minds of the parties.
Atty. SBM: If the mistake, fraud, inequitable conduct, or accident did
prevent the meeting of the minds, then it would be a voidable contract.

The finality of a written instrument is tempered to mitigate the effects of Mistake in Reformation
mistake, fraud, inequitable conduct, or accident. Article 1361. When a mutual mistake of the parties causes the failure
of the instrument to disclose their real agreement, said instrument may
A new contract is not created since the court merely orders that the be reformed.
instrument be reformed to express the true agreement of the parties.
Article 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the instrument does not
Atty. SBM: It’s not called Reformation of contracts but rather it is
show their true intention, the former may ask for the reformation of the
reformation of instruments. It is an equitable remedy because the written
instrument.
instrument does not reflect or does not express the real intention of the
parties. This is when the instrument does not express the minds of the
Article 1363. When one party was mistaken and the other knew or
parties. We are not creating a new contract but trying to reform to conform
believed that the instrument did not state their real agreement, but
to what was agreed upon by the parties. Reformation is an equitable
concealed that fact from the former, the instrument may be reformed.
remedy to reform the instrument, to reflect what is agreed upon in the
contract based on the intention of the parties.
Reformation Annulment (Voidable)
Article 1371. in order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally There is meeting of the minds There is no meeting of the minds
considered. between the parties as to the
object, cause of the contract

Atty. SBM: If you would memorize an article in reformation, it would be The instrument failed to express The meeting of the minds was
this one. We can't read the mind of the parties, but we can look at their the true intention of the parties prevented by reason of mistake,
contemporaneous and subsequent acts. due to mistake, fraud, inequitable fraud, inequitable conduct, or
conduct, or accident accident perpetrated by one party
Requisites of Action for Reformation:
1. There is a contract agreed upon where there is a meeting of the The purpose is to establish the The purpose is to nullify the
minds. true agreement of the parties contract
2. The real intention of the parties was not expressed in the
instrument.
3. The reason for the failure of the instrument to express the real

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Grounds
1. Mutual mistake
a. One part acted fraudulently, or
b. Concealment of facts
2. One party is mistaken
a. One party mistaken, and
b. The other acted fraudulently or inequitably
c. In such way the instrument does not show true intention
3. One party concealed
a. One party mistaken,
b. The other knew or believed that instrument did not state
their real agreement
c. The latter concealed that fact from the former
Atilano v. Atilano
Eulogio Atilano I executed a deed of sale covering Lot E in favor of his
brother Eulogio Atilano II while retaining for himself the only remaining
portion of the land, Lot A. When Eulogio Atilano II became a widower,
they had the land resurveyed so that it could properly be subdivided; and
it was then discovered that the land they were actually occupying on the
strength of the deed of sale executed in 1920 was lot a and not Lot E
while the land which remained in the possession of the vendor, Eulogio
Atilano I was lot e and instead of a. The heirs of Eulogio Atilano II
(plaintiffs) filed an action and demanded the return of possession of Lot E,
but the defendants refused to accept the exchange. The Court finds that
the object thereof, as intended and understood by the parties, was that
specific portion where the vendee was then already residing (Lot A); and
that its designation as Lot E in the deed of sale was simple mistake in the
drafting of the document, and thus such mistake did not vitiate the
consent of the parties or affect the validity and binding effect of the
contract between them.
Sarming v. Dy
Parties knew the location of Lot 4163 but not its OCT number. Believing
that it was the correct title, a lawyer prepared the settlement of the estate
and sale. Two years after possession, petitioner discovered that what was
designated in the Deed was the wrong lot. She demanded for reformation
of the Deed of Sale, however the other part did not turn over the title of
Lot 4163. Can there be reformation by reason of mistake as to the correct
lot number? All of the requisites for an action for reformation to prosper
are present in this case. There was a meeting of the minds of the parties,
but the deed did not express the true intention of the parties due to the
mistake in the designation of the lot subject of the deed. The subsequent
and contemporaneous acts of the parties such as Alejandra occupying
Lot 4163, and that Silveria did not object to this, clearly indicated that
what was intended to be sold was Lot 4163 and not Lot 5734.
Reformation Prohibited
1. Being acts of liberality, courts should not interfere in such
unconditional simple donations. Since the donee has not paid
anything, it is inappropriate for him to sue the donor to reform the
deed which the latter has executed unilaterally.
2. Wills are not allowed to be reformed since it is a personal act
which can be revoked anytime by the testator.
● Exception: When there are imperfect or erroneous
descriptions of persons or property, the mistakes and
omissions must be corrected (by the testator)
3. Void agreements? Waste of time.
Article 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
Bars of Reformation
● An action filed to enforce the instrument bars subsequent action
of reformation.
● Prescriptive period: Ten (10) years.
● An action for reformation of an instrument, may be brought under
Rule 63, Declaratory Relief and similar remedies. (Art. 1369)
Who has jurisdiction over Reformation cases?
● RTC
Who can initiate an Action for Reformation?
1. If the mistake is mutual – Either party or his successor in interest
may file the case for reformation.
2. If the mistake is only on one side – The injured party or his heirs
or assigns may file the action.
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INTERPRETATION
Article 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)
Atty. SBM: Similar to the rules in Statutory Construction. When the law is
clear, no need to interpret. Same as with contracts.
Two Rules:
1. Terms of contract are clear – literal meaning of the stipulations
2. The words do not reflect the intention of parties – Intention
prevails
Determination of Intention
● Conduct of the parties as it appears on record and by a review of
the circumstances.
● The reasons which induced the parties to enter the contract and
the circumstances surrounding the execution of the contract.
● The rule favors the conservation of a right, not its impairment,
loss, abandonment, or forfeiture.
● May be deduced from the stipulation of facts parties made in
court, or a supplemental agreement made by the parties.
● When the parties themselves placed an interpretation to the terms
used in their contract.
● Acts done during the performance of the contract are admissible
in evidence upon the question of the meaning of the terms used.
Rules if Contract is Not Clear
● Specific over general
● Effectual over ineffectual
● As a whole instead of in part
● In keeping with nature
● Usage and custom
● Construed against the one who caused obscurity
Article 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)
Article 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)
Article 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)
Article 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)
Article 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)
Article 1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity. (1288)
Rule if Intention Cannot be Resolved
Article 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)
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.
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Doubts on the Incidental Circumstances

1. Whether a contract is a sale or mortgage is considered an
incidental circumstance.
2. If doubts are on the principal object of the contract, the contract
shall be void.

If the contract is gratuitous, the least transmission of rights and interests

shall prevail.

Example: If there is doubt whether the gratuitous delivery of a personal

thing to someone constitutes a commodatum or donation, it shall be
construed as commodatum because this will involve lesser transmission
of rights. In a case whether a mortgage is onerous or gratuitous, it is
interpreted as gratuitous.

If the contract is onerous, the doubt shall be construed in favor of the

greatest reciprocity of interests.

Example: If there is doubt as to the nature of a mortgage contract, it is

presumed that the debtor assumed liability which permits the greatest
reciprocity of rights and interests. The document should not be
considered as a pacto de retro sale.

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